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TMI Blog2013 (8) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The High Court recorded the submissions made before it as follows: 3. The learned Counsel appearing for the Petitioner raised two contentions, viz.: (i) The bank cannot bypass Section 13(4) of the SARFAESI Act and invoke the provisions of Section 14. He would submit, before invoking Section 14, that notice under Section 13(4) is necessary, otherwise the provisions of appeal under Section 17 will become illusory, particularly when the proceedings under Section 14 cannot be questioned by filing appeal before the Tribunal or before a Court. (ii) In the event the procedures contemplated under Rule 8 of the Security Interest (Enforcement) Rules, 2002, are not followed before Section 14 is invoked, the order passed by the Chief Judicial Magistrate would be contrary to the said Rules and consequently, the order passed under Section 14 is liable to be set aside. 10. It is argued before the High Court as well as before us by the Respondent that a secured creditor before invoking the authority of the Magistrate under Section 14 must necessarily make an attempt to take possession of the secured asset. Only when the creditor faces resistance to such an attempt the creditor could res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... austing the measures contemplated under Section 13(4). Lastly, it is submitted on behalf of the Appellant that the High Court completely erred in recording a conclusion: 3. In the event the secured creditor bypassing the provision of Section 13(4) and the Rule 8 and files an application under Section 14, a situation may arise that the advocate commissioner may straight away take possession without there being compliance of any of the provisions of Section 13(4) or Rule 8. When both the provisions are read together, we could only come to the conclusion that the legislature had not intended to create such a situation. The objection of Section 14 is only to be invoked in case the secured creditor faces obstruction and not as a routine, bypassing the provisions of Section 13(4). 13. On the other hand, the learned Counsel appearing for the first Respondent reiterated the submissions made by him before the High Court. 14. To decide the correctness of the judgment under appeal, it is essential that we examine the purpose and the scheme of the Act. One of the professed purposes sought to be achieved by the enactment as evidenced by the Objects and Reasons appended to the Bill is as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest in the secured asset intended to be enforced by the secured creditor. Sub-section (4)9 provides for various measures which can be resorted to by the secured creditor in order to recover his debt. Such measures are (1) taking possession of the secured asset or (2) taking over the management of the business of the borrower.10 The secured creditor is also given the right either to make a further assignment of his interest or lease out the secured assets or sell the same in order to realise his debt. Such right of the secured creditor is hedged with limitations/safeguards designed to protect interest of the borrower so that the secured creditor may not abuse his rights i.e. except to take a possession of the property and alienate the same only to the extent necessary to realise the actual amount due to him. Details of which may not be necessary for the purpose of this case. We are only concerned in this case with the method and manner in which possession of the secured assets could be obtained and the conditions precedents that are required to be satisfied for taking possession of the secured assets. 20. Section 13, as originally enacted, did not contain any provision fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mir) the concerned District Court against any measure taken under Section 13(4). 23. In every case where the objections raised by the borrower are rejected by the secured creditor, the secured creditor is entitled to take possession of the secured assets. In our opinion, such action - having regard to the object and scheme of the Act - could be taken directly by the secured creditor. However, visualising the possibility of resistance for such action, Parliament under Section 14 also provided for seeking the assistance of the judicial power of the State for obtaining possession of the secured asset, in those cases where the secured creditor seeks it. 24. Under the scheme of Section 14, a secured creditor who desires to seek the assistance of the State's coercive power for obtaining possession of the secured asset is required to make a request in writing to the Chief Metropolitan Magistrate or District Magistrate within whose jurisdiction, secured asset is located praying that the secured asset and other documents relating thereto may be taken possession thereof. The language of Section 14 originally enacted purportedly obliged the Magistrate receiving a request under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections of the borrower had in fact been considered and rejected, (vii) the reasons for such rejection had been communicated to the borrower etc. 28. The satisfaction of the Magistrate contemplated under the second proviso to Section 14(1) necessarily requires the Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the transaction. It is only after recording of his satisfaction the Magistrate can pass appropriate orders regarding taking of possession of the secured asset. 