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Protecting creditors, removing speed breakers

Protecting creditors, removing speed breakers

Section 14 of the SARFAESI Act, 2002 provides for assistance to creditors in enforcing their security interest as envisaged under section 13 of the Act. The provisions of the Act enable banks and financial institutions to realize long-term assets, to manage problem of liquidity and asset liability mismatches and to improve recovery by exercising powers to take possession of and sell securities and reduce NPAs in a non-cumbersome manner without approaching civil courts.

Section 13 of the Act deals with enforcement of security interest. 13(4) envisages that in the event a default is committed by the borrower in discharging his liability in full, within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the measures provided in sub-section (4) and take symbolic possession of the secured asset. Section 14 provides for assistance by the District Magistrate or Chief Metropolitan Magistrate, as the case may be, to the secured creditor for taking over actual physical possession of secured asset.

Two questions now arise: (a) whether pendency of remedy available under Section 17 would be an embargo for the secured creditor from taking over actual physical possession of the secured asset, and (b) whether the secured creditor has a right to obtain actual physical possession of the secured asset once it has already been auctioned and purchased by a third party/auction purchaser.

To answer the first question, reference may be made to a judgment rendered by a full bench of the Madras High Court in the case of Lakshmi Shanker Mills (P) Ltd. & Others vs. Authorised Officer/Chief Manager, Indian Bank & Others reported in 2008 SCC OnLine Mad 279. The judgment categorically held that mere pendency of application under Section 17 does not put an embargo on the secured creditor/bank from proceeding under Section 14 since, the Debt Recovery Tribunal has wide power to restore possession to the borrower, if action taken by the secured creditor under Section 13(4) of the Act is declared as invalid. This decision of the Madras High Court has also been reiterated and relied upon by the Allahabad High Court in its judgment and order dated 14 Dec 2012 delivered in Writ-C No. 58329 of 2012 (Dilip Kumar Singh and Others vs. State of UP and Others).

The second question also stands squarely covered by a judgment of the Supreme Court of India reported in (2018) 15 SCC 99 in the case of ITC Ltd. vs. Blue Coast Hotels, wherein, it has been held that a secured creditor has a right to take actual physical possession of a secured asset even after its transfer by way of sale in favour of the auction purchaser has been effected.


While analyzing the nature of powers exercised by the District Magistrate or the Chief Metropolitan Magistrate while passing an order under Section 14, the moot point to be considered is whether the authority is required to adjudicate the disputes between the borrower and the secured creditor.

The Supreme Court of India has consistently held that the interest of a secured creditor ought to be safeguarded in recovery proceedings. The nature of powers to be exercised by the authority under Section 14 are ministerial in nature and they are not required to adjudicate the dispute between the borrower and the secured creditor. The aforesaid settled law finds its roots in a cornucopia of pronouncements of the Supreme Court of India, most recently reiterated in NKGSB Cooperative Bank vs. Subir Chakravarty reported in 2022 SCC OnLine SC 239, 2022 SCC OnLine SC 1299 in re: Balkrishna Rama Tarle vs. Phoenix ARC and Others, and in 2022 SCC OnLine SC 921 in re: R.D. Jain and Co. vs. Capital First Ltd. and Others.

Therefore, once all the requirements under Section 14 are complied with/satisfied by the secured creditor, it is the duty cast upon the authority under Section 14 to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets either personally or through assistance of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner.


The proceedings under Section 14 of the Act should not be allowed to linger, since it was the intention of the legislature to discourage parallel litigation and secure the interest of the secured creditor in recovery proceedings in a time bound manner. The Authority is required to pass an order within the stipulated time frame as provided under the provision, since time is of the essence in recovery proceedings. However, in reality, such applications remain pending beyond the stipulated time frame as provided under the enactment, possibly due to bureaucratic red-tapeism and/or because the authority concerned indulge in adjudication of disputes between the secured creditors and borrower, which is impermissible.


Though the exact data of such violations is not available, however, quite a large number of such violations are primarily being reported in Uttar Pradesh, Maharashtra and Tamil Nadu. The cause may be a lack of understanding of the enactment as well as of the pronouncements rendered by the constitutional courts from time to time. The need of the hour is to increase awareness among the authorities who need to be sensitised regarding the existing legal position and relevant norms by means of legal awareness camps and/or training seminars, so that in future such illegality is not perpetuated.


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