Writ Petition (Lodg) No. 1298 of 2013

8th August, 2013

Petitioner Counsel: Mr. Vishwas Shah,Mr. Manoj Kadam
Respondent Counsel: Mr. Sham Walve

Cases Cited:
Kanaiyalal Lalchand Sachdev & Ors. Vs. State of Maharashtra & Ors., 2011 ALL MR (Cri) 2036 (S.C.)=(2011) 2 SCC 782 [Para 9]
Ashok Saw Mills10

JUDGMENT

S.J. Vazifdar, J. :- The petitioner has sought a declaration that the Additional Metropolitan Magistrate has no jurisdiction to pass an order under section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the "said Act"), and an order quashing the order of the Additional Chief Metropolitan Magistrate dated 16th April, 2013 under section 14 of the said Act. The petitioner has also sought an order quashing a notice dated 15th May, 2013, passed by the Assistant Registrar, Mumbai.

2. The question that falls for consideration is whether an application is sustainable under section 17 of the Act against any action taken by a secured creditor under section 14 of the Act prior to possession being taken pursuant to an order of the Chief Metropolitan Magistrate under section 14. In other words, can an application lie under section 17 only after possession is taken pursuant to an order under section 14.

3. The petitioner claims to be a tenant of respondent No.2 under an agreement of tenancy dated 20th March, 2002. The opening part of the agreement states that it is a leave and licence agreement. Clause 1 of the operative part of the agreement, however, states that the premises had been let out to the petitioner as a monthly tenant.

4. Considering the order that we intend passing, it is not necessary to adjudicate upon the petitioner's rights. We intend relegating the petitioner to the alternate remedy of an appeal provided by section 17 of the said Act.

5. Nor is it necessary, therefore, to refer to the facts in detail. Suffice it to state that according to the petitioner, the tenancy was created prior to the securities created by respondent Nos.2 to 4 in favour of the State Bank of India. The State Bank of India has not been impleaded. However, in the title under the State of Maharashtra the petitioner has referred to the authorised officer of the State Bank of India. The State Bank of India had granted certain facilities to the other respondents. In respect thereof, State Bank of India adopted proceedings under the said Act. It issued a notice under section 13(2) dated 29th September, 2012, inter-alia, calling upon the other respondents to discharge their liabilities within 60 days. In May 2012, State Bank of India took symbolic possession of the said premises. This petition, however, is concerned with the action taken by State Bank of India under section 14 of the Act in respect of the said premises. On 7th June, 2012, State Bank of India filed an application No.160 of 2012 seeking an order for taking possession of the said property and delivering the same to it for the purpose of enforcing the security interest and realising the secured debts by effecting the sale thereof. It is important to note that the petitioner was not impleaded in the said application.

6. By the impugned order dated 16th April, 2013, the Additional Chief Metropolitan Magistrate allowed the application. According to the petitioner, the order was not served upon him. The petitioner came to know of the same from respondent No.3 on 18th May, 2013. The petitioner, therefore, approached this Court prior to the order under section 14 being implemented.

7. According to us, the petitioner has an alternate remedy under section 17 of the said Act. The petitioner apprehends that the alternate remedy may not be available until after the order under section 14 is implemented. The apprehension is unfounded.

8. The question that falls for consideration, therefore, is whether a party is entitled to file an appeal under section 17 of the said Act before an order under section 14 is implemented. We have answered the question in the affirmative. Sections 13(4), 14 and 17 of the Act, insofar as they are relevant, read as under :

"13. Enforcement of security interest.:-

........

(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-

(a) 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;

14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of 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 asset 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 done in pursuance of this section shall be called in question in any court or before any authority.

17. Right to appeal.-(1) Any person (including borrower) aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor or his authorised officer under this chapter, [may make an application along with such fee, as may be prescribed,] to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measure had been taken:

[Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.]

[Explanation.-For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub-section.]

[(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.

(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of Section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of Section 13 taken by the secured creditors as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of Section 13.

(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of Section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of Section 13 to recover his secured debt."

