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Functions of Chief Metropolitan Magistrate /District Magistrate u/s.14 of the Act

The Magistrates perform ministerial functions under Section 14 of SARFAESI Act. Sec.14(3) of the Act provides for immunity. Section 34 of the Act bars civil court’s jurisdiction in order to avoid adjudication of cla im (which is time consuming process) and the jurisdiction to scrutinize the legality of the action is conferred to the DRTs (after the stage of action under Sec.13(4)). For this reason Sec.14 does not confer power to CMM/DM for deciding any dispute of any person. Hence for this reason, service of any notice to the borrower is not contemplated in Sec. 14 of the Act (as no adjudication of dispute takes place before the CMM/DM). It is manifest that Sec 14 confers only ministerial function to the Magistrate which cannot be called in question in any court or before any authority. Sec 14 is procedural in nature and merely empowers the CMM or DM to assist the secured creditor in taking possession of the secured assets and it does not clothe the DM with the power to adjudicate in respect of any dispute pertaining to secured assets:(Union Bank of India Vs State of Maharashtra: 2010 D.R.T.C. 487(Bom); Kotak Mahindra Bank Limited Vs District Magistrate 2011(1) D.R.T.C. 513 (Guj.).A mere request to the Magistrate is sufficient under Sec.14 in taking possession (Sosamma Abraham Vs. The Chief Manager S.B.T. & Ors.: AIR 2008 Ker 136).

The CMM/DM exercises only judicial function which is ministerial in nature. There is difference between the judicial function and adjudication function. This is manifest from sub-Sec.14 (3) of the Act which reads thus:

“No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority.

The Magistrates enjoy immunity for assisting secured creditor as they are not involved in the adjudication process of any dispute of whatsoever nature of any person. Chief Judicial First Class Magistrate in Non Metropolitan areas can also assist the secured creditor under Sec.14: (Muhammed Ashraf and Anr. Vs. Union of India and Ors. : AIR 2009 Kerala 14); Solaris System (P) Ltd. Vs. Oriental Bank of Commerce IV (2006) BC536 (Kerala High Court)=ILR 2006(2)Kerala 645 Dhanalakshmi Bank Ltd. Vs. Kovai Foods & Beverages III(2007)BC 612(Madras High Court)

Taking symbolic possession under Sec.13(4) r/w Rule 8(1) is not a condition precedent for invoking Sec 14 of SARFAESI Act.  Distinguishing with the view taken by one Division Bench in Noble Kumar Vs. Standard Chartered Bank & Ors. CDJ 2010 MCH 4621, another Division Bench of Madras High Court in Hemabhushan Vs. ICICI Bank Ltd. Ors. : CDJ 2010 MHC 3378 held that, right to invoke Sec.14 of the Act is independent of the provisions of Sec.13(4) and powers of the Magistrate under Sec 14 are only ministerial, non-adjudicatory in nature, final and cannot be called in question in any Court or before any Authority. The Magistrate is required only to verify from the Bank / FI whether notice under Sec 13(2) of the Act is given or not whether the secured assets fall within the jurisdiction of the Magistrate. It is also held that, before invoking Sec.14 it is not necessary to issue notice under Sec.13(4) of the Act. Referring to the judgment of the Supreme Court in United Bank of India Vs. Satyavati Tondon & Ors.: III (2010) Banking Cases 495(SC) the High Court observed that, Supreme Court considered the case where Sec.14 was invoked even before issuance of notice under Sec.13(4). In the said case, demand notice was issued under Sec. 13(2) for recovery of Rs. 23,22,972/-. The party offered to pay 18,00,000/-against the claim amount. The bank was not satisfied with the offer of the borrower and invoked Sec.14 and had taken physical possession of secured asset. Thereafter the bank issued notice under Sec 13(4) to the borrower. Therefore it is clear from the above that, issuance of notice under Sec.13(4) is not a condition precedent to invoke Sec. 14 of the SARFAESI Act.

