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2024 Supreme(Mad) 2158
IN THE HIGH COURT OF JUDICATURE AT MADRAS
S.S. SUNDAR, N. SENTHILKUMAR, JJ.
Zubeida Asgar Ali - Appellant
Versus
Department of Supervision - Respondent
W.P.No.188 of 2024 and W.M.P.No.208 of 2024
Decided on : 31-07-2024
For the Appellant : Mr.S.R.Rajagopal Senior Counsel for M/s.Tanya Kapoor
For the Respondent: Mr.E.Om Prakash, Senior Counsel, for Mr.R.Sugumaran, Mr.S.Satish, Mr.Adarsh S.Ujjwal Jain,
An Asset Reconstruction Company cannot enforce rights over properties not included in the original security interest assigned to it under the SARFAESI Act.
Headnote:(A) SARFAESI Act, 2002 - Sections 2(ba), 5, 13 - Writ Petition under Article 226 - Challenge to notices issued under Section 13(2) and 13(4) as ultra vires - The Asset Reconstruction Company cannot proceed against properties not part of the original security interest assigned to it - The court found that the Asset Reconstruction Company lacks the authority to enforce rights over properties mortgaged after the assignment of security interest. (Paras 5, 16, 17)
(B) Legal standing of Asset Reconstruction Companies - The court clarified that Asset Reconstruction Companies are recognized as secured creditors only for properties covered under the original security interest assigned to them. (Paras 16, 17)
Facts of the case:
The petitioner, as the legal heir of the original borrower, challenged notices issued by the Asset Reconstruction Company regarding properties not included in the original mortgage. The original borrower had passed away, and the property in question was acquired after the assignment of security interest.
Findings of Court:
The court ruled that the Asset Reconstruction Company cannot enforce rights over properties not included in the original security interest, thus allowing the writ petition.
Issues: The main issue was whether the Asset Reconstruction Company could proceed against properties not part of the original security interest assigned to it.
Ratio Decidendi: The court held that the Asset Reconstruction Company has no independent right to enforce security interests over properties mortgaged after the assignment of security interest, emphasizing the limitations of its authority under the SARFAESI Act.
Result: Writ petition allowed.
ORDER :
(Order of the Court was made by S.S. SUNDAR, J.)
Prayer : Writ Petition filed under Article 226 of the Constitution of India for issuance of a Writ of Declaration declaring the act of the Second Respondent Bank in issuance of the notice under Section 13(2) of the SARFAESI Act dated 16.08.2023 in Ref. No.JMFARC/VS/FY24/024, JMFARC/VS/FY24/025 and JMFARC/VS/FY24/026 and subsequent notice dated 01.12.2023 under Section 13(2) of the SARFAESI Act in Ref. No.JMFARC/VS/FY24/090, JMFARC/VS/FY24/091 and JMFARC/VS/FY24/092 is ultra vires the provisions of the SARFAESI Act, unconstitutional, lacks sanction of law, non-est, void ab inito.
This writ petition is for issuance of a Writ of Declaration declaring the act of the 2nd respondent in issuing a notice under Section 13(2) of the SARFAESI Act, dated 16.08.2023, and subsequent notice, dated 01.12.2023, under Section 13(4) of SARFAESI Act is ultra vires the provisions of the SARFAESI Act.
2. Short facts that are necessary for the disposal of this writ petition are as follows :
The petitioner is the wife and legal heir of the original borrower. The petitioner's husband, who is the original borrower, is no more and the other legal heirs of the deceased petitioner's husband are arrayed as respondents in this writ petition. The 2nd respondent is an Asset Reconstruction Company incorporated under Section 3 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (hereinafter referred to as “SARFAESI Act”). It is not in dispute that the 2nd respondent got assignment of security interest from the financial institution, namely, State Bank of India, which originally advanced loans in favour of the petitioner's husband. It is not in dispute that the financial institution, which lent money to the petitioner's husband and mother-in-law, initiated proceedings under Section 13(2) on 26.03.2012 of SARFAESI Act, after declaring the assets of the borrower non performing. The financial institution/State Bank of India also took symbolic possession by issuing notice under Section 13(4) of SARFAESI Act in September, 2012. The Bank also initiated proceedings before the Debt Recovery Tribunal invoking provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. In the meanwhile, the 2nd respondent got assignment of the security interest from the State Bank of India and it is in that capacity, it had got substituted in the place of State Bank of India before the Debt Recovery Tribunal. It is at that time, there was a memorandum of compromise on 18.03.2015 and the Debt Recovery Tribunal passed an order recording the terms of compromise on 06.08.2015.
3. Thereafter, there were further developments. The 2nd respondent initiated fresh proceedings by issuing notice under Section 13(2) of SARFAESI Act. It is admitted that the petitioner's husband and son, executed a mortgage in favour of the 2nd respondent in respect of a property comprised in S.No.181/1A, measuring an extent of 16943.342 sq.ft., in Pammal Village, Pallavaram Taluk, Kancheepuram District. It is admitted that the said property is not part of the mortgage originally executed in favour of the financial institution, from whom the 2nd respondent got assignment of security interest. The memorandum of deposit of title deeds was on 20.07.2016. Based on the subsequent mortgage by deposit of title deeds, the 2nd respondent issued notice under Section 13(2) of SARFAESI Act on 16.08.2023. A further notice intimating symbolic delivery of possession under Section 13(4) of the Act was also issued on 01.12.2023.
4. It is pertinent to mention that the property was acquired by the petitioner's husband and son only in 2016 and therefore, this was not a property that was originally mortgaged in favour of the State Bank of India. The present writ petition is therefore filed for a declaration declaring the proceedings initiated by the 2nd respondent under Sections 13(2) and 13(4) of SARFAESI Act in
