Law Web: Whether CMM or DM can adjudicate upon any objections raised by Borrower or anybody else while acting U/S 14 of SARFAESI Act?

The jurisdiction of the CMM/DM under Section 14 of the

SARFAESI Act is purely ministerial and limited only to assisting

secured creditors in taking possession of secured assets and

nothing more. Section 14 of the SARFAESI Act does not

contemplate much less empower the DA to even consider much

less adjudicate upon any objections raised by Borrower or

anybody else. All that the DA is required to do when considering

an Application under Section 14 is (a) to ascertain that the

secured asset falls within his jurisdiction and (b) that the

secured creditor has complied with the requirements of Section

13 and 14 of the SARFAESI Act, and nothing else. Once the DA

is satisfied that the requirements of Section 13 and 14 have

been met and/or complied with, the DA has to proceed to take

possession of the secured asset. It is implicit on an examination

of Chapter III of the SARFAESI Act that the DA on finding that

the secured creditor has complied with Section 14 must act

promptly and with due dispatch in ensuring that possession of

the secured asset is recovered as quickly as possible. The very

objective of Chapter III of the SARFAESI Act is to enable secured

creditors to enforce their security interest without the

intervention of the court or tribunal. We find that in several

cases, the DA dispose off Applications under Section 14 not only

without granting assistance to secure creditors in recovering

possession of their secured assets but in fact granting relief

(directly or indirectly) to Borrowers and/or Third Parties as has

been done in the present case. What is indeed shocking (as in

the present case) is that reliefs are granted to Borrowers/Third

Parties not only in the teeth of the provisions of Section 14 but

also despite the fact that these Borrowers/Third Parties have not

even contested the steps taken by the secured creditors under

Section 13 for enforcement of their securing interest by filing

any application before the DRT under Section 17 of the

SARFAESI Act. We find that the DA under Section 14 of the

SARFAESI Act claim powers which they do not have under

Section 14 and proceed to pass orders which are completely

contrary to the provisions of Section 14 and the very object and

purpose of Chapter III of the SARFAESI Act. We find that the

conclusion reached by Respondent No. 1 in the impugned order

is a prime example of this very worrying trend. {Para 16}

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CIVIL APPELLATE JURISDICTION

WRIT PETITION NO.9749 OF 2021

Phoenix ARC Private Limited Vs. The State of Maharashtra

CORAM : K. R. SHRIRAM &

A. S. DOCTOR, JJ.

DATE : 03RD AUGUST, 2022

Coram: A.S. DOCTOR, J.

1. The present Writ Petition impugns an order dated 27th August

2021 (“impugned order”) passed by Respondent No.1

(Additional District Magistrate, Nashik) in an application filed

by Petitioners under Section 14 of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (‘SARFAESI Act’) seeking assistance of

Respondent No.1 to recover possession of the properties

mortgaged (“secured asset”) by Respondent Nos. 3 to 8

(Borrowers) in favour of Petitioner. By the impugned order not

only has Respondent No.1 failed and neglected to assist

Petitioner in recovering possession of the secured asset, but has

effectively granted relief in favour of Borrowers and Respondent

No.2 (a Third Party).

2. We are constrained to note that the impugned order is yet

another instance of the Designated Authorities (“DA”) under

Section 14 of the SARFAESI Act not only failing and/or

neglecting to exercise the jurisdiction vested in them under

Section 14 of the SARFAESI Act, but instead, and regrettably

acting in excess of the jurisdiction vested in them under Section

14 and also contrary to Section 14 of the SARFAESI Act. We find

that such conduct on the part of the DA is now common place

and is being impugned repeatedly before this Hon’ble Court.

This is despite the fact that the scope of Section 14 as also the

jurisdiction of the DA thereunder is not only clear from a plain

reading of Section 14 but has since been emphasized in several

judgements of the Hon’ble Supreme Court as well as this

Hon’ble Court. Before we advert to the same, it is necessary to

set out the facts of the present case leading upto the passing of

the Impugned Order.

3. In or about September 2014, Borrowers had approached one

Religare Finvest Limited (‘Religare’) for a loan of Rs. 6 Crores.

Religare by its sanction letter dated 30th September, 2014 issued

the said loan to Borrowers. The said loan was secured by a

registered mortgage created by Borrowers in favour of Religare

in respect of the following properties, i.e., the secured assets :-

“All the piece and parcel of N.A. land bearing Gut

No.463 (North Part), admeasuring at about 2000

sq.mtrs and South Part admeasuring at about 3900

sq.mtrs, and all that piece and parcel of NA land Gut

No.465 (West) Part admeasuring at about 2600 sq. mtrs

and total admeasuring at about 8500 sq. mtrs along

with the constructed ground floor + 1st floor, show

room along with service station having total built up

area of about 669.44 sq. mtrs situated at Madsangvi

Revenue Village Limit, Revenue Limit Nashik within the

limits of Nashik Municipal Corporation and Joint Sub-

Registrar Nashik, District Nashik.”

