Magistrate Cannot Refer Parties To Mediation In SARFAESI Proceedings Under Section 14: Kerala High Court

The Kerala High Court has set aside an order referring a SARFAESI proceeding to mediation, holding that the role performed by a Magistrate in such proceedings is purely ministerial and does not involve any adjudicatory process.

Justice P.V. Balakrishnan observed that a Chief Judicial Magistrate or Additional Chief Judicial Magistrate exercising powers under the SARFAESI Act does not perform any quasi-judicial function and has no discretion in the matter.

“It cannot be disputed that the power exercised by the CJM/ACJM under Section 14 of the SARFAESI Act is a ministerial act. The CJM does not perform any quasi judicial function and there is no element of application of mind in the process, since it does not involve any adjudicatory process,” the Court observed.

The ruling came in a writ petition filed by the Authorised Officer of Axis Bank Ltd. challenging an order of the Special Additional Chief Judicial Magistrate (for the trial of criminal cases against sitting and former MPs/MLAs of Kerala), Ernakulam, referring a SARFAESI proceeding to mediation.

The secured creditor had approached the Magistrate by filing an application under Section 14 of the SARFAESI Act seeking assistance for taking physical possession of a secured asset after default was committed by the borrowers.

After verifying the affidavit filed by the secured creditor and being satisfied that the statutory requirements had been complied with, the Magistrate ordered taking possession of the secured asset with the aid of an Advocate Commissioner. The matter was thereafter referred to mediation, prompting the secured creditor to approach the High Court.

The secured creditor contended that the Magistrate had no power to refer the matter to mediation. It argued that the Magistrate's role was confined to verifying whether the application had been filed in accordance with the statute and thereafter ensuring that possession of the secured asset was handed over to the secured creditor.

Accepting the contention, the Court observed that the Magistrate is required to act within the time prescribed by the statute for taking possession of the secured asset.

“That apart, it is to be taken note that as mandated under Section 14, the CJM has to act within the stipulated time limit and pass appropriate orders for the purpose of taking possession of the secured asset, within a period of 30 days from the date of application, which can be extended for such further period, not exceeding 60 days and that the time is the essence and spirit of the enactment,” the Court observed.

Referring to the decisions in R.D. Jain and Co. v. Capital First Ltd. and C.R. Sindhu v. State of Kerala, the Court observed that the Magistrate has no discretion in the matter and is not expected to pass any order on a Section 14 application except to take possession of the secured asset and hand it over to the secured creditor.

“If so, in the light of the afore principles, I have no hesitation to find that Ext.P2 order passed by the learned Magistrate referring the parties to mediation cannot be sustained and the same is only to be set aside,” the Court held.

The Court accordingly allowed the writ petition, set aside the mediation order and directed the Magistrate to proceed with the application filed by the secured creditor under Section 14 of the SARFAESI Act and pass appropriate orders as per law.

For Petitioners: Advocates P Paulochan Antony, Sreejith K and G Viswanathan