Authored By – Abhishek Goyal
Plausibly, one of the most striking provisions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act/ Securitization Act”) pertains to the enforcement of security interest by a secured creditor, without Court’s or Tribunal’s intervention, and is enshrined under Section 13 thereof. The self-sustained mechanism provided under the said Section, not only exemplifies the purpose behind the enactment of said law, rather, thoroughly coincides with its scope, i.e., “easy and faster recovery of loans advanced by banks and financial institutions.” The genesis of recovery process under Section 13 of the SARFAESI Act commences with the issuance of a notice by a secured creditor to a defaulting borrower, in terms of sub-Section (2) thereof read with the relevant provisions under the Security Interest (Enforcement) Rules, 2002 (“2002 Rules”), inter alia, demanding defaulter’s complete discharge of, “liabilities to the secured creditor within sixty days from the date of notice”. In the event of failure of a debtor to comply with the terms of such demand notice, as per the provisions of Section 13(4) of the SARFAESI Act read with the specifications visualized under Rule 4 of the 2002 Rules, secured creditor is, inter alia, entitled to take, “possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset.” Significantly, the Hon’ble Apex Court in Mardia Chemicals Ltd. v. Union of India, considering the provisions under Section 13 of the SARFEASI Act, inter alia, observed, “the purpose of serving a notice upon the borrower under sub-section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of Section 13 in case of non-compliance with notice within 60 days.” Concurrently, the Hon’ble Court opined that in order to ensure that the principles of fairness and natural justice are duly adhered, a creditor is obligated to not only, “apply its mind to the objections raised in reply to such notice”, rather, before proceeding in terms of Section 13(4) of the SARFESI Act, must mandatorily, “communicate the reasons for not accepting the objections raised by the borrower in reply to the notice under Section 13(2) of the Act.”
Excepting the limited qualifications, as expounded by the Hon’ble Apex Court, the provisions under Section 13 of SARFAESI Act read with the relevant rules under the 2002 Rules are customarily exhaustive so far as the adoption of various devices by secured creditor for enforcement of its security interest is concerned. Consequently, bearing in mind the colossal realm of secured creditor’s potentiality, it is not quite inconceivable that in the process of exercise of such faculties there might be some degree of resistance from defaulting debtors. Appropriately, recognizing such contingencies, the SARFAESI Act has provided recourse to a secured creditor under Section 14 thereof. As per the Hon’ble Supreme Court, “[i]n every case where the objections raised by the borrower are rejected by the secured creditor, the secured creditor is entitled to take possession of the secured assets. In our opinion, such action—having regard to the object and scheme of the Act—could be taken directly by the secured creditor. However, visualising the possibility of resistance for such action, Parliament under Section 14 also provided for seeking the assistance of the judicial power of the State for obtaining possession of the secured asset, in those cases where the secured creditor seeks it.”
Significantly, Section 14(1) of the SARFAESI Act provides that wherever the possession of secured assets is required to be taken by a secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of the said enactment, a request in writing for the said purpose may be made by such secured creditor to, “the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof.” Consequent upon such a request being made, the concerned Magistrate is required to take possession of the secured asset or document relating thereto and forward such asset and documents to the secured creditor. The Hon’ble Apex Court in Kanaiyalal Lalchand Sachdev v. State of Maharashtra, appreciating the interplay between the provisions under Section 13 and 14 of the SARFAESI Act, observed, “a secured creditor may, in order to enforce his rights under Section 13(4), in particular Section 13(4)(a), may take recourse to Section 14 of the Act.” Notably, the said observations were rendered in light of the Hon’ble Court’s earlier remarks to the effect that whenever any request is made by a secured creditor under Section 14 of the SARFAESI Act, “the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor.” Appreciably, the Hon’ble Supreme Court in Standard Chartered Bank v. V. Noble Kumar has further clarified that in all such cases where enforcement of security interest is sought by/ at the behest of a secured creditor, it would not be mandatory for such creditors to first proceed, inter alia, in a manner as envisaged under Rule 8 of the 2002 Rules. In fact, as per the Hon’ble Court, an application under Section 14 of the SARFAESI Act may be directly made by a creditor to the concerned Magistrate, who, in turn, “will thereafter scrutinise the application as provided in Section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forward them to the secured creditor.”