4. Thereafter, Borrowers committed defaults in repayment of the

said loan which led to Religare classifying Borrowers’ account as

a Non-Performing Asset (NPA) with effect from 31st March,

2018. Religare, thereafter, issued a notice dated 13th April, 2018

under Section 13(2) of the SARFAESI Act (‘first SARFAESI

notice’) calling upon Borrowers to pay the amount then

outstanding under the said facility within the sixty days period

provided for under Section 13(2) of the SARFAESI Act.

5. Thereafter by a Deed of Assignment dated 29th September, 2018,

Religare, unconditionally and absolutely, assigned all its right,

title, interest and benefit under the said loan agreement to

Petitioner No.1 (hereinafter referred to as Petitioner). Petitioner,

thus, having stepped into the shoes of Religare become the

secured creditor and in that capacity issued a notice dated 21st

May, 2019 under Section 13(2) of the SARFAESI Act (‘second

SARFAESI notice’) to Borrowers calling upon Borrowers to make

payments of a sum of Rs.5,83,22,866/-. By the second

SARFAESI notice, Petitioner recalled the first SARFAESI notice

(issued by Religare) and called upon Borrowers to read the

second SARFAESI notice, as being the stipulated demand notice

under Section 13(2) of the SARFAESI Act.

6. Borrowers, by their letter dated 15th June, 2019 replied to the

second SARFAESI notice and sought to deny their liability.

Petitioner, therefore, by its letter dated 1st July, 2019 dealt with

the contentions raised by Borrowers. Since Borrowers failed and

neglected to discharge in full the outstanding loan amount

within the sixty day period stipulated in Section 13(2) of the

SARFAESI Act, Petitioner took symbolic possession of the secured

asset under Section 13(4) of the SARFAESI Act. Pertinently, no

proceedings were taken by Borrowers under Section 17 of the

SARFAESI Act challenging the steps taken by Petitioner under

Section 13 of the SARFAESI Act. On 21st September, 2019,

Petitioner took symbolic possession of the secured assets and

intimated this fact to Borrowers vide their letter dated 21st

September, 2019. A public notice was also issued by Petitioner in

two newspapers in compliance with the provisions of the

Security Interest (Enforcement) Rights, 2002.

7. Thereafter, Petitioner filed an application under Section 14 of

the SARFAESI Act seeking the assistance of Respondent No.1 for

taking physical possession of the secured assets. On or about

10th November, 2020, 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 (“the said premises”), sought to intervene in the

said proceedings filed by Petitioner before Respondent No.1.

Respondent No.2 placed reliance upon an order dated 20th April,

2018 passed in regular Civil Suit No.58 of 2018 filed by

Respondent No. 2 against one of the Borrowers (i.e. Respondent

No. 8), whereby Respondent No. 8 was restrained from

dispossessing Respondent No. 2 from the said premises.

Pertinently, Respondent No. 2 also did not adopt any

proceedings before the Debt Recovery Tribunal (“DRT”) under

Section 17 of the SARFAESI Act.

8. Petitioner, filed an Affidavit dated 22nd January, 2021 before

Respondent No.1 in reply to the intervention application and

dealt with all the contentions raised by Respondent No.2 in the

said Application for Intervention. The said Reply specifically

stated that the Intervention Application and contentions raised

therein were beyond the scope of the jurisdiction of Respondent

No.1 under Section 14 of the SARFAESI Act. Despite the protest of

Petitioner, Respondent No.1, vide the impugned order dated 27th

August, 2021, declined to assist Petitioner in taking possession of

the secured assets after holding that the application filed by

Petitioner under SARFAESI Act was legal and valid. Respondent

No.1 went on to pass the following order, viz.,

“ORDER

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 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.”

9. Mr. Kamat, Learned Counsel appearing on behalf of Petitioner

submitted that,

(a) The impugned order was not only

incomprehensible but also in excess of the jurisdiction

vested in Respondent No. 1 under Section 14 of the

SARFAESI Act. Respondent No. 1, on the one hand, has

held the Application filed by Petitioner to be legal and

valid as per the provisions of the SARFAESI Act but

then instead of passing an order for recovery of

possession of the secured assets, kept the Application

pending and subject to the outcome of certain

purported tenancy proceedings pending between

Respondent No. 2 and Respondent No. 8;

(b) The impugned order was completely beyond the

scope of Section 14 and the jurisdiction vested in

Respondent No. 1 under Section 14. The jurisdiction of

the DA under Section 14 of the SARFAESI Act was

well-settled by several judgments which held that the

jurisdiction of the DA under Section 14 of the

SARFAESI Act was limited only to the extent of

assisting secured creditors in obtaining possession of

the secured assets and nothing more. Section 14 did

not even remotely contemplate, much less empower,

the DA to conduct any inquiry/hearing and/or

consider and decide any objections raised by Borrower

or a Third Party;

to verification of the mortgage documents deposited

with the secured creditor and also, to ensure that the

secured creditor had complied with and/or followed

the process laid down under the SARFAESI Act (more

particularly Section 13 and 14). After such verification,

if the DA is satisfied that the secured creditor has a

valid mortgage over the secured assets in question,

then the DA without any further adjudication is

necessarily required to render the assistance needed

by the secured creditor to take possession of the

secured assets and hand over the same to the

authorised officer of the secured creditor;

