One of the issues in enforcing the Sarfaesi Act, 2002 is whether the bank should obtain de facto possession/actual physical possession before putting the immovable property to sale under section 13(4) of the Act or should it contend with the symbolic possession under the same section.

Section 13(6) of the Act states as under:-

“Any transfer of the secured asset after taking possession thereof or takeover of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in transferee all right in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.”

However, it is always preferred by Banks to get the symbolic possession because it is a safer and easy approach.

The symbolic possession is preferred by Banks also for the reason that it gives a demonstration effect. The secured debtor is put to mental social pressure as he is defamed in the locality of his residence. In most of the cases where the symbolic possession is taken by putting the notice on the main entrance of the property/ residence and photographs are taken in the presence of four/five bankers showing the symbolic possession, the secured debtor comes under pressure and comes forward with the outstanding amount or for a settlement with the bankers.

All actions may be stopped forthwith before date gets fixed for sale or transfer

Before confirmation of sale the property can be recouped by the borrower if he tenders the amount due.

Under section 13(8) of the Act, if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.

De facto or actual possession not required before sale

In this connection let us refer to the judgment given by Kerala High Court in the case of Kottakkal Cooperative Urban Bank V/s T Bala Krishnan1. In this case the secured debt was put to sale without taking actual possession and was bid by a third party auction purchaser. The sale was confirmed and sale certificate issued to the third party. The sale under reference was never under challenge. The question that arose for decision in this case was as to whether remedy by way of recourse to Section 14 of the Act is available to take actual possession of the secured asset from the secured debtor, after completion of sale on the basis of symbolic possession, taken on the basis of notice under section 13(4) of the Act read with rule 6 of the Rules.

What section 13(4)(a) authorizes is to take possession of the secured assets of the borrower, including the right to transfer by way of lease, assignment or sale, for releasing secured asset. Going over to section 13(6), any transfer of the secured asset by the secured creditor, after taking possession thereof under section 13(4), shall vest in transferee, all rights in, or relation to, the secured asset so transferred as if the transfer has been made by the owner of such secured asset. Therefore, to complete a transfer by a secured creditor in favour of third party, the necessary pre condition is that possession is taken in the terms of section 13(4) of the Act. A close look at the section 13(4)(a) would show that what is authorised thereby is taking of possession of secured asset, including the right to transfer.

While taking over of possession is authorised and such taking over of possession includes the taking over of the right to transfer,

there is no stipulation in section 13 or elsewhere that the right to transfer can be exercised only after taking over the actual physical possession or that the exercise of taking over possession under section 13(4) shall be of actual physical possession, resulting in complete dispossession of the secured debtor, de facto and de jure.

Right of the auction purchaser to get de facto possession

While there is vesting of right, exclusively with the transferee under a sale in terms of section 13(6), such vesting of sale gives the transferee the right to demand the secured creditor for actual physical possession. Such vesting, by operation of section 13(6) is in relation to the secured asset as if the transfer had been made by the owner of such secured asset. Such deemed vesting, by operation of law, gives entitlement to the transferee to insist that the secured creditor puts the transferee in the de facto possession by dispossessing the secured debtor who continues in de facto possession only by the choice of the secured creditor to take only de jure possession, leaving the secured debtor with the actual possession.

Therefore, the secured creditor, who has taken over de jure possession continues to be a secured creditor, duty bound to give the transferee de facto possession and such liability of secured creditor gives sufficient standing to sustain the application for dispossession of secured debtor, of de facto possession over the security interest, by the recourse to section 14 of the Act.

On thfs count also, a secured creditor who has not taken de factd possession but has proceeded and completed transferors on the basis of de jure possession is entitled to apply for assistance of Chief Metropolitan Magistrate or the District Magistrate as the case may be, for taking over actual physical possession from the secured debtor. The result of the proceeding would be that this secured debtor would be dispossessed of actual possession and de facto possession would be taken by secured creditor, who would then, duty bound, as he is, transfer such de facto possession to the transferee of rights under section 13(6) of the Act. (Reference AIR 2008 Kerala 179).

Right of the aggrieved dispossessed borrower

The scheme of section 13(4) read with section 17(3) shows that if the borrower is dispossessed, not in accordance with the provisions

of the Act, then DRT is entitled to put the clock back by restoring the status quo ante. (Transcore V/s Union of India1)

District Administration’s Role in the Realization Process

Section 14 of SARFAESI Act assigns a duty on Chief Metropolitan Magistrate or District Magistrate as an Administrative Head of the District to assist secured creditor in taking physical possession of secured asset.

This duty is required to be performed by District Magistrate under his administrative powers. He is expected to act upon the request of the bank and take steps to obtain possession of secured assets.

Wherever the acquisition of the secured asset is resisted by the borrower/guarantor, the authorised officer has to file a application u/s 14 of the Act before CMM/DM, seeking his help for acquisition of the assets. He has to verify that:-

I. Notice u/s 13(2) of the Act has duly been given.

II. The account has become non-performing.

III. The bank holds the documents about charge on the securities/assets, whose possession is to be taken over.

IV. The secured assets fall within the jurisdiction of CMM/ DM.

V. The secured assets do not fall within exempted category u/s 31 of Act.

The provisions of the Act are not applicable to Agricultural land. However, if land in question is actually put to industrial/ residential/commercial use instead of agriculture, the bank can proceed with actions under Sarfaesi Act.

The application before CMM/DM may not be filed in the following cases:

I. Suit filed cases where the court/DRT has appointed a receiver for the assets.

II. Where interim order like injunction/attachment is in operation.

III. Where certificate has been issued by DRT and steps have been taken to realise the asset as per the certificate.

The debts recovery tribunal (DRT)/DRAT are empowered to hear the objections of anybody including mortgagor/borrower against the decision of the bank to take the possession of secured assets. Further Section 14(3)(1) protects Chief Metropolitan Magistrate and District Magistrate that if they act in pursuance of this Section, they cannot be called in question in any Court or before any authority.

By the effect of Section 34 and 35 of this Act, no Civil Court has any jurisdiction to entertain any suit or proceedings in respect of the secured assets. Once a notice has been issued by the bank as secured creditor to mortgagor under Section 13(2) or (4) of this Act, the only DRT and DRAT are empowered to determine the disputes by or under this Act in respect of secured assets. If the suit or proceedings are existing before any Civil Court prior to issuing of notice under this Act by secured creditor, they can also be got stayed or dropped if they are inconsistent to the rights of a secured creditor under this Act. In such a case the bank can request Civil Court itself or proceed to DRT for this purpose.

By CA Surendra Agrawal – [email protected]

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  1. ankur says:

    One of the Residential Property is available for E-Auction by the Bank, but some one is already staying in the said property and DM order is pending at present. Is it advisable to purchase such property after going through the entire process of E-Auction?

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September 2021