If possession of secured assets are taken with the assistance of Magistrate it amounts to taking measures in terms of Sec. 13(4) and such action gives raise a chance to invoke Sec. 17 of the Act. Though the order of the Magistrate cannot be called in question before any Court or Authority in view of Sub-Sec.(3) of Sec.14 one can raise the legality and propriety of the  measures of taking possession under Sec.14, in proceedings under Sec.17 of the Act if such measure taken is against the provisions of SARFAESI Act and the Rules framed thereunder Bharatbhai Ramaniklal sata Vs. Collector and Dist Magistrate &  Another : AIR 2010 Guj. 72

No prior notice to borrower before taking possession u/s 13(4) after service of 60 days demand notice or even prior to invocation of Sec.14 of the Act : CDJ 2006 MHC 2702 (In re Sundaram Home Finance Ltd.No notice to the borrower by Magistrate is contemplated under Sec.14 : C.R.Sindhu Vs. State of Kerala &     Ors. :AIR 2008 Ker 65; Indian Overseas Bank Vs. Sri Aravind Steels Ltd. 2009 (1) CTC 341=AIR 2009 Mad.10; The Industrial Investment Corporation Ltd Vs. M/s. Sudarshanam Industries & Ors.: AIR 2009 Mad. 15.No trial / enquiry / adjudication of dispute by Magistrate is contemplated Muhammed Ashraf  and Anr. Vs. Union of India and Ors. : AIR 2009 Kerala 14; Union Bank Of India Vs. State of Maharashtra & Others:2010 (2) DRTC 487 (Bom.). No hearing of borrower or guarantor by the Magistrate is contemplated in the Act Tensile Steel Ltd. & Anr. Vs. Punjab & Sindh Bank & Ors. AIR 2007Guj 126.Metropolitan Magistrate while considering an application under section 14 need not issue any notice to borrower or any person  Aboobacker Vs. PNB & others 2005 (127) CC 519(Kerala); Mrs. Sunanda Kumari and another Vs Standard Chartered Bank (2007) 135Comp. Cas.604(Kar.); Vijaya Bank Vs Shameem Transport: 2007(1)D.R.T.C. 494(Kar.); State Bank of India Vs Kathikkal Tea Plantations, Melur : AIR 2009 Mad.152. It is very much clear that absolutely no power, jurisdiction, competence or expertise is intended or vested with the Magistrate to deal with any claim as to the nature of the property in question or as to the merits or demerits with regard to other aspects involved in connection with loan transaction, but for considering whether the property in question in respect of which assistance is sought is a secured asset or not. For similar proposition refer to Ayishumma Vs. Hassan :AIR 2010 Ker.13; Vaishnavi Pulvarising Mills Ltd Vs. SBI, Stressed Assets Management Branch, Chennai 2010 (1) MLJ (Cri) 31. Where the Additional Collector has similar power as of Collector under Sec 14 A of the UP Land Revenue Act, 1901, the Order passed by the Additional Collector cannot be said to be without jurisdiction Irshad Hussain Vs District Magistrate, Moradabad: AIR 2009 Allahabad 125. Section 20 of Cr.P.C. empowers State Government to appoint an Executive Magistrate as Additional District Magistrate who can also exercise powers under Sec.14 of the SARFAESI Act. Harunali Mallik Vs. State of West Bengal: 2011 (2)   D.R.T.C. 20(Cal.)

In case the Magistrate declines to assist and if the secured creditor wishes to challenge the same, in revision under Art. 227 or under Sec.482 of Cr.P.C., it is not necessary to issue notice to the borrower or the auction purchaser Vijaya Bank Vs. Shameem Transport & Ors.: AIR 2007( NOC) 310 (Kar.).Art. 227 or Sec. 482 Cr.P.C. can be invoked by secured creditor against refusal to give assistance. No notice to the borrower or Auction Purchaser is necessary. There is no statutory requirement to issue any notice prior to issuance of notice under sec.13(4) or before invoking assistance under Sec. 14 of the Act.: Sundaram Home Finance Ltd. Vs. 1.The Tahsildar, Hosur 2. V and the Dist. Collector : CDJ 2006 MHC 2702. Issuing notice to the borrower is alien to the special statute viz. SARFAESI Act since no adjudication nor roving enquiry is contemplated under Sec.14 of SARFAESI Act. (State Bank of India Vs. Kathikkai Tea Plantations & Ors. 2009 (2) DRTC 738 Mad.)It is well settled law that at the stage of Sec 14, there is no adjudication of any issues. The authorities have to only render assistance to the secured creditor to recover possession (Arjun Urban Co-operative Bank Ltd, Sholapur Vs Chief Judicial Magistrate, Solapur 2009(5)MHLJ 380 (Bom)

Seeking assistance u/s 14 is not compulsory. Taking assistance of Chief Metropolitan or District Magistrate under Sec. 14 of the Act is not compulsory: “Invocation of Sec. 14 is not mandatory”. (Aboobacker Vs. Punjab National Bank III (2005) BC 390 Ker). But purpose of taking assistance of the Magistrate is to ensure that, no breach of peace takes place while taking physical possession.

