The of Judicature for Rajasthan has issued a landmark ruling, declaring that the State cannot impose service charges on banks for providing police assistance during the recovery of secured assets under the . A Division Bench comprising Justice Vinit Kumar Mathur and Justice Chandra Shekhar Sharma held that such assistance constitutes a rather than a private commercial service, effectively quashing previous executive orders that allowed police authorities to levy fees for such deployments.
The judgment settles a protracted legal dispute initiated by , which had challenged demand notices issued by the . These demands sought payments for police personnel deployed to facilitate the physical possession of mortgaged properties after borrowers defaulted on their repayment obligations. The bank argued that when a District Magistrate or Chief Metropolitan Magistrate invokes the powers under , they are performing a . Consequently, any police force deployed in aid of these must be provided free of cost, as the State is fulfilling its legislative mandate.
Statutory Obligations Overtake Commercial Interests in Asset Recovery
The court’s decision rests on the distinction between routine law-and-order maintenance and the discharge of a legal obligation under a specific federal statute. The Bench clarified that while the underlying loan between a bank and a borrower is undoubtedly a commercial transaction, the process of recovering possession through the Magistrate’s office is entirely statutory. By creating an enforcement mechanism under Section 14, the legislature intended for the State to ensure that banks can recover long-term assets to maintain financial stability.
"The orders passed by the Chief Metropolitan Magistrate or the District Magistrate under
are statutory in nature as they bear the trappings of judicial orders, inasmuch as they are passed by a statutory authority in the exercise of powers conferred by law,"
the court observed.
Because the SARFAESI Act empowers these authorities to use force to ensure compliance, the obligation to provide that force lies with the State. The court emphasized that the bank is not "hiring" police in the manner a private entity might hire security for a public event or exhibition. Instead, the police are acting as an instrument of the law to enforce an order issued by a competent authority. To impose costs on the bank for this enforcement would, in effect, be taxing the bank for exercising a legal right provided by Parliament to strengthen the country's financial ecosystem.
Rejection of the Argument
The respondent police authorities had strongly contended that since the recovery of an asset benefits the bank financially, the State is entitled to recover costs on the principle of . They relied on Section 46 of the Act, , which permits the government to charge for additional police forces provided for exhibitions, sales, or other private gains. However, the rejected this interpretation, ruling that Section 46 is not a catch-all provision applicable to sovereign duties.
The court stated,
"The police assistance required in the present case cannot be equated with the police assistance sought for as mentioned in Section 46 of the Act of
, as the assistance required in the present case is to provide aid to the
for achieving the objectives enshrined under the SARFAESI Act."
The Bench noted that the legislature carefully drafted the SARFAESI Act without prescribing a fee-based execution mechanism. By authorizing Magistrates to
"take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary,"
the law creates a direct duty. The
reasoned that if the legislature intended for banks to pay for this state assistance, it would have been explicitly written into the statute. The absence of such a provision is telling, and administrative circulars cannot override the legislative intent or the character of the
.
Mandatory Implementation of Recovery Measures Without Additional Costs
The ruling serves as a vital correction to the practice of District Magistrates or police departments leaving banks to fend for themselves after the issuance of a Section 14 order. The cited similar jurisprudence from other jurisdictions, including a ruling by the , which emphasized that the statutory process is not complete until the bank has obtained physical possession. The Rajasthan court noted that banks should not be forced to navigate a bureaucratic maze or pay exorbitant charges to see a court-sanctioned order through to its conclusion.
By setting aside the earlier order of the Single Judge—which had suggested that charges could be levied at rates prescribed under Rule 10 of the Rules, —the Division Bench has removed a significant financial and procedural hurdle for lending institutions in the state. The practical consequence of this judgment is that the State is now strictly prohibited from raising demand bills for Section 14 police support. This ensures that the recovery process remains efficient, fulfilling the legislative purpose of managing liquidity and reducing within the Indian banking sector.
The court underscored that a robust, cost-effective mechanism for recovery is essential for the nation's economic growth.
"In view of the above, this Court is of opinion that an efficient, robust and expeditious mechanism for the recovery of outstanding dues would not only instil confidence among banking institutions in the country to lend money with greater assurance and security, but would also strengthen the financial ecosystem,"
the judgment concluded. The State is now directed to ensure that all future requisitions for police aid under the SARFAESI Act are fulfilled without the levy of charges, effectively aligning administrative practice with the statutory spirit of the legislation.
statutory obligation - sovereign function
