Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2009 Supreme(Mad) 2793

High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.K. MISRA & THE HONOURABLE MR. JUSTICE R. SUBBIAH
M/s. Kathikkal Tea Plantations, rep. by its Managing Director
Versus
State Bank of India rep.by its Chief Manager & Others
Writ Petition Nos.9043, 9044 and 10228 of 2009 and M.P.Nos.1 and 2 of 2009
Decided on: 30-07-2009

Advocates Appeared:
For the Petitioner:K. Sridhar, G. Desingu, Advocates. For the Respondents:R1, K. Sankaran, B.K. Seshadri, Srinath Sridevan, Advocates, R2, A.L. Gandhimathi, S. Sethuraman, Venkatesh Mahadevan, Advocates, G. Masilamani, Senior Counsel.

The main legal point established in the judgment is that the banks are legally entitled to take physical possession of secured assets after issuing sale certificates to auction purchasers, as per the provisions of the SARFAESI Act.

Headnote:
possession - secured assets - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) - Section 13(4), Section 13(6), Section 13(8), Section 14(1) - The court discussed the provisions of the SARFAESI Act, particularly Section 13(4), Section 13(6), Section 13(8), and Section 14(1), and their interpretation in the context of the banks' entitlement to take physical possession of secured assets after issuing sale certificates to auction purchasers. The court emphasized the purpose of the Act, the rights of secured creditors, and the process of taking possession and transferring assets, ultimately ruling that the banks are entitled to take possession under section 14(2) of the SARFAESI Act and that the issuance of sale certificates is not a bar to taking physical possession.
Fact of the Case:

The writ petitions involved borrowers who defaulted on loans from respondent banks, leading to the classification of the debt as nonperforming assets. The banks issued possession notices and subsequently sold the properties to auction purchasers, after which they sought to take physical possession with the help of police assistance. The petitioners challenged the banks' actions, questioning the legality of taking physical possession after issuing sale certificates.
Finding of the Court:

The court found that the banks are legally entitled to take physical possession of the properties after issuing sale certificates to auction purchasers, as per the provisions of the SARFAESI Act. The court emphasized the purpose of the Act, the rights of secured creditors, and the process of taking possession and transferring assets, ultimately ruling in favor of the respondent banks.
Issues: The core issue involved whether the respondent banks are legally entitled to take physical possession of the properties after issuing sale certificates in favor of auction purchasers, and whether the banks can maintain an application under Section 14(1)(2) of the SARFAESI Act seeking police assistance to take possession of the secured assets.
Ratio Decidendi: The court's decision was based on the interpretation of the SARFAESI Act, particularly Section 13(4), Section 13(6), Section 13(8), and Section 14(1), in the context of the banks' entitlement to take physical possession of secured assets after issuing sale certificates to auction purchasers. The court emphasized the purpose of the Act, the rights of secured creditors, and the process of taking possession and transferring assets, ultimately ruling that the banks are entitled to take possession under section 14(2) of the SARFAESI Act and that the issuance of sale certificates is not a bar to taking physical possession.
Final Decision: The court dismissed all the writ petitions, ruling in favor of the respondent banks and holding that they are entitled to take possession under section 14(2) of the SARFAESI Act and that the issuance of sale certificates is not a bar to taking physical possession.

Judgment :-

R. Subbiah, J.

Since the issue involved in all the writ petitions is one and the same, they are disposed of by a common judgment.

2. The core issue involved in all the writ petitions is, whether the respondent’s banks can take possession of the secured assets after issuing sale certificates in respect of auction purchasers.

3. The facts, which necessitated to raise the above question by the writ petitioners, are as follows:

The petitioner in W.P.No.9043 of 2009 is M/s.Kathikkal Tea Plantations, represented by its Managing Director. The petitioner had availed a loan from the 1st respondent bank by mortgaging the property viz., the land measuring to 1.7 acres in R.S.No.163/3, 161, 210/1B, 210/2, 233/2, 121/10, 121/1, 372/3, 68/2C2 in Kengarai Village, Kotagiri Taluk, Nilgiris District and another 8.74 acres in R.S.No.202/2, 203/1, 203/2A1 and 457/4 in Konavakorai Village, Kotagiri Taluk, Nilgiris District. Since there was a default in making payment to the respondent bank by the petitioner, the debt is classified as nonperforming asset and the respondent bank had issued notice on 27.01.2006 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the Act") to discharge the liability to the bank within sixty days from the date of notice. Subsequently, on failure to discharge the liability in full by the petitioner, as required under section 13(4) of the Act, the respondent bank had issued a possession notice under Section 13(4) on 112. 2006 to the petitioner. Pursuant to the said notice, the respondent bank had taken a symbolic possession of the property and sold the said property by a private treaty on 09.04.2007 to one P.Srinivasa Varma, Hyderabad, for a sale consideration of Rs.75.60 lakhs and issued a sale certificate in favour of the purchaser on 09.04.2007. Since only symbolic possession was taken by the bank and the secured debtor, namely, the petitioner, was not actually dispossessed and had continued to be in de facto possession of the property, even after issuance of the sale certificate in favour of the purchaser and, therefore, the respondent bank filed an application in Crl.M.P.No.424 of 2008 before the Chief Judicial Magistrate, Udhagamandalam, on 111. 2008 under Section 14(1)(2) of the Act, seeking an order to take possession of the petitioners property with the help of police aid and hand over the same to the respondent bank. By order dated 16.04.2009, permission was granted to the respondent bank to take possession of the property with the help of police assistance. Aggrieved over the same, the petitioner has filed the present writ petition to set aside the order dated 16.04.2009 passed in Crl.M.P.No.424 of 2008. The facts in the other writ petition namely W.P.No.9044 of 2009 are also similar to the facts of W.P.No.9043 of 2009. Hence, it is not necessary to narrate the facts of W.P.No.9044 of 2009.

4. So far as W.P.No.10228 of 2009 is concerned, the writ petitioner is a Private Limited Company. The directors of the writ petitioner company are M/s.Sarangapani, Shalini and Harshavardhan. The said petitioner company borrowed a loan from the 1st respondent to the tune of Rs.13 crores and subsequently, defaulted in making the repayment. Therefore, demand notice under section 13(2) was issued followed by notice under section 13(4). After several legal proceedings, finally the bank had issued a sale certificate in favour of the 2nd respondent auction purchaser, viz., Sri Lakshmi Ammal Educational Trust on 110. 2007 and the sale certificate was issued and registered on 110. 2007. One of the mortgaged properties, namely, R.S.No.222/1 in the Sub-Registration District of Ootacamund in the Doddabetta Panchayat together with a building thereon measuring 77.222 sq.ft.bearing door No.4/278, Ooty-Kotagiri Road, Doddabetta Junction, Nilgiris was leased out to M/s.Merit International Education Foundation from 15.02.2007 pursuant to a l

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