Case Law Details
Bajaj Finance Ltd. Vs LD. District Collector (Gujarat High Court)
On perusal of the section 26E and Section 14 of the SARFAESI Act, it is clear that the District Magistrate has to discharge the ministerial act of providing assistance to the secured creditor to take physical possession of the secured assets when the secured creditor has initiated the proceedings under section 13 of the SARFAESI Act.
As per the provisions of section 26E of the SARFAESI Act, the secured creditor has first claim/charge over the sale proceeds of the secured assets towards the recovery of the outstanding dues. Therefore, it is the mandatory for the District Magistrate to pass an order to provide police assistance to the secured creditors to take the possession of the secured assets as per provision of section 14 of the SARFAESI Act. Merely because there was an attachment of the property by the State Government under the provisions of Act of 1978, the possession of the property cannot be continued with the borrower and as such physical possession of the property ought to have been taken over by the petitioner – secured creditor as per the provisions of the SARFAESI Act.
In Gruh Finance Limited Vs District Magistrate, Surat being Special Civil Application No.18551 of 2015 decided on 25.11.2016, this Court held and observed in respect of scope of powers under Section 14 of the SARFAESI Act as under,
”The powers and the jurisdiction under Section 14 of the Act exercisable by the District Magistrate is not adjudicatory in nature. What are the rights of the parties in the civil realm, are not required to be gone into by the District Magistrate, nor the District Magistrate has powers to pronounce upon the rights of the parties in the context of any other law while entertaining the application under Section 14 of the Act. The function is anything but adjudicatory. The claims in respect of rights over the property cannot be considered at all. The powers are executory nature. What the Magistrate is supposed to see is whether ingredients of Section 14 of the Act are satisfied or not. The power is described as ministerial where the District Magistrate would turn line his adjudicatory eye. No rights are determined for the parties in Section 14 proceedings, as for that the Legislature has provided a special remedy before the Debt Recovery Tribunal who exercises the adjudicatory powers in respect of the disputes which may arise between the Bank and borrower and other aggrieved persons in course of the steps under the SARFAESI Act, 2002.” (Para 6.1)
In view of above, the communication dated 23rd December, 2021 is quashed and set aside and respondent no.1 is directed to pass fresh de novo order under section 14 of the SARFAESI Act after giving an opportunity of hearing to the petitioner.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned advocate Mr. P.R. Abichandani for the petitioner and learned Assistant Government Pleader Mr. Dhawan Jayswal for the respondent-State through video conference.
2. By this petition under Article 227 of the Constitution of India, the petitioner has prayed for the following reliefs :
“A. To quash and set aside the impugned order dated 23.12.2021 passed by the Ld. District Magistrate, Navsari in section 14 application and pleased to hold that the SARFAESI actions initiated by the petitioner is valid, legal and in accordance with law.
B. To stay pending the admission, hearing and final disposal of the present petition, the operation and implementation of the impugned order dated 23.12.2021 during the pendency of the petition.
C. To grant ad-interim relief in terms of para-B above.
D. To provide for the costs of this Special Civil Application.
E. To pass such other and further orders as this Hon’ble Court deems fit and proper in the facts and circumstances of the case.”
3. Brief facts of the case are as under :
3.1) M/s. SSVB Business Limited (For short “the borrower company”) had availed financial assistance from the petitioner in the years 2013 and 2015. For such loan, Mr. Vinod Sahebrav Rasal, Shrirang Prakashbhai Pol and Vikaram Prakashbhai Pol stood as mortgagors.
3.2) Due to default in repayment of such loan, the accounts of the borrower company was classified as Non Performing Asset.
3.3) The petitioner issued Demand Notice dated 28th February, 2020 under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(For short “the SARFAESI Act”) to the borrower company for recovery of the dues.
3.4) The Deputy Secretary, Home department, Gandhinagar vide passed order dated 9th September, 2020 stating that the borrower company is involved in illegal activities of financial fraud and therefore, the designated authority has been appointed to attach the assets of the borrower company and accordingly, the order of attachment of the properties of the borrower company is passed till the final outcome of the said proceedings in the Designated Court.
3.5) The borrower company failed to discharge the liability as per the demand notice and therefore, the petitioner had taken symbolic possession of the properties under mortgage on 19th September, 2020.
3.6) The petitioner thereafter filed application under section 14 of the SARFAESI Act against the borrower company on 23rd September, 2021.
3.7) The District Magistrate, Navsari by communication dated 23rd December, 2021 informed the petitioner-bank that no proceedings can be initiated under the SARFAESI Act against the borrowers. Being aggrieved by such communication, the petitioner preferred this petition with the aforesaid prayers.
