Whether a secured creditor is entitled to invoke the provisions of Section 14 of the SARFAESI Act subsequent to the sale of an immovable property over which it claims security interest – United Bank of India & Anr. vs. State of West Bengal – SC

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I. Case Reference

Case Citation : [2017] ibclaw.in 15 HC
Case Name : United Bank Of India & Anr. Vs. State Of West Bengal & Ors.
Petitioner(s) : United Bank Of India & Anr.
Respondent(s) : State Of West Bengal & Ors.
Writ No. : W.P. No. 21814 (W) Of 2017
Date of Judgment : 01-Sep-17
Court : High Court of Calcutta
Act : SARFAESI Act 2002
Present for Petitioner :

Mr. K. Thakker, Advocate,
Mr. Varun Kedia, Advocate
Mr. Kumardeep Majumder, Advocate

Present for Respondents  :

Mr. Srijib Chakraborty, Advocate

II. Brief about the decision

Facts of the case

The issue raised in the writ petition is whether a secured creditor is entitled to invoke the provisions of Section 14 of the Act of 2002 subsequent to the sale of an immovable property over which it claims security interest?

Decision of the High Court

The words ‘sale and ‘transfer’ used in Section 14 of the Act of 2002 are not synonymous. The word ‘transfer’ used as a verb means that, a person is conveying or removing from one place or one person to another or is passing or handing over something to another person. It can also mean changeover of the possession or control of a given thing. Transfer is, therefore, wider than sale. As noted above, it may include an element of making over of possession. The word ‘transfer’ used in Section 14, therefore, can mean making over of possession of an immovable property. It is contended by the petitioners that, since the word ‘transfer’ used in Section 14 of the Act of 2002 includes an act of making over of possession, the petitioner as the secured creditor can legitimately invoke Section 14 of the Act of 2002 even after a conveyance in respect of an immovable property sold, has been executed and registered. With respect, this contention of the petitioner overlooks the fact that, the right, title and interest of the secured creditor and the vendor stands transferred to and vested with the purchaser upon the execution and registration of the deed of conveyance which is otherwise duly stamped. On and from the date of such document, the secured creditor ceases to have any interest inrespect of the immovable property concerned. The legal or the deeming fiction of Section 13 ceases to operate upon such sale deed being registered. Therefore, the secured creditor does not retain any further right to meddle with the immovable property under the provisions of the Act of 2002 in order to invoke Section 14 of the Act of 2002 for the purpose of possession or otherwise.

III. Full text of the judgment

DEBANGSU BASAK, J.:-

The first petitioner as a secured creditor seeks a direction upon the concerned District Magistrate to consider and dispose of an application made under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Act of 2002).

Learned Advocate for the petitioners submits that, the first petitioner had made an application under Section 14 of the Act of 2002 before the concerned District Magistrate on September 9,2013. Such application has not been considered and decided till date. He seeks expeditious disposal of such application.

Referring to the facts of the present case, he submits that, although the petitioners had sold the immovable property concerned in respect of which the application under Section 14 of the Act of 2002 was filed, the first petitioner still entitled to maintain the writ petition for the relief as prayed for. He refers to Sections 13(6), 13(10) and 14 of the Act of 2002. He refers to Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 in support of the contention. He relies upon All India Reporter 2010 Madras page 24 (Kathikkal Tea Plantations v. State Bank of India), 2013 Indian Law Reports Volume 1 Allahabad page 113 (Dilip Kumar Singh & Anr. v. State of U.P. & Ors.) and 2017 Volume 2 Banking Cases page 500 (Allahabad) (Punjab National Bank v. State of U.P. & Ors.) in support of the contention that, time is not a constraint in making an application under Section 14 of the Act of 2002. He submits that, Section 14 uses two words with regard to the immovable property. A secured creditor is entitled to sale or transfer an immovable property. The words ‘sale’ and ‘transfer’ being used in the same section, it must be granted that, the legislature had used such two words for different purposes. Sale and transfer are not synonymous. He refers to the meaning of transfer in Black’s Law Dictionary. He submits that, transfer can both be a noun and a verb. In Section 14 it is used as a verb. It is used for the purpose of allowing the secured creditor to pass or hand over possession of the property. Therefore, even if the secured creditor had sold the property, for the purpose of transferring possession of such property, a secured creditor is entitled to invoke Section 14 of the Act of 2002. A secured creditor can sale an immovable property without taking any physical possession thereof. In support of such contention, he relies upon 2008 Volume 1 Supreme Court Cases page 125 (Transcore v. Union of India & Anr.). He submits that, Transcore (supra) was not considered in 2013 Volume 9 Supreme Court Cases page 620 (Standard Chartered Bank v. V. Noble Kumar & Ors.). According to him, V. Noble Kumar & Ors. (supra) does not hold that, a secured creditor cannot sale an immovable property without taking any physical possession thereof. Such issue was not raised in V. Noble Kumar & Ors. (supra). Consequently, the Division Bench’s judgment rendered in F.M.A.T. 1835 of 2014 (Central Bank of India v. Debasish Nandy & Ors.) dated February 5, 2015 requiring the secured creditor to take actual physical possession of the property before sale is not in consonance of the ratio of Transcore (supra). He submits that, the Division Bench in 2014 Supreme Court Cases Online Cal page 19038 (Mohan General Trading Company & Anr. v. United Bank of India & Ors.) has approved an order passed by this Court directing assistance under Section 14 under similar circumstances.

