1

2024:APHC:21084

*HIGH COURT OF ANDHRA PRADESH :: AMARAVATI

+WRIT PETITION No.21029 of 2017

Between:

# Canara Bank, a Banking Company (a Publi Sector Bank)

Constituted under the Banking Companies (Acquisiion and Transfer of Undertakings)
Act – Act V of 1970) hving its Head Office at Bangalore and branches amongst other
places at 3-5-4/3, Bagh Amir, Vivekanand Nagar, Kukatpally, Hyderabad-500072
rep. by its Chief Manager Shri Surya Narayanan Mohanty, S/o. Rama Chandra
Mohanty, aged 54 years.
… Petitioner

And

$ The State of Andhra Pradesh, Department of Home

(General). Rep. by its Principal Secretary

A.P. Secretariat, Hyderabad and 3 others.

…. Respondents

JUDGMENT PRONOUNCED ON 18.06.2024

THE HON’BLE DR.JUSTICE K. MANMADHA RAO

1. Whether Reporters of Local newspapers

may be allowed to see the Judgments?
- Yes -

2. Whether the copies of judgment may be marked to Law

Reporters/Journals
- Yes -

3. Whether Their Ladyship/Lordship wish to see the fair

copy of the Judgment?
- Yes -

___________________________________

DR.JUSTICE K. MANMADHA RAO

 2
2024:APHC:21084

* THE HON’BLE DR.JUSTICE K. MANMADHA RAO

+WRIT PETITION No.21029 of 2017

% 18.06.2024

Between:

# Canara Bank, a Banking Company (a Publi Sector Bank)

Constituted under the Banking Companies (Acquisiion and Transfer of Undertakings)
Act – Act V of 1970) hving its Head Office at Bangalore and branches amongst other
places at 3-5-4/3, Bagh Amir, Vivekanand Nagar, Kukatpally, Hyderabad-500072
rep. by its Chief Manager Shri Surya Narayanan Mohanty, S/o. Rama Chandra
Mohanty, aged 54 years.
… Petitioner

And

$ The State of Andhra Pradesh, Department of Home

(General). Rep. by its Principal Secretary

A.P. Secretariat, Hyderabad and 3 others.

…. Respondents

! Counsel for the Petitioner : Sri K. Harinarayana

Counsel for Respondents: Smt. Y.L.Siva Kalpana Reddy, SC for CBCID

G.P for Home

<Gist :

>Head Note:

? Cases referred:

1. 2003 (1) ALD 6387

2. 2002(1) ALD (Crl.) 189 (AP)
3. Law Finder Doc.Id#1147429
4. Law Finder Doc Id#1163033
5. 2006(52) R.C.R.(Civil) 553
6. AIR 2003 SC 21320
7. Appeal(Civil) 7337 of 2004 dated 15.9.2005
8. MANU/SC/0445/2012
9. WP No.23312 of 2020 dated 8.12.2020
10. (2008) 8 SCC 148
 3
2024:APHC:21084

11. (2006) 8 SCC 677

12. (2013) 10 SCC 677
13. (2014) 8 SCC 768
 4
2024:APHC:21084

APHC010090512017
IN THE HIGH COURT OF ANDHRA PRADESH
AT AMARAVATI [3310]
(Special Original Jurisdiction)

TUESDAY ,THE EIGHTEENTH DAY OF JUNE

TWO THOUSAND AND TWENTY FOUR

PRESENT

THE HONOURABLE DR JUSTICE K MANMADHA RAO

WRIT PETITION NO: 21029/2017

Between:

Canara Bank, ...PETITIONER

AND

The State Of Andhra Pradesh and Others ...RESPONDENT(S)

Counsel for the Petitioner:

1. HARINARAYANA K

Counsel for the Respondent(S):

1. GP FOR HOME (AP)

2. Y L SIVAKALPANA REDDY(SC CUM SPL PP,CID)

The Court made the following:

ORDER :

This writ petition is filed under Article 226 of the Constitution of India for

the following relief:

“……to issue order or orders or writ more particularly in the nature of writ of
mandamus declaring the action of the Respondent No.1 in attaching the prosperities
at SI. No.23, 24, 25, 26, 31 and 44 of Annexure to the G.O.Ms.No.13 Home (General)
dated 17.02.2016 under The Andhra Pradesh Protection of Depositors of Financial
Establishments Act 1999 (Act 17/1999 ) belonging to Respondents No 2 and 3
 5
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mortgaged in favour of the petitioner bank as arbitrary, illegal, subject to the first
charge of the petitioner bank being the mortgagee violative of Article 14 and 19(1)(g)
of the Constitution of India violation of constitutional guarantee under Article 300A of
the Constitution of India contrary to the provisions of Section 35 of the SARFAESI Act
2002 and permit the petitioner to proceed against the above referred properties under
the provisions of SARFAESI Act 2002 for the recovery of debt in the interest of
justice”

2. The grievance of the petitioner is thatM/s.Sarawathi Educational

Society availed Term Loan-I facility of Rs.480.00 lakhs under loan account No.

0661773006588 from the Kurnool Branch of the Petitioner Bank on the

security of the following properties:

EMT of Institutional Buildings at Sy No 152/2 & 156/B Laxmipuram Road,

Near RaagaMayuri Green lands, innedevarapaduVillage &Panchayath,
Kurnool Mandal, Kurnool Dt. Admeasuring 3.50 acres under sale to M/s
Saraswathi Educational Society consisting of G +3 with total plinth area of
32,851.25 sft valued Rs 4.49,50,000/- as per valuation report dt 14.01.2016

EMT of Institutional Building at Sy No 729/2 (Kallur) L P No 341/80 ward No

87/140 beside Govt Degree College for Men, Sreelaxmi Nagar, Sivaji Nagar,
Kurnool admeasuring 20.67 cents under sale to M/s Saraswathi Educational
Society consisting of G+2 with total plinth area of 5608.50 sft valued Rs
1,83,20,000/- as per valuation report dt 14.01.2016

EMT of land and building situated at Sy No 568, 569/A, 570 & 749A, ward No
78, Kallurpanchayath bearing D No 78/128 under sale to M/s Saraswathi
Educational Society admeasuring 2640 sft valued Rs 1,22,60,000/- as per
valuation report dt 14.01.2016.

It is further stated that the M/s.Keshav Reddy Educational Society

availed Term Loan facility of Rs. 300.00 Lakhs under loan account No.

0659773007973 from the Ananthapuram Branch of the Petitioner Bank on the

security of the following properties:

EMT of Institutional Buildings at Sy No 152/2 & 156/B Laxmipuram Road,

Near RaagaMayuri Green lands, DinnedevarapaduVillage &Panchayath,
Kurnool Mandal, Kurnool Dt. Admeasuring 3.50 acres under sale to M/s
 6
2024:APHC:21084

Saraswathi Educational Society consisting of G +3 with total plinth area of

32,851.25 sft valued Rs 4.49,50,000/- as per valuation report dt 14.01.2016.
EMT of Institutional Building at Sy No 729/2 (Kallur) L P No 341/80 ward No
87/140 beside Govt Degree College for Men, Sreelaxmi Nagar, Sivaji Nagar,
Kurnool admeasuring 20.67 cents under sale to M/s Saraswathi Educational
Society consisting of G+2 with total plinth area of 5608.50 sft valued Rs
1,83,20,000/- as per valuation report dt 14.01.2016.
EMT of land and building situated at Sy No 568, 569/A, 570 & 749A, ward No
78, Kallurpanchayath bearing D No 78/128 under sale to M/s Saraswathi
Educational Society admeasuring 2640 sft valued Rs 1,22,60,000/- as per
valuation report dt 14.01.2016
EMT of vacant land at Sy No 146, Keshava Reddy school behind (formarly)
vavilala school, Near RaagaMayuri Green Lands, Dinnedevarapadu Village
admeasuring acres 2.0 standing in the name of M/s Sri Saraswathi
Educational Society valued Rs 2,97,50,000/- as per valuation report dt
14.01.2016.
EMT of land admeasuring 0.98 cents and building (G+1) with total plinth area
of 21955 Sqft at Sy No 152/1 pyki behind vavilala (formarly) near
Raagamayuri Green lands, Dinnedevarapadu village, Kurnool standing in the
name of M/s Sri Saraswathi Educational Society valued Rs 49,50,000/- as per
valuation report dt 14.01.2016.

