S.14 SARFAESI Act | Creditor Bound By Time-Limit Prescribed By Magistrate For Taking Possession Of Secured Asset: Andhra Pradesh High Court

Justice Ahsanuddin Amanullah and B.S. Bhanumathi said:

The main objective of the Act is to enable secured borrowers to take physical possession of the assets of the defaulting borrowers in an expeditious manner; if no time limit is fixed it would be self-defeating inasmuch as though the statute indicates a time frame for the CMM/District Magistrate to pass an order, if the person/authority who is required to carry out the order does not do so within the time fixed, it would lead to an anomalous position in law as there is no remedy prescribed under the statute.

Brief Facts of the Case

The petitioners filed the writ petition to assail the action(s) taken by the State Bank of India (SBI) under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) alleging violation of the procedures and SARFAESI Rules.

The petitioners obtained loan from the SBI/Respondent and the account became a Non-Performing Asset where under the total amount of Rs. 10,36,25,840 was to be paid.

The SBI had moved the Chief Metropolitan Magistrate (CMM) under Section 14 of SARFAESI for taking physical possession of the secured asset/property. Section 14 of the SARFAESI Act provides for Chief Metropolitan Magistrate or District Magistrate to assist the secured creditor in taking possession of secured asset. The Petition was allowed where an Advocate Commissioner was appointed to take possession of the petition schedule property and deliver the possession to the bank.

The Counsel for the petitioners contended that as per the order of CMM, the warrant was to be executed latest by 15.02.2021 but was executed long after this date. Therefore, the same lost its force and was incapable of being executed. Furthermore, the order passed by the CMM was beyond 60 days of filing the application under Section 14 of the Act which is impermissible.

The SBI opposed the petitioners' submissions and urged for dismissal of the petition. It submitted that the delay in execution of the warrant was due to petitioners filing a number of cases. It further submitted that the period of 60 days was directory, as held by the Supreme Court in C Bright v. District Collector.

Issues framed

(a) Whether the instant writ petition ought to be entertained? 

(b) Whether the time-limit under Section 14 of the Act of 30 days to pass an order, extendable in aggregate to 60 days, is mandatory or directory? 

(c) Whether, once the time specified in the warrant had elapsed, could possession of the property in question still be taken over, under the same warrant? 

Court's ruling

The Bench discussed various judgments to decide on the first issue. Ordinarily the law is that the High Court under writ jurisdiction must defer to the procedure under the statute. However, the Court stated that Article 226 of the Constitution is in no manner effaced by the statutory provisions. Writ jurisdiction being an integral part of the basic structure of the Constitution, can be taken as a recourse by an aggrieved party. The court emphasized that:

There is no cavil with the proposition that when a statutory remedy of appeal is provided under any enactment, ordinarily, the High Court ought to be circumspect in interfering under Article 226 of the Constitution of India. However, it is no longer res integra that any such circumspection and/or restraint is merely self-imposed and is not, nor can it be, construed as a total bar to exercise of powers in extraordinary writ jurisdiction.

The mere existence of alternate forums where the aggrieved party may secure relief does not create a legal bar on a High Court to exercise its writ jurisdiction. It is a factor to be taken into consideration by the High Court amongst several factors.

In this backdrop, the Court entertained the writ petition as the facts compelled to to do so and it was not res integra that even in the face of an available alternative efficacious remedy, a writ petition is maintainable subject to judicial discretion.

In respect of the second issue, the court relied on the Supreme Court decision in Bright (supra) to hold that it is evidently clear that the time limit stipulated in Section 14 of the Act was discretionary and not mandatory.

In consideration of the third issue, the counsel for SBI relied on the judgment of Single Judge in Delhi high Court in Housing Development Finance Corporation Ltd. v. Rakesh Kumar, to contend that there was no requirement for the CMM to fix a time limit for taking possession of the secured asset in exercise of power under Section 14 of the Act.

However, the bench did not concur with the opinion of Single Judge in Housing Development Finance Corporation as it could lead to anomalous scenarios. If the CMM passed an order under Section 14 with no stipulated time to carry out the taking over, it could result in possession being taken over months after passing of such order. The borrower/occupier/person in possession of the secured asset concerned cannot be left in lurch.

"… An essential component of judicial orders is certainty. If a CMM imposes a time-limit for taking over possession, such stipulated time has to be mandatorily adhered to."

Thus, once the time specified in the warrant has elapsed, possession of the property in question cannot be taken over, under the same warrant unless the time is extended.

In the present case, the Court noted that the order passed by the CMM was a judicial order and conferred upon the Advocate Commissioner authority to take over physical possession. Thus, the Advocate Commissioner could not have exceeded jurisdiction beyond the time specifically stipulated by the Court. The warrant was "executed" after ten months from the date on which the warrant was made returnable along with the report.

Thus, the Court held that the action of the Advocate Commissioner in taking over physical possession of the asset beyond the period specified in warrant could not be sustained as it was clearly devoid of the authority of law and, accordingly, was declared illegal. Status quo ante was directed and the SBI was given the liberty to approach the CMM seeking an order to extend time.

Case Title : Mangalagiri Textile Mills v. State Bank of India

Citation: 2022 LiveLaw (AP) 25

Click Here To Read/Download Judgment