Interim Orders in Writ Petitions Challenging SARFAESI Proceeding, Generally not be Passed Without Hearing the Secured Creditor

The Supreme Court in a significant pronouncement has noted that interim orders in writ petitions challenging SARFAESI proceedings should generally not be passed without hearing the secured creditor.

Interim orders defeat the very purpose of expeditious recovery of public money. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters, the court said.

The Court further added that time limit stipulation in Section 14 of the SARFAESI Act mandating the District Magistrate to deliver possession of a secured asset, is a directory and not mandatory and that the inability to take possession within time limit does not render the District Magistrate Functus Officio.

Brief Facts of the Case

The Court made the observation that interim orders in writ petitions challenging SARFAESI proceedings should generally not be passed without hearing the secured creditor while upholding a judgment of Kerala High Court,  that Section 14 of the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), mandating the District Magistrate to deliver possession of a secured asset within 30 days, extendable to an aggregate of 60 days upon reasons recorded in writing, is a directory provision.

Section 14 of the SARFAESI Act

Section 14 of the SARFAESI Act provides the procedure for Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of the secured asset.

(1) Where the possession of any secured assets is 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 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. (2) For the purpose of securing compliance with the provisions of sub-section (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 did in pursuance of this section shall be called in question in any court or before any authority.

Observation made by the Court

The Court referred the judgment made in United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, in which it was held that, in cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have a serious adverse impact on the financial health of such bodies/institutions, which will ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters.

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In Hindon Forge Private Limited case it was held that the remedy of an aggrieved person by a secured creditor under the Act is by way of an application before the Debts Recovery Tribunal, however, borrowers and other aggrieved persons are invoking the jurisdiction of the High Court under Articles 226 or 227 of the Constitution of India without availing the alternative statutory remedy.

The Court thus observed that:

“The Hon’ble High Courts are well aware of the limitations in exercising their jurisdiction when affective alternative remedies are available, but a word of caution would be still necessary for the High Courts that interim orders in writ petitions challenging SARFAESI proceedings should generally not be passed without hearing the secured creditor  as interim orders defeat the very purpose of expeditious recovery of public money.”

“Keeping the objective of the Act in mind, the time limit to take action by the District Magistrate has been fixed to impress upon the authority to take possession of the secured assets. However, the inability to take possession within time limit does not render the District Magistrate Functus Officio. The secured creditor has no control over the District Magistrate who is exercising jurisdiction under Section 14 of the SARFAESI Act for the public good to facilitate recovery of public dues. Therefore, Section 14 of the SARFAESI Act is not to be interpreted literally without considering the object and purpose of the Act. If any other interpretation is placed upon the language of Section 14 of the SARFAESI Act, it would be contrary to the purpose of the Act. The time limit is to instil confidence in creditors that the District Magistrate will make an attempt to deliver possession as well as to impose a duty on the District Magistrate to make an earnest effort to comply with the mandate of the statute to deliver the possession within 30 days and for reasons to be recorded within 60 days. In this light, the remedy under Section 14 of the SARFAESI Act is not rendered redundant if the District Magistrate is unable to handover the possession. The District Magistrate will still be enjoined upon, the duty to facilitate the delivery of possession at the earliest.”

Case Name: C. BRIGHT vs. THE DISTRICT COLLECTOR

Citation: CIVIL APPEAL NO. 3441 OF 2020

Coram: Justices L. Nageswara Rao, Hemant Gupta and Ajay Rastogi

Also Read: All Insults To A Person, Not An Offence Under The SC/ST Act Unless Such Insult Is On Account Of Victim Belonging To SC/ST

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