Supreme Court Annual Digest 2022- SARFAESI Act 2002

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor if the bank takes recourse to any of the provisions contained in Section 13(4) of the SARFAESI Act - This shall be applicable in a case where proceedings before the RERA authority are initiated by the homer buyers to protect their rights. Union Bank of India v. Rajasthan Real Estate Regulatory Authority, 2022 LiveLaw (SC) 171

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - In the event of conflict between RERA and SARFAESI Act the provisions contained in RERA would prevail. Union Bank of India v. Rajasthan Real Estate Regulatory Authority, 2022 LiveLaw (SC) 171

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor if the bank takes recourse to any of the provisions contained in Section 13(4) of the SARFAESI Act - This shall be applicable in a case where proceedings before the RERA authority are initiated by the homer buyers to protect their rights. Union Bank of India v. Rajasthan Real Estate Regulatory Authority, 2022 LiveLaw (SC) 171

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - RERA would not apply in relation to the transaction between the borrower and the banks and financial institutions in cases where security interest has been created by mortgaging the property prior to the introduction of the Act unless and until it is found that the creation of such mortgage or such transaction is fraudulent or collusive. Union Bank of India v. Rajasthan Real Estate Regulatory Authority, 2022 LiveLaw (SC) 171

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944 - secured creditor will have priority over the dues of the Central Excise Department. (Para 43, 44, 47) Punjab National Bank v. Union of India, 2022 LiveLaw (SC) 208 : AIR 2022 SC 1475 : (2022) 7 SCC 260

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The High Court overlooked the fact that there was no independent instrument of PoA and that in any case, the power of sale of a secured asset flowed out of the provisions of the Securitisation Act, 2002 and not out of an independent instrument of PoA. Section 2(zd) of the Securitisation Act, 2002 defines a 'secured creditor' to mean and include an Asset Reconstruction Company. The appellant has acquired the financial assets of OBC in terms of Section 5(1)(b) of the Securitisation Act, 2002. Therefore, under sub­section (2) of Section 5 of the Securitisation Act, 2002, the appellant shall be deemed to be the lender and all the rights of the Bank vested in them. (Para 9) Asset Reconstruction Co. v. Chief Controlling Revenue Authority, 2022 LiveLaw (SC) 415 : 2022 (6) SCALE 657

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 13(2) - Security Interest (Enforcement) Rules, 2002 - It is true that the secured creditor is under an obligation to undertake the exercise and cross­check the description of the mortgaged property at the stage when the initial proceedings under Section 13(2) are initiated or in the later consequential proceedings, but at the same time, mere typographical error due to inadvertence which has not caused any prejudice to the borrowers, that in itself could not be considered to be the ground to annul the process held by the secured creditor which, in our view, is in due compliance with the requirement as contemplated under the provisions of Rules, 2002. (Para 37) Varimadugu Obi Reddy v. B. Sreenivasulu, 2022 LiveLaw (SC) 967

Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002; Section 13(2) - A writ petition against the private financial institution – ARC – against the proposed action/actions under Section 13(4) of the SARFAESI Act can be said to be not maintainable - The ARC as such cannot be said to be performing public functions which are normally expected to be performed by the State authorities. During the course of a commercial transaction and under the contract, the bank/ARC lent the money to the borrowers herein and therefore the said activity of the bank/ARC cannot be said to be as performing a public function which is normally expected to be performed by the State authorities. If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable. (Para 12) Phoenix ARC v. Vishwa Bharati Vidya Mandir, 2022 LiveLaw (SC) 45 : AIR 2022 SC 1045 : (2022) 5 SCC 345

Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ; Section 13(2) - The secured creditor and/or its assignor have a right to recover the amount due and payable to it from the borrowers- The High Court to be extremely careful and circumspect in exercising its discretion while granting stay in such matters. (Para 13.2) Phoenix ARC v. Vishwa Bharati Vidya Mandir, 2022 LiveLaw (SC) 45 : AIR 2022 SC 1045 : (2022) 5 SCC 345

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13 (8) - By paying the highest bid amount / reserve price, the borrower cannot be discharged of its liability of the outstanding due to be paid to the bank - Unless and until he was ready to deposit / pay the entire amount payable together with all costs and expenses with the secured creditor, the borrower cannot be discharged from the entire liability outstanding. (Para 7.1) Bank of Baroda v. Karwa Trading Company, 2022 LiveLaw (SC) 253 : AIR 2022 SC 1209 : (2022) 5 SCC 168

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 14 - Taking of possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity is a ministerial act. (Para 28) NKGSB Cooperative Bank Ltd. v. Subir Chakravarty, 2022 LiveLaw (SC) 212 : AIR 2022 SC 1325 : (2022) 10 SCC 286

