Judicial Analysis Court Copy Headnote Facts Arguments Court observation

ALLAHABAD HIGH COURT
Dilip B. Bhosale, C.J., Dr. Devendra Kumar Arora and Vivek Chaudhary, JJ.
M/s N.C.M.L. Industries Ltd. through
Director and Anr. —Petitioners
versus
Debts Recovery Tribunal, Lucknow
and Ors. —Respondents
Misc. Single No.20026 of 2017 with Misc. Bench No.28806 of 2017
Decided on 6.2.2018

Counsel for the Parties:
For the Petitioners:Jaideep Narain Mathur, Senior Advocate, with Amarjeet Singh Rakhra, Suneet Kumar Sharma and Dinesh Kumar Pathak with Shashank Pathak, Advocates
For the Respondents:Prashant Chandra, Senior Advocate, with Kartikey Dubey, Prashant Kumar, Shyam Kumar Raj and Ms. Mahima Pahwa, Advocates

IMPORTANT POINT
Securitisation application under Section 17(1) of SARFAESI Act, 2002 is maintainable only when actual/physical possession is taken by secured creditor or borrower loses actual/physical possession of secured assets.

Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002—Sections 13(4) and 17—Security Interest (Enforcement) Rules, 2002—Rule 8—Whether an application under Section 17(1) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 at instance of a borrower, is maintainable even before physical (actual) possession of secured assets is taken by Bank/FIs in exercise of its powers under Section 13(4) thereof read with Rule 8 of Security Interest (Enforcement) Rules, 2002— Securitisation application under Section 17(1) of Act is maintainable only when actual/physical possession is taken by secured creditor or borrower loses actual/physical possession of secured assets—Once right to approach DRT matures and Securitisation application under Section 17(1) is filed by borrower, it is open to DRT to deal with same on merits and pass appropriate orders in accordance with law—Difference between “taking measures or initiating the measures” and “completing the measures” needs to be understood in light of objective of Act—Till actual (physical) possession is taken, it cannot be stated that measures taken under Section 13(4) are complete and unless “measures” are taken that is to say “physical/actual” possession is taken or borrower loses possession, he shall not have any right to approach DRT under Section 17(1) of Act on any ground whatsoever. (Paras 39 and 40)
       (B) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002—Sections 13(4) and 17—Security Interest (Enforcement) Rules, 2002—Rule 8—Possession of secured asset—Merely taking step to take possession is not amenable to challenge under Section 17—Action of taking possession is not an automatic process in the sense that moment notice is issued, means “physical possession” is taken or borrower stands dispossessed physically or loses possession—Expression “symbolic possession” means “constructive possession” or “paper possession” and not “physical” or “actual possession”—Concept of “symbolic possession” needs to be understood in light of scheme of Act and Rules and also object in introducing the Act—Primary objective of Act was not only to bring into existence special procedural mechanism for speedy recovery of dues of banks and financial institutions, but also for ensuring that defaulting borrowers are not able to frustrate proceedings initiated by banks and other financial institutions. (Paras 37 and 38)
       Result: Reference answered.

JUDGMENT

Dilip B. Bhosale, C.J.—The order of Reference dated 19 September 2017, which has occasioned the constitution of a larger Bench, has been passed by learned Single Judge, after having noticed the divergent opinions expressed by two Division Benches of this Court in Sushila Steels v. Union Bank of India and others (Special Appeal No. 415 of 2014, decided on 23.04.2014), and Aum Jewels and others v. Vijaya Bank (Writ-C No. 13476 of 2017, decided on 30.3.2017) on the question whether an application under section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Act’), at the instance of a borrower, is maintainable even before physical (actual) possession of the secured assets is taken by the Bank/FIs in exercise of its powers under Section 13(4) thereof read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 (for short “the Rules”)

2. By means of this petition (No. 20026 of 2017) under Article 226 of the Constitution of India, the petitioners (M/s N.C.M.L. Industries Ltd. and another) called in question the validity of an order dated 2.8.2017, passed by the Debts Recovery Appellate Tribunal, Delhi, (for short “DRAT”), as it then was holding charge of DRAT, Allahabad, whereby an appeal No. 86 of 2017, preferred under Section 18 of the Act, has been disposed of. The appeal was preferred by the respondent-Bank against an order dated 27.02.2017 passed by the Debts Recovery Tribunal, Lucknow (for short ‘DRT’), on Securitisation Application No. 435 of 2016 (for short “the Application”), instituted under Section 17(1) of the Act. By this order (27.02.2017), the DRT had granted interim relief in favour of the petitioners, restraining the respondent-Bank from taking physical possession of the secured assets during the pendency of the Securitisation Application. The DRAT, while allowing the appeal inter alia held that the Application under Section 17 of the Act is not maintainable as only “symbolic possession” was taken by the Bank. For taking such a view, the DRAT placed heavy reliance upon the judgment of a Division Bench of this Court in Sushila Steel (supra).

3. The facts leading to filing of the writ petition, to the extent, that are necessary are as follows: The respondent-Bank had extended some financial facilities to the petitioner No.1-Company to which petitioner No.2 stood Guarantor. Since the petitioners made default in repayment of secured debt/installments thereof, the respondent-Bank initiated proceedings under the provisions of the Act by issuing a notice under Section 13(2) on 23.11.2015 requiring the borrower to discharge in full his liability. The notice was replied by the petitioners by way of a representation/raising objections dated 20.1.2016. The objections/representation however came to be rejected by the respondent-Bank vide its communication dated 9.2.2016. Thereafter, the petitioners claim that they made additional representation dated 14.2.2016 requesting the respondent-Bank to reconsider their earlier representation/objections dated 20.1.2016. According to the petitioners, so far the respondent-Bank has not considered and decided the same.

4. In this backdrop, it appears a notice, under Rule 8 read with Appendix IV of the Rules for possession, was issued by the Bank, stating that a symbolic possession of their immovable secured assets, as described in the schedule to the notice, has been taken under Section 13(4) of the Act. It appears that the Authorised Officer of the Bank did not take physical possession of the secured assets. This notice made reference to the notice, that was issued to the petitioners under Section 13(2) requiring them to repay the due amount alongwith further interest and other charges within sixty days. Since the petitioners failed to repay the amount, the notice under Rule 8 of the Rules was issued to the petitioners as also to the public in general, stating that the Authorized Officer of the Ba

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IMPORTANT POINTSecuritisation application under Section 17(1) of SARFAESI Act, 2002 is maintainable only when actual/physical possession is taken by secured creditor or borrower loses actual/physical possession of secured assets.

Cases Referred (22)

IMPORTANT POINT
Securitisation application under Section 17(1) of SARFAESI Act, 2002 is maintainable only when actual/physical possession is taken by secured creditor or borrower loses actual/physical possession of secured assets.