High Court Gujarat (29.04.2022) in HDFC Bank Ltd. Vs. Parwati Cotton [R/Special Civil Application No. 5773 of 2020] held that;
We do not see any warrant to record the conclusion that it is only after making an unsuccessful attempt to take possession of the secured asset, a secured creditor can approach the Magistrate.
No doubt that a secured creditor may initially resort to the procedure under section 13(4) and on facing resistance, he may still approach the Magistrate under section 14.
But, it is not mandatory for the secured creditor to make attempt to obtain possession on his own before approaching the Magistrate under section 14.
The submission that such a construction would deprive the borrower of a remedy under section 17 is rooted in a misconception of the scope of section 17.
Excerpts of the order;
# 1. Heard learned advocate Mr. Vishwas K. Shah for the petitioner and learned Assistant Government Pleader Mr. Dhawan Jayswal for the respondent State.
# 2. Rule. Learned Assistant Government Pleader Mr. Dhawan Jayswal waives service of notice of rule on behalf of the respondent-State.
# 3. By this petition under Articles 226 and 227 of the Constitution of India, the petitioner-bank has prayed for the following reliefs :
“A. Be pleased to quash and set aside the impugned order dated 05.02.20 passed by learned District Magistrate, Rajkot below Securitization Application case registered no. 408/19 and be further pleased to direct learned District Magistrate, Rajkot to pass section 14 order in favour of the Petitioner-bank providing assistance to take physical possession of the property “all that piece and parcel of immovable property constructed on the land admeasuring 217.315 sq. metres of Plot no. 49, Panchpipla Road, Nr. Gyanjyot School, Nr. Krishna Society, Revenue Survey no. 143, Village Navagarh, Jetpur-360370.”
B. Pending hearing, admission and final disposal of this Petition, be pleased to direct respondent nos. 1 to 4 to maintain the status quo qua property “all that piece and parcel of immovable property constructed on the land admeasuring 217.315 sq. metres of Plot no. 49, Panchpipla Road, Nr. Gyanjyot School, Nr. Krishna Society, Revenue Survey no. 143, Village Navagarh, Jetpur-360370.”
C. Cost of this Petition.
D. Any other relief, order or direction which the Hon’ble Court may deem just, fit, proper and equitable in the facts of the case.”
# 4. Brief facts of the case are as under :
4.1) The petitioner-bank provided credit credit facilities to respondent no.1 company – Parwati Cotton to which respondent nos. 2 to 4 stood as guarantors to secure the said credit facilities granted to respondent no.1.
4.2) Due to non repayment of credit facilities by respondent nos. 1 to 4, the account of respondent no.1 was classified as Non Performing Asset(NPA) on 29th October, 2017. The petitioner bank therefore issued notice on 20th November, 2017 under section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (For short “the SARFAESI Act”) for recovery of the outstanding dues.
4.3) Respondent nos. 1 to 4 filed their objections on 5th February, 2018 pursuant to such demand notice which were rejected by the petitioner-bank on 16th February, 2018.
4.4) The petitioner bank thereafter, filed section 14 application before the District Magistrate, Rajkot.
4.5) Due to non adjudication of pending application by the District Magistrate, the petitioner-bank preferred Special Civil Application No.20082/2019 before this Court wherein this Court (Coram : Hon’ble Mr. Justice Biren Vaishnav) vide order dated 18th November, 2019 directed the District Magistrate to immediately proceed to hear and decide the application of the petitioner filed under section 14 of the SARFAESI Act.
4.6) The petitioner-bank made an application on 20th November, 2009 before the District Magistrate informing about the order being passed by this Court.
4.7) The District Magistrate vide impugned order dated 5th February, 2020 rejected the section 14 application filed by the petitioner-bank. The petitioner has therefore, preferred this petition with aforesaid prayers.
