AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (8) TMI 1091
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.... dated 23rd January, 2003. 4. The first Respondent is a guarantor of the borrower to loan transaction whereby the second Respondent borrowed money from the Appellant herein. The undisputed facts are that the first Respondent created a mortgage on certain property (Land and building comprised in Re-survey No. 493/2 lying within the sub-registration district of Saidapet hereinafter referred to as the "secured asset") owned by him to secure the abovementioned loan.1 5. On 15.11.2007, a notice under Section 13(2)2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act") demanding the repayment of the loan amount along with interest within a period of sixty days was issued inter alia to the borrower as well as the guarantor (Respondent Nos. 2 and 1 herein). The said notice also advised the Respondents to comply with the demand in order to avoid further action under the Act. The first Respondent neither made the payment nor raised any objection to the said demand. 6. Consequent upon the failure of the Respondents to make the payments the Appellant herein made an application under Section....
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....fer an "appeal" to have his grievances adjudicated. It is further argued that Rule 8 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as "the Rules") contemplates a procedure to be followed which includes a certain mode of publicity of taking possession to be made, and therefore, even a Magistrate exercising power under Section 14 of the Act is also required to follow the procedure contemplated under Rule 8 though the Rule does not expressly say so. Failure to comply with the requirement of Rule 8 in the instant case vitiated the order of the Magistrate. 11. The abovementioned submissions found favour with the High Court. 12. The learned Counsel appearing for the Appellant argued before us that the Act provided for two alternative procedures for taking possession of the secured assets under Sections 13(4) and 14 respectively. While Section 13(4) authorises the creditor himself to take possession of the secured assets without the aid of the State's coercive power, Section 14 enables the secured creditor to seek the assistance of the State's coercive power for securing the possession of the secured assets. It is submitted that it is always open to....
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.... 14 are relevant for the present appeal. Section 13(1)6 enables the secured creditor to enforce a security interest which such creditor has in a secured asset without intervention of the Court or Tribunal. The expression "security interest" is defined under Section 2(zf) as follows: "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31; 16. Sub-section (2) authorises the secured creditor to exercise any of the rights under Sub-section (4). Sub-section (2) reads as follows: (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the r....
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....tion of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated so as to demonstrate that the reply of the borrower to the notice under Section 13(2) of the Act has been considered applying mind to it. The reasons, howsoever brief they may be, for not accepting the objections, if raised in the reply, must be communicated to the borrower. True, presumption is in favour of validity of an enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary to see that the persons aggrieved get a fair deal at the hands of those who have been vested with the powers to enforce drastic steps to make recovery. 21. Consequent upon the said decision, Parliament introduced Sub-section 3A11 by Act 30 of 2004, which now provides for consideration of the objections, if any raised by the borrower. By definition under Section 2(f) of the Act a borrower includes the guarantor o....
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....his jurisdiction. There is no adjudication of any kind at this stage. 4. It is only if the above conditions are not fulfilled that the CMM/DM can refuse to pass an order under Section 14 of the NPA act by recording that the above conditions are not fulfilled. If these two conditions are fulfilled, he cannot refuse to pass an order under Section 14. The said judgment was followed by the Madras High Court in the case of Indian Overseas Bank v. Sri Aravindh Steels Ltd. AIR 2009 Mad. 10. Subsequently, Parliament inserted a proviso to Section 14(1)12 and also Sub-section 1A13 by Act 1 of 2013. 26. We must make it clear that these provisions were not in existence on the date of the order impugned in the instant proceedings. These amendments are made to provide safeguards to the interest of borrower. These provisions stipulate that a secured creditor who is seeking the intervention of the Magistrate under Section 14 is required to file an affidavit furnishing the information contemplated under various Sub-clauses (i) to (ix) of the proviso and obligates the Magistrate to pass suitable orders regarding taking of the possession of the secured assets only after being satisfied with the ....
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....ons of the security agreement, measures other than taking the possession of the secured asset are possible under Section 13(4). Alienating the asset either by lease or sale etc. and appointing a person to manage the secured asset are some of those possible measures. On the other hand, Section 14 authorises the Magistrate only to take possession of the property and forward the asset along with the connected documents to the borrower. Therefore, the borrower is always entitled to prefer an "appeal" 15 under Section 17 after the possession of the secured asset is handed over to the secured creditor. Section 13(4)(a) declares that the secured creditor may take possession of the secured assets. It does not specify whether such a possession is to be obtained directly by the secured creditor or by resorting to the procedure under Section 14. We are of the opinion that by whatever manner the secured creditor obtains possession either through the process contemplated under Section 14 or without resorting to such a process obtaining of the possession of a secured asset is always a measure against which a remedy under Section 17 is available. 31. It can be noticed from the language of the pr....
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....to 2007 the requirement of publication in vernacular newspaper was not there. 34. The High Court recognized that the language of Rule 8 does not expressly warrant the compliance with the procedure contemplated therein when Section 14 is resorted to for obtaining possession of the secured asset: In the absence of the rule, the strict compliance of the provisions of Section 13(4) and Rule 8, even in case of possession taken by virtue of an order under Section 14, assumes importance. 35. We are of the opinion that the High Court clearly erred in recording such a conclusion. The language of Rule 8 does not demand such a construction. On the other hand, a Magistrate whose functioning is structured by the Code of Criminal Procedure is required to act in accordance with the provisions of the said code unless expressly ordained otherwise by any other law. It is not a case that Code of Criminal Procedure never prescribed for the procedure to be followed by the Magistrate in a case where the Magistrate is required to take possession of property. For example, under Section 83 of the Code, a criminal Court is authorized to attach the movable or immovable property or both belonging to a pro....
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.... We do not see any conflict between different procedures prescribed by law for taking possession of the secured asset. The finding of the High Court in our view is unsustainable. 37. Thus, there will be three methods for the secured creditor to take possession of the secured assets: (i) The first method would be where the secured creditor gives the requisite notice under Rule 8(1) and where he does not meet with any resistance. In that case, the authorised officer will proceed to take steps as stipulated under Rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor. (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under Rule 8(1) is given. In that case he will take recourse to the mechanism provided under Section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinize the application as provided in Section 14, and then if satisfied, appoint an officer subordinate to him as provided under Section 14 (1)(A) to take possession of the assets and documents. For that purpose the Magistrate m....
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....se to respond. Therefore, there was no occasion for the Appellant to consider the objections as there was none of the Respondent against the demand made in the said notice. It is brought to our notice that even while making application under Section 14 the Appellant filed an affidavit substantially providing for the necessary information contemplated under the newly introduced proviso to Section 14(1). We have already noticed that there was no statutory requirement as on the date when the application under Section 14 was made in the instant case either to give such an affidavit or regarding the content of the affidavit. Nonetheless the Appellant chose to give such an affidavit. A copy of which is placed before us. We have perused the affidavit and it substantially complies with the conditions stipulated in the newly introduced proviso. May be the Appellant did it by way of abundant caution to avoid any litigation. 41. However, the Respondent submitted before us that there is nothing in the impugned order of the Magistrate which indicates that the Magistrate applied his mind to such an affidavit and satisfied that it is necessary to deliver possession of the secured asset to the Ap....