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2021 (9) TMI 1562
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....ed off." [Emphasis supplied] 2. In brief, the facts which emerge from the pleadings are that M/s. Creative Yarn Private Limited having its Registered Office at K-1, Textile colony, Industrial Area-A Ludhiana availed a Cash Credit facility of Rs. 7 Crore from Allahabad Bank (now merged with Indian Bank). Mr. Anuj Kapoor executed a guarantee deed dated 15.01.2015 in favor of the bank for the aforesaid loan facility availed by the borrower company. He also created an equitable mortgage of Factory land and building built over MC No. B-XII-667 and B-XXIII-2119/A, measuring 1769 Square Yards situated at Textile Colony, Ludhiana Consequent upon declaration of the account as Non Performing Asset, the petitioner bank issued notice dated 03.04.2018 under section 13(2) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "Act, 2002") seeking a recall of Rs. 8,20,24,851 due as on 02.04.2018. 3. An Application under Section 14 of the Act, 2002 filed by the bank was allowed by Respondent No. 1 vide order dated 15.11.2018 directing Respondent No. 3 to take physical possession and hand it over to the petitio....
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....aintiff-tenant under Order 1 Rule X of the Code of Civil Procedure, seeking impleadment of the petitioner-bank (secured creditor) in the civil suit. The said application is yet to be allowed. The said interim protection to the aforesaid Plaintiff-tenant is stated to be still in continuation due to which, the order dated 25.02.2020 passed by this Court on the statement of the Ld. State Counsel, could not be implemented by the Respondent No. 1 and 3. It is further argued that Applicants-Respondent No. 1 and 3, had asked the petitioner bank to get the said interim order vacated, in order to obtain assistance of the State authorities to take physical possession of the secured asset but instead of seeking vacation of stay, instant writ petition has been filed by the petitioner-bank. 4.3. It has been further argued, that the Respondent No. 3, with an intent to comply with the order dated 25.02.2020 passed by this Court, issued notice dated 02.03.2020 to the borrowers to handover the possession of the secured assets on or before 06.03.2020, failing which the possession shall be taken with Police help on 09.03.2020. 5. In response thereto, another representation dated 06.03.2020 was ....
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.... the petitioner-Bank to take physical possession. 7. As regards the second civil suit is concerned titled as "Nalanda Spinners Ltd. v. Creative Yarn Pvt. Ltd.", it is contended that the Ld. Civil Court has passed an order of attachment before judgment under Order 38 Rule 5 CPC and since the bank has a prior charge of mortgage upon the property in question, the said interim order cannot be construed to be a bar on the rights of the petitioner to take possession of the secured asset. 7.1. It is further argued, that the jurisdiction of Civil Court stands excluded in view of Section 34 of the Act, 2002 qua the action taken by the secured creditor under the said Act, 2002. Hence, the orders passed by the Ld. Civil Court cannot be construed to have determined any right inter-se of the borrower and the secured creditor with respect to secured asset. The Petitioner-Bank has thus prayed for dismissal of the instant application. 8. Having heard both the parties and on noticing that several writ petitions of such like disputes are regularly being filed by the secured creditors seeking enforcement of their rights under Section 14 of the Act, 2002 inter-alia involving issues as regards....
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....the issues, certain provisions of the Securitisation Act, 2002 are reproduced as under:- SECTION 13. Enforcement of security interest. -- (1) Notwithstanding anything contained in section 69 or section 69-A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or tribunal, by such creditor in accordance with the provisions of this Act. xxxxxxxxxx (4) In case the borrower fails to disc large his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely: (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; [(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of t....
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....us properties giving the details of properties referred to in sub-clause (ii) above. (iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount; (v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non- performing asset; (vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower; (vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower; (viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act; (ix) that the provisions of this Act and th....
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....is Act to override other laws. - The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. [Emphasis supplied] A perusal of the above would show that Section 13(1) clearly brings out the legislative intent of permitting the secured creditors to enforce the securities without the intervention of the courts. Enforcement of securities are provided under Section 13(4) of the Act, 2002 which entitles the secured creditor to take over the possession or management of the secured asset for the purpose of its enforcement by transfer by way of sale, lease or assignment etc., after the borrower fails to make the payment within 60 days of the issuance of the demand notice under Section 13(2) and objections if any, having been filed by the borrower are rejected by the secured creditor under Section 13(3-A) of Act, 2002. If the secured creditor decides to take physical possession the bank can avail of assistance of the District Magistrate on making an application supported by an affidavit in terms of proviso to Section 14 of the Act, 2002. ....
