[SARFAESI Act] Nature Of Secured Asset Continues To Remain Same Even After Being Purchased By Secured Creditor: Kerala High Court

Justice N. Nagaresh observed that in Balakrishna Rama Tarle Dead through LRs and another v Phoenix ARC Privated Limted and Others(2022), the Supreme Court had said that secured creditors can take possession of secured assets post-confirmation of sale also. High Court held that this would mean that the character of the property as a 'secured asset' will continue for the purpose of the SARFAESI Act.

The People's Urban Co-operative Bank Limited, Thrippunithura bid for its secured asset and purchased it. Under S. 13(5A) of the Act, during the sale of immovable property, if the sale does not get a bid of or above the reserve price, the sale can be postponed and the secured creditor can bid for it in the subsequent sale.

After the purchase, the Bank moved before the Additional Chief Judicial Magistrate under Section 14 of the Act to get vacant possession of the property. The Magistrate Court rejected the petitions saying that the Bank is not a secured creditor anymore after the purchase of the property. Therefore, they can not move under Section 14 to get possession of the property.

The High Court referred to ITC Limited v Blue Coast Hotels and others (2018), where the Supreme Court held that the transfer of the secured asset by the creditor cannot be construed as a complete transfer. The creditor does not have the entire interest in the property and he cannot pass the entire interest to the auction purchases. Thus, a secured creditor continues to be a secured creditor.

The petitioners had argued that the Magistrate could not have rejected their application. The duty of the Magistrate under Section 14 of the SARFAESI Act is purely administrative and the Court should not have made a judicial pronouncement that the immovable property is no more a 'secured asset'.

The Court rejected this argument saying that the Magistrate while dealing with an application under Section 14 of the Act has to be satisfied with the contents of the affidavit. Therefore, it can decide whether the property mentioned is a 'secured asset' or not. This cannot be treated as a judicial or quasi-judicial action.

“Therefore, it would be perfectly within the powers of the Magistrate to decide whether the property sought to be taken physical possession is a secured asset or not. Exercise by Magistrate of powers under Section 14 to satisfy about the contents of the affidavit cannot be treated as a judicial or quasi judicial function.”

The Additional Chief Judical Magistrate was directed to reconsider the application on the finding that the concerned property is a 'secured asset'.

Counsel for the Petitioner: Advocate Devaprasanth P. J.

Counsel for the Respondents: Advocates T. C. Krishna, S. Gopinathan, N. K. Shyju, Gireesh Pankajakshan, Ananya M., Vishnu Mohan

Citation: 2024 LiveLaw (Ker) 418

Case No: WP(C) 21587/ 2023

Case Title: The Authorised Officer v The Additional Chief Judicial Magistrate and Others