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IN THE HIGH COURT OF CALCUTTA
Dipankar Datta, J.
Jawahar Singh - Petitioner
Versus
United Bank of India and Ors. - Respondents
W.P. No. 11828, 11828, 12210, 11993, 11787, 5651 and 10048 (W) of 2015
Decided On : 6.8.2015
The Calcutta High Court has rendered a judgment on several writ petitions filed by borrowers and secured creditors challenging orders passed by the Chief Metropolitan Magistrate (CMM) or the District Magistrate (DM) under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The key issues addressed by the Court are: 1. Whether the CMM/DM is required to give notice and an opportunity of hearing to the borrower before passing an order under Section 14 of the SARFAESI Act. 2. Whether an order passed under Section 14 is amenable to challenge before the relevant Tribunal under Section 17 of the SARFAESI Act. 3. Whether a secured creditor can employ force to take possession of a secured asset, and if not, who is entitled to dispossess a borrower/occupant from the secured asset and how. The Court held: 1. The plain language of Section 14 does not require the CMM/DM to give notice or an opportunity of hearing to the borrower before passing an order under Section 14. The purpose of Section 14 is to assist secured creditors in taking possession of secured assets without the intervention of courts or tribunals, and a hearing before the CMM/DM would defeat this purpose. 2. An order passed under Section 14 is amenable to challenge before the relevant Tribunal under Section 17 of the SARFAESI Act. The Court held that the decision in Harshad Govardhan Sondagar v. International Asset Reconstruction Pvt. Ltd., which held that a borrower is entitled to a hearing before the CMM/DM under Section 14, is distinguishable from the present case, as it dealt with a specific factual situation involving a pre-mortgage lessee. 3. A secured creditor cannot employ force to take possession of a secured asset. The Court held that the use of force is only permitted under Section 14(2) of the SARFAESI Act at the discretion of the CMM/DM, and that a secured creditor must seek the assistance of the CMM/DM to obtain possession of a secured asset. The Court also clarified that a borrower cannot be dispossessed from a secured asset by extra-legal means, and that the only remedy available to a secured creditor if its application under Section 14 is rejected is to file a writ petition under Article 226 of the Constitution.
Fact of the Case:
Several borrowers and secured creditors filed writ petitions challenging orders passed by the CMM or DM under Section 14 of the SARFAESI Act. The petitioners raised various issues, including the requirement of notice and hearing before passing an order under Section 14, the challenge to such orders before the Tribunal under Section 17, and the use of force by secured creditors to take possession of secured assets.
Finding of the Court:
1. The CMM/DM is not required to give notice or an opportunity of hearing to the borrower before passing an order under Section 14 of the SARFAESI Act. 2. An order passed under Section 14 is amenable to challenge before the relevant Tribunal under Section 17 of the SARFAESI Act. 3. A secured creditor cannot employ force to take possession of a secured asset. The CMM/DM has the discretion to use force under Section 14(2) of the SARFAESI Act, and a secured creditor must seek the assistance of the CMM/DM to obtain possession of a secured asset.
Issues: 1. Whether the CMM/DM is required to give notice and an opportunity of hearing to the borrower before passing an order under Section 14 of the SARFAESI Act. 2. Whether an order passed under Section 14 is amenable to challenge before the relevant Tribunal under Section 17 of the SARFAESI Act. 3. Whether a secured creditor can employ force to take possession of a secured asset, and if not, who is entitled to dispossess a borrower/occupant from the secured asset and how.
Ratio Decidendi: 1. The purpose of Section 14 is to assist secured creditors in taking possession of secured assets without the intervention of courts or tribunals, and a hearing before the CMM/DM would defeat this purpose. 2. The decision in Harshad Govardhan Sondagar v. International Asset Reconstruction Pvt. Ltd., which held that a borrower is entitled to a hearing before the CMM/DM under Section 14, is distinguishable from the present case, as it dealt with a specific factual situation involving a pre-mortgage lessee. 3. The use of force is only permitted under Section 14(2) of the SARFAESI Act at the discretion of the CMM/DM, and that a secured creditor must seek the assistance of the CMM/DM to obtain possession of a secured asset.
Final Decision: The Court set aside the orders passed by the CMM/DM under Section 14 of the SARFAESI Act and directed them to reconsider the applications in accordance with law.
Dipankar Datta, J.
Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereafter the SARFAESI Act) is at the centre of controversy in all but one of these writ petitions, which have been presented by borrowers/a secured creditor seeking to challenge orders passed thereunder by the Chief Metropolitan Magistrate, Calcutta/the District Magistrates of various districts in the state (hereafter the CMM/DM, wherever referred to jointly). The writ petition that stands out from this group, without challenging the section 14 order operating in the field, challenges the action of dispossession following such an order. Since interpretation of section 14 would arise as a matter of necessity, these writ petitions shall be governed by this common judgment and order.
2. Making a departure from the usual course of ascertaining the factual matrix of each writ petition first, I propose to record the submissions advanced in regard to the scope, effect and import of section 14 of the SARFAESI Act, the issues that would emerge for decision based thereon and my understanding of the law, and then I shall apply the law to each case separately.
3. While arguing W.P. 11828(W) of 2015, Mr. Basu, learned advocate for the petitioner was heard submitting that law had undergone a sea change in view of the decision of the Supreme Court reported in (2014) 6 SCC 1 (Harshad Govardhan Sondagar v. International Asset Reconstruction Pvt. Ltd.) and an application under section 14 of the SARFAESI Act cannot be disposed of by the CMM/DM granting the prayer for assistance without putting the borrower on notice. Considering such broad submission, Mr. Joy Saha, learned advocate was requested to assist the Bench as amicus curiae. Elaborate submissions have been advanced by Mr. Saha and I record my appreciation for the efforts put in by him.
4. According to Mr. Saha, prior to amendment of section 14, law was fairly wellsettled that the CMM/DM was under no obligation to give any notice either to a borrower or to any third party and that an order passed thereunder followed a non-adjudicatory process, which was purely executionary in nature. Reference was made by him to the decisions reported in AIR 2009 Madras 10 (Indian Overseas Bank v. M/s. Sree Aravindh Steels Ltd.), AIR 2010 Bombay 53 (M/s. Puran Maharashtra Automobiles, Aurangabad v. Sub-Divisional Magistrate, Aurangabad), and AIR 2010 Chhattisgarh 83 [Ramdas Agrawal v. Collector (District Magistrate) District Durg].
5. It was, however, contended by Mr. Saha that with the advent of the amendments in section 14 and the decision in Harshad Govardhan Sondagar (supra), there has been a radical change in law. He urged that the Supreme Court in such decision while holding that the district magistrate is to give an opportunity of hearing to the lessees and to pass orders in conformity with the principles of natural justice has not indicated that such right of hearing is available only to the lessees/tenants and it would be to the exclusion of all other categories of aggrieved persons. To put it differently, Harshad Govardhan Sondagar (supra) does not make any classification between a pre-mortgage lessee and the borrower. The main plank on which the decision in Harshad Govardhan Sondagar (supra) is based is sub-section (3) of section 14 and the judgment cannot be read as confined only to a particular class; it should be read in a manner applicable to everyone against whom an order under section 14(1) would operate. He further urged that there could be no other example of different categories of persons affected by the same order being entitled to challenge such order before different fora and that, if it is held that only lessees/tenants would be entitled to approach the High Court either under Articles 226 or 227 while other categories of aggrieved persons must challenge the order of the CMM/DM before the tribunal under section 17, it would create an anomal
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