Sec. 14 can be invoked even after issuing Sale Certificate. Prior issuance of sale certificate does not operate as bar for taking assistance of the Magistrate under Sec.14(2) of the Act. Borrower is not entitled to any notice on issuing sale certificate and the bank does not cease to be secured creditor. Shakthi Industries & Others Vs. Indian Overseas Bank 2010(2) DRTC 725 (Mad.)

The Magistrate can appoint Advocate-Commissioner for identification and taking possession of the secured assets if necessary by taking help of police Indian Overseas Bank Vs. Sri Aravind Steels Ltd. 2009 (1) CTC 341=AIR 2009 Mad.10.

The Magistrate has to verify the record to the extent that the condition precedent for exercise of the power by the Bank are satisfied Authorised Officer Canara Bank Vs Sulay Traders thro Bipin Kantilal Vakta 2010 TLGJ 407.

The employment of any physical power to dispossess even in terms of a statute or enforceable order could be only had in exercise of the police power of the State. Even a Court does not have the power to dispossess by force through its officer, but has the power to secure it only through the police machinery of the State. That power cannot be conceded to any individual or institution empowered to take possession, except in cases where the power to physically dispossess is also expressly conferred. That such power has not been conferred by Parliament on a secured creditor under the Act. The DM has to exercise the power by himself and cause the relief to be worked out under his control. That cannot be delegated: Sundaram BNP Paribas Home Finance Ltd Vs State of Kerala AIR 2009 Ker 85.

Invocation of Sec.14 gives scope to invoke Sec.17 of the Act. Kerala High Court in Sami Vs. Bank of India:2011 (3) Bankers' Journal 293held that, approaching Magistrate under Section 14 itself would constitute a measure under Section 13(4), which would give rise to an aggrieved person to approach DRT. It is not necessary for an aggrieved person to wait till actual or symbolic possession is taken before resorting to the remedy as provided under Section 17 of the Act.  This judgment is affirmed by a three judges Bench (consisting of Chief Justice) of Kerala High Court in Pushpangadan Vs. Federal Bank2011 (4) KLT 134 : 2011 (4) KLJ 93).

Territorial jurisdiction to exercise powers under Sec.14 is based on the location (situs) of the secured assets whether movable or immovable

In case the Magistrate declines to assist and if the secured creditor wishes to challenge the same, in revision under Art. 227 or under Sec.482 of Cr.P.C., it is not necessary to issue notice to the borrower or the auction purchaser Vijaya Bank Vs. Shameem Transport & Ors.: AIR 2007( NOC) 310 (Kar.). There is no statutory requirement to issue any notice prior to issuance of notice under sec.13(4) or before invoking assistance under Sec. 14 of the Act.: Sundaram Home Finance Ltd. Vs. 1.The Tahsildar, Hosur 2. V and the Dist. Collector : CDJ 2006 MHC 2702. Issuing notice to the borrower is alien to the special statute viz. SARFAESI Act since no adjudication nor roving enquiry is contemplated under Sec.14 of SARFAESI Act. State Bank of India Vs. Kathikkai Tea Plantations & Ors. 2009 (2) DRTC 738 Mad.It is well settled law that at the stage of Sec 14, there is no adjudication of any issues. The authorities have to only render assistance to the secured creditor to recover possession Arjun Urban Co-operative Bank Ltd, Sholapur Vs Chief Judicial Magistrate, Solapur 2009(5)MHLJ 380 (Bom)

The requests made under Sec.14 have to be disposed of expeditiously else the secured creditor may suffer loss or damages if any to the secured assets on account of delay.

Govt. of India approved a bill to be placed before Parliament during ‘Winter Session’ but the same could not be tabled. However it may be introduced in Monsoon Session. The gist of the amendment is given below:

PROPOSED AMENDMENT  TO 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 assets 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 assets and documents to the secured creditor.

*Provided  that   any  application by  the   secured  creditor   shall  be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that—

(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;

(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;

(iii) the borrower has created security interest over various properties giving the details of properties referred to in sub-clause (ii) above;

(iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount;

(v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a nonperforming asset;

(vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower;

(vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower;

(viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act;

(ix) that the provisions of this Act and the rules made thereunder had been complied with:

Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets.

Provided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.

(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 *any officer authorised by the Chief Metropolitan Magistrate or 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 done in pursuance of this section shall be called in question in any court or before any authority.

 

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