# 5. Learned advocate for the petitioner submitted that the District Magistrate has no power and authority to reject section 14 application under the SARFAESI Act read with Security Interest (Enforcement) Rules, 2002 (For short “the Rules, 2002”). It was submitted that the Apex Court in case of Standard Chartered Bank V. Noble Kumar and others reported in (2013) 9 Supreme Court Cases 620 has held that without issuing notice under section 13(4) of the SARFAESI Act, application under section 14 can be filed by the secured creditor and it is maintainable. It was therefore, submitted that in such circumstances, the District Magistrate could not have dismissed the application filed by the petitioner under section 14 of the SARFAESI Act on the ground that the petitioner-bank has not issued notice under section 13(4) of the SARFAESI Act.
# 6. On the other hand, learned Assistant Government Pleader Mr. Dhawan Jayswal submitted that the respondent no.5-District Magistrate has passed the impugned order taking into consideration the provisions of section 13(4) of the SARFAESI Act and Rule 8 of the Rules 2002 and therefore, while exercising extraordinary jurisdiction by this Court, no interference is required to be made in the impugned order. It was submitted that the petitioner-bank can file fresh application after following the provisions of section 13(4) of the SARFAESI Act.
# 7. Considering the above submissions, the only question which requires consideration is whether the secured creditor can file an application under section 14 of the SARFAESI Act without issuing notice under section 13(4) thereof or not?
# 8. Learned advocate for the petitioner has correctly placed reliance on the decision of Apex Court in case of Standard Chartered Bank (supra), wherein it is held as under :
“(21.) Under the scheme of section 14, a secured creditor who desires to seek the assistance of the State’s coercive power for obtaining possession of the secured asset is required to make a request in writing to the Chief Metropolitan Magistrate or District Magistrate within whose jurisdiction, secured asset is located praying that the secured asset and other documents relating thereto may be taken possession thereof. The language of section 14 originally enacted purportedly obliged the Magistrate receiving a request under section 14 to take possession of the secured asset and documents, if any, related thereto in terms of the request received by him without any further scrutiny of the matter.
(22.) However, the Bombay High Court in the case of Trade Well v. Indian Bank [2007 CrlJ 2544] opined;
“2 …CMM/DM acting under Section 14 of the NPA Act is not required to give notice either to the borrower or to the 3rd party.
3. He has to only verify from the bank or financial institution whether notice under Section 13(2) of the NPA Act is given or not and whether the secured assets fall within his jurisdiction. There is no adjudication of any kind at this stage.
4. It is only if the above conditions are not fulfilled that the CMM/DM can refuse to pass an order under Section 14 of the NPA act by recording that the above conditions are not fulfilled. If these two conditions are fulfilled, he cannot refuse to pass an order under Section 14.”
25.1 The said judgment was followed by the Madras High Court in the case of Indian Overseas Bank v. M/s. Sri Aravindh Steels Ltd. [AIR 2009 Mad. 10]. Subsequently, Parliament inserted a proviso to section 14(1) and also sub-section 1 A11 31 by Act 1 of 2013.
(23.) We must make it clear that these provisions were not in existence on the date of the order impugned in the instant proceedings. These amendments are made to provide safeguards to the interest of borrower. These provisions stipulate that a secured creditor who is seeking the intervention of the Magistrate under section 14 is required to file an affidavit furnishing the information contemplated under various sub-clauses (i) to (ix) of the proviso and obligates the Magistrate to pass suitable orders regarding taking of the possession of the secured assets only after being satisfied with the contents of the affidavits.
(24.) An analysis of the 9 sub-clauses of the proviso which deal with the information that is required to be furnished in the affidavit filed by the secured creditor indicates in substance that
24.1 (i) there was a loan transaction under which a borrower is liable to repay the loan amount with interest,
24.2 (ii) there is a security interest created in a secured asset belonging to the borrower,
24.3 (iii) that the borrower committed default in the repayment,
24.4 (iv) that a notice Contemplated under section 13.(2) was in fact issued,
24.5 (v) in spite of such a notice, the borrower did not make the repayment,
24.6 (vi) the objections of the borrower had in fact been considered and rejected,
24.7 (vii) the reasons for such rejection had been communicated to the borrower etc.
(25) The satisfaction of the Magistrate contemplated under the second proviso to section 14(1) necessarily requires the Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the transaction. It is only after recording of his satisfaction the Magistrate can pass appropriate orders regarding taking of possession of the secured asset.