Learned Advocate for the State submits that, once a secured creditor sells an immovable property, it ceases to have any security interest in such secured asset. Consequently, such secured creditor should not be permitted to invoke the provisions of the Act of 2002, in any manner whatsoever, far less under Section 14 thereof, in respect of such secured asset. After sale, the secured creditor no longer retains any security interest over such secured asset.

The issue raised in the writ petition is whether a secured creditor is entitled to invoke the provisions of Section 14 of the Act of 2002 subsequent to the sale of an immovable property over which it claims security interest?

The Act of 2002 defines secured asset, secured creditor and security interest as follows:-

2(zc) “secured asset” means the property on which  security interest is created. 

(zd) “secured creditor” means –

(i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l);

(ii) debenture trustee appointed by any bank or financial institution; or

(iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the  securitization or reconstruction, as the case may be; or

(iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or

(v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance.

(ze) ……………………………………………………………

(zf) “security interest” means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes –

(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or 

(ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset of licence of intangible asset.”

Sections 13(6), 13(10), 14, 35 and 37 of the Act of 2002 are as follows:-

13(6). Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.”

13(10). Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in theform and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.”

14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.- (1) Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him—

(a) take possession of such asset and documents relating thereto; and 

(b) forward such assets and documents to the secured creditor:

Provided that any application by 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 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 required 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 Authorized 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; 

Provided further that on receipt of the affidavit from the Authorized Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit passed suitable orders for the purpose of takingpossession of the secured assets within a period of 30 days from the date of application:

Provided also that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days.

Provided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.

(1A) The District Magistrate or the Chief Metropolitan Magistrate may authorize 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 authorized 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.” 

35. The provisions of this Act to override other laws.- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith containedin any other law for the time being in force or any instrument having effect by virtue of any such law.”

37. Application of other laws not barred.- The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.” 

Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 are as follows:-

8. Sale of immovable secured assets.- (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix-IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.

(2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. 

(2A) All notices under this rule may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub-rule (2) of rule 8. 

(3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as an owner of ordinary prudence would, under the similar circumstances, take of such property.

(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.

(5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:–

(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or

(b) by inviting tenders from the public;

(c) by holding public auction including through e-auction mode; or

(d) by private treaty.

(6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):

PROVIDED that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers; one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,– 

(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;

(b) the secured debt for recovery of which the property is to be sold;

(c) reserve price, below which the property may not be sold;

(d) time and place of public auction or the time after which sale by any other mode shall be completed;

(e) depositing earnest money as may be stipulated by the secured creditor;

(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property.

(7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the web-site of the secured creditor on the Internet.

(8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the secured creditors and the proposed purchaser in writing.

9. Time of sale, issue of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules, in the first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower. 

PROVIDED FURTHER that if sale of immovable property by any one of the methods specified by sub-rule (5) of rule 8 fails and sale is required to be conducted again, the authorised officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale.(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:

PROVIDED that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 8:

PROVIDED FURTHER that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.

(3) On every sale of immovable property, the purchaser shall immediately, i.e., on the same day or not later than next working day, as the case may be, pay a deposit of twenty-five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorised officer conducting the sale and in default of such deposit, the property shall be sold again.

(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months.

(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor and the property shall be resold and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold.

