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TMI Blog2021 (9) TMI 1562X X X X Extracts X X X X X X X X Extracts X X X X ..... hout 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 - th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it was realized that the petitioner bank has concealed material facts, which subsequently came to the notice of the Applicant-Respondents No. 1 to 3, due to which implementation of the order was not possible to the carried out as physical possession of the secured assets could not be taken under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as Act, 2002 ). 4.1. Learned State Counsel further contends that as per official record, on 18.11.2019 a representation was received from M/s. Nalanda Woolens Ltd. alongwith copy of the order dated 13.07.2018 and 07.11.2019 passed by Ld. Civil Judge (Junior Division), Ludhiana in Civil Suit No. 3604 of 2018 titled as Nalanda Woolens Ltd. v. Anuj Kapoor . The case set up by M/s. Nalanda Woolens Ltd. in the plaint was that the plaintiff company is a tenant and in possession of the suit property (secured asset) bearing No. B-XXIII-667 (old), B-XXIII-2119 (new) and Plot No. K-1, measuring 1769 Sq. Yards situated at Textile Colony, Industrial Area-A, Ludhiana, which is owned by the landlord/defendant - Sh. Anuj Kapoor (guarantor/mortgagor), and sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivil Procedure. The said suit is in the nature of a recovery suit seeking to recover Rs. 4.32 Lacs alongwith interest @ 24% p.a. from the date of filing of suit till the receipt of the claimed amount. The said order has been passed in view of the statement given by the defendant therein (defaulting borrower), that it had no objection to the application for attachment filed by plaintiff therein, being allowed and the defendant shall not transfer the property to anyone. Though, it is incomprehensible as to how property owned by Mr. Anuj Kapoor, who could at best be a Director of Defendant No. 1 therein i.e. M/s. Creative Yarn Pvt. Ltd. could be got attached for dues recoverable from the defendant No. 1 Company therein, which is a separate juristic person. Alongwith the representation, copy of the said application under Order 38, Rule 5 of the Code of Civil Procedure was also attached. 5.1. It is thus contended that since the property/secured asset has been attached in these civil proceedings therefore on this account also, the physical possession could not be taken. 5.2. It is, therefore, contended that since the aforesaid legal impediments were concealed by the petitioner, at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third party qua the secured asset? (2) 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? (3) Scope of powers of the District Magistrate in exercise of its jurisdiction under Section 14 of the Securitisation Act, 2002? ISSUE NO. 1 9. It is to be noticed that the banks and the financial institutions had extended substantial credit facilities to various borrowers in the commercial world. Part of it having been declared Non-Performing Asset led to accumulation of huge unrecovered amounts. Since the conventional process of recovery of debts through Civil Courts was lengthy and time consuming, it became counterproductive exercise on account of mounting interest. A necessity was felt to have a special forum in place, for adjudication of sizeable category of such disputes i.e. between the creditor and the borrower and all such ancillary issues. Considering all these circumstances Recovery of Debts Due to Banks and Financial Institutions Act was enacted in the year 1993 but that also did not bring the desired results and was not fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. SECTION 14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset. - (1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him (a) take possession of such asset and documents relating thereto; and (b) forward such asset and documents to the secured creditor. [Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of this Act.] [Provided further that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days.] [(1A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,- (i) to take possession of such assets and documents relating thereto; and (ii) to forward such assets and documents to the secured creditor.] (2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate [any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any Court or before any authority. SECTION 34 - Civil Court not to have jurisdiction. - No Civil Court shall have juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the secured creditor in not in accordance with the provisions of the Act, 2002 would restore the possession back. By way of amendment vide Act, of 44 of 2016, Section 17(4-A) of the Act, 2002 was also introduced vide which a dispute inter-se between a tenant and the secured creditor was, also brought within the ambit of adjudication of the Tribunal. Although the words used under Section 17(1) is any person (including the borrower) itself is of wide amplitude to include any person whosoever it may be, aggrieved of an action of the secured creditor to institute such proceedings before the DRT; but the amendment which is primarily clarificatory in nature reinforces the view-that the Legislature intended to restrict the adjudication of any dispute touching the enforceability of the secured asset at the hands of secured creditor at only one single forum i.e. the DRT and to the exclusion of other adjudicatory forums. To further make the issues clear, Section 34 of the Act, 2002 excludes the jurisdiction of the Civil Court in so far as those issues which fall within the ambit of adjudicatory jurisdiction of the Tribunal. 