2013 (5) TMI 325 - HC - Customs

SARFAESI Proceedings - 3rd respondent had imported certain machineries and according to the 1st respondent, the export obligations were not fulfilled - whether pending adjudication of the disputed issue of first charge, Bank should be permitted to proceed with the sale of the mortgaged assets as directed by the DRT - If the Bank is permitted to proceed with the sale with a direction to keep the required amount out of the sale proceeds, in an interest bearing account, pending adjudication will not prejudice the interest of respondents 1 and 2. Petitioner/Bank will be at liberty to proceed with the sale of the secured assets of the 3rd respondent, Respondents 1 and 2 will intimate to the Bank the amount due to it from the 3rd respondent within three weeks from today & petitioner/Bank shall keep the amount stated to be due to respondents 1 and 2 in an interest bearing account, which shall be pending adjudication of the question of first charge by the DRT Once the sale materializes and the amount is kept in deposit as ordered above, respondents 1 and 2 shall debond the premises so that, the petitioner/Bank can hand over possession thereof to the successful purchaser.

Summary

Issues:
1. Dispute over first charge on property between Bank and respondents under Customs Act.
2. Bank's request to proceed with sale of mortgaged assets pending resolution of first charge issue.

Analysis:

Issue 1: Dispute over first charge on property between Bank and respondents under Customs Act
The case involved a dispute between the Bank, as the petitioner, and respondents 1, 2, and 4 regarding the first charge over certain properties mortgaged by the 3rd respondent. The Bank contended that due to continued bonding of the properties, even if the sale of the mortgaged assets were successful, they would not be able to hand over possession to the buyer. On the other hand, respondents 1, 2, and 4 argued that under the statutory provisions of the Customs Act, they had the right to first charge on the property in question. The matter of first charge was pending consideration before the Debt Recovery Tribunal (DRT) under S.A.124/12. The High Court acknowledged that the DRT should adjudicate on this issue, and the only question for the court was whether the Bank should be allowed to proceed with the sale of the mortgaged assets while the first charge issue was unresolved.

Issue 2: Bank's request to proceed with sale of mortgaged assets pending resolution of first charge issue
After hearing arguments from both sides, the Court opined that allowing the Bank to proceed with the sale, while keeping the required amount from the sale proceeds in an interest-bearing account pending the DRT's decision on the first charge issue, would not prejudice the interests of respondents 1 and 2. Consequently, the Court issued directions in favor of the Bank, permitting them to proceed with the sale of the secured assets of the 3rd respondent. Respondents 1 and 2 were instructed to inform the Bank of the amount due from the 3rd respondent within three weeks. The Bank was then directed to keep this amount in an interest-bearing account until the DRT resolved the first charge matter. Once the sale was completed, respondents 1 and 2 were required to debond the premises so that the Bank could transfer possession to the buyer. Any remaining balance from the sale proceeds was to be appropriated by the Bank towards the 3rd respondent's liability. Importantly, these directions were given without prejudice to the ongoing contentions in S.A.124/12.

This comprehensive analysis of the judgment highlights the key issues, arguments presented by both parties, and the Court's decision along with the detailed directions provided for the resolution of the dispute.