Andhra Pradesh High Court - Amravati
Jampani Krishna Babu vs Canara Bank, on 4 December, 2020
Author: C.Praveen Kumar
Bench: C.Praveen Kumar, M.Ganga Rao
THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR
AND
THE HON'BLE SRI JUSTICE M. GANGA RAO
W.P. No. 4430 of 2020
ORDER:(Per Hon'ble Sri Justice C.Praveen Kumar)
1) Challenging the Order passed by the Chief Judicial Magistrate-cum-Principal Assistant Sessions Judge, Guntur, in an application filed by the Secured Creditor under Section 14(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ['SARFAESI Act'], the borrowers/Petitioners filed the present Writ Petition under Section 226 of the Constitution of India.
2) The facts, in nutshell, are as under:
(i) The Petitioners herein obtained housing loan for a sum of Rs.75,00,000/- under loan account No.0605619007334 on 30.03.2016 and a sum of Rs.75,00,000/- under housing loan CRE vide loan account No.0605627000001 on 31.03.2016 from the 1st Respondent Bank. As the Petitioners committed default in payment of monthly instalments, the loan accounts of the Petitioners were declared as Non Performing Assets in the month of July 2019.2
(ii) The 1st Respondent Bank issued Section 13(2) notice calling upon the Petitioners to pay the outstanding dues in the loan accounts within 60 days. Thereafter, the 1st Respondent Bank initiated action under Section 13(4) of the Act and took symbolic possession of the property. Thereafter, the possession notice was published in leading newspapers. With a view to take physical possession of the secured asset, proceedings under Section 14 of the Act came to be issued by the 1st Respondent Bank by making an application under Section 14 of the Act vide Crl. M.P. No. 272 of 2019 before the Chief Judicial Magistrate-cum-Principal Assistant Sessions Judge, Guntur. By an Order, dated 13.01.2020, the said application was allowed, appointing one, Smt. G. Indira Priya Darshini, Advocate, as Advocate Commissioner for taking physical possession of the schedule property, to be handed over to the 1st Respondent Bank. Challenging the same, the present Writ Petition came to be filed.
3) Sri T. Lakshminarayana, learned counsel for the Petitioners, would contend that, the order impugned is totally contrary to Section 14 of the Act.
He pleads that, the Chief Judicial Magistrate is not having any authority to authorise or appoint an Advocate Commissioner to take possession of the property. Referring 3 to Section 14(1A) of the Act, he would submit that, the District Magistrate or Chief Metropolitan Magistrate for such purposes can only authorise an officer subordinate to him to act, and the Advocate Commissioner appointed is not an officer subordinate to the District Magistrate. In other words, his plea is that the officer, who was entrusted with the task of executing the warrant, should be an officer working under the Chief Metropolitan Magistrate or District Magistrate on the date of passing of the order.
The Counsel for the Petitioners would further contends that, in view of the proviso to Section 14(1) of the Act, any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorized officer of the secured creditor, declaring the aggregate amount of financial assistance granted and the total claim of the bank as on the date of filing the application. In the absence of the same, he would contend that, the order stands vitiated.
The Counsel for the Petitioners further contends that the details of the properties over which the borrower has created security interest are not mentioned in the application filed under Section 14(2) of the Act. For all the above said reasons, he would submit that the order under challenge is liable to be set-aside.
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4) Opposing the same, Sri K. Hari Narayana, learned Counsel appearing for the Respondent Bank, would submit that, in view of the fact that, the Advocate Commissioner has taken possession of the property on 06.03.2020, which is evident from the panchanama placed on record, the Writ Petition has become infructuous. Apart from that, he would contend that the argument of the learned counsel for the Petitioners that there was total non-compliance of Section 14 of the Act is baseless. According to him, there was substantial compliance of the provisions of the Act, having regard to the law laid down by the Apex Court, as well as various High Courts on these aspects.
5) The point that arises for consideration is, whether the application under Section 14(2) of the Act filed by the Respondent Bank is in compliance with the requirement of law?
6) As stated earlier, the main objection of the counsel for the petitioners was with regard to appointment of an Advocate Commissioner by the Chief Judicial Magistrate, on the ground that, he is not an Officer subordinate to him as on the date of appointment.