4. Learned advocate Mr. P.R. Abichandani for the petitioner submitted that respondent-District Magistrate could not have have issued the impugned communication dated 23rd December, 2021 since the mortgage is created in favour of the petitioner on 13th December, 2013 and the attachment order is passed on 9th September, 2020 and therefore, the mortgage was created in favour of the petitioner before the attachment order is passed.
4.1) It was submitted that when there is a conflict between the Local Act and the Special Act, the priority is to be given to the Special Act and in the facts of the case, SARFAESI Act is a Special Act whereby the secured creditor can enforce security against the borrowers and therefore, the respondent – District Magistrate could not have passed the impugned order.
4.2) It was submitted that the petitioner has rightful claim over the secured assets which are attached by the State Government pursuant to the FIR registered with Vejalpur police station being FIR No. 45/2018 under the provisions of sections 3 and 7 of the Gujarat Protection of Interest of Depositors (In Financial Establishment) Act, 2003 and sections 409, 406, 420, 120-B of the Indian Penal Code as well as section 4, 5 and 6 of the Prize Chit and Money Circulation Schemes (Banning), Act, 1978. It was therefore, submitted that the petitioner has first charge over the property in question under the provisions of the SARFAESI Act though the same are attached pursuant to the registration of the aforesaid offences and therefore, the impugned communication is required to be quashed and set aside and the petitioner bank ought to have been allowed to take over the physical possession of the property in question.
5. On the other hand, learned Assistant Government Pleader Mr. Jayswal submitted that the State Government has already attached the property in the year 2020 and therefore, the petition is required to be dismissed.
5.1) It was submitted that the impugned communication of the District Magistrate is in consonance with the order dated 9th September, 2020 passed by the State Government through Home Department for the attachment of the property in question and therefore, the petition may be dismissed.
6. Having heard the learned advocates for the respective parties and having considered the documents on record, it appears that no order is passed under section 14 application and only a formal letter is addressed to the petitioner-bank intimating about the decision of the respondent no.1.
7. This Court in case of Canara Bank Limited (Erstwhile Syndicate Bank) v. State of Gujarat in Special Civil Application No. 8587 of 2021 vide order dated 13th January, 2022 in similar facts has held as under :
“6. Having heard the learned advocates for the respective parties and having considered the documents on record, it is necessary to refer to the provisions of sections 14 and 26E of the SARFAESI Act which reads as under :
“Section 14”
“14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.—
(1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him
(a) take possession of such asset and documents relating thereto; and
(b) forward such assets and documents to the secured creditor
“Section 26E”
“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 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.]”
7. On perusal of the above provisions, it is clear that the District Magistrate has to discharge the ministerial act of providing assistance to the secured creditor to take physical possession of the secured assets when the secured creditor has initiated the proceedings under section 13 of the SARFAESI Act.
8. As per the provisions of section 26E of the SARFAESI Act, the secured creditor has first claim/charge over the sale proceeds of the secured assets towards the recovery of the outstanding dues. Therefore, it is the mandatory for the District Magistrate to pass an order to provide police assistance to the secured creditors to take the possession of the secured assets as per provision of section 14 of the SARFAESI Act. Merely because there was an attachment of the property by the State Government under the provisions of Act of 1978, the possession of the property cannot be continued with the borrower and as such physical possession of the property ought to have been taken over by the petitioner – secured creditor as per the provisions of the SARFAESI Act.
9. This Court in case of Gruh Finance Limited v. The District Magistrate and others rendered on 9th February, 2017 in Special Civil Application No.436/2017 in similar facts has held as under :
“4. Looking at the contents of the impugned order whereby the District Magistrate has rejected the application under Section 14, it is viewed and stated by the Magistrate that the Bank had not approached with clean hands as certain criminal proceedings were pending before the court of Chief Judicial Magistrate, Mehsana and the details about the said proceedings were not disclosed. It was next recorded that in Criminal Inquiry No.3 of 2015 pending before the court of Judicial Magistrate, First Class, Kadi, a report under Section 202 of the Code of Criminal Procedure was submitted and in that report, it was stated that the complainant had paid the amount and that no amount was due. The learned District Magistrate reasoned that the dispute was sub-judice in that way. On the ground that the dispute between the parties being sub-judice, the Magistrate refused to exercise the power and rejected the application of the petitioner. It is evident that the District Magistrate in his reasoning and approach while passing the impugned order, drifted into the adjudicatory arena of the dispute. This was not the function to be discharged by the District Magistrate under Section 14 of the Act, nor such adjudicatory exercise was within his ambit of jurisdiction. The order was based upon such exercise.
5. The question about the kind and nature of powers exercised by the District Magistrate under Section 14 and the order which may be passed upon such application, is no longer res integra.
