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IN THE HIGH COURT OF PUNJAB AND HARYANA
[DIVISION BENCH]
Before
Hon’ble Mr. Justice Surya Kant
Hon’ble Mr. Justice Sudhir Mittal
CWP No.16366 of 2016 (O&M)
Asset Reconstruction Company (India) Ltd.
v.
State of Haryana & Ors.
{Decided on 18/08/2017}
(B) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, S.14--District Magistrate--Scope of powers--Review of orders--There is no provision under the SARFAESI Act under which the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, can review, recall or modify his order--The successor District Magistrate, therefore, had no jurisdiction whatsoever to entertain the borrower’s application for review of order by his predecessor and pass subsequent orders. (Para 28)
(C) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, S.14--District Magistrate--Scope of Powers--Repossession of secured assets--Assignee/Secured creditor cannot be denied possession of secured arrest on the ground that possession had been already been granted to other secured creditor--Held, the order or action under Section 14 is not and cannot be a onetime exercise--In the event of any change in the circumstances, the District Magistrate would be under a bounden duty to repeat the exercise under Section 14 till the assets are appropriated by the secured creditors--It is a continuing obligation on the District Magistrate. (Para 25)
Certainly. Here are the key points from the provided legal document:
The District Magistrate's role under Section 14 of the SARFAESI Act is primarily administrative and not quasi-judicial. The Magistrate is obliged to assist secured creditors in taking possession of secured assets when the statutory criteria are met, with no discretion to refuse assistance if the conditions are satisfied (!) .
The powers of the District Magistrate under Section 14 are limited to facilitating the physical possession of secured assets and do not include adjudicatory or review powers. Orders passed by a Magistrate under this section are not subject to review or modification by a successor Magistrate, and such review powers are not conferred by law (!) (!) .
Once the Magistrate has directed assistance under Section 14, the secured creditor's right to recover possession continues until the assets are sold or otherwise transferred. The exercise of powers under Section 14 is ongoing and not a one-time event, and the Magistrate is bound to repeat the process if circumstances change (!) (!) (!) (!) .
The order passed by the Magistrate under Section 14 is a statutory exercise of power, and the Magistrate has no authority to review, recall, or modify such an order. Orders made without jurisdiction are void ab initio (!) (!) .
If possession of the secured assets has already been taken over by the authorized officer of the secured creditor, the Magistrate cannot order re-possession. The exercise of powers under Section 14 is meant to facilitate initial possession, not to re-assert control over assets already in possession of the secured creditor (!) (!) .
The remedy available to borrowers or guarantors against orders under Section 14 is to approach the appropriate Debt Recovery Tribunal under Section 17 of the SARFAESI Act, as orders under Section 14 are considered part of the recovery process and are final unless challenged there (!) (!) .
The Court emphasized that the powers under Section 14 are created by statute and must be exercised strictly within the framework of the law. Any attempt by a Magistrate to review or modify an order under Section 14 without legal authority is invalid (!) .
The Court ultimately directed the District Magistrate to implement the original order under Section 14, which had directed recovery, and to do so within a specified timeframe, with the costs deposited by the respondents to be used for a charitable purpose (!) .
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Mr. Surya Kant, J.:- The petitioner is an Asset Reconstruction and Securitisation Company, registered duly under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, ‘the SARFAESI Act’). It seeks quashing of the order dated 14.06.2016 which eventually merged into the final order dated 24.10.2016 whereby the District Magistrate, Sonepat firstly adjourned the proceedings initiated under Section 14 sine die “till the consideration/disposal of objections…” and thereafter declared the order dated 08.02.2016 (P2) as null and void, vide which the application filed by the petitioner-institution under Section 14 of the SARFAESI Act was allowed, and consequently has dismissed that application.
2. The petitioner-Company (in short, ‘ARCIL’) is the assignee of (i) Industrial Development Bank of India Ltd (IDBI); (ii) Punjab National Bank (PNB); and (iii) the Union Bank. The Assigner-Banks vide their respective Deeds of Assignment dated 30.06.2008, 15.09.2008 and 22.12.2008 have assigned all the rights, title and interest over the dues recoverable from respondent No.3 – Kiran Overseas Exports Ltd. with underlying securities. ARCIL has acquired these rights within the meaning of Section 5 of the SARFAESI Act.
3. It is broadly an admitted fact that the assigner-Banks granted financial assistance to respondent No.3 for setting up an industrial unit to manufacture leather goods and garments and granted various financial assistance in the nature of term loans and working capital loans. The assigner-Banks granted an aggregate principal amount of Rs.29.06 crores to respondent No.3 under Diverse Loan Agreements. Respondent No.3 created equitable mortgage by depositing the original property documents and title deeds of the immovable property comprising a piece of land measuring 69 kanal 10 marla situated within the revenue estate of village Rasoi, Tehsil and District Sonepat together with other structures, fixed plant machinery, fixtures and fittings. Respondent No.4 to 6 stood guarantors and executed Deed of Guarantee and thus their liabilities are continuing and co-extensive with that of the borrower Company.
4. Respondents No.3 to 6 admittedly failed to pay the due instalments as a result of which the loan accounts of respondent No.3 were classified as Non Performing Assets. The Authorised Officer of the IDBI issued notice to the borrowers on 26.10.2006 under Section 13(2) of the SARFAESI Act calling upon them to pay the dues of Rs.110.90 crores as on 01.10.2006. The borrowers submitted their reply to the said notice which was duly considered.
5. Thereafter IDBI obtained consent of other secured creditors representing 3/4th of the outstanding dues and its Authorised Officer proceeded to take physical possession of the movable and immovable secured assets on 27.07.2007. It appears that respondent No.4 who is the Managing Director of respondent No.3, came forward with a proposal that since the industrial unit was functional and in operation, he may be appointed as an agent of Authorised Officer of IDBI and as custodian of the secured assets. His offer was accepted and a “Custody Arrangement Agreement” dated 27.07.2007 (R3) was entered into between the Authorised Officer and respondent No.4. Some of the salient terms and conditions of the said agreement are to the following effect:-
“4. The Authorised Officer does hereby expressly authorize and permit the custodian to operate the unit of the Borrower. However in consideration of the Authorised Officer agreeing to appoint him as the Custodian and as her agent, the Custodian agrees to pay to the Authorised Officer a sum of Rs.5,00,000 (Rupees Five Lakhs only per month as Royality met of all taxes, duties, cess, if any the payment shall be made in advance on the first working day of every month by way of a demand draft drawn on a nationalized bank and made in favour of “The Authorised Officer, Industrial Development Ban
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