[SARFAESI] Time Limit Stipulation For District Magistrates To Deliver Possession Of Secured Asset Is Not Mandatory: Supreme Court [Read Judgment]

The Supreme Court has held that time limit stipulation in Section 14 of the SARFAESI Act mandating the District Magistrate to deliver possession of a secured asset, is directory and not mandatory and that the inability to take possession within time limit does not render the District Magistrate Functus Officio.

The bench comprising Justices L. Nageswara Rao, Hemant Gupta and Ajay Rastogi upheld a judgment of Division Bench of Kerala High Court which held that Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,  mandating the District Magistrate to deliver possession of a secured asset within 30 days, extendable to an aggregate of 60 days upon reasons recorded in writing, is a directory provision.

Section 14 of the Act provides the procedure for Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset. The proviso empowers the authority to pass suitable orders for the purpose of taking possession of the secured asset within a period of thirty days from the date of application. Second Proviso states that, if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such period not exceeding in the aggregate sixty days

To hold that this stipulation is not mandatory, the High court had noted that, it is not the borrower, guarantor or lessee, who will be adversely affected or prejudiced, in any manner, whether such applications are decided in 60, 70 or 80 days, but it would be the secured creditor who will be adversely affected if the provision is construed as mandatory and not directory. The court held that such a construction would delay the process of taking physical possession of assets instead of expediting such process by entailing the filing of another application for such purpose.

Agreeing with this view, the bench observed that the time limit stipulation is to instill a confidence in creditors that the District Magistrate will make an attempt to deliver possession. It also rejected the contention of the appellant that if the District Magistrate is not able to take decision within 60 days, the secured creditor has to find its remedy elsewhere and not in terms of Section 14 of the Act. The court said:

"Keeping the objective of the Act in mind, the time limit to take action by the District Magistrate has been fixed to impress upon the authority to take possession of the secured assets. However, inability to take possession within time limit does not render the District Magistrate Functus Officio. The secured creditor has no control over the District Magistrate who is exercising jurisdiction under Section 14 of the Act for public good to facilitate recovery of public dues. Therefore, Section 14 of the Act is not to be interpreted literally without considering the object and purpose of the Act. If any other interpretation is placed upon the language of Section 14, it would be contrary to the purpose of the Act. The time limit is to instill a confidence in creditors that the District Magistrate will make an attempt to deliver possession as well as to impose a duty on the District Magistrate to make an earnest effort to comply with the mandate of the statute to deliver the possession within 30 days and for reasons to be recorded within 60 days. In this light, the remedy under Section 14 of the Act is not rendered redundant if the District Magistrate is unable to handover the possession. The District Magistrate will still be enjoined upon, the duty to facilitate delivery of possession at the earliest."

Interim orders should generally not be passed without hearing the secured creditor

The court also observed that the High Courts should be extremely careful and circumspect in exercising its discretion to grant stay in SARFAESI Matters. While upholding the High Court judgment, the court said:

"Even though, this Court in United Bank of India v. Satyawati Tondon & Ors. held that in cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which will ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Hindon Forge Private Limited has held that the remedy of an aggrieved person by a secured creditor under the Act is by way of an application before the Debts Recovery Tribunal, however, borrowers and other aggrieved persons are invoking the jurisdiction of the High Court under Articles 226 or 227 of the Constitution of India without availing the alternative statutory remedy. The Hon'ble High Courts are well aware of the limitations in exercising their jurisdiction when affective alternative remedies are available, but a word of caution would be still necessary for the High Courts that interim orders should generally not be passed without hearing the secured creditor as interim orders defeat the very purpose of expeditious recovery of public money."

Case: C. BRIGHT vs. THE DISTRICT COLLECTOR [CIVIL APPEAL NO. 3441 OF 2020]
Coram: Justices L. Nageswara Rao, Hemant Gupta and Ajay Rastogi

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