Magistrates Can Appoint & Authorize Advocate Commissioners To Take Possession Of Secured Assets U/Sec 14 SARFAESI Act: Supreme Court

The Supreme Court held that the District Magistrate or the Chief Metropolitan Magistrate can appoint an advocate commissioner to assist him/her in execution of the order passed under Section 14(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

An advocate is and must be regarded as an officer of the court and subordinate to the CMM/DM for the purposes of Section 14(1A) of the 2002 Act., the bench comprising Justices AM Khanwilkar and CT Ravikumar said.

Law: Section 14(1A) SARFAESI Act

Section 14(1A) reads as follows: The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,—(i) to take possession of such assets and documents relating thereto; and (ii) to forward such assets and documents to the secured creditor.

Issue Raised / High Court judgments

The High Court of Bombay, in the impugned judgment opined that the advocate, not being a subordinate officer to the CMM or DM, such appointment would be illegal. The Madras High Court took a contrary view holding that the advocate is regarded as an officer of the court and, thus, subordinate to the CMM or the DM. 

Thus the issue raised in these appeals was whether it is open to the District Magistrate or the Chief Metropolitan Magistrate to appoint an advocate and authorise him/her to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor within the meaning of Section 14(1A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ?

While considering the appeals, the Apex court bench noticed that the High Courts of Kerala and Delhi has taken the same view taken by the Madras High Court. [Muhammed Ashraf & Anr. vs. Union of India & Ors. AIR 2009 Kerala 14 ; The Federal Bank Ltd., Ernakulam vs. A.V. Punnus AIR 2014 Kerala 7 ;  V.S. Sunitha vs. Federal Bank Ltd.0 2018 SCC OnLine Ker 12866, S. Chandramohan & Anr. vs. The Chief Metropolitan Magistrate, Egmore, Chennai & Ors. 2014-5-L.W. 620: 2014 SCC OnLine Mad 7869 and Rahul Chaudhary vs. Andhra Bank & Ors. 12020 SCC OnLine Del 284 ]

"Functional subordination" test.

The bench noted that this issue arises because of the expression used in the said provision, "may authorise any officer subordinate to him". The court noted that the expression "any officer subordinate to him" has been used in in Articles 53, 154 and 311 of the Constitution of India and in other legislations. Noticing that the Bombay High Court has followed the strict and literal interpretation rule and, thus, preferred "statutory subordination" logic, the bench observed:

"Indeed, in the case of advocate, the logic of "administrative subordination" or "statutory subordination" cannot be extended. Inasmuch as, for being a case of "statutory subordination", the provisions of the 2002 Act and the Security Interest (Enforcement) Rules, 200245 made thereunder, must expressly provide for such mechanism. This cannot be said about the provisions of the 2002 Act and the Rules made thereunder."

The court noted that no rule has been framed by the Central Government in reference to sub-Section (1A) of Section 14 of the 2002 Act much less to expressly or by necessary implication prohibiting the CMM/DM to engage an Advocate Commissioner for taking possession of the secured assets. The court, therefore, applied the "functional subordination" test. Referring to the provisions of SARFAESI Act and the meaning of the expression "subordinate", the bench observed:

Whereas, applying the "functional subordination" test, we are persuaded to take the view that sub-Section (1A) of Section 14 of the 2002 Act is no impediment for the CMM/DM to engage services of an advocate (an officer of the court) — only for taking possession of secured assets and documents relating thereto and to forward the same to the secured creditor in furtherance of the orders passed by the CMM/DM under Section 14(1) of the 2002 Act in that regard. It does not follow that the advocate so appointed needs to be on the rolls in the Office of the CMM/DM or in public service. There is intrinsic de jure functional subordinate relationship between the CMM/DM and the advocate being an officer of the court. The apprehension of the borrowers about improper execution of orders of the CMM/DM passed under Section 14(1) of the 2002 Act by the Advocate Commissioner, is plainly misplaced. Further, being an officer of the court and appointed by the CMM/DM, the acts done by the Advocate Commissioner would receive immunity under Section 14(3) of the 2002 Act — as an officer authorised by the CMM/DM. There is no reason to assume that the advocate so appointed by the CMM/DM would misuse the task entrusted to him/her and that will not be carried out strictly as per law or it would be a case of abuse of power. Rather, going by the institutional faith or trust reposed on advocates being officers of the court, there must be a presumption that if an advocate is appointed as commissioner for execution of the orders passed by the CMM/DM under Section 14(1) of the 2002 Act, that responsibility and duty will be discharged honestly and in accordance with rules of law.

Advocate is a guardian of constitutional morality and justice equally with the Judge.

The court also observed that an advocate is a guardian of constitutional morality and justice equally with the Judge. It further observed that the Advocate Commissioner is not a new concept and that advocates are appointed as Court Commissioner to perform diverse administrative and ministerial work as per the provisions of Code of Civil Procedure and Code of Criminal Procedure. The bench observed:

"He has an important duty as that of a Judge. He bears responsibility towards the society and is expected to act with utmost sincerity and commitment to the cause of justice. He has a duty to the court first. As an officer of the court, he owes allegiance to a higher cause and cannot indulge in consciously misstating the facts or for that matter conceal any material fact within his knowledge. In the case of  OP Sharma & Ors. vs. High Court of Punjab & Haryana, the Court noted that in all professional functions, an advocate should be diligent and his conduct should conform to the requirements of the law by which he plays a vital role in the preservation of society and justice system. As an officer of the court, he is under a higher obligation to uphold the rule of law and justice system."

The court, therefore, set aside the Bombay High Court judgment and upheld the view taken by the Madras, Kerala and Delhi High Courts.

Case : NKGSB Cooperative Bank Limited vs Subir Chakravarty | SLP (C) 30240 OF 2019 | 25 February 2022

Citation: 2022 LiveLaw (SC) 212

Coram: Justices AM Khanwilkar and CT Ravikumar

Counsel: Sr. Adv Rana Mukherjee, Adv Viraj Kadam, Adv Manish Shanker Srivastava, Adv Devendra Kumar Singh and Adv M.L. Ganesh for the Banks, Adv B. Raghunath, learned counsel appearing for the borrowers , Adv Rahul Chitnis, appearing for the State of Maharashtra