7) Before dealing with the issue, it would be useful to refer to the Section 14 & 14(1A), which reads as under:-
"Sec.14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking 5 possession of secured asset.--(1). Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured assets is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured assets, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or as the case may be, the District Magistrate shall, on such request being made to him--
(a) take possession of such asset and documents relating thereto; and
(b) forward such asset and documents to the secured creditor:
Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that--
(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;
..... .... .... "
8) Section 14(1A) of the Act, reads as under:-
"(1A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,--
(i) to take possession of such assets and documents relating thereto; and 6
(ii) to forward such assets and documents to the secured creditor.] (2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate, any officer authorised by the Chief Metropolitan Magistrate or District Magistrate, done in pursuance of this section shall be called in question in any court or before any authority.
9) From a reading of Section 14(1A) of the Act, it is clear that the District Magistrate or Chief Metropolitan Magistrate may authorise any officer subordinate to him to take possession of such assets and documents relating thereto and forward such assets and documents to a secured creditor. For securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or District Magistrate may take or cause to take such steps and use, or cause to use, such force, as may, in his opinion, be necessary.
10) From a reading of the above, though, the word used therein is 'may' and not 'shall'. As held by the Delhi High Court in Rahul Chaudhary v. Andhra Bank And Ors [W.P. (C) 657 of 2020, dated 17.01.2020], there are two ways of appreciating the provision. First, the expression "may" relates to the choice of the subordinate officer. The 7 other meaning that can be placed on the provision is that District Magistrate/ Chief Metropolitan Magistrate is vested with discretion to appoint officers subordinate to him to take possession of the secured asset. In exercising of such power, the District Magistrate/Chief Metropolitan Magistrate is obliged to take possession once an application in that behalf is preferred under sub-section (1) of Section 14 of the Act by the secured creditor. While exercising such power, a discretion is given to the District Magistrate/ Chief Metropolitan Magistrate to appoint even their subordinate officers as Receivers/Advocate Commissioners and Section 14(1A), does not bar the same. It is also to be noted here, the exercise of power by the learned Chief Judicial Magistrate under Section 14 of SARFAESI Act is not one of adjudicatory, but rather it is regulatory. Such power, can be termed as administrative power, since the Chief Judicial Magistrate will pass orders under Section 14, though reasoned, basing on the material filed by the secured creditor and no notice of appointment of Advocate Commissioner would be issued to the defaulter before passing the said order. Therefore, it has been held that while deciding administrative function, the Chief Judicial Magistrate has rightly authorised Advocate Commissioner to take physical possession of the schedule property. 8
11) The issue relating to appointment of Advocate Commissioner by the learned Chief Judicial Magistrate under Section 14 of SARFAESI Act was also dealt exhaustively by the Kerala High Court in Canara Bank Limited v. Stephen John and others1. Before referring to the judgment of Kerala High Court, it is to be noted, Section 14 of the SARFAESI Act was amended and Sub-Section (1A) was added. Even before amendment, the said provision was incorporated in the SARFAESI Act only with a view to endeavour the secured creditor to take assistance of the State while taking possession of the asset. It appears that to meet the resistance of the borrower, the secured creditor was given some form of protection through the State. The issue as to whether the act of Chief Judicial Magistrate under Section 14 is adjudicatory or administrative was exhaustively dealt with by the Kerala High Court in Canara Bank Limited's case (1 supra), as under :
"7. Interpreting the unamended provision, in Ayishumma v. Hassan [2009 (3) KLT 399] and South Indian Bank Ltd. v. Union of India [2010 (4) KLT 657], this court held further that the only aspect to be seen by the Chief Judicial Magistrate, while exercising power under section 14 of the Act, is whether the property in respect of which assistance is sought is a secured asset. It is thereafter, the provision has been amended and the provisos to sub-section (1) and sub- section (1A) were introduced. The amendments have not made any change to the scheme of the provision. On the other hand, it is seen that the amendments were intended to 1 2018 (3) KHC 670 9 remove the ambiguity in the unamended provision as regards the jurisdiction of the competent authority exercising power under Section 14 of the Act. In the light of the amendments, before rendering assistance to the secured creditor, it is obligatory for the Chief Judicial Magistrate exercising power under section 14 of the Act to satisfy that the secured creditor has made a declaration in the form of an affidavit as regards matters specifically mentioned in the first proviso to sub-section (1) of Section 14. In other words, after the amendments, if the secured creditor does not file an affidavit declaring all the facts required to be declared in terms of the first proviso, the Chief Judicial Magistrate is not obliged to render assistance to them. The correctness or otherwise of the declaration, going by the scheme of the provision, is not a matter at all for the Chief Judicial Magistrate to adjudicate. As taking possession of the secured asset through the process under section 14 of the Act is also one of the measures contemplated under sub- section (4) of section 13 of the Act, the correctness, if any, of the declaration made by the secured creditor for the purpose of availing assistance under Section 14 of the Act is a matter for the Debts Recovery Tribunal exercising power under Section 17 of the Act to adjudicate upon, if raised.
