Section 26C of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
1[26C. Effect of the registration of transactions, etc.--(1) Without prejudice to the provisions contained in any other law, for the time being in force, any registration of transactions of creation, modification or satisfaction of security interest by a secured creditor or other creditor or filing of attachment orders under this Chapter shall be deemed to constitute a public notice from the date and time of filing of particulars of such transaction with the Central Registry for creation, modification or satisfaction of such security interest or attachment order, as the case may be.
- (2)Where security interest or attachment order upon any property in favour of the secured creditor or any other creditor are filed for the purpose of registration under the provisions of Chapter IV and this Chapter, the claim of such secured creditor or other creditor holding attachment order shall have priority over any subsequent security interest created upon such property and any transfer by way of sale, lease or assignment or licence of such property or attachment order subsequent to such registration, shall be subject to such claim: Provided that nothing contained in this sub-section shall apply to transactions carried on by the borrower in the ordinary course of business.]
Summary
- Registering a security interest or an attachment order acts as a public notice from the exact date and time it is filed.
- Once registered, the claim of a creditor gets priority over any newer security interests created on that exact same property.
- The registered claim also survives if the property is later sold, leased, or licensed to someone else, meaning the new owner takes it subject to the older debt.
- There is a specific exception for normal business transactions, meaning a person buying normal inventory from a business in its ordinary course of trade does not carry the debt burden.
Practical examples
FAQ
1. What does it mean that registration is a public notice?
It means everyone is legally assumed to know about the debt or attachment the moment it is filed in the Central Registry.
2. Who gets paid first if multiple people have a claim on the property?
The creditor who filed their security interest or attachment order first gets priority over claims filed later.
3. What happens if a borrower sells a property that has a registered attachment order?
The buyer takes the property subject to the creditor's claim, unless the sale was part of the borrower's ordinary daily business.
Test yourself
Q1.Under Section 26C of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what is the legal effect of a bank filing the particulars of a new security interest with the Central Registry?
Q2.Under Section 26C of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, if a bank registers a security interest on a building, and the borrower later leases that building to a tenant, what is the status of the bank's claim?
Q3.Under Section 26C of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in which scenario does a bank's registered security interest NOT bind a subsequent buyer of the borrower's assets?
Q4.Under Section 26C of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what happens if two different lenders claim a right to the same property?