The District Magistrate does not have the authority to decide on the classification of non-performing assets or the validity of mortgage deeds under Section 14 of the SARFAESI Act, 2002.

1. The petitioner before this Court Cholamandalam Investment and Finance Ltd, is a company incorporated under the Companies Act and is a “financial institution” as defined under the provisions Securitization and Reconstruciton of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred as SARFAESI Act, 2002). The petitioner has filed the present petition being aggrieved by the order dated 06.11.2017 (Annexure-P/1).

2. The respondent Nos.2 to 8 are borrowers, who have approached the petitioner for grant of loan of Rs.3.35 crore and as the account was declared as non-performing assets, the petitioner taking shelter of the provisions of SARFAESI Act, 2002, issued a demand notice on 30.09.2006 under Section 13(2) of the SARFAESI Act, 2002 calling the respondent Nos.2 to 8 to pay amount of Rs.3.93,52,355/-. Notices were published in the newspaper also and respondent Nos.2 to 8. in spite of receipt of notice, did not repay the amount and in those circumstances on 28.01.2017, the authorized officer of the petitioner took possession of the property mortgaged by the respondents keeping in view the statutory provisions as contained under Section 12 and 13 (4) of the SARFAESI Act, 2002.

3. The possession notice was also published in the newspaper i.e. in Times of India on 02.02.2017 and the total dues recoverable from respondent Nos.2 to 8 are to the tune of Rs.4,33,70,402/-. As the amount was not being paid and the account was declared as NPA, an application was preferred under Section 14 of the SARFAESI Act, 2002 for taking actual physical possession of the secured assets and for handing over them to the petitioner as required under the statutory provisions. An affidavit was also submitted by the authorized officer keeping in view Section 14(1)(b) of SARFASEI Act, 2002.

4. Various objections were raised by respondent No.2 to 8 before the District Magistrate and the District Magistrate has passed the impugned order.

5. The impugned order dated 06.11.2017 (Annexure-P/1) is on record and in the impugned order, the learned Magistrate has gone to the extent in adjudicating the fact whether the account was rightly classified as a non-performing asset or not. The relevant paragraph of the impugned order reads as under:-

^^vkosnd cSad }kjk izLrqr izdj.k esa vukosnd ds [kkrk

Wrondly NPA Declared fd;k x;k gS] D;ksafd vukosnd dh laifRr;ksa dh dysDVj xkbZM ykbZu _.k ls vf/kd gSA

6. Therefore as per sub section (o) of section 2 of SARFAESI Act, 2002, it is not covered under substandard or doubtful or loss assets, because loan outstanding is less then the valuation of the Property hence it is much more than the outstanding, therefore, classification of said asset as doubtful or substandard is totally wrong and illegal. izdj.k es a Security interest, within the meaning of Section 2(zf) has not been created in respect of the above mentioned properties which are secured assets within the meaning of Section 2 (zc), in favour of the secured creditor (the bank) within the meaning of Section 2(zc) of the Securitisation Act to mean the property on which security interest is created. vkosnd fofRr; laLFkk }kjk vukosndx.k dh mDr vkifRr dk LisflfQd tokc izLrqr ugha fd;k gS vkSj u gh dksbZ nLrkosth lk{; ls [kaMu fd;k x;k gS blfy;s vukosndx.k dh mDr vkifRr fof/kekU; gksus ls Lohdkj dh tkrh gSA

7. The aforesaid part of the order makes it very clear that the learned Magistrate has held that the account was wrongly classified as an NPA. Another important aspect of the case is that the learned Magistrate has also held that the mortgaged deeds were not registered, and therefore, no action can be initiated against respondent Nos.2 to 8. The relevant part of the order reads as under:-

^^izdj.k dk voyksdu fd;k x;kA izdj.k esa vkosnd foRrh; laLFkk }kjk ;g Lohdkj fd;k x;k gS fd izdj.k esa _.k vuqca/k fu"ikfnr gqvk gS vkSj _.k vuqca/k ds DykWt dzekad 27 esa ;g Li"V :i ls mYysf[kr gS fd that the Courts at Chennai alone shall have exclus