2006 (11) TMI 339 - HC - Companies Law

Summary

Issues involved:
The issue in this case is whether the Revisional Court is required to issue a notice to the respondents/borrowers and any other person claiming right over a security interest in a revision petition filed by a secured creditor challenging the order of the Chief Metropolitan Magistrate declining to proceed under section 14(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Comprehensive Details:

Issue 1:
The petitioner, a Bank, filed an application under section 14 of the Act to take possession of a secured asset belonging to the respondents. The respondents 6 and 7, subsequent purchasers of the property, contested the Bank's right to take possession, leading to the Chief Metropolitan Magistrate declining to act under section 14(1) for various reasons.

Issue 2:
The Revisional Court, the XXXVI Additional Sessions Judge, directed the petitioner to issue notices to the respondents 6 and 7 before passing any order in the revision petition. The petitioner argued that under the Act, no such notice was required, citing previous decisions. However, the Sessions Judge held that the affected parties must be heard before any order is made.

Issue 3:
The petitioner contended that the Act does not mandate notice to the borrower or other persons when seeking possession of a secured asset. The learned Counsel for the petitioner emphasized that the Act's provisions aim to enable the Bank to take possession without court intervention, and thus, notices to borrowers are unnecessary in revision petitions.

Issue 4:
The Sessions Judge based the requirement for notice on section 401(2) of the Cr. P.C. and principles of natural justice. The decision on issuing notice in a revision petition hinges on whether the borrower's or any person's rights over the secured asset are affected by the Revisional Court's order.

Issue 5:
The scope of section 14 and the Act's objective were highlighted, emphasizing that the Chief Metropolitan Magistrate or District Magistrate's role is to assist the secured creditor in taking possession, not to decide on rights. The Act allows for enforcement of security interest without court intervention, with challenges directed to the Debts Recovery Tribunal.

Issue 6:
The judgment clarified that the Chief Metropolitan Magistrate or District Magistrate need not hear the borrower or any person claiming through him before passing an order under section 14(1) and (2) of the Act. The decision to decline to act under section 14(1) must be supported by valid reasons recorded in writing.

Issue 7:
The Court held that the right of a borrower or transferee to challenge the secured creditor's actions lies in appealing to the Debts Recovery Tribunal, not in proceedings before the Chief Metropolitan Magistrate or District Magistrate. Therefore, there was no requirement to issue notices to the respondents in the revision petition.

In conclusion, the petition was allowed, and the order directing the issuance of notices to the respondents was quashed. The Sessions Judge was instructed to consider the revision petition on its merits in line with the observations made in the judgment.