Significantly, while seeking an assistance from the Chief Metropolitan Magistrate or the District Magistrate, the secured creditor, along with its application, is required to submit a duly affirmed affidavit of its authorized officer, inter alia, declaring the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application; particulars of security interest created along with the details of properties involved; factum of commission of default; compliance with the provisions under the Act and rules thereunder; etc. As per the second proviso to Section 14(1) of the SARFAESI Act, upon the receipt of such an affidavit from the authorized officer of secured creditor, “the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets within a period of thirty days from the date of application.” Appositely, the Hon’ble Apex Court in Indian Bank v. D. Visalakshi, scrutinizing the provisions under Section 14 of the SARFAESI Act, in particular; the provisions under the second proviso thereto, inter alia, observed, “an inquiry conducted by the stated authority under Section 14 of the 2002 Act, is a sui generis inquiry. In that, majorly it is an administrative or executive function regarding verification of the affidavit and the relied upon documents filed by the parties… While undertaking such an inquiry, as is observed by this Court, the authority must display judicious approach, in considering the relevant factual position asserted by the parties….it is a quasi-judicial inquiry though, a non-judicial process. The inquiry does not result in adjudication of inter se rights of the parties in respect of the subject property or of the fact that the transaction is a fraudulent one or otherwise.” In fact, in the instant case, the Hon’ble Court termed the provisions under Section 14 of the SARFAESI Act as ‘remedial measure’ available with a secured creditor to facilitate taking over possession of secured assets and at the same time, opined that the obligations and function envisaged therein could be discharged by a Chief Judicial Magistrate, instead of Chief Metropolitan Magistrate, or even an executive magistrate.
Noticeably, though, the provisions under Section 14 of the SARFAESI Act do not prescribe for an explicit requirement of affording an opportunity of hearing to a bona fide third party, however, the Hon’ble Supreme Court has clarified that in the cases where lessee to a mortgaged property (being the secured asset) resists attempt of secured creditor to take possession thereof and consequently an application under Section 14 of the said Act is filed, “the Chief Metropolitan Magistrate or the District Magistrate will have to give a notice and give an opportunity of hearing to the person claiming to be the lessee as well as to the secured creditor, consistent with the principles of natural justice, and then take a decision.” In fact, as per the Hon’ble Court, under such circumstances, it is only when the Chief Metropolitan Magistrate or the District Magistrate is, “satisfied that there is a valid lease created before the mortgage or there is a valid lease created after the mortgage in accordance with the requirements of Section 65-A of the Transfer of Property Act and that the lease has not been determined in accordance with the provisions of Section 111 of the Transfer of Property Act, he cannot pass an order for delivering possession of the secured asset to the secured creditor. But in case he comes to the conclusion that there is in fact no valid lease…or that even though there was a valid lease, the lease stands determined in accordance with Section 111 of the Transfer of Property Act, he can pass an order for delivering possession of the secured asset to the secured creditor.” However, the said observations of the Hon’ble Apex Court were, subsequently, distinguished by the Hon’ble High Court of Karnataka in HDB Financial Services Limited v. Remo Software Pvt. Ltd. & Ors., wherein the Hon’ble court resolutely avowed that no such opportunity of hearing under Section 14 of the SARFAESI Act is envisaged in relation to the borrower. Ominously, the Hon’ble High Court, in reaching its said conclusion was impressed by an earlier decision in Sunanda Kumari v. Standard Chartered Bank, inter alia, to the effect that in the absence of, “any provision in the Act or the Rules framed thereunder requiring such notice, the Magistrate is not required to issue any notice to the borrower before passing an order under Section 14.”
Relevantly, whenever an application under Section 14(1) of the SAFRFAESI Act is made, the concerned magistrate is required to pass a suitable order for the purpose of taking possession, within a period of thirty days from the date thereof. However, where no such order is passed within such stipulated period, for the reasons beyond the control of the Chief Metropolitan Magistrate or District Magistrate, he may, “after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days”, as per the third proviso of Section 14(1) of the SARFEASI Act, Clearly, though, specific time schedule is envisaged under the provisions of Section 14 of the Securitization Act, however, the Hon’ble Supreme Court in C. Bright v. Distt. Collector, clarified that these stipulations are merely directory and not mandatory in nature. As per the Hon’ble Court, “Section 14 of the Act is not to be interpreted literally without considering the object and purpose of the Act. If any other interpretation is placed upon the language of Section 14, it would be contrary to the purpose of the Act. The time-limit is to instil a confidence in creditors that the District Magistrate will make an attempt to deliver possession as well as to impose a duty on the District Magistrate to make an earnest effort to comply with the mandate of the statute to deliver the possession within 30 days and for reasons to be recorded within 60 days. In this light, the remedy under Section 14 of the Act is not rendered redundant if the District Magistrate is unable to handover the possession.” In fact, in the instant case, the Hon’ble Court explicitly declared that an inability to take possession within time-limit, as stipulated under Section 14 of the SARAFESI Act, would not render the District Magistrate functus officio and that the, “District Magistrate will still be enjoined upon, the duty to facilitate delivery of possession at the earliest.”
