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c.p.s. ramachary (1500)     23 February 2013

Taking possession of secured assets on sundays/holidays

 

 

Whether taking possession of secured assets (under SARFAESI Act) on Sundays, National & Public Holidays is a fair action and permissible in law?

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.

 



 10 Replies

RAJU O.F., (Advocate)     23 February 2013

Thank you Sir, for enlightening the correct position on the issue.

roger fredrick (senior advocate)     23 February 2013

Sir I would like to know whether tenant can be evicted from property which has been offered as collateral by the judgement debtor. In a case in DRT a tenant had filed MA against the eviction notice of the recovery officer. The MA was yet to be disposed  of,but suddenly people from DRT and bank  with the help of police evicted him forcefully without listening to his claim that he is a genuine tenant having ration card and voters id in that address. As far as we know  if  it is proved that judgement debtor or his agent resides in that place he can be evicted. But here a genuine tenant  who has no role in the loan transaction between the owner and the bank  was mercilessly driven out from that place and he  lost his  advance money  i,e security deposit paid to the owner of the house.  My query is can tenant be dispossessed when the MA is underway?

c.p.s. ramachary (1500)     24 February 2013

No.  A lawful and bonafide tenant cannot be forcebly dispossessed under SARFAESI Act. It is settled law.

Lawful  and Bona fide tenant means a person who is put in possession prior to creation of mortgage or a protected tenant  under Rent Control Act of that particular State or a tenant inducted into the possession under Sec.65A of Transfer of Property Act until expiry of the lease. Such dispossessed teanant can approach the DRT in whose jurisdiction the premises situated, under Sec.17 of SARFAESI Act seeking for restoration of the possession. The purchaser of the property will get possession only after termination of tenancy under Rent Control Act or after expiry of period of lease under Sec.65A of Transfer of Property Act.

roger fredrick (senior advocate)     25 February 2013

Thank u very much sir, for replying in a detailed manner.But the situation here is that auction purchasers with the help of resolution agents who are appointed by banks to bring customers for auction properties are dispossessing the legal tenants without any valid court orders. The only order they have in their hands is the eviction notices  served by recovery officers of DRT.

c.p.s. ramachary (1500)     25 February 2013

Your case is covered by Recovery of Debts Due to Banks & Financial Institutions Act 1993 and it seems the case is at the stage of execution of Recovery Certificate. You may appear in person or through an advocate before the Recovery Officer DRT and file objections along with your lease deed, rent receipts etc. and contest against eviction.

Resolution agents engaged by bank cannot disturb you in any manner. You may send a lawyer's notice the bank and the resolution agents thratening them to prosecute for such disturbance if any they cause to you.

roger fredrick (senior advocate)     25 February 2013

Thank u very  much sir for ur valuable advice in this matter. 

Kiran (manager)     26 February 2013

Respected c p s ramachary Sir,

 

Person is in possession of flat 2 years prior creation of mortgaged. But  agreement is 11 months leave n license . Person has paid huge security deposit money to landlord . and now landlord is absconding. agreement is duly notorised. will the person will ge benifits of tenant. Place is MUMBAI (MAHARASHTRA)

Sir will this be of any help,

Section 55 of Maharashtra Rent Control Act, 1999 (Mah. Act No. 18 of 2000)Makes it compulsory to register the Tenancy agreement.

Sec. 55 Sub Sec (1) Notwithstanding anything contained in this Act or any other law for the time being in force, any agreement for leave and license or letting of any premises, entered into between the landlord and the tenant or the licensee, as the case may be, after the commencement of this Act, shall be in writing and shall be registered under the Registration Act, 1908.

Sec. 55 Sub Sec. (2) The responsibility of getting such agreement registered shall be on the landlord and in the absence of the written registered agreement, the contention of the tenant about the terms and conditions subject to which a premises have been given to him by the landlord on leave and license or have been let to him, shall prevail, unless proved otherwise.

Sec. 55 Sub Sec. (3) Any landlord who contravenes the provisions of this section shall, on conviction, be punished with imprisonment which may extend to three months or with fine not exceeding rupees five thousand or with both.

plz let me know

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


c.p.s. ramachary (1500)     26 February 2013

Please refer to the judgment of Bombay High Court in Yukta Mookhey's case. Full text of judgment is attached herewith. The facts of this case and your case are more or less same.


Attached File : 511515474 yukta mookheys case.docx downloaded: 111 times

Kiran (manager)     27 February 2013

Thanks a lot Sir,

 

God bless you.

 

I will read it

Sanjeev Reddy Saikam   15 February 2020

sir'

can sarfaesi auction be conducted on holidays declared by the State Govt?


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