Analyzing Section 14 of SARFAESI Act, 2002 and related myriad issues
Adv. R. P. Agrawal, Adv. Manisha Agrawal and Adv. Harnaryan*
Section 14 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short ‘SARFAESI Act, 2002’), which confers power on secured creditors to avail of the assistance from the court of Chief Metropolitan Magistrate (CMM)/Chief Judicial Magistrate (CJM)/District Magistrate (DM), as case may be (in short “Designated Court”), in obtaining the possession or control of a secured asset, is one of the most pivotal provisions of SARFAESI Act, 2002 and the same has been enacted for the benefit of the Banks and Financial Institutions in order to assist them in speedy recovery of public dues by taking physical possession of the secured assets and to auction the same without intervention of any court of law.
Chief Judicial Magistrate is also empowered to exercise jurisdiction
2. Section 14 of SARFAESI Act, 2002 uses two expressions namely ‘Chief Metropolitan Magistrate’ and ‘District Magistrate’ only. However, the Hon’ble Supreme Court in the matter of Indian Bank v. D. Visalakshi (2019) ibclaw.in 130 SC, has held that Chief Judicial Magistrates are also empowered to exercise the power under Section 14 of SARFAESI Act, 2002. Chief Metropolitan Magistrates are posted in metropolitan Cities only whereas in other District Headquarters, the corresponding designation is Chief Judicial Magistrate. In view of the above clarificatory judgement of the Hon’ble Supreme Court, the Banks/FIs/ARCs are having the option to either approach the Chief Judicial Magistrate or the District Magistrate at District Headquarters under Section 14 of SARFAESI Act, 2002.
Prescribed period under Section 14 for disposal of applications by the Designated Court is a ‘matter of essence’ and must be followed by the Courts
3. Under Section 14 of SARFAESI Act, 2002, the Designated Court is required to dispose of the application filed by a Secured Creditors within a period of 30 days with a proviso that if no order is passed by the Designated Court within the period of 30 days for reasons beyond his control, he may, after recording reasons in writing pass the order within such further period but not exceeding in aggregate 60 days.
4. The Hon’ble Supreme Court in the matter of R.D. Jain vs Capital First Ltd. (2022) ibclaw.in 93 SC has, inter-alia, emphasized that the time prescribed in Section 14 is of essence and the Designated Court cannot brook any delay in passing the order. The relevant part of the said judgement is as under:
“As mandated by Section 14 of the SARFAESI Act, the CMM/DM has to act within the stipulated time limit and pass a suitable order for the purpose of taking possession of the secured assets within a period of 30 days from the date of application which can be extended for such further period but not exceeding in the aggregate, sixty days. Thus, the powers exercised by the CMM/DM is a ministerial act. He cannot brook delay. Time is of the essence. This is the spirit of the special enactment.”
5. But, at the same time, it needs to be clarified that the period prescribed under Section 14 of SARFAESI Act, 2002 is directory and not mandatory, as held by the Hon’ble Supreme Court in the matter of C. Bright Vs. The District Collector & Ors. (2020) ibclaw.in 38 SC as under:
“Keeping the objective of the Act in mind, the time limit to take action by the District Magistrate has been fixed to impress upon the authority to take possession of the secured assets. However, inability to take possession within time limit does not render the District Magistrate Functus Officio. The secured creditor has no control over the District Magistrate who is exercising jurisdiction under Section 14 of the Act for public good to facilitate recovery of public dues. Therefore, Section 14 of the Act is not to be interpreted literally without considering the object and purpose of the Act. If any other interpretation is placed upon the language of Section 14, it would be contrary to the purpose of the Act. The time limit is to instill a confidence in creditors that the District Magistrate will make an attempt to deliver possession as well as to impose a duty on the District Magistrate to make an earnest effort to comply with the mandate of the statute to deliver the possession within 30 days and for reasons to be recorded within 60 days. In this light, the remedy under Section 14 of the Act is not rendered redundant if the District Magistrate is unable to handover the possession. The District Magistrate will still be enjoined upon, the duty to facilitate delivery of possession at the earliest”
Recently Bombay High Court has issued directions to State Govt. /High Court administration to ensure expeditious disposal of Section 14 applications:
6. The Hon’ble Bombay High Court in the matter of L & T Finance Ltd. vs. State of Maharashtra & Ors. decided on 17.04.2023 has issued the following directions in order to ensure timely disposal of Section 14 Application by DMs/CMMs/CJMs:
(a) The Application filed by a Secured creditor under section 14 of the SARFAESI Act with due compliance (the Application) should be disposed of by the District Magistrate/ Collector in the State of Maharashtra not later than 30 days of the Application is filed.
