BALKRISHNA RAMA TARLE DEAD THR LRS & ANR versus PHOENIX ARC PRIVATE LIMITED & ORS on 26 September 2022

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 03.08.2022 passed by the High Court of Judicature atBombay in Writ Petition No. 9749/2021, by which the Division Bench ofGthe High Court has allowed the said writ petition preferred by therespondent No. 1 herein – secured creditor and has set aside orderdated 27.08.2021 passed by the designated authority under Section 14of the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 (hereinafter referred to asthe SARFAESI Act, 2002) and directed the designated authority underH

Section 14 of the SARFAESI Act to dispose of the application underSection 14 of the SARFAESI Act afresh, legal heirs of original respondentNo. 2 claiming to be the tenant of the mortgaged property, have preferredthe present Special Leave Petition.

2. The Religare Finvest Ltd. (hereinafter referred to as theReligare) sanctioned a loan of Rs. 6 crores in favour of the borrowers.The said loan was secured by a registered mortgage created by borrowersin favour of Religare in respect of the property - secured assets. Theborrowers committed defaults in repayment of the said loan which led toReligare classifying borrowers’ account as a Non-Performing Asset(NPA). The Religare thereafter, issued a notice dated 13.04.2018 underSection 13(2) of the SARFAESI Act calling upon borrowers to pay theamount then outstanding under the said facility. That thereafter, by aDeed of Assignment dated 29.09.2018, Religare assigned all its right,title, interest, and benefit under the said loan agreement to respondentNo. 1 herein – original petitioner No. 1 before the High Court. Thus,respondent No. 1 – original petitioner No. 1 stepped into the shoes ofReligare and became the secured creditor and in that capacity issued anotice dated 21.05.2019 under Section 13(2) of the SARFAESI Act toborrowers calling upon borrowers to make payment of a sum of Rs.5,83,22,866/-. That thereafter, the secured creditor took symbolicpossession of the secured assets under Section 13(4) of the SARFAESIAct. On 21.09.2019, the same was intimated to the borrowers vide theirletter dated 21.09.2019. A public notice was also issued by the securedcreditor in two newspapers in compliance with the provisions of theSecurity Interest (Enforcement) Rules, 2002. That thereafter, the securedcreditor filed an application under Section 14 of the SARFAESI Actseeking assistance of designated authority – respondent No. 3 herein –District Magistrate, Nashik, for taking physical possession of the securedassets. The petitioner herein – original respondent No. 2 claiming to bea tenant in respect of the ground floor plus first floor showroom alongwith service station on a part of the secured assets bearing Nos. 465and 463 sought to intervene in the said proceedings filed under Section14 of the SARFAESI Act. The petitioner placed reliance upon an orderdated 20.04.2018 passed in Regular Civil Suit No. 58/2018 filed by himagainst one of the borrowers, whereby one of the borrowers wasrestrained from dis-possessing him from the said premises. At this stage,it is required to be noted that neither the borrower(s) nor the petitioner(s)instituted any proceedings before the Debt Recovery Tribunal (DRT)

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Aunder Section 17 of the SARFAESI Act against the steps taken underSection 13 of the SARFAESI Act. That thereafter, the designatedauthority passed the following order dated 27.08.2021 and declined toassist the secured creditor in taking possession of the secured assetsand kept the said application pending by observing that after terminationof the tenancy rights of the petitioner by the Finance Company byBfollowing due procedure of law the further orders regarding possessionof the mortgage property will be decided. The order dated 27.08.2021 isas under: -

1. In consideration of the reasons recorded in the above referredissues and conclusions, the Application of the Finance CompanyCis kept for decision.

2. After termination of the tenancy rights of the third-personComplainant Shri. Balkrishna Rama Tarle by the FinanceCompany by following due procedure of law the further ordersregarding possession of the mortgage property will be decided.D

3. If any party feel aggrieved due to this order, then they may filean appeal under section 17 of the Securitisation Act, 2002 beforeHon’ble Debts Recovery Tribunal, Mumbai.