8. It is seen that confusion arose as regards the jurisdiction under Section 14 on account of the fact that the Chief Judicial Magistrate entrusted with judicial functions is exercising that jurisdiction. Merely for the reason that the power under Section 14 is exercised by the Chief Judicial Magistrate, it cannot be argued that the power is judicial as it is now settled that the fact that the power is entrusted or wielded by a person who functions as a court is not decisive of the question whether the act or decision is administrative or judicial. An administrative order would be one which is directed to the regulation or supervision of matters as distinguished from an order, which decides the rights of parties or confers or refuses to confer rights to property, which are the subjects of adjudication by the court. One of the surest tests would be whether a matter which involves the exercise of discretion is left for the decision of the 10 authority, particularly if that authority were a court [see Shankarlal Aggarwala v. Shankarlal Poddar (AIR 1965 SC
507)]. In the instant case, there is no discretion whatsoever for the Chief Judicial Magistrate exercising power under Section 14 and the power is conferred only for the regulation of matter as distinguished from a power to decide the rights of parties. If the scope of the jurisdiction of the Chief Judicial Magistrate under Section 14 is understood in this fashion, there is no difficulty in arriving at the conclusion that the power is only administrative and not judicial."
12) The view expressed by the Kerala High Court, fortifies our view that the power of Chief Judicial Magistrate under Section 14 of the Act is administrative in nature, and hence the act of the Magistrate in authorizing the Advocate Commissioner to take possession cannot be found fault with.
13) In fact, the Division Bench of Madras High Court in S. Lalitha v. District Collector2 considered the same issue and observed in para 7 as under :
"7. We have considered the pleadings and entire facts of the case. In the case on hand, the petitioner was given opportunity right from the day she received the notice under Section 13(2) of the Act 2002, for making the payment. The petitioner was thereafter, further granted an opportunity for settlement of the loan by communication dated 28.4.2011, and the petitioner had full information with regard to the auction of the property and also about taking cognizance of the matter by the District Magistrate on an application made by the secured creditor. The petitioner has not taken any steps even to satisfy be depositing at least a part of the payment. The contention that the direction to the Deputy 2 MANU/TN/0037/2015 11 Collector to take over possession of the property in question is contrary to the provisions of law, is necessarily to be rejected as the process of securing possession of the property in question, has to be done either by an authority or Advocate Commissioner and as such, there is no illegality."
In fact, a Division Bench of this Hon'ble Court in W.P.Nos.20778 & 21300 of 2019, dated 17.9.2020, accepted the said proposition.
14) Therefore, from the judgments referred above, the contention urged by the learned counsel for the petitioners that the Chief Judicial Magistrate is not having any authority to appoint an Advocate Commissioner to take possession cannot be accepted and accordingly the same is rejected.
15) The next ground raised by the learned counsel for the petitioners is that there is no compliance of proviso to Section 14 and also Section 14(1) of the Act.
16) In Tulsi Rocks Pvt. Ltd. v. Bank of India3, delivered by a Division bench of the combined High Court for the States of Telangana and Andhra Pradesh, in Writ Petition No.5018 of 2019, dealt with the issue as to what amounts to compliance of Section 14 of the SARFAESI Act. In the said case, the Court, after considering the affidavit filed and the documents filed along with the M.P., held that if the 3 2019(3) ALD 254 12 parameters indicated in clauses (i) to (ix) of the first proviso to Section 14(1) are broadly complied with, the court is bound to invoke the doctrine of 'substantial compliance'. The Court further held that clauses (i) to (ix) of the first proviso to Section 14(1) of the Act merely provide the form in which the essential averments for an application under Section 14 of the Act are to be made. Therefore, what is important is the substance and not the form. It will be useful to extract the relevant paragraphs of the judgments, which is as under :
"16. While reiterating our finding that all the ingredients of Clauses (i) to (ix) of the first proviso to Section 14(1) of the Act find a place in the affidavit of the authorized officer filed in support of the application under Section 14 of the Act, we would also add that in cases of this nature, a substantial compliance would be sufficient. As pointed out by the Supreme Court in Commissioner of Central Excise v. Mrs. Harichand Shri Gopal, the Courts have always invoked the doctrine of 'substantial compliance', to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the essence or the substance of the requirements. The Supreme Court pointed out in the said case that the court should determine whether the Statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance."