Conspicuously, the magistrate may exercise its powers under Section 14 of the SARFAESI Act, either himself or may authorise any officer subordinate to him for the said purpose, in terms of Section 14(1A) thereof. At the same time, Section 14(3) of the said enactment ensures that no acts/ actions of the Chief Metropolitan Magistrate or the District Magistrate any such officer authorised in pursuance of this section are, “called in question in any court or before any authority.” However, the same does not, “carry a caption to indicate that it is intended to operate as a specific bar of jurisdiction or to provide for the finality of actions or orders taken/ passed by Magistrate. Section 14 is only a ministerial extension of the powers conferred under Section 13(4), to implement the measures under Section 13(4) of the SARFAESI Act. As such, the act of a Magistrate, who operates as an arm of the authorities to help in implementation of a measure under Section 13(4), is given protection under sub-section (3) of Section 14. Hence, such a protection could not ipso facto be construed to be a bar to a challenge against an order or Act passed/ done under Section 14.” Clearly, the orders passed/ steps taken under Section 14 of the Securitization Act may, equally, be a subject matter of challenge in terms of Section 17 thereof, akin to steps taken by a creditor under Section 13(4) of the SARFAESI Act. In this regard, the Hon’ble Supreme Court has clarified, “[i]t is manifest that an action under Section 14 of the Act constitutes an action taken after the stage of Section 13(4), and therefore, the same would fall within the ambit of Section 17(1) of the Act.”
Conclusively, it would not be an overstatement to declare that the provisions under Section 14 of the SARFAESI Act are structured for explicit aspiration, targeted towards the grander purpose behind the said enactment. In fact, it can be reasonably deduced that the powers envisaged under the said provision are not directed toward adjudication of any dispute, rather, designed for assisting the recovery of secured asset from a defaulting borrower with minimal resistance, conflict or confrontation. At the same time, it is to be appreciated that the provisions under Section 13(4) and Section 14 of the Securitization Act are not mutually exclusive. On the contrary, it is a settled law that the provisions under the latter Section are only a ministerial extension of the powers conferred under the former. Nonetheless, even in the exercise of such powers by Magistrates, principles of natural justice are to be adhered with to the extent, as repeatedly affirmed by various Courts, Tribunals, forums, etc. Under such circumstances, one would not be amiss in stating that the seemingly unregimented provisions for enforcement of secured assets under the SARFAESI Act, to a certain extent, are bridled pursuant to judicial dictates. Therefore, the exercise of such mandates, necessitates recognition these prescriptions, lest they fall foul of intrinsic features of law, i.e.; fairness, justice and equity.
 About the Author – Advocate of Hon’ble Supreme Court and High Court(s).
 Section 2(1)(zf) of the SARFAESI Act.
 Section 2(1)(zd) of the SARFAESI Act.
 Axis Bank v. SBS Organics (P) Ltd., (2016) 12 SCC 18
 Refer to Rule 3 of the Security Interest (Enforcement) Rules, 2002.
 (2004) 4 SCC 311
 Refer also to Rule 3A of the Security Interest (Enforcement) Rules, 2002.
 Standard Chartered Bank v. V. Noble Kumar, (2013) 9 SCC 620
 (2011) 2 SCC 782
 United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110
 (2013) 9 SCC 620
 (2019) 20 SCC 47
 Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd., (2014) 6 SCC 1
 AIR 2019 Kant. 37
 2006 SCC OnLine Kar 227: ILR 2007 Kar 16
 As per the second proviso to Section 14(1) of the SARFAESI Act.
 (2021) 2 SCC 392
 Refer to Krishna Builders and Developers & Ors. v. Shriram Housing Finance Limited & Ors., 2019 SCC OnLine Cal 342
 Refer to Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782