In SLP No. 16013 of 2022-SC- Once all requirements u/s 14 of SARFAESI Act are complied with, CMM/DM must assist secured creditor in obtaining possession & documents related to secured assets; Power exercisable by Magistrate is  ministerial step: SC
Justices M.R.Shah & Krishna Murari [26-09-2022]

Read Judgment: Balkrishna Rama Tarle Dead Thr LRS & Anr Vs. Phoenix ARC Private Limited & Ors 

Tulip Kanth

New Delhi, September 26, 2022: While dismissing a special leave petition against the judgment of the Bombay High Court setting aside the order of the designated authority under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Supreme Court has opined that the statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) from the secured creditor.

The Division Bench of Justice M.R.Shah and Justice Krishna Murari asserted, “Thus, 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.” 

In this matter, Religare Finvest Ltd. sanctioned a loan of Rs 6 crore in favour of the borrowers. The said loan was secured by a registered mortgage created by borrowers in favour of Religare in respect of the property ­secured assets. The borrowers committed defaults in repayment of the said loan which led to Religare classifying borrowers’ account as a Non­ Performing Asset (NPA).Religare thereafter, issued a notice u/s 13(2) of the SARFAESI Act calling upon borrowers to pay the amount then outstanding under the said facility and by a Deed of Assignment, Religare assigned all its right, title, interest, and benefit under the said loan agreement to the first respondent – original petitioner before the High Court. 

Thus, first respondent stepped into the shoes of Religare and became the secured creditor and in that capacity issued a notice u/s 13(2) of the SARFAESI Act. The secured creditor took symbolic possession of the secured assets us/ 13(4). Thereafter, the secured creditor filed an application u/s 14 seeking assistance of District Magistrate, Nashik (designated authority – third respondent), for taking physical possession of the secured assets.

The petitioner herein claiming to be a tenant  sought to intervene in the said proceedings. The Authority declined to assist the secured creditor in taking possession of the secured assets and kept the said application pending by observing that after termination of the tenancy rights of the petitioner by the Finance Company by following due procedure of law the further orders regarding possession of the mortgage property will be decided. 

Then, the secured creditor preferred writ petition before the High Court whereby the Additional District Magistrate was directed to dispose of the application u/s 14.Feeling dissatisfied with the impugned judgment of the High Court, the third party – petitioner(s) claiming to be a tenant in some of the secured assets had preferred the Special Leave Petition.

Referring to section 14 of the SARFAESI Act, the Bench made it clear that for taking possession of the secured assets in terms of Section 14(1), the secured creditor is obliged to approach the District Magistrate/Chief Metropolitan Magistrate by way of a written application requesting for taking possession of the secured assets and documents relating thereto and for being forwarded to it (secured creditor) for further action.

As soon as such an application is received, the CMM/DM is expected to pass an order after verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act and after being satisfied in that regard, to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity, the Bench noted.

The Bench further observed, “…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.”

According to the Bench,  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. 

Thus, noting that no error had been committed by the High Court in setting aside the order passed by the designated authority keeping the application pending till the secured creditor initiated the legal proceedings for eviction of the tenant cannot get the possession in an application u/s 14, the Bench dismissed the Special Leave Petition.