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TMI Blog2010 (7) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... nts as collateral security for the said loan. Thereafter, once again, the company availed of loan from the very same bank for a further sum of Rs. 50 lakhs on September 24, 2004 repayable in 84 equal monthly instalments ending on September, 2011. 2. The petitioner was relieved from the company on July 17, 2006 and thereafter, the other directors were looking after the affairs of the company. According to the petitioner, the other directors promised him that they will regularly pay the instalments to the bank. However, the bank issued a notice dated November 15, 2007 under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, in short) for repayment of an amount of Rs. 62,79,835.05. The petitioner contacted the other directors, who assured that the amount due to the bank would be settled. However, the petitioner came to know that the respondent-bank had approached the Chief Judicial Magistrate, Chengalpattu, by filing an application in Crl. M. P. No. 1518 of 2009 under section 14 of the SARFAESI Act and the learned Chief Judicial Magistrate had issued warrant dated December 14, 2009 appointing an Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4) . . . (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower : Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the provisions of this Act and the rules made thereunder. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the secured creditors assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under subs-section (4) of section 13 . . ." 6. By the above provisions, the right of the banks/financial institution to resort to the provisions of the Act would arise only in the event where any borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection, the reasons for non-acceptance of the representation or objection to the borrower. By that provision, a right is conferred on the borrower to make a representation or objection to the notice under sub-section (2) of section 13 and a corresponding duty upon the secured creditor to communicate the conclusion if such representation or objection is not acceptable or tenable. In the event, no communication is received by the borrower within a week from the date of receipt of the representation or objection, it could be considered that the secured creditor had accepted such representation or objection and would not proceed further pursuant to the notice under sub-section (3) of section 13. In the event, the conclusion that the representation or objection is not acceptable or tenable is communicated, that communication is only for the purpose of bringing the same to the notice of the borrower and the borrower has no right to question such conclusion at that stage. This law has been laid down by a Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the secured creditor, the borrower has no option to challenge the same and the secured creditor, in the event of failure of the borrower to comply with the notice under section 13(2), can resort to the provision of section 13(4) for taking possession and the right to make any appeal in exercise of the power under section 17 would be available to the borrower only after the proceedings under section 13(4) and that power of appeal is also denied in the event the secured creditor straight away approaches the Chief Metropolitan Magistrate or District Magistrate under section 14, strict compliance of the provisions of sections 13(2) and 13(4) assumes importance which is mandatory. 12. As regards the rules framed under the Act, viz., Security Interest (Enforcement) Rules, 2002 [2002] 112 Comp Cas (St.) 356, 365. (hereinafter referred to as "the Rules"), in case of immovable secured assets, Rule 8 contemplates that the authorised officer shall take or cause to be taken possession by delivering a possession notice prepared as nearly as possible in Appendix IV to the Rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the authorised officer insofar as the details contained in Appendix IV, no such discretion is conferred on the authorised officer in dispensation of a notice for having taken possession. In such event, at the time when section 13(4) is invoked, a notice is mandatory. The provisions of rule 8 read with Appendix IV have its own significance inasmuch as Appendix IV contemplates that the possession notice should indicate that the borrower having failed to repay the amount, notice is given to the borrower and the public in general that the authorised officer has taken possession of the property. Likewise, sub-rule (2) of rule 8 contemplates that the authorised officer shall publish the possession notice referred to in sub-rule (1) in two leading newspapers, one in a vernacular language having sufficient circulation in that locality. These are all certain provisions whereby the borrower and the general public are put on notice by the authorised officer for having taken possession. 14. The provisions of the Rules contemplate the procedure for issuance of demand notice, procedure to be followed after issue of notice, valuation of movable secured assets, sale of movable assets and issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final and the same cannot be questioned in any court or any authority of law. Therefore, as a necessary corollary, legality of such an order under section 14 could only be tested before the High Court in exercise of power under article 226/227 of the Constitution of India. When such an order is amenable to the judicial review of this court, the order should be sustainable by strict compliance of the provisions of the Act and Rules, as otherwise, it is liable to be set aside. In this context, we may refer to the judgment of a Division Bench of the Andhra Pradesh High Court in Sravan Dall Mill P. Ltd. v. Central Bank of India [2010] 2 BC 96 ; AIR 2010 AP 35. 17. Even after the order under section 14 is passed, for the purpose of taking possession, the authorised officer should comply with rule 8 through the Advocate Commissioner appointed under section 14, as otherwise there will be a dichotomy resulting in a peculiar situation when a secured creditor exercises the power under section 13(4) and when such a power is exercised under section 14. To elaborate, we may add that in the event section 13(4) is invoked, the procedure contemplated under that provision read with rule 8 must ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted. The Division Bench was not called upon to consider the question as to when section 14 could be invoked. 19. Coming to the impugned proceedings of the learned Chief Judicial Magistrate dated December 14, 2009, the said proceedings reads as under : "Whereas it is deemed requisite, for the purpose of this Crl. M. P., that a commission should be issued, you are hereby appointed as commissioner for the purpose to take possession of the schedule mentioned properties and to hand over the same to the petitioner. Process to compel the attendance before you of any witnesses, or for the production of any documents whom or which you may desire to examine or inspect will be issued by any court having jurisdiction on your application. You shall execute the warrant and file the report at the earliest. If any abnormal delay in executing the warrant is occurred on the part of the Advocate Commissioner, the warrant will be recalled and the remuneration is to be refunded to the petitioner/bank." 20. A perusal of the said order shows that the Chief Judicial Magistrate had merely directed the appointment of a Commissioner for the purpose of taking possession of the schedule mentioned pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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