The M/s Saraswthi Educational Society is represented by Smt.

K.Manjula, Vice President, Sri N.Keshava Reddy, Secretary and Treasurer,

Smt. C.Sridevi, Treasurer, Smt I. MadhaviLatha, Joint Secretary, Ms.

N.Yashoda, Executive Member, Mr. N.Bharat Reddy, Member and Smt N.

Siva Bharathi, President. M/s. Keshav Reddy Educational Trust is represented

by Shri N.Seshava Reddy, Secretary and Treasurer, Smt. C.Sridevi, Executive

Member, Smt. I.MadhaviLatha, Executive Member, Smt. N.SivaBharathi,

President and Ms. N.Yashoda, Treasurer.The loan facilities availed by

Respondent No. 2 and 3 became non-performing asset in view of the default

committed in maintaining the account in its true perspective and the demand

notice in case of M/s Keshavareddy Educational Trust was published in Hindu

and Sakshinews papers on 28.06.2015 making a demand for a sum of Rs.

 7
2024:APHC:21084

4,22,23,480.90(constitutes Rs.70,87,698.23/- in account No. 0659773007973

and Rs.3,51,35,782.67 in account 2486256010111) as on 29/05/2015

together with interest at the rate of 19.0% per annum from 29/05/015 till the

date of full and final payment.

It is further stated that the sale notice was also published in Eenadu,

Sakshi and The Hindu news papers fixing the date of sale on 29.02.2016, but

the sale was not successful for want of bidders. Similarly, tin case of M/s Sri

Saraswathi Educational Society, the demand notice was issued on 18.05.2015

making a demand for a sum of Rs. 13,11,35,432.11 as on 30/04/2015

together with interest at the rate of 19.20% per annum from 01/05/2015 till the

date of full and final payment, but the same was returned. Accordingly, paper

publication was done in Hans India and Sakshinews papers on 31.05.2015.

Possession notice was also published in Hans India, Sakshi and Andhra

Jyothi on 06.08.2015. Sale notice was published in Sakshi and Hindu news

papers on 01.03.2016 fixing the e-auction on 06.04.2016, but the sale was

unsuccessful for want of bidders. In view of the above release notice was

published in Eenadu and Hindu on 03.07.2016 and the auction was fixed

again on 10.08.2016.

It is further stated that the Respondent No.1 issued G.O.Ms.No.13,

dated 17.02.2016 confirming the attachment of all the properties including the

properties which are mortgaged in favour of the bank. Once the proceedings

are initiated under SARFAESI Act 2002, the question of Respondent No.1

proceeding against the security interest of the mortgaged property shall not
 8
2024:APHC:21084

arise. In the event, the Respondent No.1 intends to proceed against the some

properties which are subject matter of the SARFAESI proceedings initiated

under Section13(2) of the SARFAESI Act 2002, after the possession is taken

over by the petitioner bank under section13(4) of the SARFAESI Act. The

Respondent No.1 also can invoke the jurisdiction of the Hon'ble Debts

Recovery Tribunal under Section 17 of the SARFAESI Act 2002. The action of

the Respondent No.1 in proceeding against the secured assets is without

jurisdiction to the extent of properties which are mortgaged in favour of the

bank. The Respondent No.1 is proceeding with the attachment and sale of

the properties belonging to Respondent No. 2 and 3. If the secured assets are

auctioned and the sale proceedings are appropriated by the Respondent No.1

in exercise of the power under The Andhra Pradesh Protection of Depositors

of Financial Establishments Act, 1999 (Act 17/1999), the very purpose of

providing the loan facilities on the security of the properties mortgaged with

the bank will be defeated and the public interest shall be put to jeopardy.

Hence, the present writ petition.

3. Counter affidavit has been filed by 1st respondent and denied all the

allegations made in the petition. It is contended that as per Sec.3 of the

Andhra Pradesh Protection of Depositors of Financial Establishments Act,

1999 (Act No.17 of 1999), the Government have the power to pass orders of

attachment of properties to safeguard the interests of the depositors. Hence,

the G.O.Ms. No. 13 of 2016 passed by the 1st respondent is justifiable. It is

further contended that, the petitioner bank filed the present petition to release
 9
2024:APHC:21084

the mortgaged property i.e., 6 properties mentioned as Sl.No.23, 24, 25, 26,

31 and 44 in Annexure-1 of G.O.Ms.No.13 from the order of attachment dated:

17.02.2016 enabling the bank to take necessary steps for recovery of the

outstanding loan amount of Rs.17,33,58,913.01/- together with interest from

Keshava Reddy Group Societies/Institutions and Keshava Reddy @ Keshava

Reddy and their Guarantors/mortgages. The accused Nagireddy Keshava

Reddy @ Keshava Reddy raised mortgage loans by depositing the title deed

of the properties already purchased from the funds deposited by the

depositors. The object of the act is to protect the interest of the depositors.

The petitioner has no right over the properties, which are already attached

under G.O.Ms.No. 13. Moreover, The CID filed a Criminal appeal petition vide

Crl.A.No. 343/2020, dated 23.5.2020 on the file of this Court, which is

pertaining to the properties in Sl. Nos. 23, 24, 25, 26, 31 and 44.

Nevertheless, the petitioner Bank is at liberty to pursue alternative remedies to

proceed against the security interest for the recovery of the debt in respect of

the properties mortgaged in favour of the petitioner bank. It is further stated

that, Sec.6(4) of the APPDFE Act, 1999 states that the Special Court shall on

application by the competent authority pass such orders or issue such

directions as may be necessary for the equitable distribution among the

depositors of the money realized from out of the property attached. Further,

the Writ Petitioner instead of raising his claim over the attached properties

before the special court approached this Hon'ble Court challenging the

G.O.Ms. No.13 of 2016 in the writ petition, which is liable to be dismissed in

 10
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the interest of justice or otherwise, there is grave prejudice caused to the

depositors.

4. Reply affidavit has been filed by the petitioner to the counter affidavit

filed by the 1strespondent. While denying all the contents made in the counter

affidavit filed by the 1strespondent, the petitioner contended that, according to

the Respondent No. 1, when they moved an application to make the interim

attachment made over all the properties (which includes the mortgaged

properties in favour of the petitioner Bank) as detailed in the subject

G.O.Ms.No. 13 to make the interim attachment order made by them as

"absolute" (in terms Section 3 of AP PROTECTION OF DEPOSITORS OF

FINANCIAL ESTABLISHMENT ACT 1999 (Andhra Pradesh Act 17 of 1999)-

that the Hon'ble Principal District and Sessions Judge, at Kurnool in Crl.M.P.

No.665/2016 vide its order dated 31-10-2018 partially allowed that

application/petition (a) interim attachment made over S.No.2 to 10, 12, 14, 15,

17, 18 to 20 in Annexure I of G.O.Ms.No.3 are only made absolute. (b) In case

of S.No.16,22, 27, 28, 30, 33, 35, 37, 38, 39, 40 and 42 (mortgaged properties

in favour of SBI) are released to SBI and (C) the rest of the properties i.e.,

S.No. 1,11,13,23,24,25,26,29,31,32,34,36,41,43 and 44 in Annexure I and

S.No.1,2,3and 4 in Annexure-II therein mentioned in G.O.Ms. No. 13 have not

been made absolute by the Hon'ble Special Court. So it is clear that the

Honourable designated court not accepted the contention of the Respondent

No. 1 in respect of the properties mortgaged in favour of the petitioner Bank

and the said interim attachment made over them by Respondent No. 1 was
 11
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not absolute (ie. item Nos. -23,24,25,26,31& 41 of Annexure-1 of the said GO

issued by respondent No.1). Further as detailed above the subject

mortgaged/charged properties in favour of the writ Petitioners-Bank are also

purchased out of finance from the petitioner Bank and much earlier to the

alleged collection of funds from the public by cheating/fraud. So filing of an

appeal against the said order dated 31-10-2018 of the Hon'ble Special Court

vide CRL.A. No. 343/2020 before this Honourable court make any difference

in this regard since even on the above said facts and documents clearly

establish the said mortgaged properties not created out of funds collected

from public by accused and also these properties not created and/made out of

fraudulent means and or by cheating. Under these circumstances it is prayed

this Court may allow the writ petition.