(d) Section 14 of the SARFAESI Act does not provide

for the Borrower much less a Third Party the right to

file any reply or to intervene in the proceedings

adopted by the secured creditor. The DA when hearing

an Application filed under Section 14 of the SARFAESI

Act, is not empowered to hear Borrower much less a

Third Party;

(e) Respondent No.1 even in entertaining and/or

accepting the application filed by Respondent No. 2

has exceeded the scope of his jurisdiction under

Section 14 of the SARFAESI Act. The remedy, available,

to Borrowers and/or Third Parties aggrieved by steps

taken under Section 13 of the SARFEASI Act, would be

to file an Application under Section 17 of the

SARFAESI Act before the relevant DRT and not to raise

any dispute before the DA in proceeding adopted

under Section 14. Respondent No.1 has completely

ignored and given a go-by to the guidelines prescribed

by the Hon’ble Supreme Court on the scope of the

jurisdiction of the DA’s when deciding Applications

under Section 14 of the SARFAESI Act. In support of

his contention, reliance was placed upon the

judgement of the Hon’ble Supreme Court in NKGSB

Co-operative Bank Limited Vs. Subir Chakravarty and

Others1 and our attention was invited to paragraph 28

thereof which held viz.

“28. 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 2002 Act from the secured creditor

for that purpose. As soon as such 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 2002 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. The

latter is a ministerial act. It cannot brook delay.

Time is of the essence. This is the spirit of the

special enactment.”

(emphasize supplied)

10. Mr. Kamat then went on to place reliance upon the following

judgments in which the scope of the jurisdiction of the DA under

Section 14 of the SARFAESI Act has been elaborated, set out and

explained, viz.,

(i) Indian Overseas Bank Vs. The State of Maharashtra &

Ors.2

(ii) Asset Recovery Corporation India Ltd. Vs. State of

Maharashtra & Ors.3

(iii) Liladhar Ladappa Kendole Vs. Solapur Janata Sahakari

Bank Ltd. & Ors.4

1 MANU/SC/0247/2022.

2 Writ Petition No.1740 of 2017, dated 13th December, 2017 (unreported).

3 Writ Petition No.8561 of 2010 dated 30th August, 2011 (unreported).

4 Writ Petition No.7486 of 2021 dated 9th November, 2021(unreported).

(iv) Kotak Mahindra Bank Limited V. The State of

Maharashtra & Others.5

(v) Authorized Officer, I.D.B.I. Bank Limited & Ors. Vs. The

State of Maharashtra & Anr.6

For the reasons stated above and placing reliance on the said

authorities, Mr. Kamat concluded by submitting that the

impugned order was entirely bad in law. Respondent No. 1

clearly transgressed the scope of his jurisdiction under Section

14 of the SARFAESI Act and therefore the impugned order

required be set aside.

11. Per contra, Smt. Vyas, learned Counsel appearing on behalf of

Respondent No.1, while supporting the impugned order, very

fairly did not dispute that Section 14 did not empower

Respondent No.1 to consider objections taken by a Third Party

while deciding an application under Section 14 of the SARFAESI

Act.

12. Mr.Rege, the learned counsel appearing on behalf of Respondent

Nos. 2(a) to 2(d) (the heirs of Respondent No.2), supported the

impugned order and submitted that no prejudice was caused to

5 2018 SCC OnLine Bom 933.

6 Writ Petition No.5055 of 2021 dated 19th July, 2022 (unreported)

Petitioner as Respondent No.1 had not dimissed Petitioner’s

application but merely kept the same open for decision after

termination of tenancy rights of late Balkrishna Rama Tarle

(original Respondent No.2) by following due procedure of law.

He submitted that thus the impugned order was in fact perfectly

just, fair and legal.

13. Mr.Bagla, the learned counsel appearing on behalf of Respondent

Nos.3 to 9, supported the submissions made by Mr.Rege.

14. No Affidavit-in-Reply opposing the said Writ Petition had been

filed by any of Respondents.

15. We have heard Learned Counsel and have considered the papers

and proceedings including the impugned order and also the

several judgments cited by Mr. Kamat and are satisfied that

Respondent No. 1 has not only transgressed the jurisdiction

vested in him under Section 14 of the SARFAESI Act but has

acted contrary to it. We find that the impugned order is patently

illegal and contrary to Section 14 of the SARFAESI Act and

therefore the impugned order requires to be quashed and set

aside.

16. The jurisdiction of the CMM/DM under Section 14 of the