(b) Every order (Order) passed by the District Collector under section 14 of the SARFAESI Act should be implemented and executed not later than four weeks of the passing of the Order.
(c) If the officers entrusted with implementation of the Order are engaged in other pressing public duties, the option of appointing an advocate to implement the Order be explored within the parameters of the law. The same option can also be considered by the Judicial Magistrate, if so permissible in law.
(d) The District Magistrates/ Collectors shall submit a report giving the details of the Applications which have not been disposed of within thirty days or any Order which has not been implemented within thirty days with reasons thereof to the Divisional Commissioner in the first week of each month.
(e) Any party whose Application is not disposed of within sixty days of its filing or the Order has not been implemented within sixty days of passing it, may make representation to the Divisional Commissioner who shall within 15 days of receipt of the representation consider the representation and after satisfying that there is a no justifiable reason, will pass appropriate directions to ensure that the Application is disposed off or the Order is implemented within fifteen days of the direction.
(f) Each District Magistrate/Collector shall maintain proper details and records of the filing of the Applications, the disposal thereof, the implementation of the Orders and submit monthly statistics in that regard to the Divisional Commissioner on or before the seventh day of the following month in the specified format of submissions.
(g) The State Government will take steps to implement an e-system placing information on an online platform regarding the Applications, such as the date of filing of the Application, the date of passing the Order on the Application, and the date of implementation of the Order, on an online platform. The same shall be done within a period of sixteen weeks from today.
(h) The High Court Administration would consider issuing necessary directions to the Chief Metropolitan Magistrate to take a special drive for the disposal of pending Applications under section 14 of the SARFAESI Act.
(i) The High Court Administration would consider creating a separate category in the Case Information System software for the Applications under Section 14 of the SARFAESI Act so that these cases can be identified for the special drive.
The Designated Court is empowered to appoint an Advocate Commissioner under Section 14 of SARFAESI Act, 2002
7. As per Sub-Section (1A) of Section 14, the Designated Court is empowered to authorize ‘any officer subordinate to him’ to take possession of the Secured Assets. There was a grey area as to whether under the said provision, the Designated Court is legally empowered to appoint an Advocate Commissioner or not to take possession of the Secured Assets and handover the same to the Secured Creditor. This knot has been untied by the Hon’ble Supreme Court by its judgement in the matter of NKGSB Cooperative Bank Limited vs. Subir Chakravarty and Ors. (2022) ibclaw.in 13 SC. In this case, the Hon’ble Supreme Court has held that an advocate is an officer of the court and, thus, subordinate to the CMM/DM and it would be open to the CMM/DM to appoint an advocate commissioner to assist him/ her in the execution of the order passed under Section 14(1) of the SARFAESI Act, 2002.
Power under Section 14 is merely Ministerial and not Adjudicatory
8. It has been held in various judgments that the power of Designated Court under Section 14 SARFAESI Act, 2002 is ministerial and non- adjudicatory in nature and the process to be followed under Section 14 does not involve any element of quasi judicial function nor it requires any application of mind.
9. It has also been held that no notice is required to be issued by the Court to the Borrower or the Mortgagor before deciding the Section 14 Application of Secured Creditor. The Court is only required to verify the affidavit of Secured Creditor filed in pursuance of the proviso to Section 14 and nothing more. The Hon’ble Bombay High Court in the matter of Phoenix ARC Pvt. Ltd. Vs. The State of Maharashtra (2022) ibclaw.in 193 HC has held as under:
“18. Section 14 does not contemplate the following:—
(i) Any notice to be given to either Borrower or a Third Party,
(ii) Borrower or a Third Party to file any reply to the application,
(iii) Borrower/Third Party to be heard,
(iv) Adjudication as to the legality or validity of the mortgage.
(v) Adjudication as to the quantum of the debt claimed by the secured creditor.
(vi) Adjudication of any issues such as limitation, etc.”
10. The above Bombay High Court judgement has since been confirmed by the Hon’ble Supreme Court by its judgement dated 26.09.2022 in the matter of Balakrishna Ram Tarle v. Phoenix ARC (P) Ltd. (2022) ibclaw.in 116 SC. In this judgement, the Hon’ble Supreme Court has held as under:
“Thus, the powers exercisable by CMM/DM Under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets. In that view of the matter 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”.