17) Similarly, in Canara Bank Ltd. v. Stephen John 4 a learned Single Judge of the Kerala High Court dealt with the issue and held that if no affidavit is filed by the secured creditor declaring all the facts required to be adjudicated in 4 (2018) AIR (Kerala) 136 13 terms of the first proviso, then the Chief Judicial Magistrate is obliged to render assistance to them. The correctness or otherwise of the declaration is not a matter at all for the Chief Judicial Magistrate to adjudicate. The correctness of the declaration made by the secured creditor for the purpose of availing the assistance under Section 14 of the Act is for Debt Recovery Tribunal to consider while exercising its power under Section 17 of the Act.
18) Similarly, the Bombay High Court in Kotak Mahendra Bank Ltd. v. The State of Maharashtra & Ors. (W.P.No.1273 of 2017, dated 3.5.2018) dealt with the issue relating to compliance of Section 14 of the Act. While dealing with compliance of Section 14 of the Act, held that the Magistrate is only required to satisfy himself that the statements made are in tune with the nine clauses under Section 14(1). Once this has been done, the Magistrate is required to pass an order under Section 14(3), for taking actual physical possession of the mortgaged assets. The Court held that the argument advanced, namely, that the Magistrate has to decide the correctness or otherwise of the information given in the application, was rejected.
19) Keeping in view the principles laid down in the judgments referred to above, it is now to be seen whether there was compliance of Section 14 and Section 14(1). A reading of the averments in the affidavit filed by the 14 Authorized Officer, in support of the application under Section 14, would clearly show the amount of loan taken; memorandum of creation of mortgage of deposit of title deeds; deposit of title deeds and the date on which the loan was declared as NPA. Apart from that, the affidavit also refers to the loans taken and the amount due as on 28.11.2019. The said affidavit filed on 24.12.2019 categorically states that the respondents therein are due Rs.75,34,480.21 paise as on 16.8.2019 under loan account No.605619007334 and a sum of Rs.63,47,760.54 paise as on 16.8.2019 under housing loan CRE under account No.605627000001 plus interest at the contractual rate on the aforesaid amount together with incidental expenses, costs, charges etc., The affidavit also discloses issuance of notice under Section 13(2) of the Act. It also mentions about the receipt of notice by the petitioners herein and they failing to regularise their loan accounts, leading to issuance of possession notice on 28.11.2019 mentioning the total due amount as on that day at Rs.77,10,916.21 paise and Rs.65,13,066.54 paise respectively plus interest and other charges. The same came to be published in newspapers on 1.12.2019.
20) Therefore, it cannot be said that there was no compliance of Section 14(1) at all. As observed by the Division Bench of the combined High Court in Tulsi Rocks 15 Pvt. Ltd.'s case (supra) substantial compliance amounts to compliance of Section 14(1) of the Act. Further, along with the application filed, which came to be numbered as Criminal M.P.No.272 of 2019, the secured creditor enclosed list of documents, which would reveal the properties which were mortgaged and which are required to be put to e-auction. It may not be necessary to enclose original documents of each of the property along with the petition filed. Suffice if xerox copies of those documents are enclosed to the application, which has been done. In view of the law laid down we feel that there was substantial compliance and as such the argument of the learned counsel for petitioners that there was no compliance of Section 14 may not be correct.
21) One other argument advanced by the learned counsel is whether time limit stipulated in Section 14 is mandatory or directory. The issue also came up for consideration before the Madras High Court in C.Bright, Managing Trustee v. District Collector [W.P.(MD) No.11986 of 2019 & batch, dated 19.7.2019] wherein at para 18 the Court held as under :
"The primary question in these Writ Petitions, namely, whether the time limits in section 14 of the SARFAESI Act are mandatory or directory should be answered in light of the principles enumerated above. As stated above, the object and purpose of the said time limit is to ensure that such applications are decided expeditiously so as to enable 16 secured creditors to take physical possession quickly and realise in their dues. Moreover, as stated earlier, the consequences of non-compliance with the time limit are not specified and the sequitur thereof would be that the district collector/district magistrate concerned would not be divested of jurisdiction upon expiry of the time limit. In this connection, it is also pertinent to bear in mind that if the consequences of non-compliance test is applied, the borrower, guarantor or lessee, as the case may be, is not aversely affected or prejudiced, in any manner, whether such applications are decided in 60, 70 or 80 days. On the other hand, the secured creditor is adversely affected if the provision is construed as mandatory and not directory in as much as it would delay the process of taking physical possession of assets instead of expediting such process by entailing the filing of another application for such purpose. For all these reasons, the time limit stipulation in the amended Section 14 of the SARFAESI Act is directory and not mandatory."
