District Magistrate, after passing order u/s 14 of SARFAESI Act, has no jurisdiction to review or recall such order: Punjab & Haryana HC

Read Order: Shriram Housing Finance Limited v. State of Haryana and others 

Monika Rahar

Chandigarh, March 14, 2022: The Divison Bench of Justice Ramachandra Rao and Justice H.S. Madaan of the Punjab and Haryana High Court has held that a District Magistrate, after passing an order under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) has no jurisdiction to review or recall such order. 

In this case, the fifth Respondent and his family members availed a loan against a property by a loan agreement. To secure the said loan, the above-referred borrowers created security interest over their residential property and some agricultural land by way of equitable mortgage of deposit of title deeds in favour of the petitioner. On account of default by the borrowers, their loan account was declared as Non-Performing Asset (NPA) by the petitioner (financial institution) on May 8, 2017.

After notice was sent to the fifth respondent and his now-deceased mother, the borrowers did not discharge their liability by paying the outstanding amount and resultantly, symbolic possession of the Secured Assets was taken by the issuance of notice under Section 13(4) of the SARFAESI Act. However, the actual possession could not be taken and therefore the petitioner filed an application under Section 14 of the SARFAESI Act before the District Magistrate, Kaithal (DM/ second respondent). Allowing the application, the DM by its order dated May 2, 2018, appointed the third respondent to take possession of the Secured Asset with the assistance of the concerned police and to forward it to the petitioner. 

In the meanwhile, the fifth respondent’s mother (co-purchaser) died and the petitioner did not know of it, thus it could not bring it to the notice of the second and third respondents before passing of the order dated May 2, 2018. 

As per the petitioner, it came to know of her death only after the respondents filed their reply in August 2018 to the petition filed by the petitioner earlier. The petitoner also contended that from this reply itself it came to know of another order of the DM (Second respondent) recalling its earlier order appointing the third respondent, thus bringing the Section 14 of SARFAESI Act proceedings to a halt. 

Challenging the vires of this second order of the DM, the petitioner’s counsel argued that there was no provision under the Act to review or to recall an order passed by the DM because such a power was not conferred under the SARFAESI Act. The Counsel also placed reliance on the order of the Gujarat High Court in Prime Cooperative Bank Limited Vs. District Magistrate/Chief Metropolitan Magistrate, wherein, it was held that after passing of an order under Section 14 of SARFAESI Act, the District Magistrate becomes functus officio and he cannot reopen a concluded issue. 

The court at the outset observed that the SARFAESI Act, 2002 was enacted to provide machinery for enabling banks and financial institutions to take possession of the secured assets of borrowers/guarantors and to sell them speedily in the event of a default by the borrowers in their payment obligations. About Section 14 of the SARFAESI Act, the Court observed that it is a provision enacted in the Act to enable banks and financial institutions to take possession of the Secured Asset. 

On the issue of “whether the District Magistrate is competent to ‘review’ his own order or the one passed by his predecessor under Section 14 of the SARFAESI Act”, the Court referred to the judgment of the Division Bench of this Court in Asset Reconstruction Company (India) Limited Vs. State of Haryana, CWP-16366-2016 where the same question was addressed. In view of the above, the Court held that a District Magistrate, after passing an order under Sec.14 of the SARFAESI Act,2002 has no jurisdiction to review or recall such order. 

Next, the Court considered whether the absence of husband and daughter of the deceased borrower as parties in the application under Section 14 of the SARFAESI Act would justify the non-enforcement of the said order.On this question, the Court stated that, admittedly, late Saroj Rani, her son (fifth respondent), husband and her daughter signed the loan agreement with the petitioner and the property was in the name of the deceased mother. The Court also noted that on her death, under Section 15 of the Hindu Succession Act,1956, her children would succeed to her property. 

On the passage of the order of the DM after the death of the deceased mother, the Court opined that even if Saroj Rani had died prior to the passing of the order, there could not be any abatement of the proceeding when her estate was represented by her son-Paramjeet Singh (the fifth respondent), who was one of the legal heirs. 

Regarding the question of whether there would be abatement of a suit if all legal heirs of a deceased party are not impleaded, the Court referred to the Supreme Court in Mohammed Hussain (Dead) by LRs and Others v. Occhavlal and Ohers, 2008(3) SCC 233 wherein the Top Court held that ordinarily, a Court does not regard a decree binding upon a person, who was not impleaded in the action but, one of the important exceptions to the said Rule is that where by the personal law governing the absent heir, the heir impleaded represents his interest in the estate of the deceased, the decree would be binding on all the persons interested in the estate; if there be a debt justly due and no prejudice is shown to the absent heir, the decree in an action where the plaintiff has after bona fide enquiry impleaded all the heirs known to him will ordinarily be held binding upon all persons interested in the estate. The Court will also investigate, if invited, whether the decree was obtained by fraud, collusion or other means intended to overreach the Court.

Coming to the factual situation of the case, the High Court observed that undoubtedly, proceeding under Section 14 of the SARFAESI Act is not akin to a suit since no adjudication is permitted by the District Magistrate but, the principle laid down in the aforesaid decision would equally apply on the sole ground that the husband and other legal heirs of the deceased Saroj Rani were not on record, the process of execution of the order passed under Section 14 of the SARFAESI Act could not have been stopped by second respondent. 

“This is because respondent No.5 was already on record in the said proceedings and he represented the estate of the deceased, and the order against him would be binding on all the other heirs or persons interested in the estate of the deceased”, opined the Court. 

Therefore, the Writ Petition was allowed and the order of the DM was set aside. The respondents were directed to implement the order of the DM dated May 2, 2018 .