CMM had no jurisdiction to entertain application under Section 340 CrPC while exercising powers under Section 14 of SARFAESI Act: Delhi HC quashes order staying possession of secured asset by Cholamandalam Investment and Finance Company
Justice Vikas Mahajan [01-07-2024]

Read Order: MS. CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LIMITED v. SH. MAHESH TANEJA AND ORS [DEL HC - CRL.M.C. 1723/2024 & CRL.M.A. 6607/2024]

LE Correspondent

New Delhi, July 6, 2024: The Delhi High Court has set aside an order passed by a Chief Metropolitan Magistrate (CMM) that had stayed the possession of a secured asset by Cholamandalam Investment and Finance Company Limited.

The case dealt with the powers of a CMM under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act). The case arose from a loan agreement between Cholamandalam Investment and Finance Company and the borrowers, who had mortgaged a property as security. Upon default in repayment, the financial institution initiated proceedings under the SARFAESI Act to take possession of the secured asset.

The CMM had appointed a receiver to take possession of the property. However, two third parties, Mahesh Taneja and another, claiming to be the owners of the property, approached the Debts Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act. They also filed an application under Section 340 of the Code of Criminal Procedure (CrPC) before the CMM, alleging concealment of facts by the financial institution. The CMM stayed the earlier orders appointing the receiver, prompting Cholamandalam to approach the High Court.

The High Court, in its order, held that the CMM had no jurisdiction to entertain an application under Section 340 CrPC while exercising powers under Section 14 of the SARFAESI Act. It observed that the CMM's function under this provision is ministerial and not adjudicatory, and therefore, it cannot entertain objections from borrowers or third parties questioning the exercise of powers.

The court further noted that the power under Section 340 CrPC can be exercised only where false evidence is fabricated or false statements are made in judicial proceedings, and not in other proceedings. As the SARFAESI proceedings before the CMM are not judicial in nature, the application under Section 340 CrPC was not maintainable.

While setting aside the impugned order dated 31.01.2024, the respondent nos. 1 and 2 are at liberty to pursue their remedy under Section 17 of the SARFAESI Act before the concerned Debts Recovery Tribunal, which remedy has already been availed by the said respondents.