4. No order as to cost.”

E2.1 Feeling aggrieved and dissatisfied with the order dated27.08.2021 passed by the designated authority – Additional DistrictMagistrate, Nashik in not passing any order of assisting the securedcreditor in taking possession of the secured assets in exercise of powersunder Section 14 of the SARFAESI Act, the secured creditor preferredFwrit petition before the High Court. By the impugned judgment and order,the Division Bench of the High Court has set aside order dated 27.08.2021passed by the designated authority/Additional District Magistrate byobserving that such an order is beyond the scope and ambit of the powersto be exercised under Section 14 of the SARFAESI Act. That thereafter,the Division Bench of the High Court has directed the designated authority/GAdditional District Magistrate to hear and dispose of the application underSection 14 of the SARFAESI Act in accordance with the provisions ofSection 14 of the SARFAESI Act.

2.2 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court, the third party – petitioner(s) claimingH

to be a tenant in some of the secured assets have preferred the presentSpecial Leave Petition.

3. Shri Vinay Navare, learned Senior Advocate, appearing onbehalf of the petitioners has vehemently submitted that in the facts andcircumstances of the case and when the petitioners claimed to be thetenant of the original landlord with respect to some of the secured assetsof which the possession was sought and when the original writ petitionerstepped into the shoes of the original landlord as rightly observed by thedesignated authority – Additional District Magistrate unless the securedcreditor who stepped into the shoes of the original landlord initiates thelegal proceedings for eviction of the tenant cannot get the possession inan application under Section 14 of the SARFAESI Act.

3.1 It is vehemently submitted by Shri Navare, learned SeniorAdvocate, appearing on behalf of the petitioners that the High Courtought to have appreciated that the tenancy was subsisting and continuingsince prior to the mortgage of the property and therefore, their rights areto be protected and unless and until the proceedings are initiated foreviction of the tenant, the secured creditor who will be in the shoes ofthe original landlord, cannot get the possession in an application underSection 14 of the SARFAESI Act. Reliance is placed upon the decisionsof this Court in the cases of Harshad Govardhan Sondagar Vs.International Assets Reconstruction Company Limited and Ors.;(2014) 6 SCC 1 and Vishal N. Kalsaria Vs. Bank of India andOrs.; (2016) 3 SCC 762.

4. We have heard learned counsel appearing on behalf of thepetitioners at length. At the outset, it is required to be noted that afterinitiation of the proceedings and taking steps under Section 13(2) and13(4) of the SARFAESI Act, thereafter, the secured creditor hasapproached the District Magistrate by submitting an application underSection 14 of the SARFAESI Act and has requested the DistrictMagistrate/Additional District Magistrate to assist the secured creditorin obtaining the possession of the secured assets. It is required to benoted that neither the original borrowers nor even the petitioners whoare claiming to be a tenant of the secured assets have initiated anyproceedings before Debt Recovery Tribunal under Section 17 of theSARFAESI Act. The proceedings before the District Magistrate wereunder Section 14 of the SARFAESI Act. In the said application underSection 14 of the SARFAESI Act instead of passing any final order to AB

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Aassist the secured creditor in getting the possession of the secured assetsand while keeping the said application, the Additional District Magistratehas passed an order that only after the termination of the tenancy rightsof the petitioner by the finance company (secured creditor) by followingdue procedure of law the further orders regarding possession of themortgage property, the said application shall be decided. The aforesaidBorder passed by the Additional District Magistrate has been set aside bythe High Court which is the subject matter of the present Special LeavePetition.

5. Therefore, the short question which is posed for considerationof this Court is whether while exercising the powers under Section 14 ofCthe SARFAESI Act, the District Magistrate/designated authority couldhave passed such an order that unless and until the secured creditorterminates the tenancy rights of the third person by following dueprocedure of law and further orders regarding possession of themortgaged property then and then only an application under Section 14Dof the SARFAESI Act will be decided?