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.... any action or measure is taken under sub-Section (4) of Section 13, it is submitted by Mr. Salve, one of the counsel for the respondents that there would be no bar to approach the civil court. Therefore, it cannot be said that no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of Section 34 shows that the jurisdiction of the Civil Court is barred in respect of matters which a Debts Recovery Tribunal or an Appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say, the prohibition covers even matters which can be taken cognizance of by the Debts Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil Court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil Court thus applies to all such matters whic....
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...., 2002. The argument raised was that since the issue of partition of secured asset was involved in the suit, therefore the civil Court would have the jurisdiction to try and entertain such suit. The said argument was rejected by the Hon'ble Supreme Court in view of Section 17 read with Section 34 of the Securitisation Act, 2002. Para 21 to 22 of the judgment reads as under:- "21. Section 13, as already indicated, deals with the enforcement of the security interest without the intervention of the Court or tribunal but in accordance with the provisions of the Securitisation Act. 22. Statutory interest is being created in favour of the secured creditor on the secured assets and when the secured creditor proposes to proceed against the secured assets, sub-section (4) of Section 13 envisages various measures to secure the borrower's debt. One of the measures provided by the statute is to take possession of secured assets of the borrowers, including the right to transfer by way of lease, assignment or realizing the secured assets. Any person aggrieved by any of the "measures" referred to in sub-section (4) of Section 13 has got a statutory right of appeal to the....
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....it or proceedings instituted by the borrower/guarantor/any third party. This is for the reason that such disputes would specifically fall within the ambit of jurisdiction of DRT under Section 17 of the Act, 2002. Moreover, it shall also be contrary to the very object and scheme of the Act, 2002 which provides a single forum for, faster and efficient adjudication of such disputes. Only for a limited category of disputes as highlighted in para 51 of the judgment in Mardia Chemicals (supra), the jurisdiction of Civil Court involving challenge to an action of the secured creditor to enforce the security under the Act, 2002 would be maintainable. Consequently, if any person is aggrieved of such measure initiated by the secured creditor pursuant to an action taken under Section 13(4) of the Act, 2002, the appropriate remedy would be to invoke the jurisdiction of the Tribunal under Section 17 of the Act, 2002. We thus answer the first issue in Negative and hold that the Civil Court would not have jurisdiction to negate any right of the secured creditor under the Securitisation Act, 2002, qua the secured asset in a civil suit instituted by the borrower/guarantor/any third party qua the sec....
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.... is well settled that any order passed by the Civil Court, would bind only those, who are arrayed as a party in the said civil suit. Rights of a third party who is not a party to the civil suit cannot be said be adversely effected by an order passed by the civil Court in such a suit, unless specifically impleaded in a representative capacity. Hon'ble Supreme Court in Bengal Ambuja Housing Development Ltd. v. Promila Sanfui 2016 (1) SCC 743 held in Para 18 and 19 as under:- "18. Further, in the instant case, the order of temporary injunction dated 03.07.2006 was purportedly granted by consent is also not sustainable in law. The question of consent being given by either the appellant Housing Board or the predecessors in interest who are its vendors did not arise as they were not parties to the said suit. It is a well settled principle of law that either temporary or permanent injunction can be granted only against the parties to a suit. Further the purported consent order in terms of Order XXXIX of the Code of Civil Procedure is only binding as against the parties to the suit. In such a case, the order of the Subordinate Judge to grant police protection against the appel....
