Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
EXTRA ORDINARY APPELLATE JURISDICTION
SPECIAL LEAVE PETITION NO. 16013 OF 2022
Balkrishna Rama Tarle Dead Thr LRS & Anr. ...Petitioner(s)
Versus
Phoenix ARC Private Limited & Ors. …Respondent(s)
O R D E R
M.R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned
judgment and order dated 03.08.2022 passed by the High
Court of Judicature at Bombay in Writ Petition No.
9749/2021, by which the Division Bench of the High Court
has allowed the said writ petition preferred by the
respondent No. 1 herein – secured creditor and has set
aside order dated 27.08.2021 passed by the designated
authority under Section 14 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Signature Not Verified
Digitally signed by
SNEHA
Date: 2022.09.26
15:07:12 IST
Reason:
Security Interest Act, 2002 (hereinafter referred to as the
SARFAESI Act, 2002) and directed the designated
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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.
2. The Religare Finvest Ltd. (hereinafter referred to as the
Religare) 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
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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 in respect of the ground floor
plus first floor showroom along with service station on a
part of the secured assets bearing Nos. 465 and 463
sought to intervene in the said proceedings filed under
Section 14 of the SARFAESI Act. The petitioner placed
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reliance upon an order dated 20.04.2018 passed in
Regular Civil Suit No. 58/2018 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. The order dated 27.08.2021 is as
under:
1. In consideration of the reasons recorded in the
above referred issues and conclusions, the
Application of the Finance Company is kept for
decision.
2. After termination of the tenancy rights of the
thirdperson Complainant Shri. Balkrishna
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Rama Tarle by the Finance Company by
following due procedure of law the further orders
regarding possession of the mortgage property
will be decided.
3. If any party feel aggrieved due to this order, then
they may file an appeal under section 17 of the
Securitisation Act, 2002 before Hon’ble Debts
Recovery Tribunal, Mumbai.
4. No order as to cost.”
2.1 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
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dispose of the application under Section 14 of the
SARFAESI Act in accordance with the provisions of Section
14 of the SARFAESI Act.
2.2 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.
3. Shri Vinay Navare, 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.
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3.1 It is vehemently submitted by Shri Navare, 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
Vs. International Assets Reconstruction Company
Limited and Ors.; (2014) 6 SCC 1 and Vishal N. Kalsaria
Vs. Bank of India and Ors.; (2016) 3 SCC 762.
4. We have heard learned counsel appearing on behalf of the
petitioners at length. At the outset, it is 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
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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 is 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
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High Court which is the subject matter of the present
Special Leave Petition.
5. Therefore, the short question which is posed for
consideration of this Court is 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?
5.1 While considering the aforesaid question/issue, the scope,
ambit, and jurisdiction of the District
Magistrate/designated authority under Section 14 of the
SARFAESI Act are required to be considered. Section 14 of
the SARFAESI Act reads as under:
“ 14. Chief Metropolitan Magistrate or District Magistrate
to assist secured creditor in taking possession of secured
—(1) Where the possession of any secured assets is
asset.
required to be taken by the secured creditor or if any of the
secured assets 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 assets, request, in writing, the Chief
Metropolitan Magistrate or the District Magistrate within
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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 asset and documents to the secured
creditor:
[Provided that any application by the secured creditor shall
be accompanied by an affidavit duly affirmed by the
authorised officer of the secured creditor, declaring that—
(i) the aggregate amount of financial assistance granted and
the total claim of the Bank as on the date of filing the
application;
(ii)the borrower has created security interest over various
properties and that the Bank or Financial Institution is
holding a valid and subsisting security interest over such
properties and the claim of the Bank or Financial Institution
is within the limitation period;
(iii)the borrower has created security interest over various
properties giving the details of properties referred to in sub
clause (ii)above;
(iv) the borrower has committed default in repayment of the
financial assistance granted aggregating the specified
amount;
(v) consequent upon such default in repayment of the
financial assistance the account of the borrower has been
classified as a nonperforming asset;
(vi) affirming that the period of sixty days notice as required
by the provisions of subsection (2) of section 13, demanding
payment of the defaulted financial assistance has been
served on the borrower;
(vii) the objection or representation in reply to the notice
received from the borrower has been considered by the
secured creditor and reasons for nonacceptance of such
objection or representation had been communicated to the
borrower;
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(viii) the borrower has not made any repayment of the
financial assistance in spite of the above notice and the
Authorised Officer is, therefore, entitled to take possession of
the secured assets under the provisions of subsection (4) of
section 13 read with section 14 of the principal Act;
(ix) that the provisions of this Act and the rules made
thereunder had been complied with:
Provided further that on receipt of the affidavit from
the Authorised Officer, the District Magistrate or the Chief
Metropolitan Magistrate, as the case may be, shall after
satisfying the contents of the affidavit pass suitable orders
for the purpose of taking possession of the secured assets
[within a period of thirty days from the date of application]
[Provided also that if no order is passed by the Chief
Metropolitan Magistrate or District Magistrate within the
said period of thirty days for reasons beyond his control, he
may, after recording reasons in writing for the same, pass
the order within such further period but not exceeding in
aggregate sixty days.]
