ESI-Recourse-Symbolic & Physical Possession

No separate publication is required while taking physical possession of the property if compliance is made after taking symbolic possession | A waiver of the mandatory provision under Rule 8(6) of Security Interest (Enforcement) Rules, 2002 (Non-service of a notice on the borrower about the auction sale) is possible – Central Bank of India Vs. Upendra Pravinbhai Patel and Anr. – DRAT Mumbai

Hon’ble DRAT Mumbai held that:

(i) No separate publication is required while taking physical possession of the property if compliance is made after taking symbolic possession. Sub-rule (3) to Rule 8 relating to taking possession of the immovable property actually by the authorised officer does not contemplate a further publication in newspapers.
(ii) Applying these principles laid down in ARCE Polymer Pvt. Ltd. v. Alphine Pharmaceuticals and Ors. (2021) ibclaw.in 172 SC to the case in hand, it has to be held that the borrower is estopped from raising any challenge to the Sarfaesi measures including the sale because of his voluntary act of offering to settle the dues in a time-bound manner and then failing to comply with that.

No separate publication is required while taking physical possession of the property if compliance is made after taking symbolic possession | A waiver of the mandatory provision under Rule 8(6) of Security Interest (Enforcement) Rules, 2002 (Non-service of a notice on the borrower about the auction sale) is possible – Central Bank of India Vs. Upendra Pravinbhai Patel and Anr. – DRAT Mumbai Read Post »

Handing over possession of an auction property requires a procedure to be followed, a possession memo duly signed by representative of bank, auction purchaser and witnesses has to be prepared, handover possession cannot be an empty formality – M/s Shree Bhoomi Food Beverages Pvt. Ltd. Vs. Debts Recovers Appellate Tribunal and 4 Others – Allahabad High Court

Hon’ble High Court held that (i) The possession handling over document is not signed by any officer of bank, bank seal is also absent. Name of authorized officer is also not disclosed. The alleged authorized representative of auction purchaser has also not disclosed his name. There is no document on record how he was appointed as authorized representative of auction purchaser as well as there are no witnesses to the process of handing over of auction property.
(ii) The possession handling over document by any legal acumen could not be considered to be a ‘possession memo’ as required by due procedure, therefore, any videography of such act would have no consequence.
(iii) Handing over possession of an auction property requires a procedure to be allowed. A possession memo duly signed by representative of bank, auction purchaser and witnesses has to be prepared. To handover possession cannot be an empty formality.

Handing over possession of an auction property requires a procedure to be followed, a possession memo duly signed by representative of bank, auction purchaser and witnesses has to be prepared, handover possession cannot be an empty formality – M/s Shree Bhoomi Food Beverages Pvt. Ltd. Vs. Debts Recovers Appellate Tribunal and 4 Others – Allahabad High Court Read Post »

A Recovery Agent cannot intercept a vehicle on way and direct the passengers to come down and leave the vehicle, unless they obtain appropriate order in accordance with law, SARFAESI Act, 2002 is a complete code – Dhananjay Seth Vs. The Union of India – Patna High Court

Hon’ble High Court held that (i) it appears that the contesting respondents while seeking their private power to recover the loan by repossessing the vehicle can exercise their rights only within the constitutional limitations. A law such as SARFAESI Act, 2002 is a complete code unto itself and even the RBI guidelines have given much emphasis that where Banks have incorporated a repossessions clause in the contract with the borrower and rely on such repossession clause for enforcing their rights, they should ensure that the repossessions clause is legally valid, comply with the provisions of the Indian Contract Act in letters and spirit and ensure that such repossession clause is clearly brought to the notice of the borrower at the time of execution of the contract.
(ii) A recovery agent cannot intercept a bus or a truck or a scorpio vehicle on way and direct the passengers to come down and leave the vehicle, unless they obtain appropriate order in accordance with law and such orders are required to be executed only in accordance with law.
(iii) In the garb of a power acquired by the financier under the loan agreement to re-possess the vehicle, they cannot be allowed to take the law into their hands and enforce the loan agreement by violating the legislative mandate and the regulatory law such as as the Act of 2002.
(iv) The Superintendent of Police of all the districts in the State of Bihar are directed to ensure that within their jurisdiction no recovery agent of the Bank and Financial Institution may take the law into their hands, intercept the vehicles on way and takes possession of the vehicle in default without an order of the competent court of law. Any seizure/repossession of the vehicle in default may be given effect to only in accordance with the law and the procedure established by law.