13. Hon'ble Supreme Court in while examining the juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. We find that the procedure before the DRT, being more of a summary nature, it is precisely for this reason that cases involving prima-facie substantial allegations of fraud, would be permitted to invoke the jurisdiction of Civil Court as it would require full length evidence to prove such an allegation which may be not effectively possible during a summary trial before DRT. Except for such limited category of cases, for all other matters, the jurisdiction of the Civil Court has been completely excluded. We would hasten to add that while examining such a plea taken by the plaintiff to maintain a civil suit on the basis of aforesaid exception, the Trial Court would be competent to examine as to whether such a plea has been taken just to camouflage the cause, under the garb of clever drafting to attract jurisdiction of the civil court, or whether the suit would actually fall within the scope of such exceptions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose matters which fall under sub-Section (4) of Section 13 of the Securitisation Act because those matters fell within the jurisdiction of the DRT and the Appellate Tribunal. Further, Section 35 says, the Securitisation Act overrides other laws, if they are inconsistent with the provisions of that Act, which takes in section 9 CPC as well. 23. We are of the view that the Civil Court jurisdiction is completely barred, so far as the measure taken by a secured creditor under sub-section (4) of Section 13 of the Securitisation Act, against which an aggrieved person has a right of appeal before the DRT or the Appellate Tribunal to determine as to whether there has been any illegality in the measures taken. The bank, in the instant case, as proceeded only against secured assets of the borrowers on which no rights of Respondent Nos. 6 to 8 have been crystalised, before creating security interest in respect of the secured assets. In such circumstances, we are of the view that the High Court was in error in holding that only civil Court has jurisdiction to examine as to whether the measures taken by the secured creditor under sub-section (4) of Section 13 of the Securitisation Act were leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en noticed above, that admittedly in none of the two civil suits, the bank is a party defendant. The first civil suit is filed by a plaintiff/tenant and the relief so claimed is also restricted therein to the defendant/landlord and not against the bank. Not only this, the interim order dated 13.07.2018 itself clarifies that the said injunction would not be applicable to third parties which are not impleaded in the said civil suit. The relevant portion of the order dated 13.07.2018 is extracted as under:- 8. Before parting with this order, it is hereby made clear that due compliance of Order 39, Rule 3 CPC be made forthwith and copy of this order also given for effecting service upon the defendant on filing of PF, RC and copies of documents immediately, failing which, this order shall cease to have its effect. It is further made clear that nothing contained herein shall be construed so as to effect the rights of other parties, who are not formally arrayed as a party in the present suit. [Emphasis supplied] It is thus more than clear, that the Civil Court in its order has clearly restricted the applicability of the interim protection only to the parties to the said suit. Since the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrected or modified under any of the provisions of Chapter V, b. a dispute involving determination of the question, either expressly or by implication whether a raiyat, or an intermediary, is or is not entitled to retain under the provisions of this Act such land or estate or right in such estate, as the case may be, or c. any matter which under any of the provisions of this Act is to be, or has already been, enquired into, decided, dealt with or determined by the State Government or any authority specified therein. In view of the fact that the right, title and interest upon the disputed property has been settled in favour of the vendors of the appellant Housing Board, who are the legal heirs of the late Gangadas Pal, who was an intermediary of the land in question in terms of Section 6 of the West Bengal Estates Acquisition Act, 1953, adding of the property in question to the suit schedule property in dispute cannot be the subject matter of partition in view of the express provisions of the West Bengal Estates Acquisition Act, 1953 which excludes the jurisdiction of the civil Court in respect of any rights in such estate as entry in record of rights is published. In the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uit. i (2) What is the effect of attachment proceedings initiated by the Tax Recovery Officer pursuant to demands of Rs. 1,62,92,047/- in terms of the order of the Settlement Commission? (3) Whether the affidavit in support of application under Section 14 of the SARFAESI Act is a forged and fabricated document? Having heard learned counsel for the parties at length, we find that the interim order passed by the Civil Court on 15.04.2013 relates to running of the plaintiff- M/s. Eclat Institute of Hospitality Management in the premises of the Hotel Marc Royale. The stand of the borrower is that the said Institute was given permission to run hospitality management on leave and license basis in pursuance of Memorandum of Arrangement dated 04.06.2008. The plaintiff- Institute in the said suit has claimed limited relief against forcible dispossession in respect of premises in its possession for carrying on the Hospitality Management Institute. The Bank is not a party to such suit. The order of status quo passed in the said suit does not affect the rights of the mortgagee to take possession of the property mortgaged. The rights of the person in possession is subject to the rights of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed in the suit is only against the defendant/landlord and no relief has been claimed by the plaintiff therein against the petitioner bank. (ii) Secured Creditor - Petitioner Bank is not a party to the civil suit and hence no order can adversely effect its rights. (iii) There is no prayer for seeking an injunction against the secured creditor by the plaintiff/tenant for enforcement of security interest (nor such a prayer could be maintainable before the Civil Court). (iv) If the plaintiff/tenant would have been aggrieved of the action of the secured creditor/bank to take physical possession, the remedy was to approach the DRT under Section 17(4-A) of the Act, 2002. 