(6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour ofthe purchaser in the form given in Appendix-V to these rules.

(7) Where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him: 

PROVIDED THAT if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of the money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen days from the date of finalization of the sale. 

(8) On such deposit of money for discharge of the encumbrances, the authorised officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. 

(9) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. 

(10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.”

It is worthwhile to note the factual matrix within which the issue as noted above arises. The first petitioner is a secured creditor. It had lent and advanced money to a borrower. As security the borrower had mortgaged the immovable property with the first petitioner. The loan becoming a Non-Performing Asset (NPA), the first petitioner had issued a notice under Section 13(2) of the Act of 2002 on September 1, 2011. The borrower had made a representation under Section 13(3) of the Act of 2002. Such representation was dealt with by a reply dated November 10, 2011. The loan amount remained outstanding, the first petitioner had taken symbolic possession of the immovable property on March 24, 2012. A newspaper published to that effect was made on March 30, 2012. The petitioners had, thereafter, put up the immovable property for sale. The property was sold to a purchaser and a sale certificate in respect thereof was issued on November 6, 2012. The petitioner had executed a deed of conveyance in respect of the immovable property and had registered it on November 15, 2012. The first petitioner on September 9, 2013 had filed an application under Section 14 of the Act of 2002 before the concerned District Magistrate. Such application is yet to be decided. Similar issue was considered in Kathikkal Tea Plantations (supra) by the Madras High Court and in Dilip Kumar Singh & Anr. (supra) and in Punjab National Bank (supra) by the Allahabad High Court. Both the High Courts are of the view that, a secured creditor can maintain an application under Section 14 of the Act of 2002 after issuance of a sale certificate to obtain actual physical possession of the property.

Kathikkal Tea Plantations (supra) is of the view that, the object of the Act of 2002 is to be taken into consideration and an interpretation of Section 14 should be accepted which will not defeat the whole object of the Act. It is of the following view:-

16. From the above, the submission made by the learned Counsel for the respondents that Section 14 of the Act cannot be read in isolation and has to be viewed in the context of all other provisions of the Act, such as Sections 13(4)(6)(8), 15, 17, 18 Rule 8(9) of SARFAESI Rules and Section 55 of the Transfer of Property Act is acceptable. These provisions are in conjunction with Section 14 of the Act for the purpose of interpretation, to be adopted, to achieve and sub-serve the object of the SARFAESI Act. Any other approach or interpretation will defeat the object of the Act. The object of the Act is only to enable the secured creditor, financial institutions to realise the long term assets, manage problems of liquidity, asset liability mis-match and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. Therefore, it could be understood that the Act was brought for recovering the amount in speedy manner in taking possession of the properties and in realizing the money. The third party, who comes forward to purchase the secured asset, must have a confidence that he would get the title to the property at the earliest. If the transferring of the property by way of title is going to be delayed endlessly, then the object of the Act which is meant for speedy recovery, would be defeated in whole. Therefore, as contended by the learned counsel for the banks, that if interpretation is given by taking the words in isolation from Section 14, it would defeat the whole object. Only on a combined reading of section 14 along with the other sections, it would give a clear picture of the object. In this regard, a useful reference could be placed on the decisions relied on by the learned counsel appearing for the impleaded party.”

20. A reading of the dictum laid down in the above judgments would give a clear picture that the mechanical way of interpreting the provisions made in the statute will lead to defeat the object of the Act. Here, when the object is to speedy recovery of debt, by way of taking possession on transferring the property in favour of third party and issued a sale certificate, it cannot be contended that once the sale certificate is issued, physical possession cannot be taken by the secured creditors. Further, in this regard, a useful reference could be placed on the judgment reported in Kottakkal Co-op. Urban Bank Ltd. v. Balakrishnan MANU/KE/0049/2008: 2008 (2) KLT 456. In that case, after taking a symbolic possession under section 13(4) and selling the property in favour of the auction purchaser, the secured creditor approached the Chief Judicial Magistrate seeking the assistance for taking possession. The petition filed by the secured creditor under Section 14(1) was dismissed by the Magistrate holding that that the provision contained in Section 14 only enables the secured creditor to seek assistance of Court to take possession or control of property for effecting sale. Since the secured creditor had taken possession, effected sale and issued sale certificate, the provision cannot be invoked. Aggrieved over the same, the secured creditor preferred a writ petition before the High Court. The High Court while dealing with the case has held that there is no stipulation in Section 13 or elsewhere that the right to transfer can be exercised only after taking over the actual physical possession or that the exercise of taking over possession under Section 13(4) shall be of actual physical possession, resulting in complete dispossession of the secured debtor, de facto and de jure. The relevant passage in paragraph 5 is extracted hereunder:

“5….to complete a transfer by a secured creditor in favour of a third party, the necessary pre-condition is that possession is taken in terms of Section 13(4) of the Act. A close reading of Section 13(4)(a) would show that what is authorised thereby is the taking of possession of the secured asset, including the right to transfer. While taking over of possession is authorised and such taking over of possession includes the taking over of the right to transfer, there is no stipulation in Section 13 or elsewhere that the right to transfer can be exercised only after taking over the actual physical possession or that the exercise of taking over possession under Section 13(4) shall be of actual physical possession, resulting in complete dispossession of the secured debtor, de facto and de jure….At any rate, a secured debtor, continuing to hold on de facto possession on the ground of not having been dispossessed, would only be one who would have been given the advantage to continue to hold on de facto possession for the time during which different steps would have followed, resulting in the confirmation of sale in favour of a third party auction purchaser. In the absence of any jurisdictional requirement for de facto possession to make a transfer in terms of Section 13(6), there is no legal or jurisdictional error in the sale being held by the secured creditor on the strength of de jure possession. Such a sale or transfer would have the complete support of Section 13(6).

21. Therefore, in our opinion, in the absence of any specific stipulation in Section 13, the properties could be sold only after taking physical possession and also the combined reading of Sections 13 and 14 with the background of the object would show that it cannot be said that the secured creditor cannot take actual physical possession after issuing sale certificates merely for the reason that the language found in Section 14 refers to the secured creditor and secured asset. Furthermore, as contended by the learned counsel for the petitioner in W.P. No. 10228 of 2009, that under section 13(10) even after sale, the bank can approach the Debts recovery Tribunal by filing application having jurisdiction or a competent court, for recovery of the balance amount. Further, the contention of the learned counsel for the banks that the character of the secured creditor cannot be said to be ceased by executing the sale certificate also cannot be ignored.”

Kathikkal Tea Plantations (supra) notices a judgment of the Kerala High Court reported at 2008 Volume 2 KLT page 456 (Kottakkal Co-operative Urban Bank Ltd. v. Balakrishnan).

Dilip Kumar Singh & Anr. (supra) follows Kathikkal Tea Plantations (supra) and answers the issue in favour of the secured creditor. It is of the following view:-

15. In view of the aforesaid discussions, the Issue No. 1 is decided holding that secured creditor is legally entitled to take physical possession even after execution of sale-deed in favour of auction purchaser and the application under Section 14 of the 2002 Act by the Bank before the District Magistrate was fully maintainable. The Issues No. 1 and 2 are answered accordingly.”

Punjab National Bank (supra) notices Transcore (supra) and is of the following view:-