5. The counter affidavit has been filed by the 4th respondent denying all

the allegations made in the petition. While reiterating the contents made in

the counter of the 1st respondent, it is contended that vide

Crl.M.P.No.665/2016 to make the attachment order "absolute". The Hon'ble

Court allowed the petition in respect of properties mentioned in G.O.Ms No.13

partly and passed the order, dated.31.10.2018 that Sl.No. 2 to 10, 12, 14, 15,

17, 18 to 20 in Annexure-I are hereby made absolute. Sl.No. 16, 22, 27, 28,

30, 33, 35, 37,38,39,40 and 42 are hereby released to SBI. The Hon'ble court

cannot be made as absolute rest of the properties i.e., Sl.Nos.1, 11, 13, 23,

24, 25, 26, 29, 31, 32, 34, 36, 41, 43 and 44 in Annexure-I and Sl. Nos. 1, 2,

3, and 4 in Annexure-II therein mentioned in G.O. Ms. No.13 for various

 12
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reasons. It is further stated that, In this regard, an appeal petition vide

Crl.A.No.343/2020, Dated.23.05.2020 was filed before the Hon'ble High Court

of Andhra Pradesh seeking a relief to set aside the order dated 31.10.2018

passed in Crl.M.P.No.665/2016 on the file of PDJ Court, Kurnool partly

dismissing the petition in respect of properties in SI.Nos.1, 11, 13, 23, 24, 25,

26, 29, 31, 32, 34, 36, 41, 43 and 44 in Annexure-I and SI.Nos.1, 2, 3, and 4

in Annexure-II therein mentioned in G.O.Ms No.13. It is further stated that, the

Government has examined the matter carefully in the light of the Act and

passed an ad-interim order Under Section 3 of the Andhra Pradesh Protection

of Depositors of Financial Establishments. Act, 1999 (Act No.17 of 1999) for

attachment of the movable and immovable properties standing in the names

pertains to Nagireddy Keshava Reddy @ Keshav Reddy, his wife, his family

members, his educational societies and also trust by way of issuance of

G.O.Ms.No.13 Home (General) Department, dated 17.02.2016. It is also

stated that, as per Sec.3 of the Andhra Pradesh Protection c Depositors of

Financial Establishments Act, 1999 (Act No.17 of 1999) the Government has

the power to pass orders of attachment of properties to safeguard the

interests of the depositors. Hence, the G.O.M.S No.13 of 2016 passed by the

1st respondent is justifiable. It is further stated that, the petitioner bank filed

the present petition to release the mortgaged property i.e. 6 properties

mentioned as Sl.No.23, 24, 25, 26, 31 and 44 in Annexure-I of G.O.M.S.

No.13 from the order of attachment dt.17.02.2016 enabling the bank to take

necessary steps for recovery of the outstanding loan amount of

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Rs.17,33,58,913.01/- together with interest from Keshava Reddy Group

Societies/Institutions and Keshava Reddy @ Keshal Reddy and their

Guarantors/mortgages. The Petitioner Bank is not a depositor and it is a

money lender. The accused Nagireddy Keshava Reddy @ Keshava Reddy

raised mortgage loans by depositing the title deed of the properties already

purchased from the funds deposited by the depositors. The object of the act is

to protect the interest of the depositors. It is further stated that the petitioner

has no right over the properties which are already attached under

G.O.Ms.No.13. Moreover, The CID filed a Criminal appeal petition vide

Crl.A.No. 343/2020, dated.23.05.2020 on the file of the Hon'ble High Court of

AP which is pertaining to the properties in Sl.Nos.23, 24, 25, 26, 31 and 44.

Nevertheless, the petitioner Bank is at liberty to pursue alternative remedies to

proceed against the security interest for the recovery of the debt in respect of

the properties mortgaged in favour of the petitioner bank. It is further stated

that, Sec.6(4) of the APPDFE Act, 1999 states that the Special Court shall on

application by the competent authority seeking to issue such directions as

may be necessary for the equitable distribution among the depositors of the

money realized from out of the property attached. It is mainly stated that, the

Writ Petitioner instead of raising his claim over the attached properties before

the special court approached this Hon'ble Court challenging the G.O.M.S

No.13 in the writ petition, which is liable to be dismissed in the interest of

justice or otherwise, there is grave prejudice caused to the depositors.

 14
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6. Reply affidavit has been filed by the petitioner Bank to the counter

affidavit filed by the 4th respondent. The petitioner bank while denying all the

contents made in the counter affidavit of the 4th respondent, reiterated the

contents made in the petition. It is stated that the contention that after careful

examination of the matter the subject interim order under section 3 of Act 17

of 1999 was passed as per the powers conferred etc., are absolutely false and

not tenable and the respondent No. 1 is put to strict proof of the same. When

the police during investigation approached the petitioner Bank the above

information/detailed brought to their notice and required documents by them

were also furnished to the investigating Agency. Though such information

clearly discloses that there is no nexus between the assets purchased out of

public funds by fraudulent means, which are the subject matter of this writ

petition, and assets mortgaged to the writ petitioner created out of financed

granted by the Bank that too much earlier to the said collection of

deposits/funds from the public, still the respondent No.1, arbitrarily, illegally

and unauthorizedly made interim attachment over the subject properties in

question and thus the powers given under the said Act 17 of 1999 were not

exercised diligently and properly. It is further stated that the contentions that

the accused NagireddyKeshava Reddy @ Keshava Reddy raised mortgage

loans by depositing the title deed of the properties already purchased from the

funds deposited by the depositors and the petitioner has no right over the

properties, which are already attached under G.O.Ms.No.13 and the writ

petitioner has to raise its claim before the special correct are not incorrect and
 15
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not tenable and false and denied and the respondent no. 4 is put to strict proof

the same. As detailed above, these assets purchased out of the banks'

finance much earlier to the alleged collection of funds from the public and

offence/crime committed by the accused. Further in terms of section 26(e)

read with section 35 of SARFASI Act 2002 as detailed above, the

charge/mortgage in favour of the writ petitioner bank overrides the interim

attachment order made under section 3 of the Act 19 of 1999 and the in fact

SARFASI Act 2002 overrides/supersedes the said State Act 19 of 1999.

Further if the respondent No. 1 and/4 has got any grievance they have to

approach the concerned Debt Recovery Tribunal in terms of section of 7 of the

said central Act and make their claim. Further the properties are located in

different areas and to avoid multiple cases/litigations, invoking the adjudication

of this Honourable High court is appropriate and apt especially now as the

appeal petition CRI A No.343/2020 is also pending before this Honourable

High court. Under the above circumstances, it is prayed this Court the writ

petition may be allowed as prayed for.

7. Heard Sri K. Harinarayana, learned counsel appearing for the

petitioner; learned Assistant Government Pleader for Home and Smt.

Y.L.SivaKalpana Reddy, learned Standing Counsel for CID appearing for the

respondents.

8. On hearing, learned counsel for the petitioner while reiterating the

contents made in the petition and in the reply affidavits, contended that the

decision of the respondent No.1 in proceeding against the properties of

 16
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respondents No.2 and 3 to the extent mortgaged with the petitioner bank is

contrary to Section 35 of SARFAESI Act 2002,. The provisions of this Act to

override other laws and that the provisions of this Act shall have effect,

notwithstanding anything inconsistent therewith contained in any other law for

the time being in force or any instrument having effect by virtue of any such

law. He further contended that the petitioner bank has first charge over the

properties which are mortgaged in favour of the bank and hence the petitioner

do have the authority to proceed against the security interest for the recovery

of the debt. He further submits that, any action of the Respondent No.1 to

proceed against the Security Interest under The Andhra Pradesh Protection of

Depositors of Financial Establishments Act, 1999 (Act 17/1999) will infringe

the fundamental rights guaranteed to the petitioner under Article 14 and

19(1)(g) of the Constitution of India and also constitutional guarantee under

Article 300-A of the Constitution of India. Learned counsel further submits that

the SARFAESI Act 2002 has overriding affect over The Andhra Pradesh

Protection of Depositors of Financial Establishments Act, 1999 (Act 17/1999)

and hence the right of the petitioner to proceed against the security interest

under the SARFAESI Act 2002 shall prevail. He further submitted that unless

and until all further proceedings initiated by the Respondent No.1 in

proceedings No.G.O.Ms.No.13 Home (General) Department, dated

17.02.2016 in respect of the properties mortgaged in favour of the bank under

The Andhra Pradesh Protection of Depositors of Financial Establishments Act,

 17
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1999 (Act 17/1999) is stayed, the purpose of filing this writ petition will be

defeated, leading to miscarriage of justice.