Provided also that the requirement of filing affidavit
stated in the first proviso shall not apply to proceeding
pending before any District Magistrate or the Chief
Metropolitan Magistrate, as the case may be, on the date of
commencement of this Act.]
[(1A) The District Magistrate or the Chief Metropolitan
Magistrate may authorise any officer subordinate to him,—
(i)to take possession of such assets and documents relating
thereto; and (ii) to forward such assets and documents to the
secured creditor.]
(2) For the purpose of securing compliance with the
provisions of subsection (1), the Chief Metropolitan
Magistrate or the District Magistrate may take or cause to be
taken such steps and use, or cause to be used, such force,
as may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the
District Magistrate [any officer authorised by the Chief
Metropolitan Magistrate or District Magistrate] done in
pursuance of this section shall be called in question in any
court or before any authority.”
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5.2 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 Vs. Subir Chakravarty & Ors. (Civil Appeal
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No. 1637/2022) decided on 25.02.2022, 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 M/s R.D. Jain and Co.
(Civil Appeal No. 175/2022)
Vs. Capital First Ltd. & Ors.
decided on 27.07.2022, this Court had an occasion to
consider the powers exercisable by District
Magistrate/Chief Metropolitan Magistrate under Section
14 of the SARFAESI Act. After considering the object and
purpose of Section 14 of the SARFAESI Act and the
Scheme of the Act under Section 14, it is observed and
held in paragraphs 7 to 9 as under:
“7. Now so far as the powers exercisable by DM and CMM
under Section 14 of the SARFAESI Act are concerned,
statement of objects and reasons for which SARFAESI Act
has been enacted reads as under:
“STATEMENT OF OBJECTS AND REASONS
The financial sector has been one of the key drivers in India's
efforts to achieve success in rapidly developing its economy.
While the banking industry in India is progressively
complying with the international prudential norms and
accounting practices there are certain areas in which the
banking and financial sector do not have a level playing field
as compared to other participants in the financial markets in
the world. There is no legal provision for facilitating
securitisation of financial assets of banks and financial
institutions. Further, unlike international banks, the banks
and financial institutions in India do not have power to take
possession of securities and sell them. Our existing legal
framework relating to commercial transactions has not kept
pace with the changing commercial practices and financial
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sector reforms. This has resulted in slow pace of recovery of
defaulting loans and mounting levels of nonperforming
assets of banks and financial institutions. Narasimham
Committee I and II and Andhyarujina Committee constituted
by the Central Government for the purpose of examining
banking sector reforms have considered the need for changes
in the legal system in respect of these areas. These
Committees, inter alia, have suggested enactment of a new
legislation for securitisation and empowering banks and
financial institutions to take possession of the securities and
to sell them without the intervention of the court. Acting on
these suggestions, the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest
Ordinance, 2002 was promulgated on the 21st June, 2002 to
regulate securitisation and reconstruction of financial assets
and enforcement of security interest and for matters
connected therewith or incidental thereto. The provisions of
the Ordinance would enable banks and financial institutions
to realise longterm assets, manage problem of liquidity,
asset liability mismatches and improve recovery by
exercising powers to take possession of securities, sell them
and reduce nonperforming assets by adopting measures for
recovery or reconstruction.”
Thus, the underlying purpose of the SARFAESI Act is
to empower the financial institutions in India to have similar
powers as enjoyed by their counterparts, namely,
international banks in other countries. One such feature is
to empower the financial institutions to take possession of
securities and sell them. The same has been translated into
provisions falling under Chapter III of the SARFAESI Act.
Section 13 deals with enforcement of security interest. Sub
Section (4) thereof envisages that in the event a default is
committed by the borrower in discharging his liability in full
within the period specified in subsection (2), the secured
creditor may take recourse to one or more of the measures
provided in subsection (4). One of the measures is to take
possession of the secured assets of the borrower including
the right to transfer by way of lease, assignment or sale for
realising the secured asset. That, they could do through
their “authorised officer” as defined in Rule 2(a) of the
Security Interest (Enforcement) Rules, 2002.
