Sale Of Mortgaged Home To Third Party Couldn’t Alone Defeat Lender’s SARFAESI Plea, Chhattisgarh HC Sends It Back To DM

In brief

The question

1. Whether a District Magistrate exercising jurisdiction under Section 14 of the SARFAESI Act may adjudicate the merits of a secured creditor’s claim or disputed questions concerning the parties’ rights.

The court held

The Court held that the District Magistrate could not adjudicate the disputed rights of the parties under Section 14 or reject the application solely because the secured asset had been sold to a third party.

It also directed

It allowed the writ petition, set aside the order dated 6 September 2021, and remanded the application for fresh consideration in accordance with Section 14, directing the District Magistrate to pass an appropriate order within 30 days of receiving the Court’s order and to afford the concerned parties an opportunity of hearing. The petitioner was directed to cooperate in the proceedings.

01Facts

Respondents 1 and 2 obtained a loan of ₹7,96,388 from the petitioner and mortgaged their house as security. After the borrowers defaulted, the petitioner classified the loan account as a non-performing asset, issued a demand notice under Section 13(2) of the SARFAESI Act, and applied to the District Magistrate under Section 14 for assistance in taking possession. The District Magistrate rejected the application because the secured property had been sold to respondent 3 by a registered sale deed dated 13 December 2019. The petitioner challenged that order by writ petition.

¶ 2

02Issues

i.1. Whether a District Magistrate exercising jurisdiction under Section 14 of the SARFAESI Act may adjudicate the merits of a secured creditor’s claim or disputed questions concerning the parties’ rights.

¶ 8

ii.2. Whether the subsequent sale of the secured asset to a third party, by itself, justified the District Magistrate’s rejection of the Section 14 application.

¶ 11, 13

03Law Applied

Section 14 of the SARFAESI Act empowers the Chief Metropolitan Magistrate or District Magistrate to assist a secured creditor in obtaining possession or control of a secured asset, subject to compliance with the statutory requirements. The authority’s role is ministerial or administrative: it is confined to verifying the required information and compliance, and does not include adjudicating disputes between the secured creditor, borrower, or third party. Disputes concerning the exercise of the creditor’s rights are to be raised before the Debts Recovery Tribunal under Section 17.

¶ 3, 12–13

The Court relied on R.D. Jain & Co. v. Capital First & Ors., (2023) 1 SCC 675, para. 25, and Balkrishna Rama Tarle v. Phoenix ARC (P) Ltd., (2023) 1 SCC 662, paras. 18–19, which reaffirmed these principles.

¶ 3, 12–13

Provisions in the judgment · 3 · Linked ones open on LawLens

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Section 13 Section 14 Section 17

04Reasoning

The District Magistrate rejected the application on the ground that the mortgaged property had been transferred to respondent 3. In doing so, the Magistrate considered the effect of that transfer on the parties’ rights—a matter requiring adjudication beyond the limited function assigned by Section 14.

¶ 11–13

The subsequent sale did not, by itself, authorize the Magistrate to determine the validity or legal consequences of the transfer. The Court therefore held that the rejection exceeded the Magistrate’s jurisdiction.

¶ 11–13