5.1 While considering the aforesaid question/issue, the scope, ambit,and jurisdiction of the District Magistrate/designated authority underSection 14 of the SARFAESI Act are required to be considered. Section14 of the SARFAESI Act reads as under: -E“14. Chief Metropolitan Magistrate or District Magistrateto assist secured creditor in taking possession of securedasset.—(1) Where the possession of any secured assets isrequired to be taken by the secured creditor or if any of the securedassets is required to be sold or transferred by the secured creditorFunder the provisions of this Act, the secured creditor may, for thepurpose of taking possession or control of any such secured assets,request, in writing, the Chief Metropolitan Magistrate or the DistrictMagistrate within whose jurisdiction any such secured asset orother documents relating thereto may be situated or found, to takepossession thereof, and the Chief Metropolitan Magistrate or asGthe case may be, the District Magistrate shall, on such requestbeing made to him—

(a) take possession of such asset and documents relating thereto;and (b) forward such asset and documents to the secured creditor:

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[Provided that any application by the secured creditor shall beaccompanied by an affidavit duly affirmed by the authorised officerof the secured creditor, declaring that—

(i) the aggregate amount of financial assistance granted and thetotal claim of the Bank as on the date of filing the application;

(ii) the borrower has created security interest over variousproperties and that the Bank or Financial Institution is holding avalid and subsisting security interest over such properties and theclaim of the Bank or Financial Institution is within the limitationperiod;

(iii) the borrower has created security interest over variousproperties giving the details of properties referred to in sub-clause(ii)above;

(iv) the borrower has committed default in repayment of thefinancial assistance granted aggregating the specified amount;

(v) consequent upon such default in repayment of the financialassistance the account of the borrower has been classified as anon-performing asset;

(vi) affirming that the period of sixty days notice as required bythe provisions of sub-section (2) of section 13, demanding paymentof the defaulted financial assistance has been served on theborrower;

(vii) the objection or representation in reply to the notice receivedfrom the borrower has been considered by the secured creditorand reasons for non-acceptance of such objection or representationhad been communicated to the borrower;

(viii) the borrower has not made any repayment of the financialassistance in spite of the above notice and the Authorised Officeris, therefore, entitled to take possession of the secured assetsunder the provisions of sub-section (4) of section 13 read withsection 14 of the principal Act;

(ix) that the provisions of this Act and the rules made thereunderhad been complied with:

Provided further that on receipt of the affidavit from theAuthorised Officer, the District Magistrate or the Chief A

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AMetropolitan Magistrate, as the case may be, shall after satisfyingthe contents of the affidavit pass suitable orders for the purposeof taking possession of the secured assets [within a period ofthirty days from the date of application]

[Provided also that if no order is passed by the ChiefBMetropolitan Magistrate or District Magistrate within the saidperiod of thirty days for reasons beyond his control, he may, afterrecording reasons in writing for the same, pass the order withinsuch further period but not exceeding in aggregate sixty days.]

Provided also that the requirement of filing affidavit statedCin the first proviso shall not apply to proceeding pending beforeany District Magistrate or the Chief Metropolitan Magistrate, asthe case may be, on the date of commencement of this Act.]

[(1A) The District Magistrate or the Chief MetropolitanMagistrate may authorise any officer subordinate to him,— (i)toDtake possession of such assets and documents relating thereto;and (ii) to forward such assets and documents to the securedcreditor.]

(2) For the purpose of securing compliance with theprovisions of sub-section (1), the Chief Metropolitan MagistrateEor the District Magistrate may take or cause to be taken suchsteps and use, or cause to be used, such force, as may, in hisopinion, be necessary.

(3) No act of the Chief Metropolitan Magistrate or theDistrict Magistrate [any officer authorised by the ChiefFMetropolitan Magistrate or District Magistrate] done in pursuanceof this section shall be called in question in any court or beforeany authority.”