9. To support his contentions, learned counsel for the petitioner has

relied upon a catena of decisions reported in (i) A.S Prasad vs A.P. State

Financial Corporation1, wherein the Andhra Pradesh High Court held that:

I express my inability to accept the submission made by learned Counsel for the
petitioner for the reason that the A.P. Protection of Depositors of Financial
Establishment Act, 1999 is obviously an enactment made in exercise of the legislative
power conferred on the State Legislature referable to some entry either in List II or
List III of VII Schedule of the Constitution. The question as to under which entry the
said enactment is made is not examined as no arguments in this behalf are submitted
by the learned Counsel for the petitioner but he proceeded on the assumption that
the said enactment is validly made by the State Legislature of Andhra Pradesh. But
the fact remains that the 1st respondent came into existence under the provisions of
the SFC Act, an enactment passed by the Parliament in exercise of the power
conferred on it under Article 246(1) of the Constitution with reference to the legislative
field indicated in Entry 43 of List-I of VII Schedule of the Constitution. The legislative
field is exclusively assigned to the Parliament by the Constitution, therefore
irrespective of the source of the legislative authority under which the State enactment
is made, the said law made by the State Legislature is required to give way to the
mandate of the law made by the Parliament in exercise of the power conferred on it
under Article 246(1) of the Constitution because within the field assigned to it, the law
made by the Parliament is supreme and overrides any other law made by the State
Legislatures if there is anything repugnant or inconsistent in such law made by the
State Legislature.

(ii) In Apple Credit Corporation Limited, Secunderabad v. State of

A.P and others2, wherein the High Court of Judicature of Andhra Pradesh at

Hyderabad held that :

16. Here in this case, a case has been registered against the 2nd respondent under
Sections 3 and 5 of the A.P. Protection of Depositors of Financial Establishment Act,
1999, which is a State Enactment. There has been no provision envisaged under the
Act for confiscation of the properties. The Act inter alia provides for attachment of the
properties of the Financial Establishments when there is infraction of d any of the
provisions of the said Act. In this case, the applicability of the said Act is quite
doubtful, in view of the fact that t the petitioner herein is the company having nt been
duly incorporated under the provisions d of the Companies Act. That apart, the e
1
2003(1) ALD 6387 AP
2
2002(1) ALD (Crl.) 189 (AP)
 18
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petitioner is not seeking permission to sell away the vehicles once for all and to e
appropriate the sale proceeds towards d realisation of the loans due to him. On the
other hand, he seeks permission for sale of the vehicles and to deposit the sale
proceeds s into the Court till the disposal of the case, which would eventually for the
benefit of at the successful party. I, therefore, see no embargo whatsoever either
under the A.P. of Protection of Depositors of Financial es Establishments Act, 1999 or
under the of provisions of the Motor Vehicles Act or 10 under the terms of the Hire
Purchase Agreement. The request of the petitioner d therefore, appears to be
genuine and can de be considered.

(iii) In Indian Overseas Bank versus The State of Tamil Nadu and

others3, wherein the Madras High Court held that :

“……6. In support of the contention, the Learned Counsel for the Petitioner placed
reliance on the judgment of this Court in the case of Indian Bank v. The Chief Judicial
Magistrate and Others, (2006) 4 LW 535. Wherein, this Court has been pleased to lay
down as under:

31. It may so that under the Code of Criminal Procedure, the criminal court has
got jurisdiction and powers to attach any property in status quo for the purpose of
completing investigation and to adduce evidence at the time of trial. It is equally so
that the Government is also well within their powers to pass an enactment,
Pondicherry Protection of Interests of Depositors in Financial Establishment Act,
2004, Act 1 of 2005, to protect the interests of the gullible depositors and to order
attachment of the property under such enactment. However, in view of the clear
language of Section 35 of the SARFAESI Act, the proceedings initiated by the bank in
respect of the property in question under the SARFAESI Act will have the overriding
effect against the impugned orders of attachment in sofar as they are related to the
property in question. The orders of attachment passed by the Chief Judicial
Magistrate and the Government of Pondicherry are inconsistent with the proceedings
initiated under the SARFAES Act. Act 1 of 2005 came into force on 24.03.2005
whereas the proceedings under SARFAESI AC were initiated much earlier and
completed on 24.03.2005. Therefore, I am of the considered view that the said
property is to be excluded from the impugned orders of attachment Accordingly, the
attachment in respect of the said property is lifted. To this limited extent, the
impugned orders of attachment passed by the Chief Judicial Magistrate and the
Government of Pondicherry insofar as it related to the said property are set aside.
Needless to mention, it a open to the depositors or their association and/or the
competent authority appointed by the Government of Pondicherry under the Act
passed to protect the interests of the depositors to file appeal, if they so desire, under
section 17 of the SARFAESI Act.”

(iv) In Kotak Mahindra Bank Ltd., ARD, 6th Floor, Vinay Bhawya

Complex, Kalina, Santacruz(East) Mumbai versus Union of India and

Catholic Syrian Bank Ltd.,4, wherein the Madras High Court held that :

3
Law Finder Doc.Id # 1147429
 19
2024:APHC:21084

On the basis of the above said submission made by the learned senior counsel for
the petitioner and first respondent and considering the fact that the petitioner and
third respondent are the Banking Companies as per the Banking Regulation Act,
1949, which have been specifically exempted from the purview of financial
establishment under Act 1 of 2005, the writ petition is disposed of with direction to the
first respondent to lift the attachment made in respect of Serial Nos.13 and 14 in
Schedule I of G.O.Ms.No.12 dated 18.02.2006, in so far as it relates to the said items
of properties alone to enable the petitioner to take suitable action for recovery under
the concerned Act in respect of due from the second respondent to the third
respondent. It is made clear that in such an event, the first respondent would be
entitled to the residuary amount in respect of said items, viz., Serial Nos.13 and 14
and to proceed with attachment and further auction in respect of other properties as
per Act 1 of 2005.

(v) In Indian Bank versus Chief Judicial Magistrate, Pondicherry

and others5, wherein Madras High Court held that:

It is seen from the materials placed on record that while Pondicherry Nidhi Limited
was a registered financial establishment under the provisions of the Reserve Bank of
India Act, M/s.PNLNidhi Limited is an unregistered financial establishment. Both the
financial establishments are carrying on their business activities in the very same
address, viz.189, Mission Street, Pondicherry. M/s. V. Kannan and V. Bhaskaran and
their close relatives/associates are major shareholders of PNL Nidhi Limited. It is also
pertinent to note that the said persons are also major shareholders/Directors of New
Horizon Sugar Mills Limited and Arunachalam Sugar Mills Limited and as such they
are persons interested in the management and affairs of the said companies and the
financial establishment. Though these companies and the financial establishment are
separate legal entities, as contended by the learned counsel for the parties
concerned, and, therefore, the properties standing in the names of the respective
companies and the individuals are distinct and independent from each other, but real
beneficiaries behind the corporate mask are one and the same persons. It is also
pleaded in the counter-affidavits filed by the Government of Pondicherry that M/s. V.
Kannan and V. Baskaran, who are said to be the major shareholders and Directors of
Pondicherry Nidhi Limited/PNL Nidhi Limited as well as Directors of New Horizon
Sugar Mills Limited and Arunachala Sugar Mills Limited, have misappropriated huge
sums of money deposited by the general public in PNL Nidhi Limited and diverted the
said amount to their own trade and business of the said sugar mill companies. In
such circumstances, when the very object and purpost of Act 1 of 2005 is to protect
the interests of the depositors of the financial establishment and particularly
when Sec.4(2) empowers the Government to order attachment of properties not only
standing in the name of the financial establishment, but also the personal assets of
the persons in charge of the management and affairs of the financial establishment, I
find no illegality in the impugned notification dated 18-02-2006. However, in view of
my discussions and findings in the Civil Revision Petition and the connected writ
petitions, the impugned order of attachment passed vide G.O. Ms. No.12 dated 18-
02-2006 is interfered with only to the limited extent in so far as it related to the
properties against which proceedings under SARFAESI Act has already been
initiated. Therefore, the attachment in respect those properties alone are lifted and in
other respects, the impugned notification stands legally valid. Accordingly, the writ

4
Law Finder Doc Id # 1163033
5
2006(52) R.C.R(Civil) 553
 20
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petitions challenging the validity of Act 1 of 2005 and the impugned G.O. Ms. No.12
dated 18-02-2006 are dismissed.

