2026-VIL-1134-MAD-CU
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CUSTOMS High Court Cases

Customs - Removal of known encumbrance from encumbrance certificate after sale - Rule 9(6) to 9(10) of the Security Interest (Enforcement) Rules, 2002 - Sale certificate was issued by the Authorised Officer of the Appellant bank disclosing the known encumbrances, including the attachment effected by the Central Excise Department, the sale was on "as is where is" basis with the purchaser to clear statutory liability, and neither the bank nor the auction purchaser discharged the dues of the Department - Appellant bank sought a mandamus to remove the attachment from the encumbrance certificate to enable registration of the sale certificate, and the Single Judge dismissed the writ petition - Whether the Appellant bank has a legal right to demand the registration department to remove the encumbrances from the encumbrance certificate without settling the dues payable under those encumbrances, when the sale certificate discloses the known encumbrances - HELD - The sale notice and sale certificate under Rule 9 are based on the principle of caveat venditor, requiring the bank to disclose known encumbrances, while the auction purchaser must also be vigilant, and ignorance of Rule 9(7) does not excuse the purchaser from depositing the amount payable towards the dues of the known encumbrances - Rule 9(6) to 9(10) are mandatory and have to be strictly adhered to, and the sale to the purchaser is only subject to the known encumbrances disclosed in the sale certificate. The property can be delivered free from encumbrances only on deposit of money under Rule 9(7). Directing the registration department to remove the encumbrance would indirectly set aside the disclosures made in the sale notice and sale certificate and amount to achieving what could not be done directly, and the purchaser having participated in the auction with eyes wide open cannot seek removal without discharging the dues. There is no estoppel against law on the part of the Department - The primary issue is held against the Appellant and the auction purchaser, the writ appeal is dismissed - Maintainability of writ petition by bank after issue of sale certificate - Functus officio - Sale certificate was issued in favour of the auction purchaser and registered by the Sub Registrar, and the Department contended that the Appellant bank had become functus officio and the writ petition was not maintainable - Whether the Appellant bank has become functus officio after issuance and registration of the sale certificate and whether the writ petition filed by the bank is maintainable - HELD - The bank becomes functus officio only after the debt payable to it is fully recovered and its statutory right to hold or further enforce security against the remaining properties or assets of the borrower completely ceases. The bank had not recovered its entire dues and the proceedings before the Debts Recovery Tribunal for recovery of the outstanding dues were still pending - The contention that the bank has become functus officio and is not entitled to file the writ petition is untenable at this stage - Priority of secured creditor over Government dues - Section 26E and Section 35 of the SARFAESI Act, Section 31B of the Recovery of Debts and Bankruptcy Act, Section 142A of the Customs Act and Section 11E of the Central Excise Act - Appellant bank and auction purchaser relied on the priority of secured creditors over Crown dues to seek removal of the Department's encumbrance - Whether Section 26E, Section 35 of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act grant priority to secured creditors over government dues, and whether the statutory first charge under Section 11E of the Central Excise Act, pari materia with Section 142A of the Customs Act, is subject to such priority - HELD - The law is well settled that registered secured creditors have priority over Central, State and local government dues, including taxes and revenues, and the dues of the bank rank ahead of the dues of the Department. However, Section 26E of the SARFAESI Act only states that the secured creditor's debt must be paid in priority after registering the security interest, and Section 31B of the Recovery of Debts and Bankruptcy Act only confers overriding powers to realise secured debts ahead of government dues. Neither provision overrides Rule 9(6) to 9(10) of the Security Interest (Enforcement) Rules, which are mandatory, and no legal authority was produced to show otherwise. These provisions cannot be interpreted in isolation without taking into consideration Rule 9, and have no bearing where the purchaser has not deposited the dues of the known encumbrances as required by Rule 9(7) - Priority of the secured creditor does not entitle the bank or the purchaser to a direction for removal of the known encumbrance without compliance with Rule 9 - Attachment by Department, whether an encumbrance - Section 100 of the Transfer of Property Act, 1882 - Appellant bank and auction purchaser contended that the attachment reflected in the encumbrance certificate is different from the encumbrance referred to in the Security Interest (Enforcement) Rules, while the Department contended there is no difference - Whether attachment effected by the Department over the property is an encumbrance - HELD - An encumbrance places a burden or claim on the property by operation of law or a court order, which prevents the owner from selling, transferring or creating further mortgages or charges, and appears on the encumbrance certificate giving notice to the public and potential buyer that the title is restricted. The attachment reflected in the encumbrance certificate prevents the owner from selling, transferring or creating further mortgages or charges, and by virtue of Section 100 of the Transfer of Property Act the right of alienation is restricted. The attachment satisfies the ingredients required for treating it as an encumbrance - The purchaser, having purchased the property knowing about the encumbrance, cannot escape liability to pay the dues of the Department under Rule 9(7), and the contention that the attachment is not an encumbrance is rejected.
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