The Court said that the SARFAESI Act creates a prioritization and says that the debts of the secured creditor are to be prioritised over any dues to the government or local authority.
The Delhi High Court recently held that proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) remain unaffected by orders passed under the Securities and Exchange Board of India Act, 1992 (SEBI Act).
Justice Purushaindra Kumar Kaurav said that the statement of objects and purpose of the SARFAESI Act make it clear that its provisions create a prioritization and that the debts of the secured creditor are to be prioritised over any dues to the government or any local authority.
“The insertion of Section 26E [in SARFAESI Act was, therefore, for a broader purpose, it being to protect our banks from the force of the State machinery that had hitherto interfered with the rights of the banks to realise their dues….it may be concluded that an interpretation of Section 35 and Section 37 of the SARFAESI Act, 2002 would reveal that the proceedings under the SARFAESI Act, 2002 are to be treated as a carve out to, and remain unaffected by, the orders passed under the SEBI Act, 1992,” the judgment stated.
The Court was dealing with a plea filed by ICICI Bank seeking a declaration that the orders passed by the Whole Time Members (WTMs) of SEBI on May 29, 2018 and December 14, 2018 are not applicable to it, and that these orders do not prevent the bank from proceeding further under the provisions of SARFAESI Act to sell a mortgaged property in Gurugram.
ICICI Bank had taken over the property from the borrowers after they failed to repay the outstanding amount. However, the SEBI orders restrained various people, including the owners, from accessing the securities market. The order also restrained them from alienating any movable or immovable assets.
SEBI also sent two emails to the bank directing it to comply with its orders and not to proceed against the property in question.
After considering the case, the Court said that the action of ICICI is wholly unconnected with the subject-matter of the SEBI orders, and the bank cannot be prevented from proceeding under the SARFAESI Act. It was found that the SEBI orders were not of such a nature that the bank is prevented from alienating the assets of the mortgaged property in question.
The Bench said that though SEBI has powers to pass directions to a bank, even if they are not registered with SEBI, the “precise and specific wording of the directions is not of such a nature that the petitioner bank is prevented from alienating the assets”.
“In the facts of the instant case, SEBI does have the power to direct the petitioner bank, however, that power must be exercised with due caution. It must not be exercised so as to curtail the effect of other laws.”
It thus found that the SEBI orders issued through email to the bank were erroneous and wholly without jurisdiction, and disposed of the plea.