(vi) InHarbanslalSahnia and another vs. Indian Oil Corpn. Ltd., and

others6, wherein the Court held that :

So far as the view taken by the High Court that the remedy by way of recourse to
arbitration clause was available to the appellants and therefore the writ petition filed
by the appellants was liable to be dismissed, suffice it to observe that the rule of
exclusion of writ jurisdiction by availability of an alternative remedy is a rule of
discretion and not one of compulsion. In an appropriate case in spite of availability of
the alternative remedy, the High Court may still exercise its writ jurisdiction in at least
three contingencies: (i) where the writ petition seeks enforcement of any of the
Fundamental Rights; (ii) where there is failure of principles of natural justice or, (iii)
where the orders or proceedings are wholly without jurisdiction or the vires of an Act
and is challenged [See Whirlpool Corporation v. Registrar of Trade Marks, Mumbai
and Ors., (1998) 8 SCC 11. The present case attracts applicability of first two
contingencies. Moreover, as noted, the petitioners' dealership, which is their bread
and butter came to be terminated for an irrelevant and non-existent cause. In such
circumstances, we feel that the appellants should have been allowed relief by the
High Court itself instead of driving them to the need of initiating arbitration
proceedings.

(vii) In Mrs.Sanjana M. Wig vs Hindustan Petro Corporation Ltd.7,

wherein the Hon’ble Supreme Court held that :

It may be true that in a given case when an action of the party is de'hors the terms
and conditions contained in an agreement as also beyond the scope and ambit of
domestic forum created therefor, the writ petition may be held to be maintainable; but
indisputably therefor such a case has to be made out. It may also be true, as has
been held by this Court in Amritsar Gas Service (supra) and E.
Venkatakrishna (supra), that the arbitrator may not have the requisite jurisdiction to
direct restoration of distributorship having regard to the provisions contained
in Section 14 of the Specific Relief Act, 1963; but while entertaining a writ petition
even in such a case, the court may not loose sight of the fact that if a serious
disputed question of fact is involved arising out of a contract qua contract, ordinarily a
writ petition would not be entertained. A writ petition, however, will be entertained
when it involves a public law character or involves a question arising out of public law
functions on the part of the respondent.

But in a case of this nature, while exercising a plenary jurisdiction, we must take the
supervening circumstances into consideration. The parties admittedly invoked the
arbitration agreement before the arbitrator. They entered into a settlement. Pursuant

6
AIR 2003 SC 21320
7
Appeal (Civil) 7337 of 2004 dated 15.09.2005
 21
2024:APHC:21084

to or in furtherance of the said settlement, the Appellant herein was to pay a sum of
Rs.4,64,586/- unto the Respondent in five installments with interest. The Appellant
herein for violation of the terms of contract presumably prayed for award of damages
but no reference thereto has been made in the award. In any event such claim of
damages could have been made before the Arbitrator on the ground of alleged
breach of contract.

We are further of opinion that in this matter no case has been made out for grant of a
relief of restoration of the dealership. The contract stood terminated on the death of
the Appellant's partner. No case of novation of contract has been made out. It is also
not the case of the parties that any other or further agreement between the parties
came into being. The arrangement was an ad hoc one. The Appellant did not derive
any legal right to continue the business for an indefinite period. Moreover, she
allegedly violated the terms of the contract.

(viii) In a case of State of Kerala and ors. Vs. Mar AppraemKuri

Company Ltd. And ors.,8,wherein the Hon’ble Supreme Court held that :

Under clause (1) of Article 254, a general rule is laid down to say that the Union law
shall prevail where the State law is repugnant to it. The question of repugnancy
arises only with respect to the subjects enumerated in the Concurrent List as both the
Parliament and the State Legislatures have concurrent powers to legislate over the
subject-matter in that List. In such cases, at times, conflict arises. Clause (1) of Article
254 states that if a State law, relating to a concurrent subject, is “repugnant” to a
Union law, relating to that subject, then, whether the Union law is prior or later in time,
the Union law will prevail and the State law shall, to the extent of such repugnancy,
be void. Thus, Article 254(1) also gives supremacy to the law made by Parliament,
which Parliament is competent to enact. In case of repugnancy, the State Legislation
would be void only to the extent of repugnancy. If there is no repugnancy between
the two laws, there is no question of application of Article 254(1) and both the Acts
would prevail. Thus, Article 254 is attracted only when Legislations covering the same
matter in List III made by the Centre and by the State operate on that subject; both of
them (Parliament and the State Legislatures) being competent to enact laws with
respect to the subject in List III. In the present case, Entry 7 of List III in the Seventh
Schedule deals with the subject of “Contracts”. It also covers special contracts.
Chitties are special contracts. Thus, the Parliament and the State Legislatures are
competent to enact a law with respect to such contracts. The question of repugnancy
between the Parliamentary Legislation and State Legislation arises in two ways. First,
where the Legislations, though enacted with respect to matters in their allotted
spheres, overlap and conflict. Second, where the two Legislations are with respect to
matters in the Concurrent List and there is a conflict. In both the situations, the
Parliamentary Legislation will predominate, in the first, by virtue of non-obstante
clause in Article 246(1); in the second, by reason of Article 254(1). Article
254(2) deals with a situation where the State Legislation having been reserved and
having obtained President’s assent, prevails in that State; this again is subject to the
proviso that Parliament can again bring a legislation to override even such State
Legislation.

8
MANU/SC/0445/2012
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(ix) In a case of Pridhvi Asset Reconstruction and Securitization

Company Limited vs. State of A.P. rep by its Principal Secretary,

Department of Revenue, Commercial Tax Department and 4 others 9 ,

wherein this Court held that :

In order to examine and adjudicate the issues in the present writ petition, it would be
highly apposite and appropriate to refer to the provisions of Section 26E of the Act
and Section 31B of the Bankruptcy Act. Section 26E of the Act, which deals with the
priority to secured creditors and which came into force w.e.f. 24-01-2020 by way of a
Gazette Notification, reads as under:-

Section 26 E : Notwithstanding anything contained in any other law for the time being
in force, after the registration of security interest, the debts due to any secured
creditor shall be paid in priority over all other debts and all revenues, taxes, cesses
and other rates payable to the Central Government or State Government or local
authority.

Explanation:- For the purpose of this section, it is hereby clarified that on or after the
commencement of the Insolvency and Bankruptcy Code,1016, in cases where
insolvency or bankruptcy proceedings are pending in respect of secured assets of the
borrower, priority to secured creditors in payment of debt shall be subject to the
provisions of the Code."

Section 31B of the Bankruptcy Act reads as under:-

31 B. Priority to secured creditors. - Notwithstanding anything contained in any other

law for the time being in force, the rights of secured creditors to realize secured debts
due and payable to them by sale of assets over which security interest is created,
shall have priority and shall be paid in priority over all other debts and Government
dues including revenues, taxes, cesses and rates due to the Central government,
State Government or local authority.

Explanation. - For the purposes of this section, it is hereby clarified that on or after the
commencement of the Insolvency and Bankruptcy proceedings are pending in
respect of secured assets of the borrower, priority to secured creditors in payment of
debt shall be subject to the provisions of that Code

10. A reading of the above provisions of law makes it abundantly clear that the said
provisions are analogous though under two different legislations. Section 26E of the
Act, which came into force w.e.f 24-01- 2020 begins with 'non obstante' clause and
stipulates that after registration of the security interest, the debts due to any secured
creditor shall be paid in priority over all other debts and all revenues, taxes, cesses
and other rates payable to the Central or State Governments or local authority.
Section.31B of the Bankruptcy Act is also to the same effect. When the language of
the provisions of law is very lucid and clear, no other interpretation is possible.