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 14 - While entrusting the act of taking possession of the secured assets consequent to the order passed under Section 14(1) of the 2002 Act to any officer subordinate to him, the CMM/DM ought to exercise prudence in appointing such person who will be capable of executing the orders passed by him. Merely because he has power to appoint "any" officer subordinate to him, it would not permit him to appoint a peon or clerk, who is incapable of handling the situation. (Para 30) NKGSB Cooperative Bank Ltd. v. Subir Chakravarty, 2022 LiveLaw (SC) 212 : AIR 2022 SC 1325 : (2022) 10 SCC 286

Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002; Section 14 - The District Magistrate, Chief Metropolitan Magistrate is not a persona designata for the purposes of Section 14 of the SARFAESI Act - Additional District Magistrate and Additional Chief Metropolitan Magistrate can exercise powers under Section 14. (Para 9-12) R.D. Jain and Co. v. Capital First Ltd., 2022 LiveLaw (SC) 634 : AIR 2022 SC 4820

Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002; Section 14 - Step to be taken by the CMM/DM under Section 14 is a ministerial step. While disposing of the application under Section 14 of the SARFAESI Act, no element of quasi ­judicial function or application of mind would require -The Magistrate has to adjudicate and decide the correctness of the information given in the application and nothing more. Therefore, Section 14 does not involve an adjudicatory process qua points raised by the borrower against the secured creditor taking possession of secured assets. (Para 8) R.D. Jain and Co. v. Capital First Ltd., 2022 LiveLaw (SC) 634 : AIR 2022 SC 4820

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 14 - The powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets - Once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner- At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal. (Para 5.2) Balkrishna Rama Tarle v. Phoenix ARC Pvt. Ltd., 2022 LiveLaw (SC) 799 : AIR 2022 SC 4756

Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002; Section 14 (1A) - it is open to the CMM/DM to appoint an advocate and authorise him/her to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor under Section 14(1A) of the SARFAESI Act. (Para 6.2) R.D. Jain and Co. v. Capital First Ltd., 2022 LiveLaw (SC) 634 : AIR 2022 SC 4820

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 14(1) - It is open to the District Magistrate or the Chief Metropolitan Magistrate can appoint an advocate commissioner to assist him/her in execution of the order passed under Section 14(1) - Advocate must be regarded as an officer of the court and, in law, subordinate to the concerned CMM/DM within their jurisdiction. (Para 44) NKGSB Cooperative Bank Ltd. v. Subir Chakravarty, 2022 LiveLaw (SC) 212 : AIR 2022 SC 1325 : (2022) 10 SCC 286

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 14(1) - Being an officer of the court and appointed by the CMM/DM, the acts done by the Advocate Commissioner would receive immunity under Section 14(3) of the 2002 Act — as an officer authorised by the CMM/DM - There must be a presumption that if an advocate is appointed as commissioner for execution of the orders passed by the CMM/DM under Section 14(1) of the 2002 Act, that responsibility and duty will be discharged honestly and in accordance with rules of law. (Para 42) NKGSB Cooperative Bank Ltd. v. Subir Chakravarty, 2022 LiveLaw (SC) 212 : AIR 2022 SC 1325 : (2022) 10 SCC 286

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 14(1A) - Officer subordinate - "Functional subordination" test applied - There is intrinsic de jure functional subordinate relationship between the CMM/DM and the advocate being an officer of the court - It does not follow that the advocate so appointed needs to be on the rolls in the Office of the CMM/DM or in public service. (Para 42) NKGSB Cooperative Bank Ltd. v. Subir Chakravarty, 2022 LiveLaw (SC) 212 : AIR 2022 SC 1325 : (2022) 10 SCC 286

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 17 - The reason for providing a time limit of 45 days for filing an application under Section 17 can easily be inferred from the purpose and object of the enactment - SARFAESI Act is enacted for quick enforcement of the security. (Para 12) Bank of Baroda v. Parasaadilal Tursiram Sheetgrah Pvt. Ltd., 2022 LiveLaw (SC) 671 : AIR 2022 SC 3803

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 18 - Without exhausting the statutory remedy of appeal under Section 18 of SARFAESI Act, the borrowers approached the High Court by filing the writ application - Practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy deprecated. (Para 34) Varimadugu Obi Reddy v. B. Sreenivasulu, 2022 LiveLaw (SC) 967

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 34 - Section 34 shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act. The plaintiff was not challenging the sale/sale certificate. (Para 5.2) Leelamma Mathew v. Indian Overseas Bank, 2022 LiveLaw (SC) 973