9. The question is no longer res integra. It is covered by a judgment of the Supreme Court in Kanaiyalal Lalchand Sachdev & Ors. v. State of Maharashtra & Ors. (2011) 2 SCC 782 : [2011 ALL MR (Cri) 2036 (S.C.)]. We have noted that in that case, the appellant had in fact been dispossessed pursuant to the order under section 14. The ratio of the judgment, however, is not based on that fact viz. the dispossession of a party under section 14. The Supreme Court, after referring to section 13(4), 14 and 17 of the Act, held :-

"18. Section 14 of the Act provides that the secured creditor can file an application before the Chief Metropolitan Magistrate or the District Magistrate, within whose jurisdiction, the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. (See United Bank of India v. Satyawati Tondon.) Therefore, it follows that a secured creditor may, in order to enforce his rights under Section 13(4), in particular Section 13(4)(a), may take recourse to Section 14 of the Act.

21. In Indian Overseas Bank v. Ashok Saw Mill the main question which fell for determination was whether the DRT would have jurisdiction to consider and adjudicate post Section 13(4) events or whether its scope in terms of Section 17 of the Act will be confined to the stage contemplated under Section 13(4) of the Act? On an examination of the provisions contained in Chapter III of the Act, in particular Sections 13 and 17, this Court held as under: (SCC pp. 375-76, paras 35-36 & 39)

"35. In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the banks or financial institutions, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor, to make an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in sub-section (3) thereof.

36. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.

* * *

39. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT." (emphasis supplied by us)

22. We are in respectful agreement with the above enunciation of law on the point. It is manifest that an action under Section 14 of the Act constitutes an action taken after the stage of Section 13(4), and therefore, the same would fall within the ambit of Section 17(1) of the Act. Thus, the Act itself contemplates an efficacious remedy for the borrower or any person affected by an action under Section 13(4) of the Act, by providing for an appeal before the DRT." (emphasis supplied)

10. Section 17 entitles a person aggrieved by any of the measures referred to in section 13(4) taken by a secured creditor to file an application. The words "measures referred to in sub-section (4) of section 13" pertain to any steps taken by the secured creditor. In other words, the ambit of section 17 is not restricted to cases where orders are passed pursuant to the measures taken under section 13(4) and/or where such orders are implemented. The Supreme Court, in paragraph 39 of the judgment in Indian Overseas Bank v. Ashok Saw Mills (quoted in paragraph 21 of the judgment of the Supreme Court set out above) held that the "action taken by a secured creditor in terms of section 13(3) is open to scrutiny". The Supreme Court further held that the filing of an application under section 14 constitutes an action or measure taken under section 13(4). The Supreme Court did not hold that the words "measures taken" refer to cases where orders are passed pursuant to the measures taken. Nor has the Supreme Court held that a secured creditor can be said to have taken measures under section 13(4) only when it has had the order under section 14 implemented or enforced. This is clear from the last sentence of paragraph 18 of the judgment of the Supreme Court where it is held that a secured creditor may, in order to enforce it's rights under section 13(4), take recourse to section 14 of the Act. The doubt, if any, is removed by the second sentence in paragraph 22 of the judgment of the Supreme Court where it is held that an action under section 14 constitutes an action taken after the stage of section 13(4) and, therefore, the same would fall within the ambit of section 17(1). The Supreme Court has not held that only an order passed in an application under section 14 can be the subject matter of an application under section 17. The making of the application itself is sufficient.

11. A view to the contrary would put a bona fide party, especially a third party in an extremely unfortunate position of first being dispossessed and only then challenging the action under section 14. Such a result would be contrary to equity and justice as it would leave a bona fide party, especially a third party without any effective remedy whatsoever. In the circumstances, it is held that a party is entitled to challenge, inter-alia, the very making of an application under section 14 of the SARFAESI Act by the secured creditor. It can also file a quia timed action under section 17.

12. In the circumstances, the Writ Petition is disposed of by relegating the petitioner to the alternate remedy of an application under section 17. The parties shall maintain status quo in respect of the secured assets till the application for interim reliefs is decided by the DRT provided an application for the same is made within three weeks from today. There shall be no order as to costs.

Ordered accordingly.