The Supreme Court bench comprising Justices M.R. Shah and Krishna Murari was hearing an Appeal yesterday and held that the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets. CMM/DM does not required to adjudicate disputes between Borrower/ Third Party and Secured Creditor.
Legal heirs of original respondent No. 2 aggrieved and dissatisfied with the impugned judgment and order passed by the Bombay High Court, by which the Division Bench of the High Court allowed the writ petition preferred by the respondent No. 1/secured creditor and set aside order passed by the designated authority under Section 14 of the SARFAESI Act, 2002 and directed the designated authority under Section 14 of the SARFAESI Act to dispose of the application under Section 14 of the SARFAESI Act afresh, legal heirs of original respondent No. 2 claiming to be the tenant of the mortgaged property, have preferred the present Special Leave Petition.
Facts:
The Religare Finvest Ltd. sanctioned a loan of Rs. 6 crores in favour of the borrowers. The said loan was secured by a registered mortgage created by borrowers in favour of Religare in respect of the property secured assets. The borrowers committed defaults in repayment of the said loan which led to Religare classifying borrowers’ account as a Non-Performing Asset (NPA). The Religare thereafter, issued a notice dated 13.04.2018 under Section 13(2) of the SARFAESI Act calling upon borrowers to pay the amount then outstanding under the said facility. That thereafter, by a Deed of Assignment dated 29.09.2018, Religare assigned all its right, title, interest, and benefit under the said loan agreement to respondent No. 1 herein – original petitioner No. 1 before the High Court. Thus, respondent No. 1 – original petitioner No. 1 stepped into the shoes of Religare and became the secured creditor and in that capacity issued a notice dated 21.05.2019 under Section 13(2) of the SARFAESI Act to borrowers calling upon borrowers to make payment of a sum of Rs. 5,83,22,866/. That thereafter, the secured creditor took symbolic possession of the secured assets under Section 13(4) of the SARFAESI Act. On 21.09.2019, the same was intimated to the borrowers vide their letter dated 21.09.2019. A public notice was also issued by the secured creditor in two newspapers in compliance with the provisions of the Security Interest (Enforcement) Rules, 2002. That thereafter, the secured creditor filed an application under Section 14 of the SARFAESI Act seeking assistance of designated authority – respondent No. 3 herein – District Magistrate, Nashik, for taking physical possession of the secured assets. The petitioner herein – original respondent No. 2 claiming to be a tenant sought to intervene in the said proceedings filed under Section 14 of the SARFAESI Act. The petitioner placed reliance upon an order dated 20.04.2018 passed in Regular Civil Suit filed by him against one of the borrowers, whereby one of the borrowers was restrained from dispossessing him from the said premises. At this stage, it is required to be noted that neither the borrower(s) nor the petitioner(s) instituted any proceedings before the Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act against the steps taken under Section 13 of the SARFAESI Act. That thereafter, the designated authority passed the following order dated 27.08.2021 and declined to assist the secured creditor in taking possession of the secured assets and kept the said application pending by observing that after termination of the tenancy rights of the petitioner by the Finance Company by following due procedure of law the further orders regarding possession of the mortgage property will be decided.
Feeling aggrieved and dissatisfied with the order dated 27.08.2021 passed by the designated authority – Additional District Magistrate, Nashik in not passing any order of assisting the secured creditor in taking possession of the secured assets in exercise of powers under Section 14 of the SARFAESI Act, the secured creditor preferred writ petition before the High Court. By the impugned judgment and order, the Division Bench of the High Court has set aside order dated 27.08.2021 passed by the designated authority/ Additional District Magistrate by observing that such an order is beyond the scope and ambit of the powers to be exercised under Section 14 of the SARFAESI Act. That thereafter, the Division Bench of the High Court has directed the designated authority/Additional District Magistrate to hear and dispose of the application under Section 14 of the SARFAESI Act in accordance with the provisions of Section 14 of the SARFAESI Act.
Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court, the third party – petitioner(s) claiming to be a tenant in some of the secured assets have preferred the present Special Leave Petition.
Petitioner’s Submission:
Learned Senior Advocate, appearing on behalf of the petitioners has vehemently submitted that in the facts and circumstances of the case and when the petitioners claimed to be the tenant of the original landlord with respect to some of the secured assets of which the possession was sought and when the original writ petitioner stepped into the shoes of the original landlord as rightly observed by the designated authority – Additional District Magistrate unless the secured creditor who stepped into the shoes of the original landlord initiates the legal proceedings for eviction of the tenant cannot get the possession in an application under Section 14 of the SARFAESI Act.
It was vehemently submitted by the learned Senior Advocate, appearing on behalf of the petitioners that the High Court ought to have appreciated that the tenancy was subsisting and continuing since prior to the mortgage of the property and therefore, their rights are to be protected and unless and until the proceedings are initiated for eviction of the tenant, the secured creditor who will be in the shoes of the original landlord, cannot get the possession in an application under Section 14 of the SARFAESI Act. Reliance is placed upon the decisions of this Court in the cases of Harshad Govardhan Sondagar v. International Assets Reconstruction Company Limited and Others, REED 2014 SC 04201 and Vishal N. Kalsaria v. Bank of India and Others, REED 2016 SC 01203.
