Steps taken by secured creditor u/s 14 of SARFAESI is justiciable in course of proceedings u/s 17: Madras HC

Read Judgment: Essess Toolroom Services vs. District Collector and District Magistrate & Ors

Pankaj Bajpai

Chennai, October 21, 2021: The Madras High Court has recently said that mere failure of the Official to specify in order passed u/s 14 of SARFAESI Act, 2002 about satisfaction of pre-conditions for exercise of such jurisdiction, is not by itself any basis to raise petition under Article 226 of the Indian Constitution.  

Steps taken by secured creditor, including assistance sought u/s 14, would ultimately be justiciable in course of proceedings u/s 17, added the Court. 

While disposing of the petition with costs, a Division Bench of Chief Justice Sanjib Banerjee and Justice M. Duraiswamy observed that in the present case, the petitioner could not indicate any prejudice suffered except that his perceived fundamental right, to obtain credit facilities and not repay, may have been infringed. 

When an official authorized u/s 14 to receive a request and deal with the same, acted completely without jurisdiction or in a manner which may be wholly arbitrary or unreasonable, even Writ Court might be excited to entertain a petition thereagainst and deal with order in appropriate case, added the Bench. 

The background of the case was that the Essess Toolroom Services (petitioner) had filed an application before Debt Recovery Tribunal (DRT), challenging measures adopted by the District Collector (respondent-secured creditor) in invoking Section 13(4) of SARFAESI Act.

The Petitioner contended that upon District Collector, passing an order on secured creditor’s request u/s 14 of SARFAESI that notwithstanding concerned official not being required to undertake any process of adjudication, the official should have satisfied himself that conditions existed, which required official to render executive assistance to requesting secured creditor to have access to secured assets or papers pertaining thereto. 

It was asserted by the Petitioner that there was nothing in the order, which indicated application of mind of Collector to matters in issue and no satisfaction of conditions had been recorded in the order. 

It would not do for District Collector or Magistrate in receipt of request u/s 14 to mechanically provide assistance without applying his mind as to whether a case had been made out in such regard, the petitioner contended.

After listening to the arguments, the High Court noted that upon an account turning Non-performing assets (NPA) as per RBI guidelines, concerned secured creditor was obliged to issue notice u/s 13(2) of the Act to borrowers (including guarantors), calling upon borrowers to repay amount due. 

Borrowers may respond to such notice, whereupon secured creditor was obliged u/s 13(3)(A) to consider the same and reply thereto, added the Court. 

“However, neither notice u/s 13(2) nor reply to borrowers’ response thereto was justiciable at such stage. Indeed, it was only upon a measure taken by secured creditor u/s 13(4) that any person aggrieved thereby, including borrower, may approach jurisdictional DRT u/s 17. At such stage, whatever objection may be available to borrower/person aggrieved may be carried and DRT must adjudicate thereupon”, observed the High Court.

Speaking for the Bench, the Chief Justice noted that in essence, section 14 required a secured creditor seeking executive assistance from an appropriate authority to furnish certain declarations by way of an affidavit. 

Chief Justice Banerjee further added that it was imperative that an Official in receipt of request must go through declarations to ascertain whether declarations had been appropriately made. 

However, the Official could not go into legality/veracity of declarations made, as long as declarations appeared to be in order and not completely absurd/outlandish, added the Chief Justice. 

The High Court therefore concluded that in everyday matter u/s 14, where authority was satisfied that assistance had been appropriately sought by secured creditor and authority went about extending assistance, which was necessary, inter alia, by issuing directions to revenue or police officials, a Writ Court when presented with such kind of an order may not be minded to interfere therewith.