2007 (4) TMI 364 - HC - Companies Law

Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset

Issues Involved:
1. Whether the Chief Judicial Magistrate (CMM) or District Magistrate (DM) is required to give notice to the borrower or any person in possession of the secured asset under Section 14 of the NPA Act.
2. Whether the CMM/DM must ensure compliance with Section 13(3A) of the NPA Act before exercising power under Section 14.
3. The nature of the power exercised by the CMM/DM under Section 14 (judicial, quasi-judicial, or ministerial).
4. The necessity of following principles of natural justice while exercising power under Section 14.
5. The applicability of the Transfer of Property Act in the context of the NPA Act.
6. The availability and sufficiency of remedies under Section 17 of the NPA Act for borrowers and third parties.
7. The jurisdiction and scope of writ petitions under Articles 226 and 227 of the Constitution in the context of the NPA Act.

Detailed Analysis:

Issue 1: Notice Requirement under Section 14 of the NPA Act
The court concluded that the CMM/DM is not required to give notice to the borrower or any person in possession of the secured asset under Section 14 of the NPA Act. The CMM/DM's role is limited to verifying whether the secured asset falls within their jurisdiction and whether the notice under Section 13(2) has been given. No adjudication is required at this stage.

Issue 2: Compliance with Section 13(3A)
The court stated that while exercising jurisdiction under Section 14, the CMM/DM must ensure that the notice under Section 13(2) has been given. However, the compliance with Section 13(3A), which requires the secured creditor to communicate reasons for not accepting the borrower's objections, is not a matter for the CMM/DM to adjudicate at this stage. This issue can be raised before the Debt Recovery Tribunal (DRT) under Section 17.

Issue 3: Nature of Power under Section 14
The court determined that the power exercised by the CMM/DM under Section 14 is ministerial and not judicial or quasi-judicial. The CMM/DM's function is to assist the secured creditor in taking possession of the secured asset without adjudicating any disputes.

Issue 4: Principles of Natural Justice
The court held that principles of natural justice are not required to be followed by the CMM/DM while exercising power under Section 14 of the NPA Act. The NPA Act, by necessary implication, excludes the requirement of notice or hearing at this stage to achieve its objective of expeditious recovery of non-performing assets.

Issue 5: Applicability of the Transfer of Property Act
The court clarified that the NPA Act has an overriding effect over other laws, including the Transfer of Property Act, as per Section 35 of the NPA Act. The secured creditor's right to take possession of the secured asset is not hindered by the provisions of the Transfer of Property Act.

Issue 6: Remedies under Section 17
The court emphasized that the remedy provided under Section 17 of the NPA Act is available to both borrowers and third parties. This remedy is considered adequate and efficacious, allowing all grievances, including non-communication of reasons under Section 13(3A), to be raised before the DRT. The DRT has wide powers to address these grievances and provide appropriate relief.

Issue 7: Jurisdiction of Writ Petitions
The court stated that ordinarily, writ petitions under Articles 226 and 227 should not be entertained when an efficacious alternative remedy under Section 17 is available. However, in exceptional cases of gravest injustice, the High Court may entertain a writ petition. Such cases would be rare and should be handled with great care to avoid frustrating the object of the NPA Act.

Conclusion:
1. The CMM/DM is not required to give notice to the borrower or third parties under Section 14.
2. The CMM/DM must verify the issuance of notice under Section 13(2) and the jurisdiction over the secured asset.
3. The power under Section 14 is ministerial.
4. Principles of natural justice are not required at the stage of Section 14.
5. The NPA Act overrides the Transfer of Property Act.
6. Section 17 provides an adequate remedy for borrowers and third parties.
7. Writ petitions should generally not be entertained unless in exceptional cases of gravest injustice.

Individual Writ Petitions:
1. Criminal Writ Petition No. 2767 of 2006: Petitioners may file an application before the DRT within four weeks. Interim relief continues for four weeks.
2. Criminal Writ Petition No. 27 of 2007: Petitioners may file an application under Section 17 within four weeks. Interim protection continues for four weeks.
3. Criminal Writ Petition No. 124 of 2007: Symbolic possession to be taken by the bank within one week. Petitioners may file an application before the DRT within four weeks.
4. Criminal Writ Petition No. 343 of 2007: Petitioners may file an application under Section 17 within four weeks. Status quo to be maintained for four weeks.

The court made it clear that it has not expressed any opinion on the merits of the petitions and that all contentions except those rejected are kept open.

← Previous Next →