SARFAESI - Borrower Has No Right Of Hearing Before Magistrate Allows Possession Of Assets Under Section 14 : Bombay High Court

"Only a post-possession right to approach the tribunal is conferred on a borrower in terms of section 17, nothing more and nothing less," the bench observed.

The court observed that principles of natural justice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESI Act), are available to a borrower only to a limited extent and not till the secured creditor takes possession of the asset after serving a notice to the borrower and responding to it.

"The SARFAESI Act is intended to facilitate quick recovery of secured debts without extending any opportunity of hearing to a borrower and without judicial/quasi-judicial intervention till such time possession of the secured asset is taken by the secured creditor after serving the requisite notices and responding to the objection/representation that may be lodged/preferred by the borrower under section 13(3A)."

Facts

The bench thus dismissed the writ petition filed by debtors of different banks and financial institutions aggrieved by Magistrate's orders or Chief Metropolitan Magistrate under section 14. The plea sought a declaration for the Magistrate to hear the borrowers before passing a possession order under section 14 of the Act.

Without such an obligation the section is violative of the fundamental rights and basic structure of the constitution. Consequently, the petitioners also sought to set aside the orders passed by magistrates against them.

Arguments

The petitioners represented by advocate Mathew Nedumpara submitted that it was a well-known principle of law that if a statute does not exclude compliance with natural justice principles either expressly or by necessary implication, compliance with natural justice has to be read into the statute.

He argued that since the SARFAESI Act has neither expressly excluded nor excluded by implication the requirement of natural justice when the Magistrate considers the creditors application u/s 14, the creditor must be put to notice. Nadumpara further contended that since the Magistrate's order would have civil and consequence on the borrower, the borrower must be heard.

Observation

The bench observed that the petitioner completely overlooked section 13 of the SARFAESI, which permits enforcement of security interest without the court or tribunal's intervention.

"Decision by a quasi-judicial authority (see section 17) upon compliance with natural justice stands deferred till such time possession, either symbolic or physical, is taken. The SARFAESI Act does not remotely suggest compliance with natural justice at the stage when section 13(4) or 14 operates."

The court said that according to the case of Noble Kumar there are 3 (three) methods for taking possession of a secured asset. The methods are mentioned in section 14 and section 13(4), which is why the two can't operate independent of each other.

It means that if a borrower has no right of hearing when the secured creditor takes possession under section 13(4), no hearing can be demanded by a borrower after he succeeds in resisting possession and compels the authorised officer to work out the remedy by seeking assistance of the Magistrate/Chief Metropolitan Magistrate.

Pertinently, the bench said, section 14 of the SARFAESI Act was amended twice, but an opportunity of hearing was not given to the borrower.

"There seems to be little merit in the argument advanced by Mr. Nedumpara and we hold that the language of section 14 is too clear and unambiguous, and does not admit of any requirement of complying with natural justice by putting the borrower on notice while an application thereunder is under consideration."

"We reiterate that natural justice for a borrower within the meaning of section 2(f) of the SARFAESI Act has very limited application in actions taken for enforcement of security interest [only consideration of objection/representation under section 13(3- A) of the SARFAESI Act is mandated] and stands excluded till such time recourse is taken to section 17."

Case Title: CA. Manisha Mehta and ors. Vs The Board of Directors of Represented by its Managing Director of ICICI Bank and ors.

Citation: 2022 LiveLaw (Bom) 99

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