2010 (7) TMI 284 - HC - Companies Law

Court quashes order on agricultural land exclusion, emphasizes limited role of District Magistrate

The court held that the District Magistrate lacked jurisdiction to reconsider the agricultural land exclusion under the SARFAESI Act. The order canceling ... Order passed by the CMM or DM under section 14 of the SARFEASI Act - Whether there is no provision in the said Act for review of the said order, the respondent Nos.3 to 6 invoked the provisions of section 21 of the General Clauses Act, 1897 for reconsideration of the earlier order passed by the District Magistrate and it is also permissible for the CMM and DM to amend, vary or rescind his own order? Held that:- In the instant case once the Magistrate has exercised power within the limit circumscribed by section 14, the said act of the Magistrate stands excluded from the purview of section 21 of the Act of 1897. Provision of section 14 of the Act does not vest DM with the jurisdiction to adjudicate and decide any dispute regarding the secured assets, vesting the said jurisdiction in him by applying the provisions of section 21 of the Act of 1897 would amount to re-writing the provisions of section 14, which is impermissible in law, since court can merely interpret the provisions of the statute, it cannot re-write, recast or redesign the section of the statute. In view of this legal position the contention canvassed by the learned counsels for respondent Nos.3 to 6 in this regard is devoid of substance. The respondent Nos.3 to 6 approached the District Magistrate who had no jurisdiction had passed the impugned order dated 19th April, 2010 and directed the petitioner to hand over the possession of the land, viz., Survey Nos.158 and 159 and, therefore, the auction of the secured assets which was scheduled on 20th April, 2010 could not take place. The conduct of the respondent Nos.3 to 6 on the back-drop of the above referred facts clearly demonstrates that though they have admitted the liability, dues of the bank, however, were successful in preventing the auction of the secured assets on one reason or the other, which has virtually resulted in frustrating the objectives of the SARFEASI Act. Issues Involved:1. Default in repayment of credit facilities.2. Classification of the account as a non-performing asset (NPA).3. Initiation of action under the SARFAESI Act.4. Jurisdiction and powers of the District Magistrate under Section 14 of the SARFAESI Act.5. Applicability of Section 31(i) of the SARFAESI Act to agricultural land.6. Validity of the District Magistrate's order to cancel the public auction and hand over possession of lands.7. Review powers of the District Magistrate under Section 21 of the General Clauses Act, 1897.Detailed Analysis:1. Default in repayment of credit facilities:The petitioner, a body corporate registered under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970, granted various credit facilities to the respondent No.3, a partnership firm. Respondent Nos. 4 and 5, partners of respondent No.3, guaranteed the credit facilities. The last credit facility was granted on 10th April 2007. However, respondent No.3 defaulted in repayment, leading to the classification of the account as a non-performing asset (NPA) on 31st May 2007.2. Classification of the account as a non-performing asset (NPA):Due to the default, the petitioner classified the account as an NPA and issued a notice dated 26th June 2007 under Section 13(2) of the SARFAESI Act, demanding repayment of Rs. 28,05,26,044.66 along with interest within 60 days. Respondent No.3 acknowledged the notice but failed to comply, leading to further actions under the SARFAESI Act.3. Initiation of action under the SARFAESI Act:The petitioner took symbolic possession of the secured assets and filed an application under Section 14 of the SARFAESI Act before the District Magistrate, who allowed the application and provided necessary assistance for taking possession of the secured assets. Respondent Nos. 3 to 6 challenged this action by filing a Securitisation Application under Section 17 of the SARFAESI Act, which was dismissed by the Presiding Officer MDRT-1.4. Jurisdiction and powers of the District Magistrate under Section 14 of the SARFAESI Act:The court emphasized that the District Magistrate's powers under Section 14 are limited and ministerial, meant only to assist the secured creditor in taking possession of the secured assets. The District Magistrate is not empowered to adjudicate any disputes regarding the secured assets.5. Applicability of Section 31(i) of the SARFAESI Act to agricultural land:Respondent Nos. 3 to 6 argued that the provisions of the SARFAESI Act do not apply to agricultural land as per Section 31(i). However, the court held that the District Magistrate does not have the jurisdiction to adjudicate whether the secured asset is agricultural land. Such issues must be resolved by the appropriate forum under the Act.6. Validity of the District Magistrate's order to cancel the public auction and hand over possession of lands:The District Magistrate's order dated 19th April 2010, which directed the petitioner to cancel the public auction and hand over possession of the lands, was found to be without jurisdiction and contrary to the provisions of the SARFAESI Act. The court quashed this order, emphasizing that the District Magistrate's role is limited to assisting in taking possession of the secured assets and does not extend to adjudicating disputes.7. Review powers of the District Magistrate under Section 21 of the General Clauses Act, 1897:The court held that Section 21 of the General Clauses Act, 1897, which allows the authority to amend, vary, or rescind its orders, does not apply in the context of Section 14 of the SARFAESI Act. The finality given to the acts done by the District Magistrate under Section 14 excludes the application of Section 21, making the Magistrate functus officio after passing the order.Conclusion:The court concluded that the District Magistrate had no jurisdiction to reconsider the issue of whether the land was agricultural and excluded from the SARFAESI Act's purview. The impugned order was quashed and set aside, making the rule absolute. The court also highlighted the respondents' conduct in frustrating the auction process despite admitting their liability, which went against the objectives of the SARFAESI Act.