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    Bombay High Court quashes Jawahar Talkies land auction on Srei petition

    Synopsis

    They are among the first few financial companies taken to the National Company Law Tribunal by the central bank because of financial troubles.

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    The Bombay High Court on Thursday set aside the public auction of Jawahar Talkies Compound, a 0.65-acre property in Mumbai's central suburb of Mulund, following a plea filed by non-banking financial company Srei Equipment Finance.

    Two SREI companies, part of the Kolkata-based infrastructure financing group, are themselves under administration. They are among the first few financial companies taken to the National Company Law Tribunal (NCLT) by the central bank because of financial troubles.

    The auction for the property owned by realty developer Nirmal Developers’ partner Dharmesh Jain was scheduled to be held on Friday.

    Bombay HC Quashes Jawahar Talkies Land Auction on Srei Petition

    The auction was to be conducted as per the orders passed by the Maharashtra Real Estate Regulatory Authority (MahaRERA) and was aimed at recovering certain land revenues.

    SREI Equipment Finance objected to this through a writ petition and submitted that confiscation and proposed auction of the property is illegal as the asset has been mortgaged in the NBFC’s favour.

    Jain had mortgaged the property since 2011 to secure loans from SREI Equipment Finance for one of his group companies Nirmal Lifestyle. The NBFC has claimed that it is a secured creditor of the owner of the property and therefore holds a valid first charge.

    The division bench of Justice RD Dhanuka and Justice Gauri Godse, in an oral order, allowed the petition filed by the administrator of Srei Equipment Finance. The detailed order was not uploaded till press time.

    Counsel Mayur Khandeparkar and Ativ Patel of AVP Partners appeared for Srei Equipment Finance in the case.

    The NBFC had submitted that the Real Estate (Regulation & Development) Act, 2016 only provides for the recovery of amounts due as arrears of land revenue, but does not provide that such amounts constitute a first charge on any property.

    “Therefore, in the absence of such statutory stipulations, any amounts due from a developer under the said Act cannot and do not take precedence over the claims of the secured creditor and / or prevail over the first charge created in favour of a secured creditor in respect of the property against which recourse is sought to be taken,” SREI Equipment Finance said in its petition.

    According to the NBFC, even in terms of section 169 of the Code, the monies sought to be recovered through the proposed auction sale are only recoverable as arrears of land revenue, and are not on account of actual arrears of land revenue. And hence, they have priority only over unsecured claims, and cannot supersede or defeat the first charge of a secured creditor in respect thereof.

    This is the second time the property was being sought to be auctioned to satisfy the orders, issued in 2018, obtained by a homebuyers’ group Nirmal Developer Olympia Aggrieved Buyers Association.

    The developer had approached the financial institution to borrow funds in 2011. In June 2011, SREI Equipment Finance had lent Rs 40 crore to Nirmal Lifestyle and the mortgage was created in favour of the lender. In 2019, the NBFC further advanced over Rs 168.47 crore to the developer.

    In January 2020, Nirmal Developers informed the lender about an auction notice issued by the revenue department then. Through a writ petition, the NBFC had objected to the auction to be held in January 2020. The petition was allowed and the auction notice was quashed and set aside.

    SREI Equipment Finance had highlighted that the auction notice requires the proposed buyers be informed of any lien of a third party or any charge over the property. However, the notice for the auction that was scheduled to be held on Friday failed to mention any right of the lender despite a statutory requirement to do so.


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