Statutory obligation upon CMM/DM is to immediately move into action after receipt of written application under Section 14(1) of the SARFAESI Act: Supreme Court  

Statutory obligation upon CMM/DM is to immediately move into action after receipt of written application under Section 14(1) of the SARFAESI Act: Supreme Court  

The Supreme Court ruled 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) of the SARFAESI Act from the secured creditor for that purpose.

Background 

The Religare Finvest Ltd. sanctioned a loan of Rs. 6 crores 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). 

The Religare thereafter, issued a notice under Section 13(2) of the SARFAESI Act calling upon borrowers to pay the amount then outstanding under the said facility. 

That thereafter, by a Deed of Assignment, Religare assigned all its right, title, interest, and benefit under the said loan agreement to respondent original petitioner before the High Court. Thus, respondent original petitioner stepped into the shoes of Religare and became the secured creditor and in that capacity issued a notice under Section 13(2) of the SARFAESI Act to borrowers calling upon borrowers to make payment.

Arguments 

Senior Advocate Vinay Navare, appearing for the petitioners, submitted that in the facts and circumstances of the case and when the petitioners claimed to be the tenant of the original landlord with respect to some of the secured assets of which the possession was sought and when the original writ petitioner stepped into the shoes of the original landlord as rightly observed by the designated authority – Additional District Magistrate unless the secured creditor who stepped into the shoes of the original landlord initiates the legal proceedings for eviction of the tenant cannot get the possession in an application under Section 14 of the SARFAESI Act. 

Decision 

The division bench of Justice M.R. Shah and Justice Krishna Murari noted that after initiation of the proceedings and taking steps under Section 13(2) and 13(4) of the SARFAESI Act, thereafter, the secured creditor has approached the District Magistrate by submitting an application under Section 14 of the SARFAESI Act and has requested the District Magistrate/Additional District Magistrate to assist the secured creditor in obtaining the possession of the secured assets. 

The bench further noted that neither the original borrowers nor even the petitioners who are claiming to be a tenant of the secured assets have initiated any proceedings before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act. 

“On a fair reading of Section 14 of the SARFAESI Act, it appears that for taking possession of the secured assets in terms of Section 14(1) of the SARFAESI Act, 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” the court said.

The court stated that 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.

The court viewed that 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. 

“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” the bench stated. 

The court held that no error has been committed by the High Court in setting aside the order passed by the designated authority keeping the application pending till the secured creditor initiates the legal proceedings for eviction of the tenant cannot get the possession in an application under Section 14 of the SARFAESI Act.

Case title: Balkrishna Rama Tarle Dead Thr LRS & Anr. v/s Phoenix ARC Private Limited & Ors.

Citation: SPECIAL LEAVE PETITION NO.  16013 OF 2022 

Click here to read the Order/Judgment

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