7.1 After taking over possession of the secured assets,
further steps to lease, assign or sale the same could also be
taken by the secured creditor. However, Section 14 of the
SARFAESI Act predicates that if the secured creditor intends
to take possession of the secured assets, must approach the
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CMM/DM by way of an application in writing, and on receipt
of such request, the CMM/DM must move into action in
right earnest. After passing an order thereon, he/she
(CMM/DM) must proceed to take possession of the secured
assets and documents relating thereto for being forwarded to
the secured creditor in terms of Section 14(1) read with
Section 14(2) of the SARFAESI Act. As noted earlier, Section
14(2) is an enabling provision and permits the CMM/DM to
take such steps and use force, as may, in his opinion, be
necessary.
7.2 At this stage, it is required to be noted that along with
insertion of subsection (1A), a proviso has also been
inserted in subsection (1) of Section 14 of the SARFAESI Act
whereby the secured creditor is now required to comply
certain conditions and to disclose that by way of an
application accompanied by affidavit duly affirmed by its
authorised officer in that regard. SubSection (1A) is in the
nature of an explanatory provision and it merely restates the
implicit power of the CMM/DM in taking services of any
officer subordinate to him. As observed and held by this
Court in the case of (supra),
NKGSB Cooperative Bank Ltd.
the insertion of subsection (1A) is not to invest a new power
for the first time in the CMM/DM as such.
8. Thus, considering the scheme of the SARFAESI Act, it is
explicit and crystal clear that possession of the secured
assets can be taken by the secured creditor before
confirmation of sale of the secured assets as well as post
confirmation of sale. For taking possession of the secured
assets, it could be done by the “authorised officer” of the
Bank as noted in Rule 8 of the Security Interest
(Enforcement) Rules, 2002.
8.1 However, for taking physical possession of the secured
assets in terms of Section 14(1) of the SARFAESI Act, the
secured creditor is obliged to approach the CMM/DM 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
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take possession of the secured assets and documents
relating thereto and to forward the same to the secured
creditor at the earliest opportunity. As mandated by Section
14 of the SARFAESI Act, the CMM/DM has to act within the
stipulated time limit and pass a suitable order for the
purpose of taking possession of the secured assets within a
period of 30 days from the date of application which can be
extended for such further period but not exceeding in the
aggregate, sixty days. Thus, the powers exercised by the
CMM/DM is a ministerial act. He cannot brook delay. Time
is of the essence. This is the spirit of the special enactment.
As observed and held by this Court in the case of NKGSB
Cooperative Bank Ltd. (supra), the step taken by the
CMM/DM while taking possession of the secured assets and
documents relating thereto is a ministerial step. It could be
taken by the CMM/DM himself/herself or through any
officer subordinate to him/her, including the advocate
commissioner who is considered as an officer of his/her
court. Section 14 does not oblige the CMM/DM to go
personally and take possession of the secured assets and
documents relating thereto. Thus, we reiterate that the step
to be taken by the CMM/DM under Section 14 of the
SARFAESI Act, is a ministerial step. While disposing of the
application under Section 14 of the SARFAESI Act, no
element of quasijudicial function or application of mind
would require. The Magistrate has to adjudicate and decide
the correctness of the information given in the application
and nothing more. Therefore, Section 14 does not involve an
adjudicatory process qua points raised by the borrower
against the secured creditor taking possession of secured
assets.
9. Thus, in view of the scheme of the SARFAESI Act, more
particularly, Section 14 of the SARFAESI Act and the nature
of the powers to be exercised by learned Chief Metropolitan
Magistrate/learned District Magistrate, the High Court in the
impugned judgment and order has rightly observed and held
that the power vested in the learned Chief Metropolitan
Magistrate/learned District Magistrate is not by way of
persona designata.”
Thus, 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
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points raised by the borrowers against the secured creditor
taking possession of the secured assets. 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
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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.
6. Now so far as the reliance placed upon the decision of this
Court in the case of Harshad Govardhan Sondagar
(supra) 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.
7.
Now so far as the reliance placed upon the decision of this
Court in the case of Vishal N. Kalsaria (supra) by the
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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 (para 33).
8. In view of the above and for the reasons stated above, we
are 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. We are in complete
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agreement with the view taken by the High Court. The
Special Leave Petition stands dismissed.
………………………………….J.
[M.R. SHAH]
NEW DELHI; ………………………………….J.
SEPTEMBER 26, 2022 [KRISHNA MURARI]
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