SARFAESI Act | MP High Court Issues Guidelines To Magistrates For Expeditious Disposal Of S.14 Applications Moved By Secured Creditors

Madhya Pradesh High Court has recently taken serious note of the inaction by Chief Judicial Magistrates on applications under Section 14 of the SARFAESI Act. The court has also issued a slew of directions about the manner in which District Magistrate or Chief Judicial Magistrates should decide such applications.

The Division bench of Justice Sushrut Arvind Dharmadikari and Justice Pranay Verma rebuked the CJM of Khargone who listed a Section 14 application for arguments on registration. The bench sitting at Indore iterated that the nature of power u/S 14 of the SARFAESI Act vested in the DM/ADM/CJM is ‘executory and ministerial’ and not ‘adjudicatory’.

“…in place of deciding the application within the stipulated time which was filed in December, 2022, the application is kept pending for months together for arguments on registration of the case which is not warranted as per the provisions of Section 14 of the SARFAESI Act. The Chief Judicial Magistrate attained the role of adjudicatory authority/ functus officio”, the court observed in the order after referring to a catena of decisions by the apex court like R.D. Jain & Company v. Capital First Limited & Others, (2023) 1 SCC 675 and Kotak Mahindra Bank Limited v. Girnar Corrugators Pvt. & Ors. 2023 LiveLaw (SC) 12.

The Division bench also pointed out that CJMs are required to take a decision on Section 14 applications within a period of 30 days from the date of application which can be extended up to 70 days. The court also expressed its disapproval about the efflux of cases wherein DM/ADM/CJM exceed their jurisdiction as contemplated in Section 14 applications and sit tight over the matter.

“…This Court as well as the Apex Court time and again reiterated that the role of DM/ADM/CJM is ministerial in nature so far as Section 14 of the SARFAESI Act is concerned and not that of adjudication. In number of cases, it is seen that the orders are being passed as per convenience of the Officer concerned without following the mandate of this Court as well as the Apex Court.”, the court further noted.

While allowing the application filed by the secured creditor, the court also underscored that there are only two aspects that a Chief Judicial Magistrate must consider before passing an order u/S 14 of the SARFAESI Act: (i) to determine whether secured assets fall within their territorial jurisdiction? (ii) whether notice u/S 13(2) of the SARFAESI Act has been furnished.

By filing an application under the Right to Information Act, 2005, the petitioner had also furnished information about the pendency of 17 such cases under Section 14 of SARFAESI Act, posted for arguments on registration on the file of Chief Judicial Magistrate, Khargone.

“For taking physical possession of the secured assets in terms of Section 14(1) of the SARFAESI Act, the secured creditor is obliged to approach the DM/ADM/CJM by way of a written application. The statutory obligation upon the DM/ADM/CJM is to immediately move into action by passing an order after verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act”, the bench sitting at Indore further noted.

The court has also asked the CJM, Khargone to dispose of the pending applications within 30 days in compliance with the statute as well as the apex court decision.

The court also deemed it fit to issue guidelines on Section 14 applications after noting that the inaction of DM/ADM/ CJMs have resulted in secured creditors rushing to the High Court, ‘leading to the opening of a floodgate of writ petitions’.

Guidelines Issued

1. DM/ADM/CJM have to determine whether secured assets fall within their territorial jurisdiction.
2. whether notice u/S 13(2) of the SARFAESI Act has been furnished by the secured creditor and also whether the case of secured creditor falls under the any of the exceptions provided under Section 31 of the SARFAESI Act?
3. DM/ADM/CJM is not at all required to hear the application u/S 14 of the SARFAESI Act for the purpose of registration of the case.
4. DM/ADM/CJM acting under Section 14 of the SARFAESI Act is not required to give notice either to the borrower or to the 3rd party.
5. The DM/ADM/CJM shall ensure that the secured creditor should file an affidavit declaring that the terms and conditions prescribed u/S 14(1) of the SARFAESI Act are satisfied.
6. DM/ADM/CJM should ensure that the application filed u/S 14 of the SARFAESI Act shall be decided as expeditiously as possible, preferably within 45 days from the date of filing of such an application.

While concluding, the court also added that applications filed by the secured creditors must be decided after considering the interest of the lessee/tenant of borrowers too as laid down in Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd., (2014) 6 SCC 1.

Case Title: Equitas Small Finance Bank Limited Through Its Authorized Signatory v. The State Of Madhya Pradesh Principal Secretarylaw And Legislature Affairs Vallabh Bhawan Bhopal (Madhya Pradesh)

Case No: Writ Petition No. 26176 of 2023

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