The People’s Urban Co-Operative Bank Ltd. Vs. The Addl. Chief Judicial Magistrate and Anr. - Held that a secured creditor, who has not taken de facto possession but has proceeded and completed transfers on the basis of de jure possession, is entitled to apply for assistance of Magistrate, for taking over actual physical possession from the secured debtor.

 HC Kerala (2024.07.02) in The People’s Urban Co-Operative Bank Ltd. Vs. The Addl. Chief Judicial Magistrate and Anr. [(2024) ibclaw.in 664 HC, WP(C) No. 21857 of 2023] held that; 

• It is explicit and crystal clear that possession of a secured asset can be taken by the secured creditor before confirmation of sale of the secured assets as well as post-confirmation of sale.

• The Hon’ble Apex Court has held that the secured asset can be taken by the secured creditor post-confirmation of sale also, which necessarily means that the character of the property as secured asset continues for the purpose of SARFAESI Act.

• The Hon’ble Apex Court has held that the secured asset can be taken by the secured creditor post-confirmation of sale also, which necessarily means that the character of the property as secured asset continues for the purpose of SARFAESI Act.

• That the transfer of the secured asset by the creditor cannot be construed to be a complete transfer as contemplated by Section 8 of the Transfer of Property Act and that the creditor had a right to take actual possession of the secured assets and must be held to be a secured creditor even after the limited transfer to the auction purchaser under the agreement.

• The Hon’ble Apex Court held that the entire interest in the property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the entire interest to the auction purchaser and thus remained a secured creditor in the Act.

• Held that a secured creditor, who has not taken de facto possession but has proceeded and completed transfers on the basis of de jure possession, is entitled to apply for assistance of Magistrate, for taking over actual physical possession from the secured debtor.

Excerpts of the order;

Where a secured creditor who bid for the immovable property on its own behalf as permitted under Section 13(5A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and has purchased the property, can resort to Section 14 for taking over physical possession of the secured asset? Whether a secured creditor, who has bid for the secured asset, ceases to be a secured creditor after purchase of the immovable property? These are the legal questions arising for consideration in these writ petitions.

# 2. These writ petitions have been filed by the Authorised Officer of the People’s Urban Co-operative Bank Limited, Thrippunithura. The petitioner filed MC No.188/2021 and MC No.906/2022 before the Additional Chief Judicial Magistrate’s Court, Ernakulam invoking Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The petitions were filed to get assistance to obtain vacant possession of the property mentioned in the Schedule of the petitions.

# 3. The petitioner states that the properties were purchased by the Bank and the Authorised Officer is bound to give delivery of possession of the property to the Bank. The Authorised Officer is bound to handover delivery of the scheduled property as per Rule 9(6) of the Security Interests (Enforcement) Rules.

# 4. When the Bank approached the Additional Chief Judicial Magistrate invoking Section 14 of the SARFAESI Act to get assistance to obtain vacant possession of the secured assets, the Additional CJM rejected the petitions filed holding that the Bank is not a secured creditor any more and therefore the Bank is not entitled to invoke Section 14. The petitions filed by the Bank under Section 14 were dismissed by the Additional Chief Judicial Magistrate, as per Ext.P2 orders.

# 5. The counsel for the petitioner argued that the Magistrate erred in holding that the sale would be concluded as soon as the secured creditor emerged as a successful bidder. The counsel for the petitioner urged that the Magistrate ought not have attempted to adjudicate a legal issue. In the judgment in State Bank of India and another v. Chief Judicial Magistrate, Kollam and others [2021 (6) KHC 83], this Court has held that the statute does not contemplate an adjudicatory order to be passed by the Magistrate or to consider the application as in a judicial process. Ext.P2 order of the Magistrate is ultravires, contended the counsel for the petitioner.

# 6. The counsel for the petitioner also relied on the judgment of the Hon’ble Apex Court in Balkrishna Rama Tarle Dead through LRs and another v. Phoenix ARC Private Limited and others [2022 SCC Online SC 1299] to contend that a Chief Judicial Magistrate acting under Section 14 of the Act is discharging only ministerial functions (administrative) and should not venture to adjudicate the issues on legal merits. The counsel for the petitioner therefore urged that Ext.P2 order dated 29.03.2023 in W.P. (C) No.21857/2023 and Ext.P2 order dated 29.03.2023 in W.P.(C) No.21963/2023 be quashed.

# 7. Heard.

# 8. The counsel for the petitioner argued that while exercising powers under Section 14, a Magistrate is not discharging any judicial or quasi judicial functions and therefore the Magistrate ought not have ventured to adjudicate any legal issue. The counsel for the petitioner relied on the judgment of this Court in State Bank of India, TVM and another v. Chief Judicial Magistrate, Kollam and others [2021 (6) KLT 72], wherein this Court has held that the SARFAESI Act does not contemplate an adjudicatory order to be passed by the Magistrate or to consider the application as in a judicial process. The procedure prescribed under Section 14 of the SARFAESI Act is part of a non-judicial process. The counsel for the petitioner also relied on the judgment in Roshan Narayanan C.S. v. Authorised Officer, Central Bank of India and another [2017 (4) KLT 1172], wherein this Court has held that there is no judicial function discharged by the Magistrate while acting under Section 14.