29. It is in the above-mentioned background of the legal frame of Sections 13 and 14, we are required to examine the correctness of the conclusions recorded by the High Court. Having regard to the scheme of Sections 13 and 14 and the object of the enactment, we do not see any warrant to record the conclusion that it is only after making an unsuccessful attempt to take possession of the secured asset, a secured creditor can approach the Magistrate. No doubt that a secured creditor may initially resort to the procedure under Section 13(4) and on facing resistance, he may still approach the Magistrate under Section 14. But, it is not mandatory for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the borrower or the likely action of the secured creditor shall not confer any right under Section 17. 32. The same principle is re-emphasised with the newly added explanation in Section 17(1) which came to be inserted by Act No. 30 of 2004: Explanation: For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under Sub-section 1 of Section 17. 33. The High Court opined that Rule 817 of the Security Interest (Enforcement) Rules, 2002 provides for certain (i) procedure to be followed by the secured creditor taking possession of the secured asset. The High Court opined that even in a case where procedure contemplated under Section 14 is resorted to for obtaining possession of the secured assets, compliance with Rule 8 is mandatory. Such a requirement according to the High Court arises because in view of the High Court: The object of Section 14 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Code of Civil Procedure, 1908. Order XL of the Code of Civil Procedure deals with the appointment of the receiver. Rule 1 authorizes the Court to appoint a receiver: 1. Appointment of Receivers.-(1) Where it appears to the Court to be just and convenient, the Court may by order- (a) appoint a receiver of any property, whether before or after decree; (b) remove any person from the possession or custody of the property; (c) commit the same to the possession, custody or management of the receiver, and (d) confer upon the receiver all such powers, as to bringing and defending suits and for the realisation, management, protection, preservation and improvement of the property, the collection of the rents and profits thereof, the application and disposal of such rents and profits, and the execution of documents as the owner himself has, or such of those powers as the Court thinks fit. (2) Nothing in this rule shall authorise the Court to remove from the possession or custody of property any person whom any party to the suit has not a present right so to remove. It can also be noticed from Rule (1) that the power of the Civil Court to appoint a receiver could be exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree situations, after the possession is handed over to the secured creditor, the subsequent specified provisions of Rule 8 concerning the preservation, valuation and sale of the secured assets,, and other subsequent rules from the Security Interest (Enforcement) rules, 2002, shall apply. 39. In this connection, it is material to refer to the judgment in Mardia Chemicals (supra) wherein the Court was concerned with the legality and validity of the SARFAESI Act. The Court held the Act to be valid except Section 17(2) thereof as it then stood. In paragraphs 59, 62 and 76 of the judgment the Court in terms held that in remedy under Section 17 of the Act was essentially like filing a suit in a Civil Court though it was called an Appeal. It is also relevant to note that in the ultimate conclusions in paragraph 80 of the judgment this Court held in sub-para 2 thereof as follows: 2. As already discussed earlier, on measures having been taken under Sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debts Recovery Tribunal. The grievance of the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The appeal is allowed. The order of the High Court is set aside. 42. In view of our conclusion on the scope of Section 17 recorded earlier it would normally have been open to the Respondent to prefer an appeal under Section 17 raising objections regarding legality of the decision of the Magistrate to deprive the Respondent of the possession of the secured asset. But in view of the fact that the Respondent chose to challenge the decision of the magistrate by invoking the jurisdiction of the High Court under Article 226 of the Constitution and in view of the fact that the Respondent does not have any substantive objection as can be discerned from the record, we make it clear that the Respondent in the instant case would not be entitled to avail the remedy under Section 17 as the Respondent stalled the proceedings for a period of almost 4 years. It is worthwhile remembering that the Respondent did not even choose to raise any objections to the demand issued under Section 13(2) of the Act. However, we make it clear that it is always open to the Respondent to seek restoration of his property by complying with Sub-section 8 of Section 13 of the Act. Criminal Appeal arising out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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