A Recovery Agent cannot intercept a vehicle on way and direct the passengers to come down and leave the vehicle, unless they obtain appropriate order in accordance with law, SARFAESI Act, 2002 is a complete code – Dhananjay Seth Vs. The Union of India – Patna High Court Read Post »

By including a clause of ‘as is where is’ it would not be sufficient for a Bank from disclosing encumbrances or handing over the property to Auction Purchaser – S. K. Bakshi Vs. Punjab National Bank and others – Jammu & Kashmir and Ladakh High Court

Hon’ble High Court held that in terms of SARFASI Act, an application under Section 17 can be made to DRT by “any person” including borrower to challenge any of the measures referred to in Section 13(4) once taken by the secured creditor. But, in present case, the petitioner who is the auction purchaser of the property and has been promised by the Bank that the delivery of the property is free from all encumbrances cannot proceed under Section 17 as it does not envisages any of the grounds enumerated in Section 13(4). Thus, the judgment relied (Agarwal Tracom Pvt. Ltd. vs. Punjab National Bank and others [2017] ibclaw.in 15 SC arguing that petition is not maintainable as the only remedy is available to the petitioner is under Section 17 of the SARFAESI Act) upon is not applicable to the facts of this case.

By including a clause of ‘as is where is’ it would not be sufficient for a Bank from disclosing encumbrances or handing over the property to Auction Purchaser – S. K. Bakshi Vs. Punjab National Bank and others – Jammu & Kashmir and Ladakh High Court Read Post »

Mere declaration of action of secured creditor not being in accordance with SARFAESI Act is not alone sufficient for making a borrower entitled to a compensation under Section 19 of SARFAESI Act and such a declaration must be followed by a further order of restoration of the secured asset to the borrower and in case of symbolic possession, there cannot be any order for restoration of possession because borrower or a person who is in possession of the property has not lost possession and it is only a paper possession – The Hongkong and Shanghai Banking Corporation Ltd. Vs. Mr. Ismath Batcha – DRAT Chennai

DRAT held that if the provision of Section 19 is examined in that context, compensation indicated in the provision has to be understood that it is only to make good of the loss sustained by the borrower or any other person due to acts committed by the secured creditor. Section 19 provides for return of assets besides declaring the measures as illegal.
Hon’ble Supreme Court held that dichotomy between symbolic possession and physical possession does not find place in the SARFAESI Act and therefore even by taking symbolic possession, property can be put to sale. But that analogy cannot be applied here because section 19 makes it very clear that there should be an order for restoration of possession. In case of symbolic possession, there cannot be any order for restoration of possession because borrower or a person who is in possession of the property has not lost possession and it is only a paper possession. But the Tribunal below granted compensation only on the ground that borrower has lost constitutional right to enjoy property, hich is not a right given under Section 19 of the Act.
Therefore, mere declaration of action of secured creditor not being in accordance with the provisions of SARFAESI Act and the Rules made thereunder is not alone sufficient for making a borrower entitled to a compensation and such a declaration must be followed by a further order of restoration of the secured asset to the borrower.

Mere declaration of action of secured creditor not being in accordance with SARFAESI Act is not alone sufficient for making a borrower entitled to a compensation under Section 19 of SARFAESI Act and such a declaration must be followed by a further order of restoration of the secured asset to the borrower and in case of symbolic possession, there cannot be any order for restoration of possession because borrower or a person who is in possession of the property has not lost possession and it is only a paper possession – The Hongkong and Shanghai Banking Corporation Ltd. Vs. Mr. Ismath Batcha – DRAT Chennai Read Post »

The expression District Magistrate/Chief Metropolitan Magistrate as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional District Magistrate/Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act – M/s R.D. Jain and Co. Vs. Capital First Ltd. & Ors. – Supreme Court

