MP High Court Pulls Up Secured Creditor For Failing To Preserve Possession Of Property Taken Over Under SARFAESI Act

The Madhya Pradesh High Court has criticised a secured creditor for failing to preserve possession of a property taken over under the SARFAESI Act, 2002, observing that its negligence had forced the authorities to repeat the entire process of taking possession.

"It is painful to note that due to lackluster approach and negligent approach taken by the Authority of Secured Creditor by not preserving the possession of the property, which is already taken over, again entire machinery is required to be engaged in same process for taking over the possession," Justice Sandeep N. Bhatt observed.

The court was hearing a petition filed by Vastu Housing Finance Corporation Ltd seeking police and revenue assistance in relation to secured assets over which it had initiated proceedings under the SARFAESI Act. The corporation sought assistance to secure possession of the properties and, wherever permissible under law, restore possession to it.

The corporation submitted that possession of the property in question had earlier been taken over by the Tehsildar pursuant to an order passed under Section 14 of the SARFAESI Act. However, the borrower subsequently re-entered the property and refused to vacate it.

The corporation had approached the Tehsildar through a representation seeking repossession, but the representation had not yet been decided. It therefore approached the High Court seeking directions to the concerned revenue and police authorities to provide assistance.

The Court observed that once possession is taken over by the Tehsildar pursuant to an order under Section 14 of the SARFAESI Act, the secured creditor is responsible for preserving the property and maintaining possession.

It noted that in several cases, secured creditors fail to act vigilantly after taking possession and do not proceed with further steps. Due to delays in taking such steps, borrowers re-enter the properties.

The Court said that such conduct must be viewed strictly and amounts to negligence on the part of secured creditors in discharging their responsibilities after possession has been taken over.

The Court further observed that the Tehsildar is empowered to assist secured creditors again if they face difficulties in taking possession of a property, even where the authorities had previously assisted in taking possession.

In this regard, the Court relied on a Division Bench judgment dated June 16, 2025, which held that there was no legal bar on re-executing an order for possession or providing assistance again to a secured creditor where a borrower had illegally re-entered a mortgaged property.

The Division Bench had also observed that borrowers could not be permitted to benefit from re-entering mortgaged properties after possession had been taken over and that secured creditors could again approach the authorities for assistance in recovering possession.

In the present case, the Court observed that State authorities, particularly Tehsildars, are duty-bound to provide assistance to secured creditors in taking possession of properties to facilitate the recovery of public money under the SARFAESI Act.

The Court further observed that costs could have been imposed on the petitioner for failing to preserve possession of the property. However, it refrained from imposing costs, expecting the corporation to remain more vigilant in future cases.

Accordingly, the court allowed the petition and directed the concerned authorities to ensure that possession of the property is retaken and handed over to Vastu Housing Finance Corporation in accordance with law, as expeditiously as possible, preferably within 15 days of receiving a certified copy of the order.

For the Petitioner: Advocates Pragya Joshi, Krishna Paliya

For the State: Bhagyashree Gupta - Government Advocate