2019 (5) TMI 645 - HC - Indian Laws

Discharge of liability of a secured debt - precedence over the liability of a crown debt or any other debt - Whether the Notification dated 22.06.2015 issued under the MPID Act, which is a State Legislation, could override the provisions of SARFAESI Act, which is a Central Act and under the provisions of the said Act, the property in question was auctioned? HELD THAT - A bare reading of Article 254 of the Constitution of India leaves no manner of doubt that parliamentary supremacy in matters under List III of the Seventh Schedule of the Constitution has to be maintained. In case of a conflict between Centre and a State on a subject matter, which could have been legislated upon by both, without a doubt the Central Legislation would hold supremacy. Uniform application of law across the country is undoubtedly the basic feature of Indian jurisprudence and in case there is a conflict between a Central and a State Legislation and the State Legislation being repugnant to the Central Legislation, the former would be inoperative. The Apex Court in its judgment titled as UCO Bank and anr. vs. Dipak Debbarma and ors., 2017 (1) TMI 742 - SUPREME COURT has held that in case of repugnancy or inconsistency between the provisions of Central and State enactment, the Central law would prevail. The proceedings under the SARFAESI Act would, without a doubt, hold primacy over the MPID Act. Whether the recovery of a secured debt would take precedence over a crown debt - HELD THAT - The Supreme Court, time and again in its various pronouncements, has reiterated that the right of a secured creditor to recover its debts, will always be a prior right, even over the right of recovery of a crown debt or any other debt - Reliance placed in the case of M/s Rana Girders Ltd. vs. Union of India 2013 (8) TMI 540 - SUPREME COURT - thus it is evident that debt which is secured under the provisions of a Statute becomes the first charge over the property in question and has to give way to a crown debt, which is in the nature of an unsecured debt. A reading of Section 31-B of Recovery of Debts and Bankruptcy Act, 1993, which starts with a non-obstante clause, makes it amply clear that the right of a secured creditor to realise a secured debt shall have priority over all debts and government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority - It cannot be over emphasised that the property in question was auctioned by the respondent-PNB Housing Finance Ltd. to recover its secured debts and the attachment order issued by Government of Maharashtra must yield to the rights of the respondent-bank. Therefore, the auction proceedings must be taken to their logical end and there is no reason why the registration of the Sale Certificate be refused to the auction purchasers i.e. the petitioners. Territorial jurisdiction of this Court to entertain the instant petition - HELD THAT - Section 20 of Civil Procedure Code which deals with the issue of jurisdiction of a Court lays down in no uncertain terms that a Court within the jurisdiction of which the cause of action wholly or in part arises or where the defendant resides or carries on business shall have the jurisdiction to try a matter. A writ petition is entertainable in a High Court within the jurisdiction of which even a part of the cause of action may have arisen. The property in question is located at Chandigarh, auction of the property was held in Chandigarh and importantly, the branch of Punjab National Bank from which the loan was raised by the petitioners was also located at Chandigarh. Thus, there is no doubt that this Court has the jurisdiction to hear and decide the instant lis because not only the cause of action has arisen within the jurisdiction of this Court but as already noticed above, the property in question is also located within the territorial jurisdiction of this Court. Petition allowed.

Summary

Issues Involved:

1. Whether the Notification dated 22.06.2015 issued under the MPID Act, a State Legislation, could override the provisions of the SARFAESI Act, a Central Act.
2. Whether the recovery of a secured debt takes precedence over a crown debt.
3. Territorial jurisdiction of the High Court to entertain the writ petition.

Issue-wise Detailed Analysis:

1. Override of MPID Act by SARFAESI Act:

The primary issue was whether the Notification dated 22.06.2015 under the MPID Act could override the SARFAESI Act. The court referred to Article 254 of the Constitution of India, which states that in case of repugnancy between Central and State legislation, the Central law prevails. The court cited the Supreme Court judgment in UCO Bank vs. Dipak Debbarma, which reinforced that Central legislation holds supremacy over State legislation in cases of conflict. The court concluded that the SARFAESI Act, being Central legislation, would have precedence over the MPID Act, a State legislation.

2. Precedence of Secured Debt over Crown Debt:

The next issue was whether the recovery of a secured debt would take precedence over a crown debt. The court noted that the Supreme Court had consistently held that a secured creditor's right to recover debts takes precedence over crown debts. The court cited judgments in Dena Bank vs. Bhikhabhai Prabhudas Parekh, Union of India vs. SICOM Ltd., and M/s Rana Girders Ltd. vs. Union of India, which established that secured debts have priority over unsecured crown debts. The court also referred to Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993, which states that secured creditors' rights to realize secured debts have priority over all other debts, including government dues.

3. Territorial Jurisdiction:

The court examined whether it had the territorial jurisdiction to entertain the writ petition. It referred to Section 20 of the Civil Procedure Code and Clause (2) of Article 226 of the Constitution of India, which allow a High Court to entertain a writ petition if the cause of action arises wholly or in part within its jurisdiction. The court noted that the property in question was located in Chandigarh, the auction was held in Chandigarh, and the branch of Punjab National Bank involved was also in Chandigarh. Therefore, the court concluded that it had the jurisdiction to hear the case.

Conclusion:

The court allowed the writ petitions, quashed the orders dated 14.03.2018 and 16.04.2018, and directed the Sub Registrar, UT, Chandigarh to register the Sale Certificate in respect of the property in question. The judgment emphasized the precedence of the SARFAESI Act over the MPID Act and the priority of secured debts over crown debts.