22. As regards the second civil suit is concerned, we find that the order of attachment before judgment passed under Order 38, Rule 5 CPC, would also not effect the rights of the secured creditor/petitioner to take physical possession for the following reasons:- (i) Firstly, in terms of section 48 of the Transfer of Property Act, 1882 undisputedly attachment vide order dated 03.09.2019, is subsequent to the mortgage already having been created upon the secured asset in favor of the secured creditor and hence cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assets under the provisions of the Securitisation Act. 2002. ISSUE NO. 3 25. The next issue which arises for consideration is the scope of powers of the District Magistrate while exercising powers under Section 14 of the Securitisation Act, 2002. It is to be noticed that the very purpose of Section 14 is to provide assistance to the secured creditor to take physical possession of the secured asset. Hon'ble Supreme Court in Manager, ICICI Bank v. Parkash Kaur 2007 (2) SCC 711, was considering a situation where the bank on its own by engaging enforcement agencies, had taken physical possession of the charged assets. The said practice was deprecated and it was held that the banks should resort to procedure recognized by law to take possession of vehicles in cases where the borrower may have committed default in payment of the installments instead of resorting to strong arm tactics. Para 15 of the said judgment reads as under:- 15. Before we part with this matter, we wish to make it clear that we do not appreciate the procedure adopted by the Bank in removing the vehicle from the possession of the writ petitioner. The practice of hiring recovery agents, who are musclemen, is depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auction purchaser and thus remained a secured creditor in the Act. [Emphasis supplied] 27. It is also noticed that many a times, after physical possession is obtained by the bank but before it is transferred to the auction purchaser, certain persons intrude into the property and the secured creditors are left helpless. While the District Magistrate would contend that it had complied with its obligation, whereas the secured creditor is still without possession which further delays onward possession to the auction purchaser. Since the secured creditor continues to retain its character as a secured asset qua the secured asset till such time the asset is completely transferred to the auction purchaser, the secured creditor would still well within its right to claim restoration of possession through the assistance of District Magistrate. The secured creditor would still be entitled to maintain another application(s) before the District Magistrate, who will be obligated to provide assistance to restore the possession. 28. It therefore becomes necessary to examine the scope of functions to be discharged by the District Magistrate under Section 14 of the Act. 2002. A bare perusal of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment brought into the Act, 2002 with effect from 15.01.2013. The purpose of the same was to have some accountability of the secured creditor who is proceeding to take State assistance to dispossess the occupant of the secured asset. 29. It is also to be noticed that passing of the order by the District Magistrate under Section 14 is purely an administrative act which does not involve any adjudication of the rights of the respective parties. A Division Bench of this Court in Asset Reconstruction Company (India) Ltd. v. State of Haryana 2018 (1) PLR 443, while examining the scope of the functions to be performed by the District Magistrate under Section 14 held as under:- 22. It is well settled by now that a District Magistrate is neither vested with any quasi-judicial power nor the obligation cast upon him under Section 14 of the SARFAESI Act involves any adjudicatory process. The nature of the duty assigned to a District Magistrate under this provision is essentially administrative in nature which he has to exercise after due application of mind. The duty entrusted to a District Magistrate is akin to an executing agency designated for the aid and assistance of a Bank or financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the occupant so that they are not taken by surprise. It is also to be noticed that in case, a person who is aggrieved of such order, is not remediless as an order under Section 14, has been held to be an action under Section 13(4) of the Act, 2002 and any person aggrieved of the same, shall have a cause of action to challenge the same by filing an application under Section 17 of the Act, 2002. [refer to Para 20 of the judgment of Hon'ble Supreme Court in Kaniyalal Lalchand Sachdev v. State of Maharashtra 2011 (2) SCC 782]. Similarly, we find that 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. 31. Further, as per proviso to Section 14 of the Act, 2002 it requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage of Section 14, it would be contrary to the purpose of the Act. The time limit is to instill a confidence in creditors that the District Magistrate will make an attempt to deliver possession as well as to impose a duty on the District Magistrate to make an earnest effort to comply with the mandate of the statute to deliver the possession within 30 days and for reasons to be recorded within 60 days. In this light, the remedy under Section 14 of the Act is not rendered redundant if the District Magistrate is unable to handover the possession. The District Magistrate will still be enjoined upon, the duty to facilitate delivery of possession at the earliest. [Emphasis supplied] Even though the time provided under Section 14 to the District Magistrate to pass an order is directory, it is still to be noticed that the discernable intent of the legislature while providing for such time line was to ensure that the applications filed by the secured creditor are not unduly delayed. It is to be acknowledged that even after the order is passed by the District Magistrate, it is the implementation of the same which becomes the next hurdle for the secured creditor to complete the process of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrict Magistrate to pass an order, but for implementing officers, the proviso to Section 14 does not lay down any stipulated time for enforcing the order of the District Magistrate. This at times defeats the very object of the provision and also runs counter to the scheme of the Act, 2002. It is in these circumstances, that we feel the need of applying the principle of casus omissus, to fill in the gap of not having provided the time limits for implementation of the order, on the same lines like the District Magistrate is obliged to do so. It is only then, that the legislative intent of Section 14 becomes complete. Consequently, we hold that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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