Section 13(4) of SARFAESI Act provides for four different measures that a secured creditor can take in the event of the borrower’s failure to comply with the demand notice issued under Sec.13(2) the said Act. They are as under:
(a) take possession of the secured assets of the borrower including the right to transfer by way of Lease, assignment or sale for realizing the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by Way of lease, assignment or sale for realizing the secured asset:
PROVIDED that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
PROVIDED FURTHER that where the management of whole of the business or part of the Business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt.
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time 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.
One of the four measures i.e. measure under Sec.13(4)(a)provides for taking possession of secured asset. This step is combined with the secured creditor’s right to transfer the secured asset by lease/assignment/sale for realizing the secured asset, of course after serving 30 days sale notice to the borrower. The language of Sec.13(4)(a) of SARFAESI Act makes it very clear that, taking possession of secured asset (whether movable or immovable) and transfering it by lease/assignment/sale is a combination of two steps namely i). taking possession ii). including a right to transfer it to a third party. Compliance of Rule 4 and sub-Rules (1) & (2) of Security Interest (Enforcement) Rules 2002, resembles ‘attachment’ (like in Court’s or DRT’s execution proceedings).
There are instances where some secured creditors take or prefer to take, possession of secured assets on Sundays or National or Public holidays (as recognized / notified by the respective State Governments) to suit their convenience and also with an idea that the borrower may not be able to approach any court or DRT on those days to challenge the action under the Act and it would also be convenient to the secured creditor compared to the regular working days where the secured creditor or his authorized officer does not have breathing time due to the routine work in their office. But this kind of action by secured creditors on these holidays is not fair and transparent. Supreme Court while upholding the constitutional validity of the Act in landmark case (Mardia Chemicals case) observed that the action of secured creditor under the Act must bona fide, fair, and transparent in view of draconian nature of the provisions of the Act.
It is necessary to examine first, the Sub-Section (7) of Section 17 SARFAESI Act which reads thus:
“(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the rules made thereunder”.
Thus the sub-Section(7) of Sec.17 of SARFAESI Act imports the provisions of RDDB & FI Act and the Rules framed thereunder i.e. the Debts Recovery Tribunal (Procedure)Rules,1993 for the purpose of disposal of the applications filed under Sec.17 of the Act.Sec.29 provides about application of certain provisions of Income-tax Act.i.e. the provisions of the Second and Third Schedules to the Income-tax Act, 1961and the Income-tax (Certificate Proceedings) Rules 1962, as in force fromtime to time shall, as far as possible, apply with necessary modifications as ifthe said provisions and the rules referred to the amount of debt due underthis Act instead of to the Income-tax:
So, by necessary implications the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules 1962 also areimported to SARFAESI Act as they are also required to be followed by DRT in the proceedings filed under Sec.17 of SARFAESI Act.
Rule 18 of Income-tax (Certificate Proceedings) Rules 1962 provides as under:
“18. No sale under this Schedule shall take place on a Sunday or other general holiday recognised by the State Government or on any day which has been notified by the State Government to be a local holiday for the area in which the sale is to take place”.
Sec. 13(4)(a) of SARFAESI Act takes within its fold not only the secured creditor’s right to take possession of the secured assets of the borrower but also to transfer the same by way of Lease/assignment/sale for realizing the secured asset. For this reason Sec.17(3) lays down that, 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 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 sub-section (4) of section 13.
Taking possession of secured asset (including the right of sale) on Sunday or other general holiday recognized or notified by the State Government as holiday for the area where the possession is taken is squarely covered by Rule 18 of Income-tax (Certificate Proceedings) Rules 1962. Sec.37 of SARFAESI Act clearly lays down that the Act is in addition to any other law for the time being in force. Therefore I conclude that taking possession of secured assets (under SARFAESI Act) on Sundays, National & Public Holidays is also not permissible in law.
These are my personal views. Readers are welcome to comment on the subject
Tags :Corporate Law