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IN THE HIGH COURT OF MADHYA PRADESH, JABALPUR
Hemant Gupta, CJ, Vijay Kumar Shukla, J.
Aditya Birla Finance Limited – Appellant
Versus
Shri. Carnet Elias Fernandes Vemalayam and Others – Respondents
Writ Appeal No. 784 of 2018
Decided On : 13-07-2018
SARFAESI Act - District Magistrate's Order - Section 14 of the SARFAESI Act - Summary
Fact of the Case:
The appellant sanctioned a loan to the writ petitioners. The appellant demanded the entire housing loan due to financial stress faced by the writ-petitioners. The writ-petitioners availed a housing loan from the appellant and disputed the appointment of the sole Arbitrator. The Arbitrator announced the Award holding the writ-petitioners liable to pay the appellant a sum of Rs.23,65,07,643. The writ-petitioners filed a petition under Section 34 of the Arbitration Act, which is pending adjudication before the High Court of Bombay. The appellant initiated proceedings under the SARFAESI Act by serving a notice under Section 13(2) of the Act. The appellant was conferred rights as that of secured creditor under the Act. The writ-petitioners filed an application under Section 17 of the Act before the Debts Recovery Tribunal, Jabalpur against the action initiated by the appellant. The appellant initiated the proceedings under Section 14 of the Act. The District Magistrate passed an order under Section 14 of the Act, which was set aside by the learned Single Bench.
Finding of the Court:
The learned Single Bench held that there is no alternative remedy against an order passed by the District Magistrate under Section 14 of the Act. However, a Division Bench of the Court held that remedy of an aggrieved person against an order passed by the District Magistrate is before the Debts Recovery Tribunal under Section 17 of the Act. The learned Single Bench also held that an order passed by the District Magistrate overrides the order of the Bombay High Court, which was found to be incorrect. The Court found that the District Magistrate's order under Section 14 of the Act cannot be said to be illegal on account of a Receiver appointed in proceedings under Section 9 of the Arbitration Act. The Court also found that the appellant had filed a detailed affidavit as required under Section 14 of the Act and that the proceedings under Section 14 of the Act are not proceedings to adjudicate the rights of the parties. Therefore, no notice is contemplated to be served upon the debtor. The Court set aside the order of the learned Single Bench and restored the order of the District Magistrate.
Issues: The issues involved in the case were the validity of the order passed by the District Magistrate under Section 14 of the SARFAESI Act, the alternative remedy against an order passed by the District Magistrate, and the disclosure of the order passed by the Bombay High Court appointing a Receiver in the proceedings under Section 9 of the Arbitration Act.
Ratio Decidendi: The Court held that the remedy of an aggrieved person against an order passed by the District Magistrate is before the Debts Recovery Tribunal under Section 17 of the Act. The Court also found that the District Magistrate's order under Section 14 of the Act cannot be said to be illegal on account of a Receiver appointed in proceedings under Section 9 of the Arbitration Act. The Court further held that the appellant had filed a detailed affidavit as required under Section 14 of the Act and that the proceedings under Section 14 of the Act are not proceedings to adjudicate the rights of the parties. Therefore, no notice is contemplated to be served upon the debtor.
Final Decision: The Court set aside the order of the learned Single Bench and restored the order of the District Magistrate.
Hemant Gupta, CJ.
The challenge in the present writ appeal is to an order passed by the learned Single Bench on 11.04.2018 in Writ Petition No.8077/2017 (Shri Carnet Elias Fernandes Vemalayam and another vs. District Magistrate and others) whereby an order passed by the District Magistrate, Bhopal on 28.04.2017 under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the Act”) has been set aside.
2. The sole reason for setting aside the order of the District Magistrate is that the Bombay High Court in Arbitration Petition No.1118/2015 (Aditya Birla Finance Limited vs. Mr. Carnet Elias Fernandes and another) has passed an order on 04.09.2015 to hand over the physical possession of the property to the Receiver in proceedings initiated by the appellant under Section 9 of the Arbitration and Conciliation Act, 1996 (for short “the Arbitration Act”). It was found that since symbolic possession of the property is with the Receiver, therefore, an order passed by the District Magistrate cannot override the order dated 04.09.2015 passed by the Bombay High Court. The relevant extract from the order dated 11.04.2018 (Annexure A-1) passed by the learned Single Bench, reads, thus:
“19. So far as ground No.3 and 4 regarding physical possession of the properties is concerned, the Bombay High Court while passing the interim order has directed to hand over the physical possession of the properties to the receiver. Thus, as per the interim order passed by the Bombay High Court, symbolic possession of the properties has been given to the receiver and, thus, as the symbolic possession of the properties is with the receiver, the order passed by respondent No.3 ceased to have any effect and cannot override the order dated 04/09/2015 passed by the Bombay High Court. The order passed by the Bombay High Court is certainly having a binding effect and cannot override and ceased by taking shelter of any other law, be it SARFAESI Act. Respondent No.3 has concealed the fact about the order passed by the Bombay High Court on 04/09/2015 and that the properties as of now are not with the petitioners and it is with the receiver of the Bombay High Court. As these facts were not brought to the notice of respondent No.1, therefore, the said order deserves to be quashed.”
3. Though the learned Single Bench has held that there is no alternative remedy against an order passed by the District Magistrate under Section 14 of the Act, but, a Division Bench of this Court in W.P. No.19028/2017 (Sunil Garg vs. Bank of Baroda and others) decided on 16.04.2018 has held that remedy of an aggrieved person against an order passed by the District Magistrate is before the Debts Recovery Tribunal under Section 17 of the Act. Therefore, such finding of the learned Single Bench cannot be sustained.
4. Since the learned Single Bench has held that an order passed by the District Magistrate overrides the order of the Bombay High Court, whether such reasoning is legal and proper, needs to be examined.
5. The parties have entered into an agreement on 28.09.2012 whereby the appellant sanctioned loan of Rs.18.00 Crore to the writ petitioners (respondent Nos.1 and 2 herein). The stand of the writ-petitioners is that they faced an acute financial stress on account of an order of the Hon’ble Supreme Court cancelling the coal blocks and the Reserve Bank of India advised the Banks to curtail their exposures on power sector based industries. Thereafter, the writ-petitioners availed a housing loan from the appellant and that the appellant demanded the entire housing loan on 08.01.2015. The stand of the writ-petitioners is that though the agreement contemplated resolution of dispute at Bhopal but the appellant initiated arbitration proceedings in Mumbai by unilaterally altering the arbitration clause. The sole Arbitrator was appointed. The appointment of which was disputed by the writ-petitioners. However, the Arbitrat
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