(26) It is in the above-mentioned background of the legal frame of sections 13 and 14, we are required to examine the correctness of the conclusions recorded by the High Court. Having regard to the scheme of sections 13 and 14 and the object of the enactment, we do not see any warrant to record the conclusion that it is only after making an unsuccessful attempt to take possession of the secured asset, a secured creditor can approach the Magistrate. No doubt that a secured creditor may initially resort to the procedure under section 13(4) and on facing resistance, he may still approach the Magistrate under section 14. But, it is not mandatory for the secured creditor to make attempt to obtain possession on his own before approaching the Magistrate under section 14. The submission that such a construction would deprive the borrower of a remedy under section 17 is rooted in a misconception of the scope of section 17.
Xxx
36.1 (i) The first method would be where the secured creditor gives the requisite notice under rule 8(1) and where he does not meet with any resistance. In that case, the authorised officer will proceed to take steps as stipulated under rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor.
36.2 (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under rule 8(1) is given. In that case he will take recourse to the mechanism provided under section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinize the application as provided in section 14, and then if satisfied, appoint an officer subordinate to him as provided under section 14 (1)(A) to take possession of the assets and documents. For that purpose the Magistrate may authorise the officer concerned to use such force as may be necessary. After the possession is taken the assets and documents will be forwarded to the secured creditor.
36.3 (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under section 14 of the Act. The Magistrate will thereafter scrutinize the application as provided in section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forwards them to the secured creditor as under clause (ii) above.
36.4 In any of the three situations, after the possession is handed over to the secured creditor, the subsequent specified provisions of rule 8 concerning the preservation, valuation and sale of the secured assets,, and other subsequent rules from the Security Interest (Enforcement) rules, 2002, shall apply.”
# 9. Similarly the Apex Court in case of Jagdish Singh v. Heeralal and others reported in (2014) 1 Supreme Court Cases 479 has held as under :
“(22.) Statutory interest is being created in favour of the secured creditor on the secured assets and when the secured creditor proposes to proceed against the secured assets, sub-section (4) of Section 13 envisages various measures to secure the borrower’s debt. One of the measures provided by the statute is to take possession of secured assets of the borrowers, including the right to transfer by way of lease, assignment or realizing the secured assets. Any person aggrieved by any of the “measures” referred to in sub-section (4) of Section 13 has got a statutory right of appeal to the DRT under Section 17. The opening portion of Section 34 clearly states that no civil court shall have jurisdiction to entertain any suit or proceeding “in respect of any matter” which a DRT or an Appellate Tribunal is empowered by or under the Securitisation Act to determine. The expression in respect of any matter referred to in Section 34 would take in the “measures” provided under sub-section (4) of Section 13 of the Securitisation Act. Consequently if any aggrieved person has got any grievance against any “measures” taken by the borrower under sub-section (4) of Section 13, the remedy open to him is to approach the DRT or the Appellate Tribunal and not the civil court. Civil Court in such circumstances has no jurisdiction to entertain any suit or proceedings in respect of those matters which fall under sub-section (4) of Section 13 of the Securitisation Act because those matters fell within the jurisdiction of the DRT and the Appellate Tribunal. Further, Section 35 says, the Securitisation Act overrides other laws, if they are inconsistent with the provisions of that Act, which takes in Section 9 CPC as well.
(23.) We are of the view that the civil court jurisdiction is completely barred, so far as the “measure” taken by a secured creditor under sub-section (4) of Section 13 of the Securitisation Act, against which an aggrieved person has a right of appeal before the DRT or the Appellate Tribunal to determine as to whether there has been any illegality in the “measures” taken. The bank, in the instant case, has proceeded only against secured assets of the borrowers on which no rights of Respondent Nos.6 to 8 have been crystalised, before creating security interest in respect of the secured assets.”
# 10. In view of above conspectus of law, the impugned order passed by the respondent no.5 is not tenable in law and accordingly, the same is quashed and set aside. Respondent no.5-District Magistrate, Rajkot is hereby directed to pass fresh order under section 14 of the SARFAESI Act within 30 days from the date of the receipt of this order.
# 11. Rule is made absolute to the aforesaid extent. No order as to costs.
----------------------------------------------------
No comments:
Post a Comment