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....l, referred to supra. [Emphasis supplied] It thus clear that an order passed in a civil dispute would bind only those who are impleaded in the suit. The argument of the learned counsel for the applicants/respondent Nos. 1 and 3, that the civil court order would still bind the bank even if it is not a party to the suit, therefore cannot sustain. 19. Still further, we find that the instant issue is squarely covered in favor of non-applicant/petitioner Bank by a Division Bench judgment of this Court in the case of Punjab and Sind Bank v. District Magistrate Mohali bearing CWP No. 13068 of 2014 decided on 22.12.2014. In the cited case, the bank was denied assistance to take physical possession of a secured asset under Section 14 of the Securitisation Act, 2002 by the District Magistrate on the ground that a civil suit has been filed by an occupant of a part of the secured asset, and the Civil Court has granted interim stay against the defendant/landlord. Consequently, the District Magistrate contended that the tenant, cannot be evicted even though the bank may not have been a part)' in the said civil suit: While rejecting the argument of the respondent (District Magistrate....
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....or. Therefore, the order of status quo has been wrongly made basis by the Additional District Magistrate to deny the right of possession to the Bank. The Bank is entitled to the possession of the mortgaged property subject to the rights of the plaintiff in the suit. xxxx xxxx Reliance of Mr. Ratta on a judgment of Gujarat High Court in Manjudevi R. Somani v. Union of India decided on 25.11.2013 is not tenable. In the said case, the borrower challenged an order passed in the proceedings under Section 14 of the SARFAESI Act. It was found that the Chief Metropolitan Magistrate or Additional Chief Metropolitan Magistrate have not been authorized to exercise the powers conferred under Section 14 of the Act. Thus, we find that the dues of the Income Tax Department, in these circumstances, will have preference amongst only the unsecured creditors, but the Bank as a secured creditor has a priority over the assets of the borrower." [Emphasis supplied] 20. While applying the aforesaid principles to the facts of the present case, it is clear that since the petitioner bank is not a party to either of the civil suits which have been referred to by respondents Nos. ....
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....a Engg & Steel Industries v. Punjab National Bank 2020 (4) PLR 669]. (ii) Secondly, an act of attachment amounts to creation of an unsecured charge which is always subject to charges already created prior in time, especially a prior secured charge upon a property. (iii) Thirdly, the effect of attachment is only to create a charge in order to restrain the owner from dealing with the property and hence cannot in any way be equated with an injunction against a secured creditor (who even otherwise is not a party defendant in the civil suit) to enforce a security already created in its favour. (iv) Fourthly, as noticed above, keeping in view the jurisdiction of the Civil Court as discussed above, proceedings before civil Court cannot be treated to be an adjudication of the rights of the secured creditor, for which aggrieved parry is to approach the DRT. (v) Even otherwise, it is not understandable as to how property/secured asset concededly owned by Sh. Anuj Kapoor (guarantor in Securitisation proceedings) could be got attached for the dues recoverable from the defendant No. 1 company M/s. Creative Yarn Pvt. Ltd. which a separate juristic person. 2....
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....nk should resort to procedure recognized by law to take possession of vehicles in cases where the borrower may have committed default in payment of the installments instead of taking resort to strong arm tactics." [Emphasis supplied] 26. The significance of taking physical possession, by the secured creditor and then transfer of the same to the auction purchaser to complete the process of transfer, was recognized to be an integral part of the scheme of Securitisation Act, 2002 by the Hon'ble Supreme Court in ITC v. Blue Coast 2018 AIR SC 3063. In the cited case, it has been held that the transfer of the property by the secured creditor shall be treated to be complete only when both the aspects of transfer i.e. proprietary and possessory rights are transferred to the auction purchaser, pursuant to the sale conducted by the secured creditor. It was thus held, that in case if the bank conducts the sale on the basis of symbolic possession, then the bank would retain its character as a secured creditor till actual possession is transferred by the secured creditor to the auction purchaser to complete the process of transfer pursuant to such sale. Till such time the actual....
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.... provision reveals that it provides a lawful mechanism to take physical possession of the secured assets which is required to complete the process of transfer as noticed above. The District Magistrate is therefore obligated to provide requisite assistance to the secured creditor on such application having been filed by the secured creditor claiming physical possession of the secured asset subject to the secured creditor filing the 9-point affidavit as has been provided by the proviso inserted to Section 14 by the Act 1 of 2013 w.e.f. 15.01.2013. Section 14 further provides that the District Magistrate is required to record his satisfaction on such application and then proceed to pass suitable orders for taking possession of the secured asset. Such recording of satisfaction is only to be restricted with regard to the factual correctness of the affidavit filed by the secured creditor and cannot be stretched to include any quasi- judicial or an adjudicatory function. Hon'ble Supreme Court in Standard Chartered Bank v. Noble Kumar 2013 (6) SCC 690 held as under:- " 26. An analysis of the 9 sub-clauses of the proviso which deal with the information that is required to be fu....
