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S.14 SARFAESI Act: CMM/DM Not Required To Give Notice To Borrower Before Taking Possession Of Secured Asset: Allahabad HC

Raashi Saxena ,
  02 December 2022       Share Bookmark

Court :
Hon’ble High Court of Allahabad
Brief :

Citation :
WRIT - C No. - 22594 of 2022

Case title:
Shipra Hotels Limited And Anther Vs. State Of U.P. And 3 Others And other Connected Matters

Date of Order:
25.11.2022

Bench:
Justice Sunita Agarwal and Justice Vipin Chandra Dixit

Parties:
Petitioner- Shipra Hotels Limited And Anther
Respondent- State Of U.P. And 3 Others

SUBJECT

The Chief Metropolitan Magistrate or District Magistrate acting pursuant to Section 14 of the SARFAESI Act, 2002 is not required to notify the borrower at the time of the decision or passing order pertaining to taking possession of the secured asset, according to a decision by the Allahabad High Court.
A hearing opportunity for the borrower is not necessary at this point because the proceedings before the CMM/DM under Section 14 of the Act are ministerial in character, the division bench of Justice Sunita Agarwal and Justice Vipin Chandra Dixit observed.

IMPORTANT PROVISIONS

Section 14 of the SARFAESI Act, 2002 : Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset

The Chief Metropolitan Magistrate or the District Magistrate whose jurisdiction any such secured asset or other documents related thereto are located may be requested in writing by the secured creditor for the purpose of taking possession or control of any such secured assets when the secured creditor is required to take possession of any secured assets or if any of the secured assets is required to be sold or transferred by the secured creditor under the provisions of this Act.

BRIEF FACTS

  • The Additional District Magistrate (Finance & Revenue), Ghaziabad, Meerut Commissionerate, and the Additional District Magistrate (Finance & Revenue), Varanasi were the authorised officers who had issued the order in question pursuant to Section 14 of the SARFAESI Act, 2002.
  • The orders passed under Section 14 were challenged on the grounds that the petitioners here, who are the borrowers, were not given any notice or a chance to be heard, and that as a result, they violated natural justice principles.

ISSUES RAISED

Whether the impugned orders passed under Section 14 of the SARFAESI Act, 2002 by Additional District Magistrate (Finance & Revenue), Ghaziabad, Meerut Commissionerate, and the Additional District Magistrate (Finance & Revenue), Varanasi, as the authorised officers, on the grounds that no notice or opportunity to be heard was provided valid or violate principles of natural justice.

COURT’S ANALYSIS

  • When the Court heard all of the petitions together, it immediately cited a number of Supreme Court and other high court decisions to point out that the actions taken by the CMM/DM to take possession or control of any secured asset are in the nature of execution proceedings and further the actions taken by the secured creditor to recoup his secured debt under Section 13(4) of the Act.
  • The Court further noted that if the secured creditor is unable to obtain actual physical possession of the immovable property through other means, they may request in writing that the CMM/DM of the jurisdiction in which the secured asset is located take possession of the asset and deliver it to the secured creditor (under Section 14).
  • In light of the process envisioned by the 2002 Act to seize the secured asset, the Court decided that the borrower does not need to be given a hearing at this point, citing the Apex Court's decision in the case of R.D. Jain and Co. vs. Capital First Ltd. 2022 [LiveLaw (SC) 634] and earlier HC judgements.
  • However, the Court made it clear that the borrower must be properly served with the order issued by the relevant Magistrate before taking any actions to forcibly evict him. Additionally, the borrower must be properly informed of the date set for the forcible action in advance so that he has enough time to remove his belongings or to make alternate arrangements.
  • The borrower has a remedy to challenge the actions taken by the secured creditor, including the order made under Section 14 of the SARFAESI Act, 2002, before the Debt Recovery Tribunal post-possession under Section 17, the Court stated in response to the argument that if the borrower is not given the hearing, he becomes remediless.

CONCLUSION

  • The Court also noted that the application of natural justice principles occurs at the stage of Section 13(3A), i.e., before the secured creditor begins to take coercive action against the borrower under Section 13(4) of the Act. As a result, once the borrower is given a chance at the stage prior to initiation of the coercive action after being called upon to pay the secured creditor's debts, no further opportunity is to be given either at the stage prior to Section 13(3
  • This led the Court to declare the judgement rendered in Kumkum Tentiwal v. State of U.P. & Others [(2019) 2 All LJ 332] by the Allahabad High Court (DB) to be per incuriam. Additionally, the requests were denied.

Click here to download the original copy of the judgement

 
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