2022 (1) TMI 1458 - HC - Indian Laws

Bank's SARFAESI Act Section 13(2) notices upheld, borrowers cannot challenge District Magistrate's possession orders under Section 14

Adams Marketing Pvt. Ltd. Versus State Bank of India & Anr

HC dismissed petitioners' challenge to SARFAESI Act Section 13(2) notices. Borrowers' accounts were classified as non-performing assets, and secured ... Challenge to notices under Section 13(2) of the SARFAESI Act - it is the case of the petitioners that the petitioners were never made aware of the proceeding under Section 14 of the SARFAESI Act, 2002 either by the Secured Creditor/Bank or by the District Magistrate by serving notice of the same - HELD THAT:- In the present case it is admitted position the accounts of the borrowers have been classified as non-performing assets and it is also admitted facts that Secured Creditor had issued notice u/s13(2) of the Act, not only once but twice on 09.11.2016 and on 15.05.2017. The defaulter borrowers submitted objection on 14.01.2017, but bank did not give any reply. Again a fresh notice u/s 13(2) of the Act, dated 15.05.2017 was served and against which the borrowers have submitted objection on 19.07.17 and Bank sent reply dated 02.08.2017 to some of the borrowers/petitioners. Then bank claims to have taken symbolic possession of the secured assets by affixing notice on 12.10.2017 and made paper publication to that effect on 17.10.2017 and copy of such notice was received by borrower on 20.10.17. Once a notice is issued to the borrower under section 13(2) and if he fails to comply with the notice within the stipulated period, in view of clause (a) of sub-section (4) of section 13, the secured creditor is entitled to take possession of the secured assets of the borrowers. It can, thus, be seen that once the secured creditor is entitled to take possession in view of the provisions of sub-section (4) of section 13, the only thing it is required to do is to make an application in writing to the District Magistrate or the Chief Metropolitan Magistrate for taking possession of the secured assets. In the present case the Secured Creditor to take possession of the secured assets has sought help of the District Magistrate Howrah as provided under Section 14 of the Act. However, according to a proviso to sub-section (1) of Section 14 of the Act, the authorized officer of the secured creditor is required to affirm an affidavit regarding certain facts about the borrower and the secured assets. On receipt of such affidavit the District Magistrate after satisfying the contents of the affidavit, pass suitable orders for the purpose of taking possession of the secured assets with in a period of thirty days from the date of application. Section 14(3) of the Act, clearly provides that no Act of the District Magistrate or any officer authorized by the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority. From the discussion made above it is clear that no duty is cast upon the District Magistrate to put the defaulter borrower on notice before passing any order under the section 14 of the Act. Therefore, question of violation of Principle of Natural Justice by the District Magistrate in a proceeding under Section 14 of the Act or the order is bad being passed behind the borrower does not arise. This court does not find any merit in both the applications of the defaulter borrowers filed under Article 227 of the Constitution. Rather just to protract the litigation and to avoid the liabilities, the borrowers who have duly received the notice u/s13(2) of the Act and have filed an application u/s 17 of the Act challenging such notice and who were aware of taking symbolic possession of the secured assets by the Creditors, cannot be permitted to challenge the step taken by the District Magistrate u/s14 of the Act as stipulated by section 14(3) of the Act. Petition dismissed. Issues Involved:1. Classification of the borrowers' accounts as non-performing assets (NPAs).2. Issuance and challenge of notices under Section 13(2) of the SARFAESI Act.3. Actions taken by the bank under Section 13(4) of the SARFAESI Act.4. Petitioners' awareness and objections to the proceedings.5. District Magistrate's order under Section 14 of the SARFAESI Act.6. Filing and dismissal of applications before the DRT.7. Jurisdiction and limitations under Section 14 and Section 17 of the SARFAESI Act.8. Petitioners' applications under Article 227 of the Constitution of India.9. Alleged violation of the principle of natural justice.10. Final dismissal of the petitioners' applications.Issue-wise Detailed Analysis:1. Classification of the Borrowers' Accounts as NPAs:The borrowers' accounts were classified as non-performing assets by the bank after they defaulted on loan repayments. The financial institution provided substantial loans to the borrowers from 2009 to 2017, which were secured by mortgaging multiple properties.2. Issuance and Challenge of Notices under Section 13(2) of the SARFAESI Act:The bank issued notices under Section 13(2) of the SARFAESI Act on 09.11.2016 and 15.05.2017, demanding repayment. The borrowers objected to these notices, but the bank only responded to the second objection on 02.08.2017. The borrowers then filed S.A. No. 228 of 2017 under Section 17 of the SARFAESI Act before the DRT, Kolkata, challenging the notices.3. Actions Taken by the Bank under Section 13(4) of the SARFAESI Act:Following the borrowers' failure to comply with the notices, the bank took symbolic possession of the secured assets on 12.10.2017 and published this action in newspapers on 17.10.2017. The borrowers were aware of these steps, as evidenced by their filing of the application under Section 17 of the Act.4. Petitioners' Awareness and Objections to the Proceedings:The borrowers claimed they were unaware of the proceedings under Section 14 of the SARFAESI Act until police attempted to take possession of the assets on 27.07.2021. However, the court noted that the borrowers were aware of the bank's actions and had previously challenged the notices.5. District Magistrate's Order under Section 14 of the SARFAESI Act:The District Magistrate, Howrah, passed an order on 02.08.2018 to assist the bank in taking possession of the secured assets. The borrowers claimed they were not notified of this order, but the court found no requirement for the District Magistrate to notify the borrowers before acting under Section 14.6. Filing and Dismissal of Applications before the DRT:The borrowers filed I.A. No. 1437 of 2021 and I.A. No. 1650 of 2021 before the DRT, challenging the District Magistrate's order. Both applications were dismissed on grounds of being barred by limitation.7. Jurisdiction and Limitations under Section 14 and Section 17 of the SARFAESI Act:Section 14(3) of the SARFAESI Act precludes challenges to the District Magistrate's actions in any court. Section 17(1) allows aggrieved parties to file applications to the DRT within 45 days of the contested measure. The borrowers' applications were filed beyond this period, rendering them time-barred.8. Petitioners' Applications under Article 227 of the Constitution of India:The borrowers filed applications under Article 227, arguing that the DRT orders were nullities. However, the court emphasized the distinction between remedies under Articles 226 and 227 and found no merit in the borrowers' claims.9. Alleged Violation of the Principle of Natural Justice:The borrowers argued that the District Magistrate's order violated the principle of natural justice. The court rejected this claim, stating that Section 14 does not require the District Magistrate to notify or hear the borrowers before taking possession of the secured assets.10. Final Dismissal of the Petitioners' Applications:The court dismissed C.O. No. 1828 of 2021 and C.O. No. 1829 of 2021, finding no illegality in the District Magistrate's order and holding that the borrowers' applications were an attempt to protract litigation and avoid liabilities. The court also refused to stay its judgment.Conclusion:Both applications filed by the borrowers were dismissed, and the interim order was discharged. The court found no merit in the borrowers' claims and upheld the actions taken by the bank and the District Magistrate under the SARFAESI Act.