The said view was also accepted by the Division Bench of this Court in W.P.Nos.20778 & 21300 of 2019, dated 17.9.2020, which warrants no interference.
22) The objection raised by the counsel for the respondents is to the effect that when an alternative remedy is available under the Act, the petitioners ought not to have invoked the jurisdiction of this Court under Article 226 of the Constitution of India.
23) The issue as to whether the petitioner has no alternative remedy when an order under Section 14(1) of the Act came up for consideration in Authorised Officer, 17 Indian Overseas Bank & Anr. v. Ashok Saw Mill5. In the said case, the main question, which fell for determination, was, whether the DRT would have jurisdiction to consider and adjudicate post Section 13(4) events or whether its scope in terms of Section 17 of the Act will be confined to the stage contemplated under Section 13(4) of the Act?
24. On an examination of the provisions contained in Chapter III of the Act, in particular Sections 13 and 17, the Hon'ble Supreme Court, held as under:
35. In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the banks or financial institutions, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in Sub-section (4) of Section 13 taken by the secured creditor, to make an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in Sub-section (3) thereof.
36. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.
.... .... .... .... 5 (2009) 8 SCC 366 18
39. We are unable to agree with or accept the submissions made on behalf of the Appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT.
(Emphasis supplied by us)
25) In view of the above, it is manifest that an action under Section 14 of the Act constitutes an action taken after the stage of Section 13(4), and therefore, the same would fall within the ambit of Section 17(1) of the Act. Thus, the Act itself contemplates an efficacious remedy to the borrower or any person affected by an action under Section 13(4) of the Act, by providing for an appeal before the DRT.
26) In Standard Chartered Bank & Ors. v. V.Noble Kumar & Ors.6 the Apex Court held as under :
"30. The "appeal" under Section 17 is available to the borrower against any measure taken under Section 13(4). Taking possession of the secured asset is only one of the measures that can be taken by the secured creditor. Depending upon the nature of the secured asset and the terms and conditions of the security agreement, measures other than taking the possession of the secured asset are possible under Section 13(4). Alienating the asset either by lease or sale etc. and appointing a person to manage the secured asset are some of those possible measures. On the other hand, Section 14 authorises the Magistrate only to take possession of the property and forward the asset along 6 2013 (9) SCC 620 19 with the connected documents to the borrower. Therefore, the borrower is always entitled to prefer an "appeal" under Section 17 after the possession of the secured asset is handed over to the secured creditor. Section 13(4)(a) declares that the secured creditor may take possession of the secured assets. It does not specify whether such a possession is to be obtained directly by the secured creditor or by resorting to the procedure under Section 14. We are of the opinion that by whatever manner the secured creditor obtains possession either through the process contemplated under Section 14 or without resorting to such a process obtaining of the possession of a secured asset is always a measure against which a remedy under Section 17 is available.
31. It can be noticed from the language of the proviso to Section 13(3A) and the language of Section 17 that an "appeal" under Section 17 is available to the borrower only after losing possession of the secured asset. The employment of the words "aggrieved by...taken by the secured creditor" in Section 17(1) clearly indicates the appeal under Section 17 is available to the borrower only after losing possession of the property. To set at naught any doubt regarding the interpretation of Section 17, the proviso 16 to Sub-section (3A) of Section 13 makes it explicitly clear that either the reasons indicated for rejection of the objections of the borrower or the likely action of the secured creditor shall not confer any right under Section 17."
27) Since the possession of the property has already been taken over by the Advocate Commissioner, the borrowers/petitioners herein can avail the remedy under Section 17 of the Act, if otherwise entitled to at this stage. Hence, on this score also the Writ Petition is liable to be rejected.
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28) From the above findings, it is very clear that the Writ Petition has failed to satisfy the Court on any of the points urged, namely, (1) the power of Chief Judicial Magistrate to appoint Advocate Commissioner to take possession of the property; (2) non-compliance of Section 14(1) of the Act; and (3) approaching this Court under Article 226 of the Constitution of India without availing the remedy of appeal under Section 17 of the Act. Hence, we see no ground to interfere with the impugned order.
29) Ergo, the Writ Petition is dismissed on all counts. No order as to costs.
Consequently, miscellaneous petitions pending, if any, shall stand closed.
_______________________________ JUSTICE C. PRAVEEN KUMAR __________________________ JUSTICE M. GANGA RAO Date: 04-12-2020 SM/SKMR 21 THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR AND THE HON'BLE SRI JUSTICE M. GANGA RAO W.P. No. 4430 of 2020 (Per Hon'ble Sri Justice C.Praveen Kumar) SM/SKMR Dt.