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.... the aid and assistance of a Bank or financial institution to secure physical possession of the 'secured asset when it cannot be taken over in the ordinary process under Section 13(4) of the Act. The District Magistrate is vested with no discretion to refuse assistance where the ingredients of first proviso to Section 14(1) are unambiguously satisfied." [Emphasis supplied] 30. Similarly, a Division Bench of Madras High Court in M/s. Shriram Housing Finance Ltd. v. District Collector 2019 (2) CWC 697 held as under:- " 10. It must be borne in mind that section 14 of the SRFAESI Act, 2002 does not visualise any judicial process or work. As a matter of fact, no adjudicatory process is involved, of course, it is an assistance provided by a Lawful Authority by means of non-Adjudicatory process under Section 14 of the Act. 11. Moreover, the powers that are exercised by the District Magistrate or Chief Metropolitan Magistrate under section 14 of the SRFAESI Act are purely executory in character. To put it precisely, Section 14 of the Act provides for rendering of an assistance to a secured creditor by the authority specified in the provision for the purpos....
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....n 14 of the Act, 2002. 31. Further, as per proviso to Section 14 of the Act, 2002 it requires the District Magistrate to pass an order within a period of thirty days from the date of application which period can be extended by another 30 days i.e. maximum period 60 days are available. We are conscious of the legal position that the time period of 60 days within which ah order is to be passed by the District Magistrate is directory in nature. Hon'ble Supreme Court in C. Bright v. District Collector 2021 (2) SCC 392 held in para 12 and 20 as under:- " 12. This Court distinguished between failure of an individual to act in a given time frame and the time frame provided to a public authority, for the purposes of determining whether a provision was mandatory or directory, when this Court held that it is a well settled principle that if an act is required to be performed by a private person within a specified time, the same would ordinarily be mandatory but when a public functionary is required to perform a public function within a time-frame, the same will be held to be directory unless the consequences therefor are specified Nasiruddin & Ors. v. Sita Ram Agarwal, (2003)....
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....ct Magistrate, it is the implementation of the same which becomes the next hurdle for the secured creditor to complete the process of possession. Incidentally, even though the District Magistrate is required to pass an order within 60 days, but there is no similar provision for the officer so deputed by him in terms of Section 14(1A) of the Act, 2002 to implement the order in a time bound manner. Since the very object of the Act, 2002 is for ensuring speedier recovery of public money we find, that there ought to have been time limits provided for such officer as well. This would ensure that the orders passed, by the District Magistrate are not frustrated by undue delay by the implementing officer(s). Therefore, we find that the intent of timely action under Section 14 would be complete only when time lines are equally provided at the stage of execution as well. It is only then, in our considered opinion would the real object of Act, 2002 be fully achieved. 32. Two principles of construction one relating to casus omissus and the other in regard to reading the statute as a whole appear to be well settled. Under the first principle, a casus omissus cannot be supplied by the Court e....
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....ble orders as the situation may warrant. Even though the said period is directory but it is to be noticed that such actions of the officer concerned would be open to judicial scrutiny to ensure that the object of the said provision is not frustrated. 33. In view of the aforesaid discussion, in our opinion, following principles would emerge as regards the scope of functions of the District Magistrate while exercising powers under Section 14 of the Securitisation Act, 2002:- (i) District Magistrate would not involve in any process of adjudication of any inter se rights of the parties, while examining any application under Section 14 of the Act, 2002. (ii) Proviso to Section 14 makes it mandatory to record satisfaction by the District Magistrate which is to be restricted with regard to the factual correctness of the 9-point affidavit to be filed by the secured creditor. It cannot examine the legal validity of the steps so taken by the secured creditor as depicted in the affidavit. If the borrower is aggrieved of such steps the remedy would be to approach the DRT. (iii) If any person is aggrieved of the order of the District Magistrate, the aggrieved perso....