5.1 Following observations are noticed from the decision of the Apex Court in United Bank of India vs. Satyawati Tondon [(2010) 8 SCC 110],
“In terms of Section 14, the secured creditor can file an application before the Chief Metropolitan Magistrate or the District Magistrate, within whose jurisdiction the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor.”
(Para 21)
5.2 The observation applied by the Supreme Court is that the District
“Section 13(4) of the Securitisation Act provides for various measures a secured creditor may take to recover the secured debt; one of such measures is to take possession of the secured asset. A person aggrieved by any of the measures referred to in sub-section (4) of Section 13 of the Securitisation Act is granted a right to make an application to the Debts Recovery Tribunal (the Tribunal) within the prescribed period under Section 17(1) of the Securitisation Act. Under subsections (2), (3) and (4) of Section 17 of the Securitisation Act the statute has provided a complete code, including the powers to the Tribunal to declare any of the measures taken by the secured creditor under Section 13(4) of the Securitisation Act invalid and consequential restoration of possession to the person from whom the possession was taken. A person aggrieved by any order made by the Tribunal under Section 17 of the Securitisation Act has a statutory right of appeal under Section 18 of the Securitisation Act. Therefore, under the guise of acting under Section 14 of the Securitisation Act the Authority cannot be permitted to usurp statutory powers vested in the Tribunal.” (Para 7)
5.2.2 It was finally observed,
“Hence, the Authority who is called upon to act under Section 14 of the Securitisation Act can only assist, nay, is bound to assist the secured creditor in taking possession of the secured asset. Any dispute between the parties regarding the secured asset raised before the Authority cannot be gone into by the Authority; the Authority has to relegate the aggrieved person to seek statutory remedy under the Securitisation Act after taking possession and handing over to the ecured creditor. The Authority cannot be permitted to read anything beyond this is Section 14 of the Securitisation Act. (Para 9)
5.3 In Bharatbhai Ramniklal Sata vs. Collector and District Magistrate [2010 (2) GLR 985], after relying on the decision of the Supreme Court in Transcore vs. Union of India [(2008) 1 SCC 125] observed as under,
”From the aforesaid provisions of law and the decision of the Supreme Court, it will be clear that for taking possession, one of the measures for recovery of secured debts under subsection (4) to Section 13 of the Act includes the measures taken by secured creditor under Section 14 and therefore, if any order is passed under Section 14, though it cannot be challenged before any Court of law in view of sub-section (3) to Section 14, but one can raise the legality and propriety of such measures of taking possession under Section 17, if such measure is against the Securitisation Act or Rules framed thereunder.” (Para 11)
5.4 Similar view was reiterated in Canara Bank vs. Sulay Traders through Bipin Kantilal Vakta [2010 (1) GLR 770],
“After the aforesaid details are submitted, the learned Magistrate would be required to examine the same and verify the aspects being condition precedent for exercise of the power under Section 13(4) of the Act. If the learned Magistrate has any doubt about the genuineness of the statement or the reliability of the statement made, or about the compliance of any condition precedent for exercise of the power under Section 13(4) of the Securitisation Act, he has two options; one is that, he may call upon the Bank itself to supply the necessary details on any aspects, if he is not satisfied about the condition precedent for exercise of the power under Section 13(4) of the Securitisation Act; the second is that he may issue the notice to the borrower for verification of the existence of any fact which is required to be verified by him. Thereafter, he may proceed for exercise of the power under Section 14 of the Securitisation Act.
Be it noted that the Magistrate while exercising power under Section 14 of the Securitisation Act is required to verify the existence of the facts attracting power under Section 13(4) of the Securitisation Act, and he is not required to examine or adjudicate the rights of the parties, if it is demonstrated before him that certain facts do exist. It is the only factual verification to be made by the learned Magistrate. For example, the existence of equitable mortgage wherein he will be required to verify whether there is a document of equitable mortgage and whether the original Title Deeds are deposited with the Bank or not. Similarly, whether notice under Section 13(2) of the Securitisation Act has been served upon the person concerned or not, whether any reply or objection is raised or not and if yes, whether decision is taken or not and whether such decision is communicated or not and whether any payment is made or not after the notice under Section 13(2) of the Securitisation Act and if yes, any amount outstanding, etc. There cannot be any exhaustive list of the verification of facts, but suffice it to state that he would only be required to verify the existence of the fact which are relevant to have condition precedent for exercise of the power under Section 13(4) of the Securitisation Act. But he will not be required to adjudicate on the aspects of illegality and validity of such facts or the rights flowing therefrom.” (Para 7 & 8)
5.5 In I.D.B.I. Bank Ltd. vs. Hytaisun Magnetics Ltd. [2011 (2) GLH 1438], the same issue was addressed by the Division Bench and in the context various decisions on the point were surveyed. In that case, the borrowers had not disputed the fact of having taken financial assistance, however a plea was taken that the Bank was not holding any original title deeds of the property and therefore had no security interest which was essential for enforcement of the mortgage under the Securitisation Act. The District Magistrate dismissed the application of the Bank under Section 14 of the Act. The Division Bench while setting aside the order proceeded to lay down the following principles, reproducing those relevant to the subject matter issue here,
“(a) Only when the secured creditor finds difficulty to take possession of the secured asset, it may take assistance of the Chief Metropolitan Magistrate or the District Magistrate under Section 14 of the Act.