9. A perusal of the provisions of section 13 of the Act goes to show that it begins with non-obstante clause. It provides that notwithstanding anything contained in sections 69 of 69-A of the Transfer of Property Act, any security interest created in favour of a secured creditor may be enforced without the intervention of the Court, by such creditor in accordance with the provisions of this Act. Under section 13(2) of the Act, in case, if a borrower makes any default in repayment of a secured debts and his account has been classified as non-performing asset, the secured creditor may issue notice in writing to the borrower to discharge the outstanding liability within 60 days from the date of notice, failing which the secured creditor shall be well within its rights to exercise or any of the rights provided to it under section 13(4) of the Act. Section 13(3) of the Act provides for the contents of notice to the issued under section 13(2) of the Act such as details of the outstanding liability payable by the borrower and also details of the secured assets which the creditor intends to enforce in the event of non-payment by the borrower. Section 13(3)(A) of the Act contemplates of a representation/objection by the borrower and puts the secured creditor under an obligation to decide the same and to communicate the reasons for non acceptable of the representation/objection by the borrower. Section 13(4) of the Act provides that in case the borrower fails to discharge his liability within the period specified in the notice issued under section 13(2) of the Act, the secured creditor is entitled either to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale of the same or to take over management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realization of its outstanding dues. Section 13(4) of the SARFAESI Act, 2002 proceeds on the premises that the borrower who is under a liability has failed to discharge the same within the period provided by a notice to him under section 13(2) of the Act and, thus the secured creditor is entitled to take recourse to the measuresprovided under section 13(4) of the Act, one of which is taking possession of the secured assets including the right to transfer by way of lease, assignment or sale for realization of its dues. Section 14 of the Act vests a secured creditor with the power to take assistance from the District Magistrate and also from Chief Metropolitan Magistrate in obtaining possession of the secured assets. From a bare reading of the provisions of section 14 of the SARFEASI Act, 2002, quoted herein above, it is clear that no distinction has been drawn as to when the said power is to be exercised either before exercising the right to transfer the secured assets either by way of lease, assignment of sale or after that. It simply talks of assistance of the authority named in the section for the purposes of taking possession. Further section 13(4) of the SARFAESI Act, 2002 clearly empowers the secured creditor to take possession of the secured assets in case, the borrower has failed to discharge his liability in full within the period of 60 days specified in the notice to be given under section 13(2) of the SARFAESI Act, 2002. Section 13()(a) as well as (b) of the SARFAESI Act, 2002 further provides that right to take possession of the secured assets or the management of the business shall include the rights to transfer by way of lease, assignment or sale. Thus, it becomes immaterial when an application is made under sections 14 of the SARFAESI Act, 2002. Further time factor as to when application under section 14 of the SARFAESI Act, 2002 is to be made becomes immaterial as the right to take possession of the secured assets can be exercised by the secured creditor at any point of time after expiry of the period of 60 days from the date of notice under section 13(2) of the SARFAESI Act, There may be cases where there may not arise any occasion for the secured creditor to make an application under section 14 of the SARFAESI Act, 2002, one such case being where the borrow may handover possession of the secured assets willingly to the secured creditor. In other cases, the secured assets may be in possession of a third person or might have been illegally transferred to a third person by the borrower after issuance of notice under section 13(2) of the SARFAESI Act, 2002, in such cases secured creditor may have to take recourse to the provisions of section 14 of the SARFAESI Act, 2002 seeking assistance for taking possession of the secured assets. As already stated above, the Act does not prescribed any stage at which the provisions of section 14 of the SARFAESI Act, 2002 could be invoked by the secured creditor. Recourse to section 14 of the SARFAESI Act, 2002 can be taken by the secured creditor at any point of time after expiry of a period of 60 days from the date of issuance of notice under section 13(2) of the SARFAESI Act, 2002, either before the transfer of the secured assets or any time after that in case the secured creditor is not in a position to obtain peaceful possession of the secured assets.”

10. It may also be relevant to refer to Rule 8 of the Security Interest (Enforcement) Rules, 2002. Rule 8(1) provides that where the secured assets is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly a possible in Appendix IV to these rules, to the borrower and by affixing the same on the outer door or at any conspicuous place of the property. It may also be relevant to refer to Rules 8(3) and 8(4) of the Rules which clearly indicate that possession of the secured assets can be taken in case it is an immovable property, even before its sale or disposal. The said Rules read as under:-

“(3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property.

(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.”

Punjab National Bank (supra) is of the view that, an application under Section 14 of the Act of 2002 can be made after sale of the secured asset by the secured creditor. 

The object of the Act of 2002 is to facilitate speedy recovery of banks dues. Every person is not entitled to invoke the provisions of the Act of 2002 to recover its due. A creditor who is a secured creditor having a security interest over an asset of the debtor or guarantor, as defined in the Act of 2002, is entitled to invoke the Act of 2002. The Act of 2002 recognizes that, in given circumstances a secured creditor may stand denuded of the security interest over a security asset. In such circumstances the secured creditor will not be able to invoke the Act of 2002 in respect of such security asset or interest.

To apply under Section 14 of the Act of 2002, in addition to the requirements specified being fulfilled, a secured creditor has to establish that, on the date of making of such an application, is it a secured creditor in respect of a secured asset and has a security interest in respect of such secured asset. The secured creditor then has to comply with the other rigors of Section 14 of the Act of 2002, amongst others. After sale of a secured asset can a secured creditor claim to have security interest in respect of such secured asset for it to be entitled to invoke Section 14 of the Act of 2002 ?

