ASSETS CARE AND RECONSTRUCTION ENTERPRISE LIMITED vs KARNATAKA REAL ESTATE REGULATORY AUTHORITY WP 7844 of 2024
Facts:
1) Petitioner is a Company incorporated under the Companies Act, 1956 and is an Asset Reconstruction Company established under SARFAESI. Respondents 7, 9, and 10 are also Companies in the business of development of real estate projects across India. Respondent No.7 in particular is a borrower who borrows certain finances from M/s Piramal Finance Limited in furtherance of execution of an agreement on 26-06-2017 for a sum of `360/- crores.
2) A mortgage is created on 27-06-2017 by deposit of title deeds with M/s Piramal Finance Limited in respect of the petition schedule properties. On 03-07-2020, it appears that another loan agreement is executed which is a second loan agreement between the parties for an additional sum of `60/- lakhs. On 12-01-2023, on the score that the 7th respondent has grossly defaulted in payment, recall notice is issued by M/s Piramal Finance Limited to the 7th respondent in respect of the loans advanced by it.
3) On 20-02-2024, a public advertisement is issued regarding potential purchase by a third party of various lands owned by the Ozone Group, on the properties mortgaged to the petitioner, with a view to adjust the sale proceeds against the debts owed by Ozone group, the 7th respondent. About 3 days later, the 1st respondent communicates to respondents 2 to 6/the State Government to attach petition schedule properties. The petitioner being aggrieved by the said communication to respondents 2 to 6 by the 1st respondent/Karnataka Real Estate Regulatory Authority is before this Court in the subject petition.
Issue: who would have first charge over the properties, whether on selling them as arrears of land revenue by the State or the petitioner who is the secured creditor?
Arguments:
Petitioner:
1) Counsel submitted that On 20-02-2024, a public advertisement is issued regarding potential purchase by a third party of various lands owned by the Ozone Group, on the properties mortgaged to the petitioner, with a view to adjust the sale proceeds against the debts owed by Ozone group, the 7th respondent. About 3 days later, the 1st respondent communicates to respondents 2 to 6/the State Government to attach petition schedule properties. The petitioner being aggrieved by the said communication to respondents 2 to 6 by the 1st respondent/Karnataka Real Estate Regulatory Authority is before this Court in the subject petition.
Respondent:
1) Counsel submitted that 7th respondent has grossly defaulted in giving loans to home buyers after collecting the entire amount from it and the orders of RERA are for refund of the amount along with interest. Since refund has not come about it has to be recovered as arrears of land revenue. He would submit that no fault can be found with the action of the 1st respondent.
Decision: Hon’ble HC partly allowed the petition.
Rationale:
1) Hon’ble HC held that the manner in which the amount is to be recovered under the Land Revenue Act is a general law and the charge 20 created under the SARFAESI Act has overriding effect on such general law in terms of Sections 26E and 35 of the SARFAESI Act.
2) It held that he communication seeking to sell the petition schedule property and recover the compensation or interest awarded by RERA, as arrears of land revenue, cannot take away the right of a secured creditor, presently the petitioner, who is an assignee from the hands of the original secured creditor.
3) It held that Section 5 commences with a non-obstante clause reading notwithstanding anything contained in any agreement or any law in force, any asset reconstruction company may acquire financial assets of any Bank or financial institution. Therefore, the petitioner coming into the shoes of the original secured creditor is statutorily recognized and as such, the first charge that is created is in favour of the petitioner, at a point in time when neither the home buyers were present nor the applications were before the RERA. It was at the beginning. In law, the petitioner’s debt has the first charge over the petition schedule properties. Therefore, it is made clear that the impugned communication insofar as it enlists the petition schedule properties is unenforceable against the petitioner, qua the assignment to it.
Order:
