The Division Bench of the Bombay High Court comprising Justices K.R. Shriram and A.S. Doctor was hearing a Writ Petition of the Secured Creditors, where the Chief Metropolitan Magistrate (CMM)/ District Magistrate (DM) rejected to assist Petitioner in taking possession of the secured assets after holding that the application filed by Petitioner under section 14 of the SARFAESI Act, seeking the assistance of Respondent No.1 for taking physical possession of the secured assets.
The facts of the case were, that the borrowers had approached Religare Finvest Limited for a loan of Rs. 6 Crores. Religare by its sanction letter dated 30th September, 2014 issued the said loan to Borrowers. The said loan was secured by a registered mortgage created by Borrowers in favour of Religare. Thereafter, Borrowers committed defaults in repayment of the said loan which led to Religare classifying Borrowers’ account as a Non-Performing Asset (NPA) with effect from 31st March, 2018. Religare, thereafter, issued a notice dated 13th April, 2018 under Section 13(2) of the SARFAESI calling upon Borrowers to pay the amount then outstanding under the said facility within the sixty days period provided for under Section 13(2) of the SARFAESI Act. On 21st May, 2019 under Section 13(2) of the SARFAESI Act, again a second notice was sent calling upon Borrowers to make payments of a sum of Rs.5,83,22,866/-. By the second SARFAESI notice, Petitioner recalled the first SARFAESI notice and called upon Borrowers to read the second SARFAESI notice, as being the stipulated demand notice under Section 13(2) of the SARFAESI Act.
Since Borrowers failed and neglected to discharge in full the outstanding loan amount within the sixty-day period stipulated in Section 13(2) of the SARFAESI Act, Petitioner took symbolic possession of the secured asset under Section 13(4) of the SARFAESI Act. Pertinently, no proceedings were taken by Borrowers under Section 17 of the SARFAESI Act challenging the steps taken by Petitioner under Section 13 of the SARFAESI Act. On 21st September, 2019, Petitioner took symbolic possession of the secured assets and intimated this fact to Borrowers vide their letter dated 21st September, 2019. A public notice was also issued by Petitioner in two newspapers in compliance with the provisions of the Security Interest (Enforcement) Rights, 2002.
Thereafter, Petitioner filed an application under Section 14 of the SARFAESI Act seeking the assistance of Respondent No.1 for taking physical possession of the secured assets. On or about 10th November, 2020, Respondent No. 2, claiming to be a tenant in respect of the ground floor plus first-floor showroom along with service station on a part of the secured assets, sought to intervene in the said proceedings filed by Petitioner before Respondent No.1. Respondent No.2 placed reliance upon an order dated 20th April, 2018 passed in Regular Civil Suit No.58 of 2018 filed by Respondent No. 2 against one of the Borrowers (i.e. Respondent No. 8), whereby Respondent No. 8 was restrained from dispossessing Respondent No. 2 from the said premises. Pertinently, Respondent No. 2 also did not adopt any proceedings before the DRT under Section 17 of the SARFAESI Act.
Petitioner filed an Affidavit dated 22nd January, 2021 before Respondent No.1 in reply to the intervention application and dealt with all the contentions raised by Respondent No.2 in the said Application for Intervention. The said Reply specifically stated that the Intervention Application and contentions raised therein were beyond the scope of the jurisdiction of Respondent No.1 under Section 14 of the SARFAESI Act. Despite the protest of Petitioner, Respondent No.1, vide the impugned order dated 27th August, 2021, declined to assist Petitioner in taking possession of the secured assets after holding that the application filed by Petitioner under SARFAESI Act was legal and valid.
The present Writ Petition filed by the Secured Creditor against the impugned order dated 27th August 2021 passed by Respondent No.1 (Additional District Magistrate, Nashik) seeking the assistance of Respondent No.1 to recover possession of the properties mortgaged (“secured asset”) by Respondent Nos. 3 to 8 (Borrowers) in favour of Petitioner. By the impugned order not only has Respondent No.1 failed and neglected to assist Petitioner in recovering possession of the secured asset but has effectively granted relief in favour of Borrowers and Respondent No.2 (a Third Party).
Counsel appearing on behalf of Petitioner submitted that the impugned order was not only incomprehensible but also in excess of the jurisdiction vested in Respondent No. 1 under Section 14 of the SARFAESI Act. Respondent No. 1, on the one hand, has held the Application filed by Petitioner to be legal and valid as per the provisions of the SARFAESI Act but then instead of passing an order for recovery of possession of the secured assets, kept the Application pending and subject to the outcome of certain purported tenancy proceedings pending between Respondent No. 2 and Respondent No. 8.
Counsel for the Petitioner argued that the impugned order was completely beyond the scope of Section 14 and the jurisdiction vested in Respondent No. 1 under Section 14. The jurisdiction of the DA under Section 14 of the SARFAESI Act was well-settled by several judgments which held that the jurisdiction of the DA under Section 14 of the SARFAESI Act was limited only to the extent of assisting secured creditors in obtaining possession of the secured assets and nothing more. Section 14 did not even remotely contemplate, much less empower the DA to conduct any inquiry/hearing and/or consider and decide any objections raised by Borrower or a Third Party.
The scope of the provisions of Section 14 is limited to verification of the mortgage documents deposited with the secured creditor and also, to ensure that the secured creditor had complied with and/or followed the process laid down under the SARFAESI Act (more particularly Section 13 and 14). After such verification, if the DA is satisfied that the secured creditor has a valid mortgage over the secured assets in question, then the DA without any further adjudication is necessarily required to render the assistance needed by the secured creditor to take possession of the secured assets and hand over the same to the authorised officer of the secured creditor, counsel for the Petitioner pleaded.
Counsel for the Petitioner submitted that Section 14 of the SARFAESI Act does not provide for the Borrower much less a Third Party the right to file any reply or to intervene in the proceedings adopted by the secured creditor. The DA when hearing an Application filed under Section 14 of the SARFAESI Act, is not empowered to hear Borrower much less a Third Party.
Respondent No.1 even in entertaining and/or accepting the application filed by Respondent No. 2 has exceeded the scope of his jurisdiction under Section 14 of the SARFAESI Act. The remedy, available, to Borrowers and/or Third Parties aggrieved by steps taken under Section 13 of the SARFEASI Act, would be to file an Application under Section 17 of the SARFAESI Act before the relevant DRT and not to raise any dispute before the DA in proceeding adopted under Section 14. Respondent No.1 has completely ignored and given a go-by to the guidelines prescribed by the Hon’ble Supreme Court on the scope of the jurisdiction of the DA’s when deciding Applications under Section 14 of the SARFAESI Act. Counsel for the Petitioner concluded by submitting that the impugned order was entirely bad in law. Respondent No. 1 clearly transgressed the scope of his jurisdiction under Section 14 of the SARFAESI Act and therefore the impugned order required to be set aside.
Per contra, Counsel appearing on behalf of Respondent No.1, while supporting the impugned order, very fairly did not dispute that Section 14 did not empower Respondent No.1 to consider objections taken by a Third Party while deciding an application under Section 14 of the SARFAESI Act. Counsel appearing on behalf of Respondent Nos. 2 to 9, supported the impugned order and submitted that no prejudice was caused to Petitioner as Respondent No.1 had not dismissed Petitioner’s application but merely kept the same open for decision after the termination of tenancy rights of original Respondent No.2 by following due procedure of law. They submitted that thus the impugned order was in fact perfectly just, fair and legal.
The High Court considered the papers and proceedings including the several judgments cited by the counsel for the Petitioner and was satisfied that Respondent No. 1 has not only transgressed the jurisdiction vested in him under Section 14 of the SARFAESI Act but has acted contrary to it. The High Court found that the impugned order was patently illegal and contrary to Section 14 of the SARFAESI Act and therefore the impugned order required to be quashed and set aside.
The jurisdiction of the CMM/DM under Section 14 of the SARFAESI Act is purely ministerial and limited only to assisting secured creditors in taking possession of secured assets and nothing more. Section 14 of the SARFAESI Act does not contemplate much less empower the DA to even consider much less adjudicate upon any objections raised by Borrower or anybody else. All that the DA is required to do when considering an Application under Section 14 is (a) to ascertain that the secured asset falls within his jurisdiction and (b) that the secured creditor has complied with the requirements of Section 13 and 14 of the SARFAESI Act, and nothing else. Once the DA is satisfied that the requirements of Sections 13 and 14 have been met and/or complied with, the DA has to proceed to take possession of the secured asset.
What is indeed shocking in the present case was that reliefs were granted to Borrowers/Third Parties not only in the teeth of the provisions of Section 14 but also despite the fact that these Borrowers/Third Parties have not even contested the steps taken by the secured creditors under Section 13 for enforcement of their securing interest by filing any application before the DRT under Section 17 of the SARFAESI Act. The High Court found that the DA under Section 14 of the SARFAESI Act claim powers which they do not have under Section 14 and proceed to pass orders which are completely contrary to the provisions of Section 14.
In the present case Respondent No. 1 while having categorically held, on the one hand, that the application filed by Petitioner was legal and valid has on the other hand completely derailed the efforts of Petitioner in securing possession of its security interest. Petitioner has been deprived of its security interest even though (a) Borrowers continued to be in default, and (b) there was no challenge by anyone to the proceedings adopted by Petitioner under Section 13 of the SARFAESI Act for enforcement of security interest. Thus, the proceedings adopted by Petitioner to secure possession of its security interest have been effectively scuttled and resulted in relief being granted to defaulting and non-co-operative Borrowers.
The High Court was constrained to note that the impugned order was yet another instance of the Designated Authorities (“DA”) under Section 14 of the SARFAESI Act not only failing and/or neglecting to exercise the jurisdiction vested in them under Section 14 of the SARFAESI Act, but instead, and regrettably acting in excess of the jurisdiction vested in them under Section 14 and also contrary to Section 14 of the SARFAESI Act. This was despite the fact that the scope of Section 14 as also the jurisdiction of the DA thereunder is not only clear from a plain reading of Section 14 but has since been emphasized in several judgements of the Supreme Court as well as the High Courts.
Thus, in light of the above observations, the High Court observed that the Additional District Magistrate, Nashik has transgressed the jurisdiction vested in him under Section 14 of the SARFAESI Act. The High Court set aside the impugned order and remanded the matter with the direction that the same be heard and disposed of within a period of six weeks from today in accordance with the provisions of Section 14 of the SARFAESI Act.
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