S.14 SARFAESI Act | District Magistrate Can Delegate Powers To Executive Magistrate To Take Possession Of Secured Assets: Calcutta High Court

In an important decision delivered today, the Calcutta High Court has held that step taken under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act') while taking possession of the secured assets is a ministerial step and hence, the Chief Metropolitan Magistrate or the District Magistrate need not go personally to take possession. The said power can be delegated to even an Executive Magistrate, who can take possession thereof.

A Division Bench of Chief Justice Prakash Shrivastava and Justice  Rajarshi Bharadwaj held,

"The step taken by the CMM/DM while taking possession of the secured assets and documents relating thereto is a ministerial step. It could be taken by the CMM/DM himself or through any officer subordinate to him. Section 14 does not oblige the CMM/DM to go personally and take possession of the secured assets which can be discharged even by the Executive Magistrate as is done in this case."

Factual Background:

The appellant/writ petitioner is a company registered under the Companies Act, 1956, which had taken a loan from the Respondent No. 2. On 05.04.2007, the Branch Manager (Respondent No. 4) of the said Bank communicated to the appellant regarding the modified terms of compromise settlement of the loan amount. Subsequently, the loan was taken over by AEREC (India) Ltd. from the respondent No. 2. As the compromise failed, on 10.01.2021, AEREC (India) Ltd. took physical possession of the assets of the appellant with the help of the police, owing to the default in making payment of the loan.

The entire incident took place in the presence of the Executive Magistrate in terms of the order passed under Section 14 of the SARFAESI Act, by the District Magistrate, Purba Burdwan. The said order was challenged by the appellant before the Single Judge of the Court.

The Single Judge upon carefully considering the contentions and the arguments of the counsels for the respective parties held that "the issue as to whether the Executive Magistrate could be delegated the powers of the District Magistrate under section 14 of the SERFAESI Act, 2002 is academic in nature since sub-section (2) of section 14 has been amended" and had dismissed the writ petition. Being aggrieved by the impugned order passed by the Learned Single Judge the instant appeal has been filed by the appellant before the Division Bench.

Issue of Consideration:

Whether the impugned memo issued by the District Magistrate under Section 14 of the SERFAESI Act, 2002 delegating his powers to the Executive Magistrate for taking possession of the assets of the appellant and the order of the Executive Magistrate for taking possession of the assets of the appellant is violative of the rule of law, illegal and invalid?

Contentions:

Mr. Dilip Kumar Samanta, counsel appearing for the appellant, placed reliance on an unreported judgement dated 24th July, 2014, passed by a Single Bench of the Court in Swastyan Agro Industries and Anr. v. Union of India and Ors., W.P. No. 379 (W) of 2013 and submitted that the Executive Magistrate was not the District Magistrate as contemplated under Section 14 of the SARFAESI Act, 2002. A District Magistrate cannot delegate his powers to an Executive Magistrate.

Thus, he contended that the order of the District Magistrate delegating his powers to the Executive Magistrate for taking possession of the assets of the appellant is illegal and prayed for quashing of the orders of both the District Magistrate and the Executive Magistrate, to return the assets and to restore the physical possession of such assets to the appellant.

Court's Observations:

The Court referred to M/s R. D. Jain and Co. v. Capital First Ltd. & Ors., wherein the Supreme Court held that the terms District Magistrate (DM), Chief Metropolitan Magistrate (CMM) is not a persona designata for the purposes of Section 14 of the SARFAESI Act. The expression "District Magistrate" and the "Chief Metropolitan Magistrate" as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional District Magistrate and Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act.

Further, reliance was also placed on Indian Bank v. D. Visalakshi, wherein the Apex Court held that Section 14 of the SARFAESI Act, 2002 is not a provision dealing with the jurisdiction of the Court as such. It is a remedial measure available to the secured creditor, who intends to take assistance of the authorized officer for taking possession of the secured asset in furtherance of enforcement of security furnished by the borrower. The authorized officer essentially exercises administrative or executive functions, to provide assistance to the secured creditor in terms of State's coercive power to effectuate the underlying legislative intent of speeding the recovery of the outstanding dues receivable by the secured creditor. At best, the exercise of power by the authorized officer may take the colour of quasi-judicial function, which can be discharged even by the Executive Magistrate.

Thus, the Court concluded that statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the SARFAESI Act from the secured creditor. As soon as such an application is received, the CMM/DM is expected to pass 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 and after being satisfied in that regard, to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity.

Hence, the step taken by the CMM/DM while taking possession of the secured assets and documents relating thereto is a ministerial step. It could be taken by the CMM/DM himself or through any officer subordinate to him. Therefore, Section 14 does not oblige the CMM/DM to go personally and take possession of the secured assets which can be discharged even by the Executive Magistrate as was done in the instant case.

Accordingly, the appeal was dismissed.

Case Title: Joy Kali Oil Industries Pvt. Ltd. v. Union of India & Ors.

Case No.: FMA 778 of 2022

Judgment Dated: 13^th September 2022

Coram: Prakash Shrivastava, CJ. & Rajarshi Bharadwaj, J.

Judgment Authored By: Rajarshi Bharadwaj, J.

Counsel for the Appellant: Mr. Dilip Kumar Samanta, Advocate

Counsel for the Respondents: Mr. Amitesh Banerjee, Advocate for the State; Mr. Abhishek Banerjee & Ms. Payel Ghosh, Advocates for the Respondent Nos. 2 and 3; Mr. Debashis Karmakar & Mr. Arya Nandi, Advocates for the Respondent No.12.

Citation: 2022 LiveLaw (Cal) 306

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