No Requirement For CMM To Fix Time Limit For Taking Possession Of Secured Asset While Exercising Jurisdiction Under Sec. 14 Of SARFAESI Act: Delhi HC

The Delhi High Court has held that there is no requirement or justification for a Chief Metropolitan Magistrate to fix a time limit for taking possession of the secured asset while exercising jurisdiction under Section 14 of the SARFAESI Act.

Justice Amit Bansal also held that in context of the proceedings initiated under the SARFAESI Act, an order passed in a civil suit instituted by a third party in respect of the mortgaged property or secured asset would not bind the secured creditor, if the said secured creditor was not a party to the Civil Suit.

The Court was dealing with a petition challenging two orders passed by Chief Metropolitan Magistrate (CMM), South West of the Dwarka Courts.

In the first impugned order dated 30th March, 2021, a period of ninety days was granted to the Court appointed receiver for complying with an order whereby the said receiver was appointed to take possession of the secured asset. In the second order dated 17th August, 2021, the CMM had failed to pass any orders qua the extension of time in view of the status quo orders passed by a Sessions Court in a suit concerning the respondents in the matter.

The facts of the matter are that a loan of Rs.1,23,86,908 was disbursed by the petitioner namely Housing Development Finance Corporation Ltd. to the respondents no.1 and 2 for purchase of a Flat. On 31st July, 2021, the said loan account was classified as Non Performing Asset and a demand notice under sec. 13(2) of the SARFAESI Act was issued on 15th June, 2018.

Upon failure of the respondents to pay the said amount, an application under sec. 14 of the SARFAESI Act was filed by the petitioner before the CMM. The court had then appointed a receiver and gave him three months time to execute the said order.

Meanwhile the DRT vide order dated 26th November, 2019 passed an interim order in terms of which the taking over of possession of the subject property was deferred. On 30th March, 2021, the petitioner moved an application before the CMM seeking extension of the order dated 15th October, 2019 and the CMM, vide the impugned order dated 30th March, 2021, granted an extension of three months for taking possession of the subject property.

It was contended on behalf of the petitioner that there is no jurisdiction vested in the CMM to fix a time limit for compliance of the order passed by the Court of CMM in exercise of its jurisdiction under sec. 14 of the SARFAESI Act.

It was also argued that sec. 14 is an aiding provision to Section 13(4) of the SARFAESI Act, whereby the role of CMM is to assist the secured creditors in taking possession of the secured assets.

It was also submitted that since the petitioner was not a party in the civil suit, the status quo order passed in the said suit on 12th July, 2021 shall not be binding on the petitioner as also on the CMM.

The Court therefore framed the following issues:

- Whether there is any requirement or justification to fix a time limit by the CMM for taking possession of the secured asset while exercising jurisdiction under Section 14 of the SARFAESI Act?

- In the context of proceedings initiated under the SARFAESI Act, whether an order passed in a civil suit instituted by a third party in respect of the mortgaged property/secured asset would bind the secured creditor, if the said secured creditor was not a party to the Civil Suit?

The Court took note of the fact that on many occasions, the CMMs, in exercise of jurisdiction under sec. 14 of the SARFAESI Act, while appointing court receivers, fix time limits for the said receivers to take possession of the mortgaged property and that due to a variety of reasons, the physical possession of the property is not acquired in the time limit fixed by the CMM, which results in applications for extension being filed before the CMM.

"Keeping in mind the objective of the SARFAESI Act i.e., to enable the secured borrowers to take physical possession of the assets of the defaulting borrowers in an expeditious manner, there is no requirement or justification for the CMM to impose time limits for the receiver to take physical possession of the secured asset. This would also curtail unnecessary litigation wherein applications for extension are filed before the CMM and upon the said applications being either allowed or declined by the CMM, petitions are filed before this Court challenging the said decision of the CMM," the Court said.

The Court was also of the view that according to sec. 34 of the SARFAESI Act, a civil court does not have jurisdiction to adjudicate the rights of a secured creditor or the enforcement of such rights by the secured creditor. 

It added that such rights can only be challenged by the borrower or any affected person before the DRT in terms of sec. 17 of the SARFAESI Act.

"Accordingly, the impugned order dated 17th August, 2021, to the extent it holds that since the order dated 12th July, 2021 in the civil suit has been passed by a court which is senior in hierarchy of courts to the CMM, it would be against the judicial discipline to pass an order under Section 14 of the SARFAESI Act, is set aside," the Court held.

It also directed the CMM to pass fresh orders appointing a receiver to take physical possession of the secured asset without fixing any time limit within which possession may be taken.

"A copy of this judgment be forwarded to the Principal District & Sessions Judges in Delhi for circulation to all the CMMs for compliance in proceedings under Section 14 of the SARFAESI Act," the Court said.

Recently, the Judge had asked all the Chief Metropolitan Magistrates in city courts to ensure that the orders passed by them under Section 14 of the SARFAESI Act, 2002 are promptly uploaded after they are passed.

It was of the view that time is of essence in proceedings initiated under the Act and that it's purpose would be frustrated if there are delays in implementing orders passed under the Act. 

Title: HOUSING DEVELOPMENT FINANCE CORPORATION LTD. v. RAKESH KUMAR & ORS.

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