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2021 (12) TMI 1508 - HC - Indian LawsRequirement or justification to fix a time limit by the CMM for taking possession of the secured asset while exercising jurisdiction under Section 14 of the SARFAESI Act - order passed in a civil suit instituted by a third party in respect of the mortgaged property/secured asset would bind the secured creditor, if the said secured creditor was not a party to the Civil Suit or not. Whether there is any requirement or justification to fix a time limit by the CMM for taking possession of the secured asset while exercising jurisdiction under Section 14 of the SARFAESI Act? - HELD THAT - Keeping in mind the objective of the SARFAESI Act i.e., to enable the secured borrowers to take physical possession of the assets of the defaulting borrowers in an expeditious manner, there is no requirement or justification for the CMM to impose time limits for the receiver to take physical possession of the secured asset. This would also curtail unnecessary litigation wherein applications for extension are filed before the CMM and upon the said applications being either allowed or declined by the CMM, petitions are filed before this Court challenging the said decision of the CMM - This Court finds merit in the submissions made by the petitioner, that there is no requirement or rationale in providing a time limit in orders passed by the CMM under Section 14 of the SARFAESI Act, in respect of taking possession of the secured asset. In fact, setting of a time limit by the CMM for taking possession of a secured asset is contrary to the legislative intent - the impugned order dated 30th March, 2021 passed by the CMM, to the extent that it imposes a time limit of ninety days for the court receiver to take physical possession, is set aside. In the context of proceedings initiated under the SARFAESI Act, whether an order passed in a civil suit instituted by a third party in respect of the mortgaged property/secured asset would bind the secured creditor, if the said secured creditor was not a party to the Civil Suit? - HELD THAT - The Division Bench in Allahabad Bank in ALLAHABAD BANK VERSUS DISTRICT MAGISTRATE, LUDHIANA AND ORS. 2021 (9) TMI 1562 - PUNJAB AND HARYANA HIGH COURT has, while analyzing the provisions of the SARFAESI Act, observed that if the secured creditor is not a party to a suit initiated by a third party against the borrower, any order passed in the said suit would not be applicable to the secured creditor. The CMM, while exercising jurisdiction under Section 14 of the SARAFESI Act could not have taken cognizance of the aforesaid order passed in the civil suit. The scope of the proceedings before the CMM are entirely different from the proceedings in the civil suit. The scope of the proceedings before the CMM are under the provisions of the SARFAESI Act, which is a specialized law enacted to enable a secured creditor to obtain possession of the secured asset in an expeditious manner - in view of Section 34 of the SARFAESI Act, a civil court does not have jurisdiction to adjudicate the rights of a secured creditor or the enforcement of such rights by the secured creditor. Such rights can only be challenged by the borrower or any affected person before the DRT in terms of Section 17 of the SARFAESI Act. Further, in terms of Section 34, no injunction can be granted by any court in respect of any action taken in pursuance of any power under the SARFAESI Act. Therefore, the civil court, in the present case, did not have any jurisdiction to pass an injunction against the petitioner. The impugned order dated 17th August, 2021, to the extent it holds that since the order dated 12th July, 2021 in the civil suit has been passed by a court which is senior in hierarchy of courts to the CMM, it would be against the judicial discipline to pass an order under Section 14 of the SARFAESI Act, is set aside. There is no requirement or justification for the CMM to fix a time limit for taking possession of the secured asset while exercising jurisdiction under Section 14 of the SARFAESI Act - In the context of proceedings initiated under the SARFAESI Act, an order passed in a civil suit instituted by a third party in respect of the mortgaged property/secured asset would not bind the secured creditor, if the said secured creditor was not a party to the Civil Suit. Appeal allowed.
Issues Involved:
I. Whether there is any requirement or justification to fix a time limit by the Chief Metropolitan Magistrate (CMM) for taking possession of the secured asset while exercising jurisdiction under Section 14 of the SARFAESI Act? II. In the context of proceedings initiated under the SARFAESI Act, whether an order passed in a civil suit instituted by a third party in respect of the mortgaged property/secured asset would bind the secured creditor, if the said secured creditor was not a party to the Civil Suit? Issue-wise Detailed Analysis: I. Fixing a Time Limit by the CMM under Section 14 of the SARFAESI Act: The court examined whether the CMM should impose a time limit for taking possession of a secured asset under Section 14 of the SARFAESI Act. Section 14 is an enabling provision that allows secured creditors to seek assistance from the CMM to take physical possession of secured assets. The only time limit mentioned in Section 14 is for the CMM to pass an order within thirty days, extendable to sixty days, from the date of application by the secured creditor. The court observed that imposing a time limit for the receiver to take possession leads to unnecessary litigation, as extensions are often required due to various reasons, such as interim stays by the Debt Recovery Tribunal (DRT). The court cited previous judgments, including Jammu and Kashmir Bank Limited Vs. Trans Asian Industries Exposition Private Limited, which stated that technicalities should not frustrate the SARFAESI Act's purpose. The court concluded that there is no requirement or justification for the CMM to impose time limits, as it contradicts the legislative intent of the SARFAESI Act. Consequently, the impugned order dated 30th March 2021, which imposed a ninety-day limit, was set aside. II. Binding Nature of Orders in Civil Suits on Secured Creditors Not Party to the Suit: The court addressed whether orders in civil suits involving third parties bind secured creditors not party to the suit. The legal position was clarified by the Division Bench of the Punjab and Haryana High Court in Allahabad Bank, Branch at Industrial Area A, Link Road, Ludhiana through its Chief Manager/Authorised Officer Sh. Nishant Shukla, which held that orders in civil suits do not bind parties not impleaded in the suit. The Supreme Court in W.B. Housing Board Vs. Pramila Sanfui also emphasized that injunctions can only bind parties to a suit. In the present case, the petitioner was not a party to the civil suit filed by respondent no.3 against respondents no.1 and 2. The court found that the CMM erred in considering the status quo order from the civil suit, as the proceedings under the SARFAESI Act are distinct and specialized, aimed at expeditious recovery of secured assets. The court held that the CMM should not have taken cognizance of the civil suit order and set aside the impugned order dated 17th August 2021. The court directed the CMM to appoint a receiver to take possession without a time limit. Conclusion: The judgment clarified that the CMM need not impose a time limit for taking possession under Section 14 of the SARFAESI Act, and orders in civil suits do not bind secured creditors not party to the suit. The court directed the CMM to pass fresh orders for possession without time constraints and circulated the judgment to ensure compliance in future proceedings under the SARFAESI Act.
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