Banks registered with CERSAI have priority over DCST for SARFAESI Act enforcement proceeds: Bombay HC

In a new choice, the Bombay High Court has resolved a debate between a purchaser and the public authority over a property's title. The key takeaway? A lender's registration with a central registry takes priority over government claims in certain situations.

Here's the breakdown:

* Mr. Chavan purchased an Apartment in Mumbai through an Auction held under a regulation permitting banks to recuperate credits (SARFAESI Act).

* The government's sales tax department (DCST) claimed the property to recover unpaid taxes from the previous owner.

The court ruled in favor of Mr. Chavan, highlighting two key points:

1. CERSAI Registration Wins: The lender bank had registered its claim on the property with a central registry (CERSAI) before the government attached the property for taxes. This registration under the SARFAESI Act gave the lender priority.

2. Priority Shifts with Loan Sale: The lender then sold the loan (including the claim on the property) to an asset reconstruction company (Encore ARC). This sale transferred the priority to Encore ARC.

The Result:

* Mr. Chavan gets a clear title to the property free from the government's claim.

* The government can still claim any remaining sale proceeds after Encore ARC recovers its dues.

What this means:

This case clarifies that timely registration with CERSAI strengthens a lender's position when recovering loans through the SARFAESI Act. It also highlights that such priority can be transferred when loans are sold.