5.2 On a fair reading of Section 14 of the SARFAESI Act, itappears that for taking possession of the secured assets in terms ofSection 14(1) of the SARFAESI Act, the secured creditor is obliged toGapproach the District Magistrate/Chief Metropolitan Magistrate by wayof a written application requesting for taking possession of the securedassets and documents relating thereto and for being forwarded to it(secured creditor) for further action.

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The statutory obligation enjoined upon the CMM/DM is toimmediately move into action after receipt of a written application underSection 14(1) of the SARFAESI Act from the secured creditor for thatpurpose. As soon as such an application is received, the CMM/DM isexpected to pass an order after verification of compliance of all formalitiesby the secured creditor referred to in the proviso in Section 14(1) of theSARFAESI Act and after being satisfied in that regard, to take possessionof the secured assets and documents relating thereto and to forward thesame to the secured creditor at the earliest opportunity. As observedand held by this Court in the case of NKGSB Cooperative BankLimited Vs. Subir Chakravarty & Ors. (Civil Appeal No. 1637/2022)decided on 25.02.2022, the aforesaid act is a ministerial act. It cannotbrook delay. Time is of the essence and this is the spirit of the specialenactment. In the recent decision in the case of M/s R.D. Jain andCo. Vs. Capital First Ltd. & Ors. (Civil Appeal No. 175/2022) decidedon 27.07.2022, this Court had an occasion to consider the powersexercisable by District Magistrate/Chief Metropolitan Magistrate underSection 14 of the SARFAESI Act. After considering the object andpurpose of Section 14 of the SARFAESI Act and the Scheme of the Actunder Section 14, it is observed and held in paragraphs 7 to 9 as under: -

“7. Now so far as the powers exercisable by DM and CMMunder Section 14 of the SARFAESI Act are concerned, statementof objects and reasons for which SARFAESI Act has beenenacted reads as under: - “STATEMENT OF OBJECTS AND REASONS

The financial sector has been one of the key drivers in India’sefforts to achieve success in rapidly developing its economy. Whilethe banking industry in India is progressively complying with theinternational prudential norms and accounting practices there arecertain areas in which the banking and financial sector do nothave a level playing field as compared to other participants in thefinancial markets in the world. There is no legal provision forfacilitating securitisation of financial assets of banks and financialinstitutions. Further, unlike international banks, the banks andfinancial institutions in India do not have power to take possessionof securities and sell them. Our existing legal framework relatingto commercial transactions has not kept pace with the changingcommercial practices and financial sector reforms. This has AB

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resulted in slow pace of recovery of defaulting loans and mountinglevels of non-performing assets of banks and financial institutions.Narasimham Committee I and II and Andhyarujina Committeeconstituted by the Central Government for the purpose ofexamining banking sector reforms have considered the need forchanges in the legal system in respect of these areas. TheseCommittees, inter alia, have suggested enactment of a newlegislation for securitisation and empowering banks and financialinstitutions to take possession of the securities and to sell themwithout the intervention of the court. Acting on these suggestions,the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Ordinance, 2002 waspromulgated on the 21st June, 2002 to regulate securitisation andreconstruction of financial assets and enforcement of securityinterest and for matters connected therewith or incidental thereto.The provisions of the Ordinance would enable banks and financialinstitutions to realise long-term assets, manage problem of liquidity,asset liability mismatches and improve recovery by exercisingpowers to take possession of securities, sell them and reducenonperforming assets by adopting measures for recovery orreconstruction.”