The right to sale the security interest in a secured asset is vested with the secured creditor under Section 13(4)(a) of the Act of 2002. In a situation where the borrower fails to discharge his liability in full within the period specified in Section 13(2), the secured creditor is empowered to, amongst others, take possession of the secured assets of the borrower and enjoy the right to sale such secured asset. Under the Transfer of Property Act, 1882, the owner of an immovable property can convey appropriate right, title and interest in respect of such immovable property as the vendor of the same to the purchaser. Section 13(6) of the Act of 2002 creates a legal fiction. It substitutes, by dint of Section 13(6) of the Act of 2002, the owner of the immovable property with the secured creditor for the purpose of transferring appropriate title to the purchaser. For substitution to be valid, the secured creditor must have a security interest in the immovable property concerned. The security interest must be something which is within the meaning of security interest as defined under the Act of 2002. In other words, if an immovable property is mortgaged in favour of the secured creditor, then in view of Section 13(4) read with Section 13(6) of the Act of 2002, the secured creditor has the right to sale such immovable property to a purchaser, as the rightful owner of such immovable property, provided the other criteria of the Act of 2002 as well as the Security Interest (Enforcement) Rules, 2002 are complied with. A sale conducted by a secured creditor under the Act of 2002 vests the purchaser all rights of or in relation to the secured asset transferred in favour of the purchaser. The legal fiction created under Section 13(6) of the Act of 2002, that is, substituting the owner with the secured creditor in respect of an immovable property draws it sustenance from Section 35 of the Act of 2002. Section 35 of the Act of 2002 stipulates that, the provisions of the Act of 2002 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The transfer of right, title and interest of the actual owner to the ultimate purchaser by virtue of a sale conducted by a secured creditor under the Act of 2002 is, therefore, recognized. Section 37 of the Act of 2002 and the Rules of 2002 made under the Act of 2002 shall be in addition to and not in derogation of any other law for the time being in force. Reading Sections 13(6), 35 and 37 together, therefore, the provisions of the Transfer of Property Act, 1882 and the Registration Act, 1860 stands superseded only to the extent of permitting a secured creditor to sale the right, title and interest of the actual owner and convey all right, title and interest of such owner to the purchaser. Other provisions of the Transfer of Property Act, 1882 and the Registration Act, 1860, namely, appropriate registration of the sale of an immovable property of the value specified thereunder requiring compulsory registration are not waived. The title to the immovable property stands transferred upon the completion of the formalities as are required under the Transfer of Property Act, 1882 and the Registration Act, 1860. Once all of such parameters are fulfilled, the secured creditor cannot claim any security interest over the secured asset in as much as it has sold the right, title and interest of the borrower to the purchaser freefrom encumbrances. That such a sale is free from encumbrances is provided for in Rule 9(9) of the Security Interest (Enforcement) Rules, 2002.

The sale of an immovable property is dealt with in Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. Sub-rule (1) of Rule 8 allows an authorized officer to take or cause to be taken possession of the immovable property by affixing a possession notice. Sub-rule (2) lays down the time period and the manner, method and mode of publication of such notice. Sub-rule (2A) recognizes that, the service of the notice through an electronic mode is valid. Sub-rule (3) requires the authorized officer to keep actual physical possession of the property if so taken. Sub-rule (4) requires the authorized officer to take steps for preservation and protection of the secured assets and if necessary, till sale or disposal. Sub-rule (5) requires the authorized officer to obtain valuation of the property. Sub-rule (6) requires the authorized officer to issue a notice of 30 days for sale of the secured assets. Sub-rule (7) requires the notice of sale to be affixed on a conspicuous part of an immovable property. Sub-rule (8) contemplates a situation where a private sale is possible. 

Rule 9 of the Rules of 2002 deals with the time of sale, issue of sale certificate and delivery of possession. Sub-rule (1) prohibits a sale of an immovable property before the expiry of 30 days from the date of the publication of the notice of sale. Sub-rule (2) requires the sale to be confirmed in favour of the purchaser who has offered the highest sale price. Sub-rule (3) requires the purchaser to deposit 25% of the sale price on the same day or within the next working day. Sub-rule (4) requires the purchaser to pay the balance amount of the purchase price within 15 days from the confirmation of sale or such extended period as may be agreed upon in writing between the purchaser and the secured creditor. Sub-rule (5) deals with the default of payment by the purchaser. Sub-rule (6) requires the authorized officer to issue the sale certificate in the form given in Appendix – V of the Rules of 2002. Sub-rule (7) allows the encumbrances of the property to be addressed by the authorized officer. The authorized officer may call upon the purchaser to deposits the money required to discharge the encumbrances. Sub-rule (8) contemplates a situation where the purchaser deposited such money for discharge of the encumbrances. It requires the authorized officer to call upon the persons entitled to the money in respect of such encumbrances to receive the payment. Sub-rule (9) requires the authorized officer to deliver the property sold to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7). Sub-rule (10) specifies that, the sale certificate shall mention that, the purchaser has purchased the immovable property free from any encumbrances known to the secured creditor or not. 

