[S.14 SARFAESI Act] Jurisdiction Of DM Purely Ministerial In Nature; Not Empowered To Hear Borrower/ Third Parties: Bombay High Court

"The jurisdiction of the CMM/DM under Section 14 of the SARFAESI Act is purely ministerial and limited only to assisting secured creditors in taking possession of secured assets and nothing more", the court held.

Justices K. R. Shriram and A. S. Doctor in a writ petition set aside order of Additional District Magistrate (ADM), Nashik in an application filed by Petitioners under Section 14 of the SARFAESI Act, 2002.

"By the impugned order not only has Respondent No.1 failed and neglected to assist Petitioner in recovering possession of the secured asset, but has effectively granted relief in favour of Borrowers and Respondent No.2 (a Third Party)", the court observed.

In the instant case, the petitioner had filed an application under Section 14 of the SARFAESI Act before ADM, Nashik for assistance in taking physical possession of secured assets after Borrowers of a loan had defaulted in repayment. The ADM held that the application was legal and valid but refused to assist Petitioner in taking possession of the secured assets till termination of tenancy of the tenant in possession of the secured assets. The petitioner challenged the DM's order before the High Court.

Advocate Prathamesh Kamat for the petitioner submitted that the ADM acted beyond the jurisdiction and scope of section 14 as it did not empower the ADM to entertain any objection raised by borrower or third parties.

Government Pleader S.D. Vyas supported the order but did not dispute that ADM wasn't empowered to consider objections taken by a Third Party under Section 14. Advocate Durgesh Rege for the tenant submitted that no prejudice was caused to the petitioner as the ADM had not dismissed Petitioner's application but merely kept it open for decision after termination of tenancy rights. Advocate Mayank Bagla for the borrowers supported this.

The court held that the ADM's order is "patently illegal", as it is contrary to Section 14 of the SARFAESI Act. "Section 14 of the SARFAESI Act does not contemplate much less empower the DA to even consider much less adjudicate upon any objections raised by Borrower or anybody else", the court observed. The appropriate remedy for a borrower or third party would be to approach the Debt Recovery Tribunal (DRT) under section 17 of the SARFAESI Act.

The court further held that the Designated Authority under section 14 only needed to consider three factors – (i) whether the secured asset falls under its jurisdiction; (ii) whether notice of demand under Section 13(2) has been served on Borrower; and (iii) whether a duly affirmed affidavit accompanying the application filed by the secured creditor contains the declaration as required in Clauses (I) to (IX) of Section 14 of the SARFAESI Act.

The court noted that the purpose of Chapter III of the SARFAESI Act is to enable secured creditors to enforce their security interest without the intervention of the court or tribunal. "…the DA on finding that the secured creditor has complied with Section 14 must act promptly and with due dispatch in ensuring that possession of the secured asset is recovered as quickly as possible", the court observed.

The court also noted the "worrying trend" of granting relief to third parties/borrowers instead of the secured creditor which is beyond the scope of section 14. The court stated that it is "shocking" that such relief is granted when the Borrowers/Third Parties have not even contested the steps taken by the secured creditors by filing any application before the DRT under Section 17 of the SARFAESI Act.

Case no. – Writ Petition No. 9749 of 2021

Case title – Phoenix Arc Pvt. Ltd. v. State of Maharashtra

Coram – Justice K. R. Shriram and Justice A. S. Doctor