2013 (8) TMI 1091 - SC - Indian Laws

Merger of Appeals - Challenging the legality of the proceedings of Judicial Magistrate taken under SARFAESI Act - Conditions for Possession of the secured assets - The first Respondent is a guarantor of the borrower to loan transaction whereby the second Respondent borrowed money from the Appellant .the first Respondent created a mortgage on certain property hereinafter referred to as the secured asset owned by him to secure the loan. A notice under Section 13(2)2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (hereinafter referred to as the SARFAESI Act ) demanding the repayment of the loan amount along with interest within a period of sixty days was issued inter alia to the borrower as well as the guarantor (Respondent Nos. 2 and 1 herein). The first Respondent neither made the payment nor raised any objection to the said demand. Failure to which court appointed an Advocate commissioner to take possession of the secured asset and to handover the same to the Appellant herein. HELD THAT - Both the Appeals raised a common question of law the same are being disposed of by this common Judgment. On the date of the impugned order the law did not oblige the Magistrate to undertake any such exercise. Apart from that court is satisfied on examination of the content of the affidavit that all the basic requirements necessary for granting the request of the Appellant of delivery of the possession of the secured asset are asserted to have existed on the date of application. Therefore court do not see any illegality in the impugned order. The appeal is allowed. The order of the High Court is set aside.

Issues Involved:
1. Legality of bypassing Section 13(4) of the SARFAESI Act and directly invoking Section 14.
2. Compliance with Rule 8 of the Security Interest (Enforcement) Rules, 2002, before invoking Section 14.
3. Availability of appeal under Section 17 against measures taken under Section 14.
4. Adequacy of the Magistrate's application of mind to the affidavit filed by the secured creditor under Section 14.

Issue-wise Analysis:

1. Legality of bypassing Section 13(4) and directly invoking Section 14:
The High Court held that the secured creditor must first attempt to take possession under Section 13(4) and only upon facing resistance, could it invoke Section 14. However, the Supreme Court clarified that Sections 13(4) and 14 provide two alternative procedures for taking possession of the secured assets. The secured creditor can directly approach the Magistrate under Section 14 without first attempting possession under Section 13(4). The Court emphasized that the object and scheme of the SARFAESI Act do not mandate exhausting Section 13(4) measures before invoking Section 14, and such a requirement would not align with the legislative intent.

2. Compliance with Rule 8 before invoking Section 14:
The High Court concluded that compliance with Rule 8 is mandatory even when possession is sought under Section 14. Rule 8 outlines the procedure for taking possession, including issuing notices and publicizing the action. However, the Supreme Court disagreed, stating that Rule 8 applies when the secured creditor takes possession without court intervention. When possession is sought through the Magistrate under Section 14, the procedure is governed by the Code of Criminal Procedure, not Rule 8. The Court found no legislative intent requiring the Magistrate or the appointed receiver to follow Rule 8.

3. Availability of appeal under Section 17 against measures taken under Section 14:
The High Court opined that bypassing Section 13(4) would deprive the borrower of the right to appeal under Section 17. The Supreme Court clarified that an appeal under Section 17 is available against any measure taken under Section 13(4), including taking possession. The borrower can appeal after losing possession, regardless of whether possession was obtained directly by the creditor or through the Magistrate under Section 14. The Court emphasized that the remedy under Section 17 is available after the secured creditor takes possession, ensuring the borrower's right to appeal is preserved.

4. Adequacy of the Magistrate's application of mind to the affidavit:
The Respondent argued that the Magistrate did not apply his mind to the affidavit filed by the secured creditor under Section 14. The Supreme Court noted that at the time of the impugned order, there was no statutory requirement for the Magistrate to scrutinize the affidavit. However, the Court examined the affidavit and found it substantially complied with the requirements introduced later by the proviso to Section 14(1). The Court concluded that the Magistrate's order was not illegal, as the affidavit provided necessary information, and the secured creditor's actions were justified.

Conclusion:
The Supreme Court set aside the High Court's judgment, allowing the appeals. The Court held that the secured creditor could directly invoke Section 14 without first attempting possession under Section 13(4). Compliance with Rule 8 is not mandatory when possession is sought through the Magistrate under Section 14. An appeal under Section 17 is available after the secured creditor takes possession, ensuring the borrower's right to challenge the action. The Magistrate's order was upheld as it was based on a substantially compliant affidavit, and the Respondent's objections were found to lack merit.

← Previous Next →