9
WP No.23312 of 2020, dated 08.12.2020
 23
2024:APHC:21084

11. In the instant case, the 3rd respondent created mortgage over the subject
property by way of a registered deed in favour of Andhra Bank as long back as on 16-
03-2013 and as the account of the loanee became NPA on 31-07-2016, the Bank
authorities initiated action under the provisions of the Act by issuing notices
under Section 13(2) and (4) of the Act. It is absolutely not in controversy that the
petitioner herein clearly falls under the definition of "secured creditor"

as defined under Section 2(zd) of the Act, since the petitioner herein is an Asset
Reconstruction Company in whose favour Andhra Bank assigned the debt by way of
registered document on 26-09-2017. In fact, the material available on record further
reveals that on 18-11- 8 AVSS,J& KSR,J W.P.23312_2020 2020 i.e., immediately
after the sale notice came to be issued by the 2nd respondent, the petitioner herein
brought to the notice of the Office of the 2nd respondent about the existence of the
security interest in favour of the petitioner herein. In fact, when the provisions
of Section 26E of the Act and 31B of the Bankruptcy Act fell for consideration of this
court in W.P.No.43841 of 2018, when the registering authority failed to register the
sale certificate, a Division Bench of this court, while holding that the secured creditor
would have the priority of the charge over the mortgaged property, allowed the said
writ petition directing the registering authority to register the sale certificate. In the
said judgment, the Division Bench also held that the revenue has no priority of charge
over the mortgaged property in question. Having regard to the language employed
in Section 26E of the Act and 31B of the Bankruptcy Act, the contention of the
learned Government Pleader that mortgage in favour of the petitioner herein should
yield to crown debt coupled with charge cannot be sustained in the eye of law.

10. Learned counsel for the petitioner has also placed reliance on the

judgment dated 31.10.2016 passed in Crl.M.P.No.665 of 2016 and 1304 of

2016 of the Principal Sessions Judge, Kurnool, wherein it was held that :

“On perusal of the contents of the above said G.O, it is evident that
properties are listed Item Wise which belong to Kurnool, Nandyal and other
districts. It is relevant to mention here that this court has territorial jurisdiction
over the properties situated within the limits of Kurnool District and interim
attachment of the properties, which was ordered in the above said G.O which
are within the territorial jurisdiction of this Court, can only be made absolute,
but not the other items of properties which are outside the territorial limits of
jurisdiction of this court.
 24
2024:APHC:21084

11. It is the contention of the petitioner that, admittedly it is for the

prosecution to prove that Accused No.1 has purchased the properties with the

amounts collected from the parents of the students in Kesav Reddy

Institutions, which can be proved by the prosecution only after full-fledged trial.

12. It is pertinent to mention here that Crl.M.P.No. 1304/2016 was filed

by the State Bank of India for releasing some of the properties mentioned in

the said G.O from attachment, on the ground that those properties were

mortgaged by Keshava Reddy in their banks and huge amounts were taken

from them towards loan and they have first charge over the said properties

and therefore prayed to release the said properties from attachment.

13. On perusal of Annexure-1 of the above said G.O., it is evident that

the names of some Educational Institutions which are represented by

Keshava Reddy, also find plate column of Vendee. But for the reasons best

known to the prosecution, the said Educational Institutions are neither made

as parties in the petition in Crl.M.P.No.665/2016 пог requested this Court to

issue notices to the said Educational Institutions. It is the prime duty of this

Court to follow the principles of natural justice before passing any order for

making interim attachment of the properties as absolute. Therefore, the

immovable properties which are on the name of the educational institutions

shown at Sl.Nos. 1, 11, 16, 21, 22, 23 to 26, 27, 28, 30, 31, 32, 33, 35, 37, 38

to 43 and 44 in Annexure-I of the said G.O, cannot be attached or the ad-

interim attachment of the said properties made by the Government in the

above said G.O, cannot be made as absolute, as the said educational

 25
2024:APHC:21084

institutions were not given any opportunity of challenging the petition in

Crl.M.P.No.665/2016.

14. Per contra, learned Standing Counsel appearing for the

respondents reiterated the contents made in the counter affidavits. She

submits that the question of whether which the Non-Obstante overriding

clauses of the special Acts to be given effect to fell for consideration before

the Hon’ble Supreme Court reported in Bank of India vs. Ketan Parekh

&Ors 10 . She submits that the Hon'ble Supreme Court was comparing the

effect of the non obstante overriding clause contained therein in the Special

Courts Act, 1992 and Section 34 of the Bankruptcy Act, 1993. The Hon'ble

Court observed that where both the enactments have a non-obstante clause

then one has to see the subject and the dominant purpose for which the

special enactment was made. She submits that the fields of legislation in

connection with the enactments are as under :

Depositors Act, 1999 is relatable to Entries 1, 30, and 32 of List II,

touching upon the business of unincorporated trading, money lending, and
public order. The SARFAESI Act is relatable to Entry 45 in List I of Schedule
VII of the Constitution of India (Banking).

15. Learned Standing Counsel also submits that the dominant purpose

of the Depositors Act, of 1999 is to secure the payment of monies otherwise

due to the depositors who defaulted on the account of fraudulent schemes of

the accused therein by way of realizing monies by auctioning the properties of

the accused under attachment. The dominant purpose of the SARFAESI Act

10
(2008) 8 SCC 148
 26
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is to expedite the recovery of the debts due to the banks and financial

institutions. Thus, the objectives and purpose of each of the Acts are distinct

and there is no overlapping of the same much less any conflict between the

said enactments, to adjudge on the primacy of the said Acts, as far as

protection of depositors is concerned. She further submits that, after passing

of the absolute orders, some of the individuals interested persons over the

property, made absolute orders passed in Crl.MP. No.665 of 2016,

approached this Hon'ble court by way of filing the Criminal Appeals under Sec

11 of the AP Depositors Act vide CRL.A.No.243 of 2021, and this Hon'ble

court set aside the Crl.MP.No.665 of 2016 and remanded the matter directing

the Special Court to decide the claim of the appellants in the Crl. M.P.NO.665

of 2016.

16. Learned Standing Counsel further submits that, the writ petitioner,

who filed the writ petition challenging the G.O.Ms.No.13 in the year 2017, and

not approached the Special court raising his claim, and further similarly

situated Banks, SBI approached the Special court raising a claim of first

charge over the mortgaged properties was decided by the court below but the

Writ petitioner not vigilant about his rights seeking the indulgence of this

Hon'ble court, when the alternative remedy is available before the Special

court to raise his claim under Sec 7 (3) of the AP.

17. To support her contentions, learned Standing Counsel has relied

upon a common order of this Court dated 11.03.2024 passed in WP No.4043

of 2017 and batch. She also relied upon a decision of Hon’ble Supreme Court
 27
2024:APHC:21084

reported in Bank of India’s case(supra), wherein it was held that, Non

obstante clause occurring in the former special Act as well as in the

subsequent Act which was comparatively general in nature – Applicability of

the former Act – Subsidiary rules – Generalibusspecialiaderogant.

(ii) In another case reported in Jay Engineering Works Ltd. Versus

Industry Facilitation Council and another11 :

Act, 1985-Ss. 15, 22(1) (as amended in 1994) and 32(1) - Impact on of Interest on
Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993,
Ss. 6(2) a sick company ) and 10 Proceedings for rehabilitation of On a reference
made under S. 15 of the 1985 Act, the appellant Company declared a sick unit
Proceedings for rehabilitation initiated, whereupon rehabilitation scheme sanctioned
In the meanwhile, proceedings initiated against the appellant by the respondent
industry supplying products to the appellant, claiming before Industry Facilitation
Council in terms of provisions of the 1993 Act Plea of the appellant before the Council
that as it had been declared a sick company, the matter should not proceed further,
not accepted Council adjudicating award in favour of the respondent which was put in
execution Writ petition filed by the appellant dismissed - Letters patent appeal
preferred thereagainst also dismissed - High Court in the impugned judgment
proceeded on the premise that the 1993 Act could prevail over the 1985 Act - Held,
the 1993 Act was enacted to provide for and regulate payment of interest on delayed
payments to small-scale industries - A situation for framing a scheme for revival of a
sick company was not envisaged by the said Act Further, execution of award of the
Council would attract the provisions of S. 22 of the 1985 Act which bars any
proceedings inter alia for execution, distress, etc. against any of the properties of the
industrial company and no suit for recovery of money or for the enforcement of any
security shall lie or proceed further except with the consent of the Board - The
adjudicatory process of making an award under the 1993 Act may not come within
the purview of the 1985 Act - But once the awarded amount is sought to be executed,
the 1985 Act shall come into effect - Held, once the awarded amount has been
included in the scheme, S. 22 of the 1985 Act would apply - Further held, if the
liabilities of the appellant are covered by the scheme framed under S. 22 of the 1985
Act, the High Court erred in concluding that provisions thereof are not attracted
only….”

