Can Banks Be Charged For Police Aid To Take Possession Of Secured Assets? Rajasthan High Court Explains

The Rajasthan High Court has held that police assistance required to help banks take possession of secured assets under the SARFAESI Act must be provided without charging the banks.

A Division Bench of Justices Vinit Kumar Mathur and Chandra Shekhar Sharma held that police assistance required to implement orders under Section 14 of the SARFAESI Act is a statutory obligation of the State. It cannot be treated as a commercial service merely because the proceedings arise from a loan transaction between a bank and a borrower.

The Court was hearing a batch of appeals filed by AU Small Finance Bank challenging a Single Judge's order permitting police authorities to levy charges for providing assistance in taking possession of secured assets under the SARFAESI Act.

The Bank had initiated recovery proceedings against borrowers who defaulted on their loan repayments. After its efforts to take possession of the secured assets proved unsuccessful, it approached the competent authority under Section 14 of the SARFAESI Act, which directed the deployment of police personnel to assist in taking physical possession of the properties. The police authorities subsequently demanded charges for providing such assistance.

The Bank challenged the demand before the Single Judge, which held that the police could levy charges but only at the rates prescribed under Rule 10 of the Rajasthan Police Rules, 2008.

Aggrieved by the decision, the Bank approached the Division Bench, contending that police assistance provided to implement a statutory order could not be treated as a private commercial service and that Section 46 of the Rajasthan Police Act, 2007, did not authorise the levy of such charges in these circumstances.

The police authorities opposed the appeals, arguing that the assistance facilitated the Bank's commercial recovery of private property and constituted an additional service for which charges could be levied.

Referring to Section 14 of the SARFAESI Act, the Court observed that the provision not only empowers the competent authority to facilitate possession of secured assets but also obligates it to ensure that its orders are effectively implemented.

“Therefore, for effectively implementing the orders passed under Section 14 of the Act of 2002, the police aid is required. Thus, the State Government is under an obligation to provide the same without any charges.” it held

It noted that orders passed by the Magistrate under Section 14 of the SARFAESI Act are statutory in nature, and their implementation constitutes the discharge of a legal obligation by the State.

The Bench emphasised that police assistance for implementing orders under the SARFAESI Act is part of the State's sovereign function and cannot be equated with police deployment for private functions to maintain law and order, for which charges may be levied under Section 46 of the Rajasthan Police Act, 2007.

It further observed that the SARFAESI Act does not provide a separate mechanism for executing orders passed under Section 14. It observed that the provision empowering authorities to take necessary steps and use force implies that police assistance must be provided wherever required to implement such orders.

“Where police assistance is requisitioned for discharging this statutory obligation and implementing the directions of the competent authority, the same partakes of the character of a sovereign function of the State. Consequently, the cost of providing such assistance cannot be imposed upon the secured creditor merely because the proceedings arise out of a commercial transaction between the secured creditor and the borrower.” it stated

The Bench further held that police assistance was sought to implement orders passed under Section 14 of the SARFAESI Act, not for any private purpose. It observed that the State cannot demand charges for such assistance without a clear statutory provision authorising the levy.

“The mere fact that the underlying loan transaction is commercial in nature does not alter the character of the statutory process through which possession of the secured assets is sought to be taken.” it said

It further added:

“Section 46 of the Rajasthan Police Act, 2007 cannot be construed as authorising the imposition of such charges where the police force is deployed in aid of the implementation of statutory orders passed by the competent authority in effective implementation of the objects of the SARFAESI Act.”

The Court also relied on a similar ruling of the Allahabad High Court in PNB Housing Finance Ltd. v. State of Uttar Pradesh, which recognised that the execution of orders under Section 14 is a statutory responsibility of the competent authorities.

Accordingly, the Court allowed the appeals and set aside the order passed by the Single Judge. It also directed the State to provide the requisite additional police force for implementing orders passed under Section 14 of the SARFAESI Act without levying any charges.

For Appellant: Advocate Vijay Purohit

For Respondents: Advocates B.L Bhati, AAG, Deepak Chandak, AAAG and Sukhdev Sharma, AGC