The procedure laid down for sale as noted above under the Act of 2002 and the Rules of 2002 requires the secured creditor to sale an immovable property free from encumbrances known to it or not. After sale, the secured creditor can no longer claim a security interest over such immovable property as such security interest stands dissolved by the issuance of the sale certificate. On the execution and registration of the deed of conveyance, the title to the immovable property stands transferred to and vested with the purchaser. There remains nothing more to be done by the secured creditor in respect of such immovable property. The secured creditor does not retain any right, title or interest over and in respect of the immovable property sold under the Act of 2002 or otherwise. The contention that, the secured creditor still retains the right to obtain possession of the immovable property, after execution and registration of the deed of conveyance in favour of the purchaser, to be transferred to the purchaser, is misplaced. The transfer of immovable property by way of a sale can be done by a deed of conveyance duly executed, stamped and registered under the Registration Act, 1860. In absence of registration of such deed of conveyance with appropriate stamp, no right, title or interest in an immovable property can be said to be transferred to or vested with the purchaser. A document of title which is not registered, would fall short of the requirements of Sections 54 and 55 of the Transfer of Property Act, 1882. It may give a limited right under Section 53A of the Transfer of Property Act, 1882 at best. An agreement for sale with or without possession is not a conveyance. In this regard reference can be made to 2012 Volume 1 Supreme Court Cases page 656 (Suraj Lamp & Industries Private Limited (2) v. State of Haryana & Anr.).

The words ‘sale and ‘transfer’ used in Section 14 of the Act of 2002 are not synonymous. The word ‘transfer’ used as a verb means that, a person is conveying or removing from one place or one person to another or is passing or handing over something to another person. It can also mean changeover of the possession or control of a given thing. Transfer is, therefore, wider than sale. As noted above, it may include an element of making over of possession. The word ‘transfer’ used in Section 14, therefore, can mean making over of possession of an immovable property. It is contended by the petitioners that, since the word ‘transfer’ used in Section 14 of the Act of 2002 includes an act of making over of possession, the petitioner as the secured creditor can legitimately invoke Section 14 of the Act of 2002 even after a conveyance in respect of an immovable property sold, has been executed and registered. With respect, this contention of the petitioner overlooks the fact that, the right, title and interest of the secured creditor and the vendor stands transferred to and vested with the purchaser upon the execution and registration of the deed of conveyance which is otherwise duly stamped. On and from the date of such document, the secured creditor ceases to have any interest inrespect of the immovable property concerned. The legal or the deeming fiction of Section 13 ceases to operate upon such sale deed being registered. Therefore, the secured creditor does not retain any further right to meddle with the immovable property under the provisions of the Act of 2002 in order to invoke Section 14 of the Act of 2002 for the purpose of possession or otherwise.

Debasish Nandy & Ors. (supra) is a Division Bench order of this Hon’ble Court. The same is binding upon this Court. Debasish Nandy & Ors. (supra) after considering V. Noble Kumar & Ors. (supra) is of the following view :-

“…………………………………………………It is clear from the aforesaid declaration of law that only after possession is handed over to the secured creditor, the later is entitled to invoke Rule 8 of the Security Interest Enforcement Rules, 2002 and issue the sale notice………………………………………………………………”

Transcore (supra) was not considered in V. Noble Kumar & Ors. (supra). Transcore (supra) however cannot be read to mean that, the Supreme Court is of the view that a secured creditor can apply under Section 14 of the Act of 2002 in respect of an immovable property after execution and registration of a valid conveyance in respect of such immovable property.

In view of the discussions above, the issue raised in the writ petition is answered in the negative and against the petitioners. 

W.P. No. 21814 (W) of 2017 is dismissed. No order as to costs.

Urgent certified website copies of this order, if applied for, be made available to the parties upon compliance of the requisite formalities.

[DEBANGSU BASAK, J.]

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