(iii) In another case reported in Soma Suresh Kumar versus

Government of Andhra Pradesh and others12, wherein the Apex Court held

that:

11
(2006) 8 Supreme Court Cases 677
 28
2024:APHC:21084

Statute Law – PariMateria Provisions – Andhra Act, held is in pari material with Tamil
Nadu Protection of Interests of Depositors (In Financial Establishments) Act 1977;
Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act 1999
and Pondicherry Protection of Interests of Depositors in Financial establishments Act 2004 –
A.P. Protection of depositors of Financial Establishments Act 1999 (17 of 1999) – Sec 2(c ) ,
3, 5 to 9 - validity, upheld … . We notice in New Horizon Sugar Mills Ltd.’s case (supra), this
Court held that the objects of the Tamil Nadu Act, Maharashtra Act and the Pondicherry Act
are the same and/or of similar nature. In our view, the object and purpose as well as the
provisions of the Andhra Act are parimateria with that of Tamil Nadu, Maharashtra and
Pondicherry Acts, the constitutional validity of those legislation has already been upheld. We
also fully concur with the views expressed by this Court in those Judgments and uphold the
constitutional validity of the Andhra Act.

(iv) In a case of SubrataChattoraj versus Union of India and

others13Wherein the Apex Court held that :

CBI Investigation directed – Monitoring Team for monitoring progress of

Investigation – Option of such Monitoring Team kept open, but not resorted to
immediately. Public Accountability, Vigilance and Prevention of Corruption – Scams
– Saradha Chit Fund Scam – Fraudulent/Illegal multi-State Investment scam involving
Rs.10,000 crores, affecting lakhs of depositors (especially weaker/poorer sections) –
Type an nature of fraud as revealed from reports.

18. Learned Standing Counsel while relying upon the above decisions,

has also placed an order of a learned Division Bench of this Court dated

01.10.2020 passed in WP N.5630 of 2020, wherein this Court has disposed of

the said writ petition directing the 2nd respondent therein to register the

property in favour of the auction purchasers. Further, it was held that on the

sale of subject property, if any amount is left over, after the entire loan of the

borrower with interest and other charges are adjusted, it shall be made

available to the Deputy Commissioner, Income Tax for its adjustment to the

tax dues by the 3rdrespondent therein. Therefore, in view of the above,

12
(2013) 10 Supreme Court Cases 677
13
(2014) 8 Supreme Court Cases 768
 29
2024:APHC:21084

learned Standing Counsel requests this Court the present writ petition may be

dismissed.

19. As seen from the impugned G.O.Ms.No.13, dated 17.02.2016,

wherein it was mentioned as under:

The Additional Director General of Police, Crime Investigation Department, has also
stated that during the course of investigation, it is established that in the year 1983, Sri
NagireddyKesavareddy had started his life as English Teacher and worked with
different educational institutions for 10 years. In June 1993, he started a school in the
name and style of Keshava Reddy School in a rented building at Sanjeeva Nagar,
Nandyal town with 193 students. His school students got State ranks in public
examinations. At that time, he hatched a plan and introduced a new scheme with an
offer to the parents that if they deposit lump-sum amount for one student at the time of
joining in his school, he will provide free education, lodging, boarding, books and
uniform etc. and after completion of education 1.e., 10th class or otherwise leaving the
school in any manner, he will return the deposited amount to the parent of the student.
He collected a deposit amount of Rs.1 lakh initially and he increased the deposit
amount up to Rs.3 to 5 lakhs. Many parents were attracted to this scheme and started
joining their children. As it proved to be more profitable for Keshava Reddy, he started
expanding his establishment by opening schools at various places. He also expanded
his education business and established 11 associated educational societies viz. (1) Sri
Mahanandeshwara Educational Society, (2) Sri Venkateshwara Educational Society,
(3) N.Keshava Reddy Educational Society, (4) Sri Surya Educational Society, (5) Sri
KanakaDurga Educational Society Keshava Reddy Educational Society, Swamy
Educational So Shava Reddy Educational Society) Bharath Reddy Educational
Society, (10) kheshava Reddy Educational Trust and (11) Saraswathi Educational
Society. Likewise, around 50 schools were established Andhra Pradesh and
Telangana states.

Later, he came to know that collection of deposits without RBI permission is

violation of Andhra Pradesh Protection of Depositors of Financial Establishments Act.
1999. Subsequently, the Chairman started taking back all the deposit receipts from the
parents of the children and in replacement, he gave Promissory Notes, with an
intention to escape from the clutches of the Law. As he started expanding his schools
at various places, the cost has increased and the money spent was not remunerative.
 30
2024:APHC:21084

Thus, for the past 2 years, the Chairman has not refunded the deposited money to the
parents.

The Additional Director General of Police, Crime Investigation Department, has

informed that during the searches conducted by CID, certain immovable properties
purchased out of the money of the depositors, during the activities of the Educational
institutions, were identified and the properties are located in Andhra Pradesh (worth
Rs..80,67,14,446/-)&Telangana (worth Rs.24,55,12,738/-), and proposed for
attachment of said properties to protect the interests of the depositors

In the circumstances reported by the Additional Director General of Police,

Crime Investigation Department, Government have examined the matter carefully and
hereby issue an ad-interim order for attachment of properties under section 3 of the
Andhra Pradesh Protection of Depositors of Financial Establishments Act.1999, as
mentioned in the Annexure-I&II, appended to this order in respect of Keshava Reddy
Educational Institutions & its Societies, Kurnool and also authorizing the Additional
Director General of Police, Crime Investigation Department, Andhra Pradesh,
Hyderabad, as competent authority to file an affidavit in the respective Court to make
the present orders absolute for attachment of properties.

20. It is to be noted that, recently, as per amendment of the twin

legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after

amendment titled as the Recovery of Debts and Bankruptcy Act, 1993), the

amended provisions give overriding effect over any other law and priority to

the secured condition for the time being in force including the provisions of AP

PROTECTION OF DEPOSITORS OF FINANCIAL ESTABLISHMENT ACT

1999 in so far as recovery of the loan by the secured creditors is concerned.

The amended provisions are extracted hereunder:

(i) Section 26E of the SARFAESI Act, 2002 :

26E. Priority to secured creditors – Notwithstanding anything contained in

any other law for the time being in force, after the registration of security
interest, the debts due to any secured creditor shall be paid in priority over all
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other debts and all revenues, taxes, cesses and other rates payable to the
Central Government or State Government or local authority.
Explanation : For the purposes of this section, it is hereby clarified that on or
after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of
2016), in cases where insolvency or bankruptcy proceedings are pending in
respect of secured assets of the borrower, priority to secured creditors in
payment of debt shall be subject to the provisions of that Code.

(ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 :

31B. Priority to secured creditors – Notwithstanding anything contained in

any other law for the time being in force, the rights of secured creditors to
realise secured debts due and payable to them by sale of assets over which
security interest is created, shall have priority and shall be paid in priority over
all other debts and Government dues including revenues, taxes, cesses and
other rates due to the Central Government, State Government or local
authority.
Explanation : For the purposes of this section, it is hereby clarified that on or
after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of
2016), in cases where insolvency or bankruptcy proceedings are pending in
respect of secured assets of the borrower, priority to secured creditors in
payment of debt shall be subject to the provisions of that Code.

21. It is also to be noted that, as per Section 2 of the Recovery of

Debts Due to Banks and Financial Institutions Act, 1993, after the words "the

date of the application", "and includes any liability towards debt securities

which remains unpaid in full or part after notice of ninety days served upon the

borrower by the debenture trustee or any other authority in whose favour

security interest is created for the benefit of holders of debt securities or;" is

added which makes the said amendment or the 1993 Act applicable to all the

debts which remains unpaid.