(b) The measures taken under Section 14 amounts to measures taken under Section 13(4) of the Act.
(c) As the measures taken under Section 14 amount to measures taken under Section 13(4) of the Act, under Section 14(3) such measures cannot be called in question before any Court or Tribunal.
(d) If such measures taken under Section 14 which amount to measures taken under Section 13(4) is not in accordance with the Securitization Act or the Rules framed thereunder, including the objection, if any, raised that the asset is not a secured asset to be taken under Section 13(4), the aggrieved person has a remedy under Section 17 before the Debts Recovery Tribunal to show that the measures taken are against the Act [Section 13(4)] or the Rules framed thereunder.
(e) All such determination is to be made by the Debts Recovery Tribunal including the question whether the asset is a secured asset or not and the Chief Metropolitan Magistrate or the District Magistrate has not been empowered to adjudicate such dispute, but is directed only to assist the secured creditor in taking possession of the secured asset. If they are not empowered to adjudicate the dispute, they cannot also call for the secured creditor to produce any document to decide whether the asset is secured asset or not, which will be futile exercise in absence of power to adjudicate such issue.” (Para 20)
5.6 In yet another decision of the Division Bench in Mansa Synthetic Private Limited vs. Union of India being Special Civil Application No.1829 of 2012, the principle was reiterated that the Magistrate is bound upon an application made, to assist the secured creditor in taking possession of the secured assets and is not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under Section13(4) of the Act. The proposition oflaw was followed and reiterated in Consumer Protection and Analytic Committee vs. State of Gujarat [2013 (4) GLR 3642]. The other decision on the same line is in Gruh Finance Limited vs. District Magistrate &Collector [2012 (2) GCD 1288]. The reiterative pronouncements in Kotak Mahindra Bank vs. District Magistrate decided by the Division Bench on 25.08.2011 being Special Civil Application No.8326 of 2011, in Kotak Mahindra Bank vs. District Magistrate decided on 18.06.2015 being Special Civil Application No.7512 of 2014 and in Gruh Finance Limited Vs District Magistrate decided on 03.07.2015 being Special Civil Application No.4838 of 2015, the later two decisions being by learned Single Judge.
5.7 In Gruh Finance Limited Vs District Magistrate, Surat being Special Civil Application No.18551 of 2015 decided on 25.11.2016, this Court held and observed in respect of scope of powers under Section 14 of the SARFAESI Act as under,
”The powers and the jurisdiction under Section 14 of the Act exercisable by the District Magistrate is not adjudicatory in nature. What are the rights of the parties in the civil realm, are not required to be gone into by the District Magistrate, nor the District Magistrate has powers to pronounce upon the rights of the parties in the context of any other law while entertaining the application under Section 14 of the Act. The function is anything but adjudicatory. The claims in respect of rights over the property cannot be considered at all. The powers are executory nature. What the Magistrate is supposed to see is whether ingredients of Section 14 of the Act are satisfied or not. The power is described as ministerial where the District Magistrate would turn line his adjudicatory eye. No rights are determined for the parties in Section 14 proceedings, as for that the Legislature has provided a special remedy before the Debt Recovery Tribunal who exercises the adjudicatory powers in respect of the disputes which may arise between the Bank and borrower and other aggrieved persons in course of the steps under the SARFAESI Act, 2002.” (Para 6.1)
6. The case of the respondents about payment of amount was disputed by the petitioner. In any view, said aspect may be a defence for the respondents in the proceedings which may be initiated by the petitioner, but it does not constitute a ground for the District Magistrate to exercise powers under Section 14 of the Act.”
8. In view of above, the communication dated 23rd December, 2021 is quashed and set aside and respondent no.1 is directed to pass fresh de novo order under section 14 of the SARFAESI Act after giving an opportunity of hearing to the petitioner. Such exercise shall be completed within a period of four weeks from the date of receipt of this order.
9. It is made clear that the attachment placed by the State Government under the Act of 1978 shall continue to operate without being affected by taking over the possession by the petitioner- secured creditor under section 14 of the SARFAESI Act.
10. The petition is accordingly disposed of.
Notice is discharged.