Court’ Analysis:
It was required to be noted that after initiation of the proceedings and taking steps under Section 13(2) and 13(4) of the SARFAESI Act, thereafter, the secured creditor has approached the District Magistrate by submitting an application under Section 14 of the SARFAESI Act and has requested the District Magistrate/Additional District Magistrate to assist the secured creditor in obtaining the possession of the secured assets. It was required to be noted that neither the original borrowers nor even the petitioners who are claiming to be a tenant of the secured assets have initiated any proceedings before Debt Recovery Tribunal under Section 17 of the SARFAESI Act. The proceedings before the District Magistrate were under Section 14 of the SARFAESI Act. In the said application under Section 14 of the SARFAESI Act instead of passing any final order to assist the secured creditor in getting the possession of the secured assets and while keeping the said application, the Additional District Magistrate has passed an order that only after the termination of the tenancy rights of the petitioner by the finance company (secured creditor) by following due procedure of law the further orders regarding possession of the mortgage property, the said application shall be decided. The aforesaid order passed by the Additional District Magistrate has been set aside by the High Court which is the subject matter of the present Special Leave Petition.
The short question which was posed for consideration of the Apex Court was whether while exercising the powers under Section 14 of the SARFAESI Act, the District Magistrate/ designated authority could have passed such an order that unless and until the secured creditor terminates the tenancy rights of the third person by following due procedure of law and further orders regarding possession of the mortgaged property then and then only an application under Section 14 of the SARFAESI Act will be decided?
On a fair reading of Section 14 of the SARFAESI Act, it appears that for taking possession of the secured assets in terms of Section 14(1) of the SARFAESI Act, the secured creditor is obliged to approach the District Magistrate/Chief Metropolitan Magistrate by way of a written application requesting for taking possession of the secured assets and documents relating thereto and for being forwarded to it (secured creditor) for further action.
The statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the SARFAESI Act from the secured creditor for that purpose. As soon as such an application is received, the CMM/DM is expected to pass an order after verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act and after being satisfied in that regard, to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity. As observed and held by this Court in the case of NKGSB Cooperative Bank Limited v. Subir Chakravarty and Others, REED 2022 SC 02206, the aforesaid act is a ministerial act. It cannot brook delay. Time is of the essence and this is the spirit of the special enactment. In the recent decision in the case of R.D. Jain and Company v. Capital First Limited and Others, REED 2022 SC 07201, this Court had an occasion to consider the powers exercisable by District Magistrate/Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act.
Supreme Court observed, that the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets. CMM/DM does not require to adjudicate disputes between Borrower/ Third Party and Secured Creditor. In that view of the matter once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner. At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor
and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal. Under the circumstances in the present case no error has been committed by the High Court in setting aside the order dated 27.08.2021 passed by the designated authority keeping the application pending till the secured creditor initiates the legal proceedings for eviction of the tenant cannot get the possession in an application under Section 14 of the SARFAESI Act. The High Court has rightly directed the designated authority to proceed further with the application under Section 14 of the SARFAESI Act, and to dispose of the same in accordance with the provisions of Section 14 of the SARFAESI Act.
Now so far as the reliance placed upon the decision of this Court in the case of Harshad Govardhan Sondagar v. International Assets Reconstruction Company Limited and Others, REED 2014 SC 04201, by the learned counsel appearing on behalf of the petitioner is concerned, the same shall not be applicable to the facts of the case on hand, what is observed by this Court in the aforesaid case is the DM/CMM has to give a notice and opportunity of hearing to the person in possession of the secured assets claiming to be a “Class (1) or (2)” lessee of mortgagor/borrower, as well as to secured creditor, consistent with principles of natural justice, and then take a decision. In the said decision, it is not observed that the DM/CMM has to adjudicate the rights between the parties.
Now so far as the reliance placed upon the decision of this Court in the case of Vishal N. Kalsaria v. Bank of India and Others, REED 2016 SC 01203, by the learned counsel appearing on behalf of the petitioner is concerned, the said decision shall also not be applicable to the facts of the case on hand. In the said decision, the question before this Court was of conflict of claim under the Maharashtra Rent Control Act, 1999 and the provisions of the SARFAESI Act, and which law will prevail. The scope and ambit of the powers to be exercised under Section 14 of the SARFAESI Act were not directly in question before this Court. Even as observed and held by this Court in the aforesaid decision, a judgment cannot be interpreted and applied to fact situations by reading it as a statute. One cannot pick up a word or sentence from a judgment to construe that it is the ratio decidendi on the relevant aspects of the case.
In view of the above and for the reasons stated above, the Supreme Court bench were of the opinion that the High Court has not committed any error in passing the judgment and order and directing the designated authority to dispose of the application under Section 14 of the SARFAESI Act. The Bench were in complete agreement with the view taken by the High Court. The Special Leave Petition was dismissed.
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