Court Custody Of Secured Asset Can't Be Used As Shield By Debtor To Prevent Creditor From Taking Possession Under SARFAESI Act: Bombay High Court

Justice RI Chagla observed that the court has to assist the secured in taking possession of the secured asset. It particularly directed the court receiver to handover the possession of mortgaged property to Caparo Financial Solutions Limited, who had given a debt to the property owner.

“...considering that the subject mortgaged property is in the custody of this Court, it is for this Court to assist the Applicant in taking possession of the secured asset particularly when the conditions for consent to the Court sale have not been satisfied...In normal course possession of the Secured Asset would be taken from the borrower. However, considering that the subject mortgaged property in the present case is custodia legis, the Judgment Debtor cannot use this as a shield to prevent the Applicant (secured creditor) from taking possession of the secured asset”, the court held.

The court was dealing with an interim application by Caparo in a suit for specific performance of contract filed by one Robin Karamchandani against a builder – Jem and Associates. The suit was settled and the court appointed a court receiver to sell the suit properties as per the consent terms.

The properties were also mortgaged to Caparo Financial Solutions Limited and Reliance Home Finance Limited. The court, via an order on March 12, 2020, held that no objection of the two lenders would be required for any sale of the property. Thus, the court directed the court receiver to make it clear that the mortgage will be cleared from the sales proceeds first and seek the lenders’ consent for the sale.

The secured creditors gave conditional consent for sale of the property. When the conditions were not fulfilled, Caparo revoked its consent and wrote a letter directing the court receiver not to deal in the property. Caparo initiated process of taking over possession of the property under section 13(4) of the SARFAESI Act and took symbolic possession by issuing notice to the borrowers and guarantors.

Thereafter, Caparo filed the present application seeking directions to the court receiver to handover possession of the property.

The defendant-builder opposed the application contending that Caparo did not file an application under section 14 of the SARFAESI Act seeking the assistance of the Chief Metropolitan Magistrates or the District Magistrate for taking possession of the secured asset. Further, it claimed that some amount is due to it from Caparo.

The plaintiff also opposed the application arguing that the conditions of the creditors can be easily complied with and mere delay in complying with the conditions cannot result in the property being handed over to Caparo.

As per section 14 of the SARFAESI Act, the secured creditor may request in writing the Chief Metropolitan Magistrate or the District Magistrate for assistance in taking possession or control of any secured assets.

The court said that the defendant’s reliance on Section 14 of the SARFAESI Act is misplaced as in this case the borrower is not in possession of the secured asset. Rather, the court receiver has the possession of the properties, the court noted.

“reliance placed upon Section 14 of the SARFAESI Act by the Defendants in contending that the Applicant would necessarily have to apply to the Chief Metropolitan Magistrate for an order assisting the Applicant / as Secured Creditor in taking possession of the secured assets, is misplaced as in this case it is not the borrower who is retaining possession of the secured asset / mortgaged property but the possession as mentioned is with the Court Receiver and thus custodia legis”, the court held.

The court has to assist the creditor in taking possession of the asset as the conditions for consent for sale have not been satisfied, the court held.

Thus, the court allowed the application and directed the court receiver to handover vacant and peaceful possession of the property to Caparo. The court granted liberty to the plaintiff to approach the relevant court/tribunal if a surplus remains after the settlement of Caparo’s dues.

Case no. – Interim Application (L) No. 4188 of 2023

Citation: 2023 LiveLaw (Bom) 261

Case Title – Caparo Financial Solutions Ltd. - Applicant In Robin Karamchandani v. Jem and Associates & Ors