# 9. From Section 14, though it is evident that the Magistrate is not exercising a judicial or quasi judicial function while considering applications under Section 14, the provision requires the Magistrate that on receipt of application, the Magistrate shall get satisfied in the contents of the affidavit filed before him. The affidavit necessarily shall provide particulars of the secured asset. Therefore, it would be perfectly within the powers of the Magistrate to decide whether the property sought to be taken physical possession of is a secured asset or not. Exercise by the Magistrate of powers under Section 14 to satisfy about the contents of the affidavit cannot be treated as a judicial or quasi judicial function. Therefore, the argument of the petitioner that while passing Ext.P2 orders, the Additional Chief Judicial Magistrate has ventured to exercise judicial or quasi judicial function cannot stand the scrutiny of law.

# 10. The Additional Chief Judicial Magistrate, while rejecting the petitions filed by the secured creditor under Section 14 has held that when the Bank has purchased the property, the Bank ceases to be a secured creditor as defined under Section 2(zd) of the SARFAESI Act and therefore petition filed by the Bank who is not a secured creditor as defined under the SARFAESI Act, is not maintainable.

# 11. Section 2(zd) of the SARFAESI Act defines the term “secured creditor” as follows:-

• “Secured creditor” means-

• (i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l);

• (ii) debenture trustee appointed by any bank or financial institution; or

• (iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or

• (iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or

• (v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance.

• The term “security asset” means the property on which security interest is created.

# 12. Section 13 of the SARFAESI Act provides for enforcement of security interest. Section 13 (1) to (8) reads as follows: . . . .

# 13. Section 13(5A) provides that where the sale of an immovable property for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale. The Bank in this case has bid for the immovable property. The question then arising is whether when the Bank has purchased the property in a bid, whether the Bank then can exercise the right of a secured creditor to approach the Magistrate seeking assistance in taking possession of the property.

# 14. Section 14(1) of the SARFAESI Act reads as follows:

• 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 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 —

• XXXX

The provision [Section 14(1)] which begins with the words “where the possession of any secured asset is required to be taken by the secured creditor”, would indicate that Section 14 can be invoked only to take physical possession of “secured asset”.

# 15. In the judgment in Balkrishna Rama Tarle Dead through LRs and another (supra), the Hon’ble Apex Court was considering whether powers exercised by the Magistrate under Section 14 are ministerial acts or judicial powers. While holding that no element of quasi judicial function or application of mind would require while disposing of a Section 14 application, the Hon’ble Apex Court noted in paragraph 8 of the judgment that considering the scheme of the SARFAESI Act, it is explicit and crystal clear that possession of a secured asset can be taken by the secured creditor before confirmation of sale of the secured assets as well as post-confirmation of sale.

# 16. Taking over symbolic possession of property is governed by Section 13(4). Section 13(4)(a) also uses the terminology “secured assets” of the borrower. Going by the reasonings of the learned Magistrate in Ext.P2 order in these writ petitions, it can be contended that after the Bank bidding in auction, the property ceases to be a “secured asset” and therefore the Bank thereafter cannot invoke the provisions of Section 14. However, in Balkrishna Rama Tarle Dead through LRs and another (supra), the Hon’ble Apex Court has held that the secured asset can be taken by the secured creditor post-confirmation of sale also, which necessarily means that the character of the property as secured asset continues for the purpose of SARFAESI Act.

# 17. In the judgment in ITC Limited v. Blue Coast Hotels Limited and others [(2018) 15 SCC 99], the Hon’ble Apex Court noted that the transfer of the secured asset by the creditor cannot be construed to be a complete transfer as contemplated by Section 8 of the Transfer of Property Act and that the creditor had a right to take actual possession of the secured assets and must be held to be a secured creditor even after the limited transfer to the auction purchaser under the agreement. The Hon’ble Apex Court held that the entire interest in the property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the entire interest to the auction purchaser and thus remained a secured creditor in the Act. The judgment of the Apex Court in ITC Limited (supra) would necessarily be applicable to a case where the creditor/Bank has purchased the property in bid and the physical possession of the secured asset has not been transferred to the creditor/Bank.

# 18. This Court in the judgment in Kottakkal Cooperative Urban Bank v. T. Balakrishnan and another [2008 (2) KLT 456] has held that a secured creditor, who has not taken de facto possession but has proceeded and completed transfers on the basis of de jure possession, is entitled to apply for assistance of Magistrate, for taking over actual physical possession from the secured debtor.

# 19. For the afore reasons, I find that the Additional Chief Judicial Magistrate has erred in rejecting the petitions filed by the secured creditor on the ground that after purchase of property in bid, the property ceases to be a secured asset. Ext.P2 orders in both the writ petitions are therefore set aside. The Additional Chief Judicial Magistrate is directed to reconsider the applications and pass orders afresh.

The writ petitions are disposed of as above.

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