Thus, the underlying purpose of the SARFAESI Act is toempower the financial institutions in India to have similar powersas enjoyed by their counterparts, namely, international banks inother countries. One such feature is to empower the financialinstitutions to take possession of securities and sell them. Thesame has been translated into provisions falling under Chapter IIIof the SARFAESI Act. Section 13 deals with enforcement ofsecurity interest. Sub-Section (4) thereof envisages that in theevent a default is committed by the borrower in discharging hisliability in full within the period specified in sub-section (2), thesecured creditor may take recourse to one or more of themeasures provided in sub-section (4). One of the measures is totake possession of the secured assets of the borrower includingthe right to transfer by way of lease, assignment or sale for realisingthe secured asset. That, they could do through their “authorisedofficer” as defined in Rule 2(a) of the Security Interest(Enforcement) Rules, 2002.

7.1 After taking over possession of the secured assets, furthersteps to lease, assign or sale the same could also be taken by thesecured creditor. However, Section 14 of the SARFAESI Actpredicates that if the secured creditor intends to take possessionof the secured assets, must approach the CMM/DM by way ofan application in writing, and on receipt of such request, the CMM/DM must move into action in right earnest. After passing an orderthereon, he/she (CMM/DM) must proceed to take possession ofthe secured assets and documents relating thereto for beingforwarded to the secured creditor in terms of Section 14(1) readwith Section 14(2) of the SARFAESI Act. As noted earlier, Section14(2) is an enabling provision and permits the CMM/DM to takesuch steps and use force, as may, in his opinion, be necessary.

7.2 At this stage, it is required to be noted that along with insertionof sub-section (1A), a proviso has also been inserted in sub-section(1) of Section 14 of the SARFAESI Act whereby the securedcreditor is now required to comply certain conditions and to disclosethat by way of an application accompanied by affidavit dulyaffirmed by its authorised officer in that regard. Sub-Section (1A)is in the nature of an explanatory provision and it merely restatesthe implicit power of the CMM/DM in taking services of anyofficer subordinate to him. As observed and held by this Court inthe case of NKGSB Cooperative Bank Ltd. (supra), theinsertion of sub-section (1A) is not to invest a new power for thefirst time in the CMM/DM as such.

8. Thus, considering the scheme of the SARFAESI Act, it is explicitand crystal clear that possession of the secured assets can betaken by the secured creditor before confirmation of sale of thesecured assets as well as post-confirmation of sale. For takingpossession of the secured assets, it could be done by the “authorisedofficer” of the Bank as noted in Rule 8 of the Security Interest(Enforcement) Rules, 2002.

8.1 However, for taking physical possession of the secured assetsin terms of Section 14(1) of the SARFAESI Act, the securedcreditor is obliged to approach the CMM/DM by way of a writtenapplication requesting for taking possession of the secured assetsand documents relating thereto and for being forwarded to it(secured creditor) for further action. The statutory obligation ABC

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enjoined upon the CMM/DM is to immediately move into actionafter receipt of a written application under Section 14(1) of theSARFAESI Act from the secured creditor for that purpose. Assoon as such an application is received, the CMM/DM is expectedto pass an order after verification of compliance of all formalitiesby the secured creditor referred to in the proviso in Section 14(1)of the SARFAESI Act and after being satisfied in that regard, totake possession of the secured assets and documents relatingthereto and to forward the same to the secured creditor at theearliest opportunity. As mandated by Section 14 of the SARFAESIAct, the CMM/DM has to act within the stipulated time limit andpass a suitable order for the purpose of taking possession of thesecured assets within a period of 30 days from the date ofapplication which can be extended for such further period but notexceeding in the aggregate, sixty days. Thus, the powers exercisedby the CMM/DM is a ministerial act. He cannot brook delay.Time is of the essence. This is the spirit of the special enactment.As observed and held by this Court in the case of NKGSBCooperative Bank Ltd. (supra), the step taken by the CMM/DM while taking possession of the secured assets and documentsrelating thereto is a ministerial step. It could be taken by the CMM/DM himself/herself or through any officer subordinate to him/her,including the advocate commissioner who is considered as anofficer of his/her court. Section 14 does not oblige the CMM/DMto go personally and take possession of the secured assets anddocuments relating thereto. Thus, we reiterate that the step to betaken by the CMM/DM under Section 14 of the SARFAESI Act,is a ministerial step. While disposing of the application under Section14 of the SARFAESI Act, no element of quasi-judicial function orapplication of mind would require. The Magistrate has to adjudicateand decide the correctness of the information given in theapplication and nothing more. Therefore, Section 14 does notinvolve an adjudicatory process qua points raised by the borroweragainst the secured creditor taking possession of secured assets.