Hon’ble Supreme Court has upheld decision of Bombay High Court and held that Section 14(2) is an enabling provision and permits the CMM/DM to take such steps and use force, as may, in his opinion, be necessary. Sub¬-Section (1A) is in the nature of an explanatory provision and it merely restates the implicit power of the CMM/DM in taking services of any officer subordinate to him.
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.
While disposing of the application under Section 14 of the SARFAESI Act, no element of quasi-¬judicial function or application of mind would require. The Magistrate has to adjudicate and decide the correctness of the information given in the application and nothing more. Therefore, Section 14 does not involve an adjudicatory process qua points raised by the borrower against the secured creditor taking possession of secured assets.
The steps to be taken by the Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act as observed hereinabove are ministerial in nature and does not involve any adjudicatory process and there is no element of any quasi¬-judicial function.
The expression “Chief Metropolitan Magistrate” as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act.
Similarly, when the Additional District Magistrates are conferred with the powers to be exercised by the District Magistrates either by delegation and/or by special orders and the Additional District Magistrates are exercising the same powers which are being exercised by the District Magistrates, the same analogy can be applied, more particularly, when the powers exercisable under Section 14 of the SARFAESI Act, are ministerial steps.
The Court also held that the contrary view taken by the other High Courts, namely, Gujarat High Court in the case of Pushpa Devi B Jain W/o Bhawarlal M Jain Vs. Indian Overseas Bank in Special Civil Application No. 19102/2015; Calcutta High Court in the case of Shri Chellaperumal & Anr. Vs. The Authorised Officer & Ors. in M.A. No. 26/2014 and Kerala High Court in the case of Aseena Vs. Sub¬-Divisional Magistrate and Ors. in W.P. (C) No. 3331/2007, is not a good law and are specifically overruled.

The expression District Magistrate/Chief Metropolitan Magistrate as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional District Magistrate/Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act – M/s R.D. Jain and Co. Vs. Capital First Ltd. & Ors. – Supreme Court Read Post »

Landmark judgment – Whether the CMM/DM can appoint an advocate in exercise of powers under Section 14(1A) of the SARFAESI Act, 2002? – NKGSB Cooperative Bank Ltd. Vs. Subir Chakravarty & Ors. – Supreme Court

Hon’ble Supreme Court holds that once the order is passed, the statutory obligation cast upon the CMM/DM stands discharged to that extent. The next follow-up step is of taking possession of the secured assets and documents relating thereto. The same is ministerial step. It could be taken by the CMM/DM himself/herself or through any officer subordinate to him/her, including the Advocate Commissioner who is considered as an officer of his/her court. It is well established that an advocate is a guardian of constitutional morality and justice equally with the Judge. Sub-Section (1A) of Section 14 of the 2002 Act is no impediment for the CMM/DM to engage services of an advocate (an officer of the court)- only for taking possession of secured assets and documents relating thereto and to forward the same to the secured creditor in furtherance of the orders passed by the CMM/DM under Section 14(1) of the 2002 Act in that regard. If an advocate is appointed as commissioner for execution of the orders passed by the CMM/DM under Section 14(1) of the 2002 Act, that responsibility and duty will be discharged honestly and in accordance with rules of law. In our view, in law, an advocate is an officer of the court and, thus, subordinate to the CMM/DM.

Landmark judgment – Whether the CMM/DM can appoint an advocate in exercise of powers under Section 14(1A) of the SARFAESI Act, 2002? – NKGSB Cooperative Bank Ltd. Vs. Subir Chakravarty & Ors. – Supreme Court Read Post »

No procedure as provided under section 14 of the SARFAESI Act is followed by the Bank. The DM/ADM is not supposed to issue any direction for taking possession of the property without following due procedure – State Bank of India Vs. Shri Brijesh Dubey – DRAT Allahabad Bench

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No procedure as provided under section 14 of the SARFAESI Act is followed by the Bank. The DM/ADM is not supposed to issue any direction for taking possession of the property without following due procedure – State Bank of India Vs. Shri Brijesh Dubey – DRAT Allahabad Bench Read Post »

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