ADM To Pay Rs.10K Fine After MP High Court Passes Strictures For Her Failure To Assist Secured Creditor U/S 14 SARFAESI Act

While reiterating the well-settled proposition that a District Magistrate wielding powers under Section 14 of the SARFAESI Act cannot decide the rights of the parties, Madhya Pradesh High Court has imposed a cost of Rs 10,000/- to be paid by the Additional District Magistrate, Indore who acted as ‘Functus Officio’, in contravention to the ‘executory and ministerial’ nature of the exercise envisaged in the provision.

The ADM has been directed to bear the cost imposed from her own pocket. The same shall not be borne by the state government, the court clarified.

The Division bench of Justice Sushrut Arvind Dharmadhikari and Justice Pranay Verma noted that the Additional District Magistrate has travelled beyond the scope of Section 14 by granting an opportunity to the respondents (debtor) to file their replies and by dismissing the application filed for the purpose of taking possession.

“…Though, the Additional District Magistrate had filed her reply, but on perusal of the same, there is no explanation as to how she becomes functus officio. This Court as well as the Apex Court time and again reiterated that the role of DM/ADM is ministerial in nature so far as Section 14 of the SARFAESI Act is concerned and not that of adjudication…”, the court also expressed its concern about the practice of passing orders arbitrarily without paying attention to the directions of the High Court or the Supreme Court.

Section 14 of the Securitisation and Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 mentions that while considering an application filed for taking possession of the mortgaged property, the District Magistrate/ Chief Metropolitan Magistrate only ought to consider two aspects: i) Whether the secured asset falls within the territorial jurisdiction of the court, ii) Whether notice contemplated under Section 13(2) of the Act has been furnished or not. No adjudication on the merits is contemplated at this particular stage of the proceedings under the SARFAESI Act.

Referring to Cholamandlam Investment and Finance Ltd.v. Additional District Magistrate and Others [2018], the bench of the High Court sitting at Indore concluded that the judicial officer, Sapna M. Lovanshi, has ‘wasted the precious time of the court’ and hence heavy cost must be imposed on her for deliberately misinterpreting the settled law. Stating the same, the High Court has set aside the order dated 28.06.2023 that dismissed the petitioner/secured creditor’s application under Section 14. Moreover, the court has also directed the Additional District Magistrate to pass a fresh order ‘within an outer limit of 30 days extendable up to 60 days’.

The court then went on to chastise the ADM who ignored the High Court order in WP 10672/2023 which was the first round of litigation arising from the application under Section 14. In WP 10672/2023, the petitioner creditor had assailed the issuing of notice by the ADM to the respondent borrowers and granting them an opportunity to defend against the application filed U/s 14(1). While allowing the first writ petition, the High Court directed the ADM to dispose of the application without affording such a chance to the respondents. However, on 28.06.2023, the application was rejected by the ADM citing the pendency of the SARFAESI application filed by the respondents before DRT, Jabalpur.

About the manner in which the ADM has proceeded in the current case instead of assisting the secured creditor to take over the possession of the mortgaged property, the court noted as below:

“It has been observed in a number of cases that the Additional District Magistrate, Indore namely Mrs. Sapna M. Lovanshi attained the role of adjudicatory authority citing reasons that she becomes functus of icio and the remedy available to the petitioner is before the DRT, Jabalpur…”

Previously, the ADM had also filed an interim application in the current writ petition seeking permission to withdraw the assailed order dated 28.06.2023. The court regarded the said application as an indication of the ADM’s habit of exercising powers arbitrarily.

The court has also instructed that the order be sent to the Principal Secretary of the Revenue Department for circulation amongst all concerned officers, in order to avoid misinterpretations of law in the future.

“As a word of caution, this Court expects that in future at least the Additional District Magistrate shall follow the orders passed by the High Court and Apex Court in letter and spirit and shall not adventure in interpreting the orders on her own”, the division bench remarked in the order.

Case Title: SMFG India Credit Company Limited Formerly Known As Fullerton India Credit Company Limited Through Authorized Officer v. Additional District Magistrate District Indore & Ors.

Case No: Writ Petition No. 15800 of 2023

Click Here To Read/Download Order