Magistrate While Handing Over Possession U/s 14 SARFAESI Act Not Required To Seek Permission From Company Court: Supreme Court [Read Order]

The Supreme Court has held that a Magistrate exercising power under Section 14 of the SARFAESI Act is not required to seek permission from the Company Judge before directing handing over of possession of a property.

The bench comprising Justice L. Nageswara Rao, Hemant gupta and Ajay Rastogi observed that a Company Court exercising jurisdiction under the Companies Act has no control in respect of sale of a secured asset by a secured creditor in exercise of powers available to such creditor under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

In this case, the borrower company was issued a notice under Section 13(2) SARFAESI Act, demanding an amount of Rs. 309.91 crores. Meanwhile, another creditor initiated winding up proceedings against this company before the High Court for the State of Telangana at Hyderabad. The company judge passed an order of winding up and an Official Liquidator was appointed.

The bank, in the meanwhile, filed an application under Section 14 before the Chief Judicial Magistrate under the SARFEASI Act for appointment of receiver for taking over physical possession of the property. The Advocate Commissioner appointed by the Chief Judicial Magistrate, took possession of the property. The High Court, in an interim order passed in the writ petition filed by the borrower company, directed restoration of the property, on the ground that the Chief Judicial Magistrate could not have ordered delivery of the property without taking permission from the Company Court (High Court). 

While setting aside the interim order, the Apex court bench observed thus:

"The interim order passed by the High Court is on the basis that the Magistrate could not have directed the possession to be taken without seeking permission from the Company Court. This Court in Pegasus Assets Reconstruction Private Limited v. Haryana Concast Limited and Another (2016) 4 SCC 47, concluded that a Company Court exercising jurisdiction under the Companies Act has no control in respect of sale of a secured asset by a secured creditor in exercise of powers available to such creditor under SARFAESI Act, 2002. Therefore, there is no requirement for the Magistrate exercising power under Section 14 SARFAESI Act to seek permission from the Company Judge before directing handing over of possession of a property."

In Pegasus Assets Reconstruction Private Limited, the Court had held that the Company Judge cannot interfere in a proceedings by a secured creditor to realize its secured interests as per provisions of the SARFAESI Act. 

CASE: M/S ASSET RECONSTRUCTION COMPANY (INDIA) LTD. vs. SAGI NARAYANA RAJU [CIVIL APPEAL NO. 3644 OF 2020] 

CORAM: Justice L. Nageswara Rao, Hemant gupta and Ajay Rastogi 

COUNSEL: Sr. Adv. Krishnan Venugopal [AOR Ankur Sood] , Sr. Adv.  A. Ramalingeswara Rao [AOR Sumanth Nookala]

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