[S.14 SARFAESI Act] District Magistrates Can't Adjudicate On Application For Taking Possession Of Secured Assets, Constantly Breaching Law: Punjab & Haryana HC

The Punjab & Haryana High Court has made it clear that the District Magistrate under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is only an executing functionary and not empowered to make any adjudication on the application made by the creditors for taking possession of the secured assets.

Observing that, "the District Magistrates concerned are repeatedly breaching the mandate of law", the Court directed the registry to share the copy of the judgement to Magistrates exercising jurisdictions under Section 14 of the Act.

Section 14 of the SARFAESI Act empowers the Chief Metropolitan Magistrate or District Magistrate to assist the secured creditor in taking possession of secured assets.

In the present case, the District Magistrate dismissed the application of the State Bank of India under Section 14 on the grounds of non-compliance of statutory requirements by the Bank, given under Section 13 (3A) of the Act.

Section 13 (3A) of the Act, when the borrower makes any representation on the notice or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection.

While setting aside the dismissal order, A division bench of Justice Sureshwar Thakur and Justice Lalit Batra said, "under Section 14 of the SARFAESI Act before the District Magistrate nor the District Magistrate was required to dismiss the said application(s), especially when he is only contemplated to be an executing functionary, and, is not empowered to make any adjudication on the said application(s)."

The Court also ruled that the requirement to respond to the objections raised by the debtors under Section 14 (supra) is directory in nature and mandatory.

These observations were made while hearing two pleas of the State Bank of India challenging the order passed by the District Magistrate, Ludhiana whereby its application under Section 14 of the SARFAESI Act was rejected on the ground that the bank did not respond to the objections of the borrower Company within 15 days as per Section 13 (3-A) of the Act, whose assets were to be taken in possession.

In one case the Bank sent the communication on the representation filed by the borrower within 21 days and in another, it was sent in 49 days.

Provision Under Section 13 (3A) Is Obligatory And Not Mandatory In Nature

After hearing the submissions, the Court opined that the Bank is not under any mandatory obligation to respond the objections raised by the company within 15 days.

"The lending institution concerned, is not under any mandatory statutory obligation, to respond to the relevant objections, rather within 15 days from the receipt of such representation or objection, unless therebys demonstrable grave prejudice is caused to the objector and/or the said statutory mandatory obligation is restricted only to the objectors representation(s), being decided rather through a well informed non cryptic order, besides the breach, if any, caused to the said mandatory provision thus may be undone but only upon evidence surging forth, thus suggestive that there is no errant conduct on the part of the borrower in ensuring the maintenance of financial discipline," said the Court.

Consequently, the said provision (Section 13 (3A) of the Act is not mandatory in nature but rather directory in nature, the Court added.

The omission to communicate the relevant decision to the objector, thus within 15 days from the receipt of such representation or objections, does not cause any causality, to the application moved by the Bank, under Section 14 of the SARFAESI Act before the District Magistrate nor the District Magistrate was required to dismiss the said application, especially when he is only contemplated to be an executing functionary, and, is not empowered to make any adjudication on the said application, the bench said.

The Court noted that the Company failed to demonstrate that any prejudice was caused to it by not receiving communication from the company about its decision on the representation filed by the borrower.

In light of the above, the Court quashed the order rejecting the Section 14, SARFAESI Act applications of the bank.

Title: STATE BANK OF INDIA v. DISTRICT MAGISTRATE, LUDHIANA AND ORS.

Madhu Dalal, Advocate for the petitioner – Bank.

Maninder Singh, Sr. DAG, Punjab.

Harsh Chopra, Advocate for the private respondents (in both the cases).

 Citation: 2024 LiveLaw (PH) 128

Click here to read/download the order