Authority: High Court of Judicature at Madras

Order Date: 30-09-2026

Case Overview

  • Parties: Appellant – Indian Overseas Bank (Asset Recovery Management Branch); Respondents – 1) Assistant Commissioner of Central Excise and Service Tax, Salem; 2) Hi‑Tech Minerals Industries Covai Pvt. Ltd. (in liquidation); 3) Sub Registrar, Omalur, Salem District; 4) SKM Animal Feeds and Foods India Private Limited (auction purchaser).
  • Nature of Proceeding: Writ Appeal (WA No. 3585 of 2023) challenging the order dated 05‑09‑2023 of the learned Single Judge which dismissed the writ petition filed by the bank seeking a mandamus directing the Sub Registrar to remove an attachment entry (encumbrance) dated 03‑12‑2014.
  • Background: The bank, under the SARFAESI Act and Security Interest (Enforcement) Rules, 2002, issued a sale notice on 09‑03‑2022, confirmed sale on 04‑04‑2022, and issued a sale certificate on 23‑06‑2022 in favour of the fourth respondent. The sale certificate disclosed known encumbrances, including an attachment in favour of the first respondent (Central Excise Department). The auction purchaser was aware of these encumbrances.
  • Primary Issue: Whether, after issuance of a sale certificate that discloses known encumbrances, the bank can legally demand the registration department to delete those encumbrances from the encumbrance certificate without the purchaser first settling the dues payable to the respective creditors.
  • Ancillary Issues:

a) Whether the bank becomes functus officio after issuance and registration of the sale certificate.

b) Whether Sections 26E of the SARFAESI Act, 31‑B of the Recovery of Debts and Bankruptcy Act, and Section 35 of the SARFAESI Act give secured creditors priority over government dues.

c) Whether the statutory first charge under the (now repealed) Central Excise Act is subject to the secured‑creditor priority.

d) Whether the learned Single Judge’s order conflicts with earlier decisions of this Court and the Supreme Court.

  • Counsel Submissions: The bank’s counsel (Mr. M.L. Ganesh) argued that the bank’s secured‑creditor priority under the cited statutes overrides the need to remove encumbrances. The fourth respondent’s counsel (Mr. Sharath Chandran) contended that the sale certificate, being registered, obliges the bank to seek removal of the encumbrance and that the purchaser need not file a separate appeal. The first respondent’s counsel (Mr. K. Umesh Rao) maintained that the writ is premature, the bank is functus officio, and the purchaser must discharge the statutory dues before any removal.
  • Legal Provisions Cited: SARFAESI Act (Sections 26E, 35), Recovery of Debts and Bankruptcy Act (Section 31‑B), Central Excise Act (Section 11‑E, now repealed), Customs Act (Section 142‑A), Transfer of Property Act (Section 100), and Rules 9(6)‑9(10) of the Security Interest (Enforcement) Rules, 2002.
  • Case Law Referenced:
  • UTI Bank Ltd. v. Deputy Commissioner of Central Excise (AIR 2007 Mad 118).
  • Punjab National Bank v. Union of India (2022 7 SCC 260).
  • Dena Bank v. Bhikhabhai Prabhudas Parekh (2000 5 SCC 694).
  • Assistant Commissioner of Customs (Bonds) v. M/s. Annam Steels Pvt. Ltd. (W.A. 3249 of 2019, 27‑06‑2022).
  • Additional authorities cited by counsel include judgments of the Gujarat High Court, Bombay High Court, Andhra Pradesh High Court, and others.

Final Outcome

  • The Court held that the bank cannot direct the Sub Registrar to delete the attachment encumbrance without the fourth respondent first depositing the amount required to discharge the known encumbrances as mandated by Rule 9(7) of the Security Interest (Enforcement) Rules.
  • The mandatory nature of Rules 9(6)‑9(10) was affirmed; they are not displaced by the priority provisions of Sections 26E, 31‑B, or 35.
  • The bank was not deemed functus officio because recovery proceedings before the Debt Recovery Tribunal remain pending.
  • Consequently, the writ appeal is dismissed, the connected CMPs (29397 of 2023 & 14687 of 2025) are closed, and no costs are awarded.

Topics: Secured Lending, SARFAESI Act, Encumbrance Removal