2021 (9) TMI 1562 - HC - Indian Laws

Statement given to take physical possession could not be implemented - Jurisdiction of Civil Court in negating rights of secured creditor under the Securitisation Act, 2002 in a civil suit or proceedings instituted by the borrower/guarantor/any third party qua the secured asset - binding nature of Civil Court in a lis inter-se between parties pertaining to the secured asset, not having impleaded the Bank/Secured Creditor - Scope of powers of the District Magistrate in exercise of its jurisdiction under Section 14 of the Securitisation Act, 2002. Whether Civil Court would have jurisdiction to negate any right of the secured creditor under the Securitisation Act, 2002, qua the secured asset in a civil suit or proceedings instituted by the borrower/guarantor/any third party qua the secured asset? - HELD THAT - Section 13(1) clearly brings out the legislative intent of permitting the secured creditors to enforce the securities without the intervention of the courts. Enforcement of securities are provided under Section 13(4) of the Act, 2002 which entitles the secured creditor to take over the possession or management of the secured asset for the purpose of its enforcement by transfer by way of sale, lease or assignment etc., after the borrower fails to make the payment within 60 days of the issuance of the demand notice under Section 13(2) and objections if any, having been filed by the borrower are rejected by the secured creditor under Section 13(3-A) of Act, 2002. If the secured creditor decides to take physical possession the bank can avail of assistance of the District Magistrate on making an application supported by an affidavit in terms of proviso to Section 14 of the Act, 2002. The jurisdiction of the Civil Court shall be completely barred in so far as those matters, which would fall for adjudication within the jurisdiction of the Tribunal. It is only for those limited cases like for example, where the action of the secured creditor is alleged to be fraudulent or their claim may be so absurd and untenable which may not require any probe, that the jurisdiction of the Civil Court could be invoked - the Civil Court would not have jurisdiction to negate any right of the secured creditor under the Securitisation Act, 2002, qua the secured asset in a civil suit instituted by the borrower/guarantor/any third party qua the secured asset. Whether the petitioner bank/secured creditor would be bound by an order passed by a Civil Court in a lis inter-se between parties pertaining to the secured asset, not having impleaded the Bank/Secured Creditor? - HELD THAT - Since the scope of adjudication before the Civil Court would not involve determination of any right of a secured creditor on account of lack of jurisdiction in view of Section 17 read with Section 34 of the Act, 2002, no order passed by the Civil Court could be construed to be a restraint order on the secured creditor to enforce its security under the provisions of the Securitisation Act, 2002 This is subject to an exception that unless the secured creditor is specifically impleaded as a party defendant and an interim order is passed specifically restraining the secured creditor to enforce the security interest - none of the orders passed could have been treated to have restrained the petitioner bank or Respondent No. 1 or 3 to enforce the secured assets under the provisions of the Securitisation Act. 2002. Scope of powers of the District Magistrate in exercise of its jurisdiction under Section 14 of the Securitisation Act, 2002? - HELD THAT - The District Magistrate does not assume any adjudicatory function while examining the application of the secured creditor under Section 14 of the Act, 2002. For the same reason, we find that it would amount to no illegality if an order is passed without effective service upon the borrowers being in the nature of execution process pursuant to statutory notices served under Section 13(2) and (4) as envisaged under the scheme of the Act, 2002. Though, it would be desirable that before proceeding to take actual physical possession by the officer so deputed by the District Magistrate, a reasonable notice of say 15 days be served on the occupant so that they are not taken by surprise - in case if the secured creditor is aggrieved of any action of the District Magistrate or the manner and mode of its enforcement, not involving adjudication of rights of any other secured creditor, the remedy under writ jurisdiction would be available to such a secured creditor. This is because, Section 17 of the Act 2002 can be invoked only in case, if the applicant is aggrieved of the action of the secured creditor, while in the instant case, the grievance of the secured; creditor is against the non-implementation of it is rights under Section 14 of the Act, 2002. After the order is passed by the District Magistrate the officer so deputed to execute the said order under Section 14(1A) of the Act, 2002 would also complete the process of execution within 60 days from the date of receipt of such order. Further in case if for any reason, the order is unable to be executed, the officer shall report the matter back to the District Magistrate, who would then pass such suitable orders as the situation may warrant. Even though the said period is directory but it is to be noticed that such actions of the officer concerned would be open to judicial scrutiny to ensure that the object of the said provision is not frustrated. Respondent Nos. 1 and 3 are directed to ensure handing over of actual physical possession of the secured asset to the petitioner bank within four weeks with an advance notice of 15 days to the occupants/borrowers - The application of the respondent-State is dismissed.

Summary

Issues Involved:
1. Jurisdiction of Civil Court in negating rights of secured creditor under the Securitisation Act, 2002.
2. Binding nature of Civil Court orders on non-party secured creditors.
3. Scope of powers of the District Magistrate under Section 14 of the Securitisation Act, 2002.

Issue-wise Detailed Analysis:

Issue No. 1: Jurisdiction of Civil Court

The judgment discusses the legislative intent behind the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act), which was enacted to provide a mechanism for banks and financial institutions to recover debts without the intervention of courts. The Act allows secured creditors to enforce securities and take possession of secured assets under Section 13, without court intervention. Section 34 explicitly bars civil courts from entertaining suits or proceedings related to matters that fall within the jurisdiction of the Debts Recovery Tribunal (DRT). The Supreme Court in Mardia Chemicals Ltd. v. Union of India clarified that civil courts have no jurisdiction over matters that the DRT can adjudicate unless the secured creditor's actions are fraudulent or absurdly untenable. Thus, the judgment concludes that civil courts cannot negate the rights of secured creditors under the Act in proceedings initiated by borrowers or third parties.

Issue No. 2: Binding Nature of Civil Court Orders

The judgment addresses whether a secured creditor, not a party to a civil suit, is bound by orders passed in that suit. It was argued that interim orders restraining interference with the possession of a plaintiff would also bind the bank, even if not a party. The court disagreed, stating that orders bind only those impleaded in the suit. The bank, not being a party, is not bound by such orders. The court cited the Division Bench judgment in Punjab and Sind Bank v. District Magistrate Mohali, which held that civil court orders do not affect the rights of a mortgagee bank to take possession of mortgaged property. Therefore, the bank is not bound by civil court orders in suits where it is not a party.

Issue No. 3: Scope of Powers of the District Magistrate

The judgment elaborates on the role of the District Magistrate under Section 14 of the Act, which is to assist secured creditors in taking physical possession of secured assets. The District Magistrate's role is administrative and not adjudicatory. The Supreme Court in Standard Chartered Bank v. Noble Kumar emphasized that the Magistrate's satisfaction is limited to the factual correctness of the secured creditor's affidavit and not the legal validity of the transaction. The District Magistrate must pass an order within 60 days, though this period is directory. The judgment stresses the need for timely execution of orders and suggests that the officer executing the order should complete the process within 60 days. The court also recommends a 15-day advance notice to occupants before taking possession. The application by the State is dismissed, and the court directs the District Magistrate to ensure possession is handed over to the bank within four weeks, with a 15-day notice to occupants.