[S.14 SARFAESI Act] CMM/DM Not Required To Give Notice To Borrower Before Taking Possession Of Secured Asset: Allahabad HC

The Allahabad High Court has ruled that the Chief Metropolitan Magistrate or District Magistrate acting under Section 14 of the SARFAESI Act, 2002 is not required to give notice to the borrower at the stage of the decision or passing order pertaining to taking possession of the secured asset.

The bench of Justice Sunita Agarwal and Justice Vipin Chandra Dixit observed that since the proceedings before the CMM/ DM under Section 14 of the Act are ministerial in nature, therefore, no opportunity for a hearing is required to be given to the borrower at this stage.

The High Court further observed that at the stage of assisting a secured creditor in taking possession of the secured assets, there is no question of dealing with rival claims and giving a reasoned judgment as regards the merits of the case as the statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the SARFAESI Act from the secured creditor.

The Court further clarified that at the time of passing an order under Section 14 of the SARFAESI Act, 2002, CMM/DM will have to consider only two aspects.

(i) He must find out whether the secured asset falls within his territorial jurisdiction and;

(ii) whether notice under Section 13(2) of SARFAESI Act is given or not

For context, under Section 14 of the SARFAESI Act, 2002, a Secured Creditor, wishing to take possession of the secured asset, seeks the assistance of the Chief Metropolitan Magistrate or District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found and to forward such asset to the secured creditor.

The assistance is sought by the Secured Creditor, after the actual physical possession of the secured asset, is not handed over by the borrower to the secured creditor on his own or the Authorised Officer of the secured creditor meets with resistance from the borrower.

The case in brief

The Court was dealing with a clutch of petitions pertaining to the validity of the order passed under Section 14 of the SARFAESI Act, 2002 by the authorized officer namely the Additional District Magistrate (Finance & Revenue), Ghaziabad, Meerut Commissionerate and the Additional District Magistrate (Finance & Revenue), Varanasi.

The challenge to the orders passed under Section 14 was made on the ground that no notice or opportunity of hearing has been granted to the petitioners herein who are the borrowers and, thus, the orders impugned suffer from violation of principles of natural justice. 

Court's observations

Hearing all the petitions together, the Court, at the outset, referred to a catena of decisions rendered by the Supreme Court as well various high Court to observe that the proceedings undertaken by the CMM/DM for the purpose of taking possession or control of any secured asset, is in the nature of execution proceeding, which is in furtherance of the measures taken by the secured creditor to recover his secured debt under Section 13(4) of the Act.

The Court further observed that when the actual physical possession of the immovable property is not obtained by the secured creditor by other means, a request in writing could be made to the CMM/DM, within whose jurisdiction the secured asset is situated, to take possession thereof and forward such asset to the secured creditor (under Section 14).

Against this backdrop of the procedure contemplated under the 2002 Act to take possession of the secured asset, the Court, while referring to the Apex Court's ruling in the case of R.D. Jain and Co. vs Capital First Ltd. 2022 LiveLaw (SC) 634 and other rulings of the HC, held that no opportunity of hearing has to be provided to the borrower at this stage.

However, it was clarified by the Court that the order passed by such Magistrate has to be duly served upon the borrower before taking any steps for his forcible dispossession by such steps or use of force, as may be necessary in the opinion of the Magistrate, and the date fixed for such forcible action shall be duly intimated to such borrower in advance giving him sufficient time to remove his belongings, or to make an alternative arrangement."

Regarding the argument that if the hearing is not provided to the borrower, he becomes remediless, the Court said that the borrower has a remedy to challenge the measures taken by the secured creditor including the order passed under Section 14 of the SARFAESI Act, 2002 before the Debt Recovery Tribunal post-possession under Section 17.

The Court further noted that the observance of principles of natural justice is at the stage of Section 13(3A), i.e. before the secured creditor proceeds to initiate coercive measures against the borrower under Section 13(4) of the Act and therefore, once the borrower is granted an opportunity at the stage prior to initiation of the coercive measures after calling upon him to pay the dues of the secured creditor, no further opportunity is to be given either at the stage of Section 13(4) or Section 14.

With this, the Court also held the Judgment of the Allahabad High Court (DB) in Kumkum Tentiwal vs. State of U.P. & Others (2019) 2 All LJ 332 to be Per incuriam. The petitions were also dismissed.

Appearances:

Counsels for the petitioners - Senior Counsel Amit Saxena assisted by Advocate Komal Mehrotra

State respondents - Additional Advocate General Manish Goyal assisted by Apoorva Hajela, Standing Counsel

Respondent No.3 - Senior Counsel Anurag Khanna assisted by Advocate Veerendra Kumar Shukla 

Respondent No. 4 - Senior Counsel Navin Sinha assisted by Advocate Raghav Dwivedi 

Respondent bank - Advocate Rekha Singh Advocate holding the brief of Advocate Sanjay Kumar Gupta

Counsel for the petitioner in Writ-C No. 27814 of 2022 - Advocate Utkarsh Singh 

Case title - Shipra Hotels Limited And Anther v. State Of U.P. And 3 Others and other connected matters

Case Citation: 2022 LiveLaw (AB) 510

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