Security Interest Registered With CERSAI Would Get Priority Over Dues of Government | HC

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  • Last Updated on 25 September, 2023

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CERSAI

Case Details: Ronak Industries v. Assistant Commissioner Central Excise & Customs - [2023] 154 taxmann.com 110 (HC-Bombay)

Judiciary and Counsel Details

    • B.P. Colabawalla & M.M. Sathaye, JJ.
    • Ms Savita Nangare for the Petitioner.
    • J.B. Mishra, Adv. Anant Bamne & H.S. Venegaonkar, Adv. for the Respondent.

Facts of the Case

In the instant case, the secured asset was mortgaged with respondent No. 3 bank (i.e. R3) by ‘P’ as a guarantor for the facilities granted to the borrower. Respondent No. 3 Bank also registered its security interest over the secured asset with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).

However, the dues of R3 were not paid and, therefore, to recover dues, R3 sold the secured asset to the petitioner under the provisions of the SARFAESI Act, 2002 for valuable consideration and issued a sale certificate in favour of the petitioner.

However, the Sub-Registrar refused to register the said sale certificate on the ground that respondent no. 2 (i.e. Asstt. Comm. CGST & Central Excise) had directed the Registrar not to register any transaction in respect of the secured assets as an amount towards GST duty, penalty and interest was due to be recovered from the borrower.

The petitioner had been unable to get the sale certificate issued in its favour registered as required by law. Thereafter, the petitioner filed an instant writ petition seeking a direction for the removal of such lien/charges/encumbrance/mutation entry and to direct the Registrar to record/register the sale certificate/sale deed issued to the petitioner, as free from any encumbrances.

High Court Held

The High Court held that when the security interest of the secured creditor was registered with the CERSAI, then the secured creditor would get priority over the dues of the Govt.

Further, the High Court held that when the excise department had not registered their claim/attachment order with the CERSAI, they could not claim priority over the dues of R3.

Therefore, lien/charges/encumbrance/mutation entry, if any, registered by the excise department could not be allowed to stand and the Registrar was to be directed to record/register the sale certificate/sale deed under the provisions of the Registration Act, 1908 as free from any encumbrances of the excise department.

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