11. The above legal position has been once again reiterated by Hon’ble Supreme Court in the matter of Kotak Mahindra Bank vs Girnar Corrugators Pvt. Ltd. & Ors. (2023) ibclaw.in 05 SC decided on 05.01.2023 . In the said judgment the Hon’ble Supreme Court as laid down as under:
“While exercising power under Section 14 of the SARFAESI Act, even the District Magistrate has no jurisdiction and/or District Magistrate and/or even the Chief Metropolitan Magistrate has no jurisdiction to adjudicate the dispute between secured creditor and debtor.” (Para 10)”
12. By virtue of the aforesaid judgments, many of the grey areas in interpretation of Section 14 of SARFAESI Act, 2002 have been resolved and it has been laid down in very clear and unambiguous terms that:
(i) the role of Designated Court is ministerial in nature,
(ii) the Designated Court is not required to furnish any opportunity of hearing to the Borrower or any third party OR to decide about the validity of the mortgage or the quantum of debt or the issue of limitation,
(iii) That the Court is required to pass the appropriate order under Section 14 within a period not exceeding 60 days from the date of filing the application by the Secured Creditor provided the court is satisfied about the contents of the affidavit filed the Authorized Officer of Secured Creditor under the proviso to Section 14. Mandate to file the affidavit is to be found in the proviso to Section 14 of SARFAESI Act, 2002 which provides that the application of the Secured Creditor shall be accompanied by an affidavit duly affirmed by the Authorized Officer of the Secured Creditor, declaring that –
“(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;
(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;
(iii) the borrower has created security interest over various 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 the rules made thereunder had been complied with:”
Agricultural Lands are exempt under Section 31(i) of SARFAESI Act, 2002
13. It has been held by the Hon’ble Supreme Court in the matter of K. Sreedhar versus M/s Raus Constructions Pvt. Ltd. & Ors. (2023) ibclaw.in 06 SC decided on 05.01.2023, that the onus of proof is on the objector to establish that the property in question is agricultural in nature and that the same is actually being used for agricultural operations. Classification of the land in revenue record as agricultural by itself is not dispositive or conclusive of the question whether the SARFAESI Act, 2002 does or does not apply. As such, in order to claim exemption under Section 31 (i) of SARFAESI Act, 2002, the Objector will have to establish by leading positive evidence that the land in question is actually being used for agricultural operations. The burden of proof to establish that the mortgaged land is non agricultural in nature can not be shifted to the Secured Creditor.
CMM/DM has no power of review/recall
14. It has been held by Punjab Haryana High Court in the matter of Shri Ram Housing Finance Ltd. vs State of Haryana & Ors. that a District Magistrate, after passing an order under Section 14 of SARFAESI Act, 2002 has no jurisdiction to review or recall such order. The Hon’ble Gujarat High Court in the matter of Prime Co-operative Bank Ltd. vs District Magistrate/Chief Metropolitan Magistrate has held that after passing of an order under Section 14 of SARFAESI Act, 2002, the District Magistrate becomes functus offcio and he cannot reopen a concluded issue. The same view has been taken by the Hon’ble Madhya Pradesh High Court at Jabalpur in the matter of India Shelter Finance Corporation vs State of Madhya Pradesh & Ors.
Power of CMM to use force under Section 14 of SARFAESI Act, 2002
15. Section 14 (1A) of SARFAESI Act, 2002 allows the DM/CMM to use such force as may be necessary in their opinion for the implementation of the possession order passed by them on the application of the Secured Creditors. It will be of advantage to quote the relevant legal provision for ease of reference.
Section 14 (1A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,—
“(i) to take possession of such assets and documents relating thereto; and
(ii) to forward such assets and documents to the secured creditor.]
(2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the District Magistrate [any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any court or before any authority.’
As explained above, Section 14 SARFAESI Act, 2002 is a potent weapon in the armoury of Banks and Financial Institutions. This provision is being invoked by the Secured lenders quite frequently and the Debt Recovery Tribunals are flooded with the Petitions filed under Section 17 of SARFAESI Act, 2002 which provides a remedy to the aggrieved person to challenge the validity of the measures taken by the Secured Creditors under Section 14 of the SARFAESI Act, 2002.
*The authors are advocates at R.P. Agrawal & Co. New Delhi.
 L & T Finance Ltd. vs. State of Maharashtra & Ors. 2023 SCC OnLine Bom 931
 Shri Ram Housing Finance Ltd. vs State of Haryana & Ors. CWP No. 31871/2019, Decided on 11.03.2022
 Prime Co-operative Bank Ltd. vs District Magistrate/Chief Metropolitan Magistrate, 2009 SCC OnLine Guj 10656
 India Shelter Finance Corporation vs State of Madhya Pradesh & Ors. W. P. No. 21960/2022, Decided on 15.12.2022.
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