2022 (9) TMI 1154 - SC - Indian Laws

Supreme Court Upholds High Court Decision on SARFAESI Act Section 14 Order

Balkrishna Rama Tarle Dead Thr LRS & Anr. Versus Phoenix ARC Private Limited & Ors.

The Supreme Court upheld the High Court's decision, dismissing the Special Leave Petition. The High Court's order setting aside the designated authority's ... Possession of the secured assets in exercise of powers under Section 14 of the SARFAESI Act - tenancy rights - scope and ambit of the powers to be exercised under Section 14 of the SARFAESI Act - while exercising the powers under Section 14 of the SARFAESI Act, the District Magistrate/designated authority could have passed such an order that unless and until the secured creditor terminates the tenancy rights of the third person by following due procedure of law and further orders regarding possession of the mortgaged property then and then only an application under Section 14 of the SARFAESI Act will be decided? HELD THAT:- On a fair reading of Section 14 of the SARFAESI Act, it appears that for taking possession of the secured assets in terms of Section 14(1) of the SARFAESI Act, the secured creditor is obliged to approach the District Magistrate/Chief Metropolitan Magistrate by way of a written application requesting for taking possession of the secured assets and documents relating thereto and for being forwarded to it (secured creditor) for further action. The statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the SARFAESI Act from the secured creditor for that purpose. As soon as such an application is received, the CMM/DM is expected to pass an order after verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act and after being satisfied in that regard, to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity. Once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner. At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal. The High Court has not committed any error in passing the judgment and order and directing the designated authority to dispose of the application under Section 14 of the SARFAESI Act - SLP dismissed. Issues Involved:1. Validity of the High Court's order setting aside the designated authority's decision under Section 14 of the SARFAESI Act.2. Rights of the tenant in possession of the mortgaged property.3. Scope and powers of the District Magistrate under Section 14 of the SARFAESI Act.Detailed Analysis:1. Validity of the High Court's Order:The High Court's order dated 03.08.2022 set aside the decision of the designated authority (Additional District Magistrate, Nashik) which had declined to assist the secured creditor in taking possession of the secured assets. The High Court observed that the designated authority's order was beyond the scope and ambit of the powers under Section 14 of the SARFAESI Act. The High Court directed the designated authority to dispose of the application under Section 14 in accordance with the provisions of the SARFAESI Act.2. Rights of the Tenant:The petitioners, claiming to be tenants of the mortgaged property, argued that their tenancy was subsisting prior to the mortgage and should be protected. They contended that the secured creditor, who stepped into the shoes of the original landlord, must initiate legal proceedings for eviction before obtaining possession under Section 14 of the SARFAESI Act. Reliance was placed on the Supreme Court decisions in Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited and Ors. and Vishal N. Kalsaria Vs. Bank of India and Ors.3. Scope and Powers of the District Magistrate:The Supreme Court analyzed the scope, ambit, and jurisdiction of the District Magistrate under Section 14 of the SARFAESI Act. Section 14 mandates that the District Magistrate/Chief Metropolitan Magistrate (CMM) assist the secured creditor in taking possession of secured assets upon receiving a written application. The act of the CMM/DM under Section 14 is a ministerial act, not involving any adjudicatory process. The CMM/DM must act promptly and within the stipulated time frame to assist the secured creditor, without adjudicating disputes between the borrower and the secured creditor or any third party.The Supreme Court emphasized that the powers exercised by the CMM/DM under Section 14 are ministerial, and the CMM/DM is not required to adjudicate the rights of the parties involved. The High Court correctly set aside the designated authority's order, which had kept the application pending until the secured creditor initiated legal proceedings for eviction of the tenant.Conclusion:The Supreme Court upheld the High Court's decision, dismissing the Special Leave Petition. The High Court did not err in directing the designated authority to proceed with the application under Section 14 of the SARFAESI Act and dispose of it in accordance with the provisions of the Act. The Supreme Court clarified that the CMM/DM's role under Section 14 is ministerial, and the designated authority is not required to adjudicate disputes or terminate tenancy rights before assisting the secured creditor in taking possession of the secured assets.