22. Thus, it is very clear from above that the secured creditor, get a

priority over the rights of Central or State Government or any other Local

Authority.
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23. It is also to be noted that, the madras High Court in a case of The

Assistant Commissioner (CT) Vs. The Indian Overseas Bank,(WP No.

2675 of 2011 (Full Bench) held that : ―

We are of the view that if there was at all any doubt, the same stands
resolved by view of the Enforcement of Security Interest and Recovery of
Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section
41 of the same seeking to introduce Section 31B in the Principle Act, Which
reads as under:- ―
31B. Notwithstanding anything contained in any other law for the time being in
force, the rights of secured creditors to realize secured debts due and payable
to them by sale of assets over which security interest is created, shall have
priority and shall be paid in priority over all other debts and Government dues
including revenues, taxes, cesses and rates due to the Central Government,
State Government or local authority.
Explanation. – for the purposes of this section, it is hereby clarified that on or
after the commencement of the Insolvency and Bankruptcy Code, 2016, in
cases where insolvency or bankruptcy proceedings are pending in respect of
secured assets of the borrower, priority to secured creditors in payment of
debt shall be subject to the provisions of that Code.‖ ―
3 There is, thus, no doubt that the rights of a secured creditor to realize
secured debts due and payable by sale of assets over which security interest
is created, would have priority over all debts and Government dues including
revenues, taxes, cesses and rates due to the Central Government, State
Government or Local Authority. This section introduced in the Central Act is
with ―notwithstanding‖ clause and has come into force from 01.09.2016‖
―4 The law having now come into force, naturally it would govern the rights of
the parties in respect of even a lis pending.‖ ―
5 The aforesaid would, thus, answer question (a) in favour of the financial
institution, which is a secured creditor having the benefit of the mortgaged
property.“

24. In another judgment of “Dr. V. M. Ganesan vs. The Joint

Director, Directorate of Enforcement” the Madras High Court has

explained the grievances faced by the financial institutions while holding

that:

“For instance, if LIC Housing Finance Limited, which has advanced money to
the petitioner in the first writ petition and which consequently has a right over
the property, is able to satisfy the Adjudicating Authority that the money
advanced by them for the purchase of the property cannot be taken to be the
proceeds of crime, then, the Adjudicating Authority is obliged to record a
finding to that effect and to allow the provisional order of attachment to lapse.
Otherwise, a financial institution will be seriously prejudiced. I do not think that
the Directorate of Enforcement or the Adjudicating Authority would expect
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every financial institution to check up whether the contribution made by the

borrowers towards their share of the sale consideration was lawfully earned or
represent the proceeds of crime. Today, if the Adjudicating Authority confirms
the provisional order of attachment and the property vests with the Central
Government, LIC Housing Finance Limited will also have to undergo dialysis,
due to the illegal kidney trade that the petitioner in the writ petition is alleged
to have indulged in. This cannot be purport of the Act.”

25. The High Court of Madras in “State Bank of India Vs. The

Assistant Commissioner, Commercial Tax, Puraswalkam Assistant

Circle and Ors.”, while upholding the Amendment Act, 2016 to Section

26E of the SARFAESI Act and reaffirming the view of the Full Bench of

the same court in The Assistant Commissioner (CT), Anna Salai-III

Assessment Circle (supra) lifted the attachment entry and held that ―

In other words, not only should the amendment apply to pending lis, but the
declaration that the right of a secured creditor to realise the secured debts,
would have priority over all debts, which would include, Government dues
including revenues, taxes, etc., should hold good qua 2002 Act as well.”

26. In the present case, it is observed that, the attached properties

were purchased much prior to the period when the facility of loan sanctioned

to the borrowers. The banks while rendering the facilities were boanfide

parties. It is not the case of the respondent that the attached properties were

purchased after the loan was obtained. The mortgaged of the properties were

done as bonafide purposes. None of the bank is involved in the schedule

offence.

27. This Court further observed that, in this case, the CBCID has also

filed the copies of the sale deeds of the properties which shows the date of

acquisition of all the properties. The petitioner Banks are having the mortgage
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charge over the properties. It is to be noted that, in the present case, all the

properties have been purchased by the Respondents and have been

mortgaged with the petitioner Bank much prior to the date of alleged offence

which shows that no proceeds of crime are involved in the abstention of these

properties and hence the same cannot be attached by the CID because the

same would result in hampering the interest of the petitioner Bank.Thus, in the

present case, even though the Learned Adjudicating Authority had all the

reasons to believe that the abovementioned were mortgaged to the petitioner

Bank and that the petitioner Bank had prior charge over the subject matter;

still the Learned Adjudicating Authority confirmed the provisional attachment

order of the Respondent No. 1 and thus causing huge loss to the petitioner

Bank.Thus, making the petitioner Bank the rightful owner of the said

properties which are already in the possession of the petitioner Bank under

the SARFAESI Act. The origin of the funds is not illegal or unlawful in any

manner. The funds were only deposited in the accounts with the petitioner

Bank against the drawings already availed or availed subsequently.

28. So, this Court finds that the petitioner Bank is liable to recover huge

amounts in the above loan accounts and the bank being the

mortgagee/transferee of the interest in the properties is entitled to recover its

dues with the sale of the properties. It is even not the allegation of respondent

no. 1 that the accused has acquired the mortgage properties with the

proceeds of crime. Furthermore, the petitioner Bank has already filed the Suit

for recovery and has also had taken the action under SARFAESI Act.
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29. The property of the Bank cannot be attached or confiscated when

there is no illegality or unlawfulness in the title of the Appellant and there is no

charge of money laundering against the petitioner. The mortgage of property

is the transfer under the transfer of property act as there is no dispute as

regards the origin of funds or the title of the properties. As far as the bank is

concerned, the bank had to recover its outstanding dues by taking over the

possession of the mortgaged properties in case the Respondents are not able

to pay back the credit facilities availed by the Respondents and by way of the

SARFAESI provisions these properties are being taken in possession by the

petitioner bank so that recovery can be made from the accounts which have

become NPA. Moreover, normally, the Banks are innocent party. They are

not involved in any criminal proceedings. If they are asked to await till the trial

is over, the systems in these types of cases, the economy would collapse.

30. In view of the foregoing discussion, this Court is of the view that, it

is very clear that the decision of the respondent No.1 in proceeding against

the properties of respondents No.2 and 3 to the extent mortgaged with the

petitioner bank is contrary to Section 35 of SARFAESI Act 2002. It is also

observed that, the SARFAESI Act has overriding affect over the Andhra

Pradesh Protection of Depositors of Financial Establishments Act 1999 (Act

17/1999) and hence the right of the petitioner to proceed against the security

interest under the SARFAESI Act 2002 shall prevail.Therefore, it is observed

that, once the Central Act has been given an overriding effect, then the State
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Act, has to give way. In view of the overriding effect of SARFAESI Act, the

impugned order cannot be sustained in law.

31. Having regard to the facts and circumstances of the case and for

the reasons stated above, this Court is inclined to allow the present writ

petition by setting aside the impugned G.O.

32. Accordingly, the Writ Petition is allowed. The impugned part of

G.O. in respect of properties shown at Sl.Nos.23, 24, 25, 26, 31 & 44 of

Annexure-I to the G.O.Ms.No.13 Home (General) dated 17.02.2016 under the

Andhra Pradesh Protection of Depositors of financial Establishments Act 1999

(17/1999) belonging to respondents No.2 and 3 mortgaged in favour of

petitioner bank, are hereby quashed. Further, the petitioner Bank is permitted

to proceed further against the above referred properties under the provisions

of SARFAESI Act 2002 for the recovery of debt.

33. There shall be no order as to costs.

34. As a sequel, interlocutory applications, if any pending, shall stand

closed.

______________________________

DR. K. MANMADHA RAO, J.

Date : 18-06-2024

Note : L.R.Copy to be marked.

(b/o)Gvl
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HON’BLE DR. JUSTICE K. MANMADHA RAO

WRIT PETITION No.21029 of 2017

Date : 18 .06.2024

Gvl