PHYSICAL POSSESSION OF THE SECURED ASSET UNDER SARFAESI ACT, 2002

Section 14 of the SARFAESI Act, 2002 provides a platform to the secured creditor to expedite the SARFAESI proceedings against the borrower for realization of the debt. This is filed in the form of an application before the Judicial Magistrate / District Magistrate, this application is primarily entertained when the secured asset of the borrower is within the jurisdiction of the respective Judicial Magistrate / District Magistrate.

Application under Section 14 is filed when the secured creditor is required to take physical possession to sell or transfer any secured asset under the provisions of this Act, then the secured creditor may 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. On such request being made by the secured creditor to him, the Chief Metropolitan Magistrate or the District Magistrate shall 1) take possession of such asset and documents relating thereto and 2) forward such asset and documents to the secured creditor.

The Act empowers the secured creditor to take physical possession without approaching the CMM or DM, however, when the secured creditor faces resistance by the borrower while taking physical possession of the secured asset then it files an application under Section 14 before the DM / CMM.

In furtherance, the provision of Section 14 mandates the secured creditor that the application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorized officer of the secured creditor. The contents of the affidavit shall be as under: -

·        total amount of financial assistance given and the total claim of the Bank as on the date of filing the application;

·        the borrower has created security interest over various properties giving the details of the 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;

·        the borrower has committed default in repayment of the loan mentioning the specified amount;

·        the account of the borrower has been classified as a nonperforming asset as a result of default in repayment of the financial assistance;

·        affirming that the period of sixty days notice, demanding payment of the defaulted financial assistance has been served on the borrower;

·        the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower;

·        the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorized Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act;

·        that the provisions of this Act and the rules made thereunder had been complied with.

On filing of the affidavit by the secured creditor through Authorized Officer, the District Magistrate or the Chief Metropolitan Magistrate on due verification, if satisfied, with the contents of the affidavit shall pass suitable orders for the purpose of taking possession of the secured assets within a period of thirty days from the date of application. In case the Chief Metropolitan Magistrate or District Magistrate do not pass any order within the said period of thirty days for reasons beyond his control, then after recording reasons in writing for the same, he may pass the order within such further period but not exceeding in aggregate sixty days. No further extension beyond sixty days, in aggregate, is permissible. These time limits have been made by virtue of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 after taking into account the delayed disposal of the cases by the CMMs/DMs. The amendment that has been brought in to effect is not retrospective.

The requirement of the affidavit is not applicable to those proceedings which are already pending before the CMM/DM on the date of commencement of the Act.

The District Magistrate or the Chief Metropolitan Magistrate may delegate the powers to a subordinate officer. Such a delegated power to an officer is merely the power to assist and such power is executive and not judicial in nature as held by Madras High Court.

In the case Andhra Bank & Ors v Dinesh Kumar Agarwal &Ors[1], the Debt Recovery Appellate Tribunal (hereinafter referred as the "DRAT") that the assistance provided by the Assistant General Manager of the bank to take over the possession of the secured property did not imply that the possession was taken over by an officer as required under Section 14. Therefore, it was held that such possession of the secured property was taken over by the secured creditor in accordance with Section 13(4) and not Section 14.

In the case titled as Federal Bank Ltd. v Punnus[2], it was held that the function of the Advocate Commissioner to take over the possession of the secured assets is ministerial in nature and the said function is performed by the Advocate Commissioner as an officer who is sub-ordinate to the Court and not subservient in service to the CMM or DM who presides the Court.

The act of the Chief Metropolitan Magistrate or the District Magistrate or any officer authorized by CMM or DM cannot be questioned in any Court of law or authority. However, the writ jurisdiction under S. 226 and 227 is not barred. Parties aggrieved by the order passed under Section 14 by the District Magistrate may approach the Hon’ble High Court under the writ jurisdiction.

By virtue of this section no extraordinary right is created in favor of the secured creditor.

In Canara Bank, Ashram Road v. Collector of Stamps & Ors[3] it was held the order which is passed by the DM or CMM under Section 14 of the SARFAESI Act is not an "instrument" as per Section 2 (i) of the Gujrat Stamp Act, 1958. Further, such order of the CMM/DM does not create any special right or liability in favor of the secured creditor to bring it within the fold of the expression "conveyance" as per Section 2(g) of the Gujrat Stamp Act, 1958. The Court also held that a panchnama, which is drawn after the possession of the secured asset is taken over by the secured creditor in accordance with the provisions of the SARFAESI Act, does not create any specific special right in favor of the secured creditor.

In the case of Hari Trading Corporation v Bank of Baroda[4], the Bombay High Court held that Section 14 merely envisages that the CMM or DM, as the case may be, has the power to pass an order for the purpose of assisting the secured creditor. However, such assistance does not involve adjudication of rights and liabilities of the parties by the CMM or DM. Further, the right of the secured creditor to take over the possession of the secured asset of the borrower is provided in 13 (4) and not in Section 14. Therefore, there is no requirement of providing right to hearing to the borrower by the CMM or DM and Section 14. Thus, in such circumstances, the remedy of the borrower is to file an appeal against the decision of the CMM or DM under Section 17.

Prior to amendment, in terms of Harshad Govardhan Sondagar vs International Assets Reconstruction Co. Ltd. & Ors. if there is any tenant in the secured asset, in view of tenant had to file their objections before the CMM or DM, as the tenant did not had any remedy before the Debt Recovery Tribunal.

Post amendment the position has been changed, any person as mentioned in Section 17 of the SARFAESI Act, 2002 has also included tenants and now if the tenants are aggrieved by the SARFAESI action then the aggrieved tenant will have to approach Debt Recovery Tribunal.

[1]I (2014) BC1(DB)(CN)(Cal); M.A.T No. 389 of 2013 with CAN 3023 of 2013 decided on 23-04-2013

[2]I (2014)BC355 (Ker); O.P. (DRT) No. 3311 of 2013 decided on 29-10-2013

[3]III(2014)BC89 (DB) (Guj); Spl C. Application No. 2113 of 2012 decided on 3-07-2013

[4]III(2015)BC284(Bom.) ;W.P. Nos 1159 and 11460 of 2014 and 239,992 and 1045 of 2015- decided on 23-02-2015