9. Thus, in view of the scheme of the SARFAESI Act, moreparticularly, Section 14 of the SARFAESI Act and the nature ofthe powers to be exercised by learned Chief MetropolitanMagistrate/learned District Magistrate, the High Court in the impugned judgment and order has rightly observed and held thatthe power vested in the learned Chief Metropolitan Magistrate/learned District Magistrate is not by way of persona designata.”

Thus, the powers exercisable by CMM/DM under Section 14 ofthe SARFAESI Act are ministerial step and Section 14 does not involveany adjudicatory process qua points raised by the borrowers against thesecured creditor taking possession of the secured assets. In that view ofthe matter once all the requirements under Section 14 of the SARFAESIAct are complied with/satisfied by the secured creditor, it is the dutycast upon the CMM/DM to assist the secured creditor in obtaining thepossession as well as the documents related to the secured assets evenwith the help of any officer subordinate to him and/or with the help of anadvocate appointed as Advocate Commissioner. At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower andthe secured creditor and/or between any other third party and the securedcreditor with respect to the secured assets and the aggrieved party to berelegated to raise objections in the proceedings under Section 17 of theSARFAESI Act, before Debts Recovery Tribunal. Under thecircumstances in the present case no error has been committed by theHigh Court in setting aside the order dated 27.08.2021 passed by thedesignated authority keeping the application pending till the securedcreditor initiates the legal proceedings for eviction of the tenant cannotget the possession in an application under Section 14 of the SARFAESIAct. The High Court has rightly directed the designated authority toproceed further with the application under Section 14 of the SARFAESIAct, and to dispose of the same in accordance with the provisions ofSection 14 of the SARFAESI Act.

6. Now so far as the reliance placed upon the decision of thisCourt in the case of Harshad Govardhan Sondagar (supra) by thelearned counsel appearing on behalf of the petitioner is concerned, thesame shall not be applicable to the facts of the case on hand, what isobserved by this Court in the aforesaid case is the DM/CMM has togive a notice and opportunity of hearing to the person in possession ofthe secured assets claiming to be a “Class (1) or (2)” lessee of mortgagor/borrower, as well as to secured creditor, consistent with principles ofnatural justice, and then take a decision. In the said decision, it is notobserved that the DM/CMM has to adjudicate the rights between theparties.

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A7. Now so far as the reliance placed upon the decision of thisCourt in the case of Vishal N. Kalsaria (supra) by the learned counselappearing on behalf of the petitioner is concerned, the said decision shallalso not be applicable to the facts of the case on hand. In the said decision,the question before this Court was of conflict of claim under theMaharashtra Rent Control Act, 1999 and the provisions of the SARFAESIBAct, and which law will prevail. The scope and ambit of the powers tobe exercised under Section 14 of the SARFAESI Act were not directlyin question before this Court. Even as observed and held by this Court inthe aforesaid decision, a judgment cannot be interpreted and applied tofact situations by reading it as a statute. One cannot pick up a word orCsentence from a judgment to construe that it is the ratio decidendi on therelevant aspects of the case (para 33).

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8. In view of the above and for the reasons stated above, we areof the opinion that the High Court has not committed any error in passingthe judgment and order and directing the designated authority to disposeDof the application under Section 14 of the SARFAESI Act. We are incomplete agreement with the view taken by the High Court. The SpecialLeave Petition stands dismissed.

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Nidhi Jain

(Assisted by : Shashwat Jain, LCRA)

SLP dismissed.

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