Section 14 | Banks Can Take Possession Without Magistrate's Assistance Under SARFAESI: Madhya Pradesh High Court

The Madhya Pradesh High Court on Wednesday held that a secured creditor is not required to mandatorily approach the District Magistrate or Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act before taking physical possession of secured assets, so long as the statutory requirements under Sections 13(2) and 13(4) are complied with.

A Division Bench of Justice Anand Pathak and Justice Pushpendra Yadav set aside orders of the Debt Recovery Tribunal, Jabalpur, and the Debts Recovery Appellate Tribunal, Allahabad, which had directed UCO Bank to restore possession of mortgaged properties to the borrower and refund the auction purchaser's deposit.

Disagreeing with the tribunals, the High Court held that the SARFAESI Act does not mandate a secured creditor to invoke Section 14 in every case. It clarified that recourse to the magistrate arises only when assistance is required to take possession.

The Bench observed that Section 13(4) itself empowers a secured creditor to take possession of secured assets after issuance of statutory notices. Section 14, the Court said, is an enabling provision meant to provide administrative assistance where resistance is faced.

“From combined reading of Section 13(4)(a), 14(1)(b) of the SARFAESI Act and Rule 8 (1) (2) and (4) and Appendix IV of Rules, 2002, it is clear that authorized officer of the Bank can take physical possession of the secured asset by his own” the Court held.

It further observed that there is no requirement under the Act or the Rules that the borrower, mortgagor or guarantor must be present at the time of taking possession. In the absence of such presence, possession cannot be presumed to have been taken forcibly.

“Only requirement under the law is to give notice under Section 13(2) and Section 13(4) of the SARFAESI Act to the borrower,” the Bench said.

The borrower had taken a cash credit facility of Rs.5 crore from UCO Bank, secured by a mortgage over two immovable properties, one an industrial unit and the other a residential property. After the borrower defaulted, the loan account was classified as a non-performing asset in October 2018.

The bank issued a demand notice under Section 13(2), followed by a possession notice under Section 13(4). The notices were also published in two newspapers. Before taking physical possession of the secured assets, the bank issued a further notice to the borrower.

The borrower then approached the Debt Recovery Tribunal, alleging that the bank had taken physical possession without invoking Section 14 and with the assistance of the police.

Accepting this contention, the DRT directed the bank to restore possession of the properties and refund the auction purchaser's deposit.The DRAT upheld that decision.

Allowing the bank's writ petition, the High Court held that the tribunals had erred in treating invocation of Section 14 as mandatory. The Court noted that the secured assets were not under occupation at the relevant time and that no resistance was offered, a fact recorded in the panchnama.

Relying on the Supreme Court's rulings in Standard Chartered Bank v. Noble Kumar and Transcore v. Union of India, the Bench said a secured creditor can take possession directly under Rule 8 of the Security Interest (Enforcement) Rules, 2002 where there is no resistance, and needs to approach the Magistrate only if assistance is required.

“Meaning thereby, if possession is already taken by the secured creditor from borrower then resorting to proceeding under Section 14 of the SARFAESI Act is not required,” the Court clarified.

Setting aside the DRT and DRAT orders, the High Court permitted the bank to proceed in accordance with law from the stage at which the proceedings stood.

For Petitioner: Advocate Praveen Surange

For Respondent: Advocate Santosh Agrawal