Gujarat High Court
Devani Jagdishbhai Dahyabhai(Third ... vs District Magistrate Surat on 5 December, 2018
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
C/SCA/18035/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 18035 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18040 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18041 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18042 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18043 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18045 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18047 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18048 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18050 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18051 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18055 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18057 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18063 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 18064 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ?
YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order NO made thereunder ?
Page 1 of 26C/SCA/18035/2018 JUDGMENT ========================================================== DEVANI JAGDISHBHAI DAHYABHAI(THIRD PARTY) Versus DISTRICT MAGISTRATE SURAT ========================================================== Appearance:
MR. BK. RAJ(3794) for the PETITIONER(s) No. 1MR RITESH D PATADIA, ADVOCATE for the Respondent No.2 DS AFF.NOT FILED (N)(11) for the RESPONDENT(s) No. 10,11,12,13,2,3,4,5,6,7,8,9 IN SPECIAL CIVIL APPLICATIONS NOS.18035/2018, 18040/2018, 18041/2018, 18042/2018, 18043/2018, 18045/2018 AND 18047/2018:
MR RONAK RAVAL, AGP(1) for the RESPONDENT(s) No. 1 IN SPECIAL CIVIL APPLICATIONS NOS.18048/2018, 18050/2018, 18051/2018, 18055/2018, 18057/2018, 18063/2018 AND 18064/2018: MR HARDIK SONI, AGP(1) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA Date : 05/12/2018 ORAL COMMON JUDGMENT 1 Since the issues raised in all the captioned writ applications are the same, those were heard analogously and are being disposed of by this common judgment and order.
2 For the sake of convenience, the Special Civil Application No.18035 of 2018 is treated as the lead matter.
3 The case of the writ applicant, in his own words, as pleaded in the writ application, is as under:
"(7.1) May Your Lordships be please to admit and allow this application .
(7.2) May Your Lordships be please to issue a Writ of Mandamus or any other appropriate writ to quash and set aside of Impugned order dated Page 2 of 26 C/SCA/18035/2018 JUDGMENT 30.07.2018 passed by the District Magistrate, Surat in SARFAESI Case No. 229 of 2018 which is in stark contravention of the Section 14 of the SARFAESI Act.
(7.3) During the pendency of this petition for admission and final hearing, through an Exparte Ad interim relief, May Your Lordships be please to stay the Impugned order dated Impugned order dated 30.07.2018 passed by the District Magistrate, Surat in SARFAESI Case No. 229 of 2018, which is in stark contravention of the Section 14 of the SARFAESI Act and also be pleased to restrain the respondent no. 1 and 2 from taking the forceful possession of the mortgaged property.
(7.4) During the pendency of this petition for admission and final hearing, through biparte ad interim relief, may Your Lordships be please to stay the Impugned order dated 30.07.2018 passed by the District Magistrate, Surat in SARFAESI Case No. 229 of 2018 which is in stark contravention of the Section 14 of the SARFAESI Act and also be pleased to restrain the respondent no. 1 and 2 from taking the forceful possession of the mortgaged property.
(7.5) May Your Lordships be please to grant any other relief which may be prayed at the time of the hearing in the interest of the real , complete and substantial justice and also be please to grant any other relief which may be fit and appropriate in the fact and circumstances of the case ."
4 Thus, it appears that the subject matter of challenge in this writ application is the order passed by the District Magistrate, Surat under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "the SARFAESI Act").
Page 3 of 26C/SCA/18035/2018 JUDGMENT 5 The case of the writ applicant is that he is the lawful owner of Flat
No.104 of the building No.B/4 of the Devprayag Residency constructed on the final plot No.33 of the T.P. Scheme No.26 and situated at Signanapur area of Taluka : Katargam, Surat. It is the case of the petitioner that he purchased the said flat by way of a registered sale deed dated 21st October 2013 by paying total sale consideration of Rs.21,31,000/ to the developer namely Shreeji Corporation.
6 It appears that the flat in question has been mortgaged by the original developer with the Bank. The original developer has availed of loan facility from the Bank and by way of security, the Flats were offered as security.
7 It appears that as the original borrower defaulted, the bank initiated proceedings under the SARFAESI Act for the purpose of taking over the possession of the secured assets. For such purpose, the Bank preferred an application under Section 14 of the SARFAESI Act and the District Magistrate passed an order deputing one of its subordinate officers to aid the Bank in taking over of the possession of the secured assets.
8 As the writ applicant came to know about such order passed by the District Magistrate under Section 14 of the SARFAESI Act and apprehending dispossession, he has come before this Court with the present writ application.
9 It was pointed out to Mr. B.K. Raj, the learned counsel appearing for the writ applicant that his client as an aggrieved person has an alternative efficacious remedy to go before the Tribunal under Section 17 of the SARFAESI Act. As the writ applicant has an alternative Page 4 of 26 C/SCA/18035/2018 JUDGMENT efficacious remedy of approaching the Tribunal under Section 17 of the Act, I made myself clear that I would not entertain this writ application.
10 Mr. B.K. Raj, the learned counsel appearing for the writ applicant vehemently submitted that the writ applicant has no other legal remedy available to question the legality and validity of the order passed by the District Magistrate under Section 14 of the SARFAESI Act, except by way of invoking the writ jurisdiction of this Court under Article 226 of the Constitution of India.
11 The first submission of Mr. Raj is that no remedy under Section 17(1) of the Act can be taken by the borrower or by any aggrieved person like his client unless he loses actual (physical) possession of the asset. In other words, before losing actual possession or unless the secured creditors obtain the physical possession of the secured asset under Section 13(4) of the Act, it is not open to the borrower or any aggrieved person to take a remedy under Section 17(1) of the Act.
12 The second submission of Mr. Raj is that even otherwise, an order passed by the District Magistrate under Section 14 of the SARFAESI Act, cannot be questioned before the Tribunal under Section 17 of the Act. Mr. Raj, in support of his submission, has placed strong reliance on the decision of the Supreme Court in the case of Harshad Govardhan Sondagar vs. International Assets Reconstruction Co. Ltd., reported in (2014) 6 SCC 1.
13 The third submission of Mr. Raj is that no order could have been passed by the District Magistrate without affording any opportunity of hearing to the writ applicant. To put it in other words, according to Mr. Raj, as the writ applicant is the lawful owner of the flat in question and is occupying since 2013, the District Magistrate should have given an Page 5 of 26 C/SCA/18035/2018 JUDGMENT opportunity of hearing to the writ applicant.
14 In such circumstances referred to above, Mr. Raj prays that there being merit in this writ application, the same be allowed and the impugned order be quashed.
15 On the other hand, all the writ applications have been vehemently opposed by Mr. Patadia, the learned counsel appearing for the respondent No.2 - the Allahabad Bank. The learned counsel appearing for the respondent No.2 vehemently submitted that there is no merit in any of the submissions canvassed by the learned counsel appearing for the writ applicant. According to the learned counsel, the writ applicant has an alternative efficacious remedy of approaching the Tribunal if he has any grievance to redress.
16 In such circumstances referred to above, the learned counsel appearing for the Bank submitted that there being no merit in any of the writ applications, they be rejected.
17 All the writ applications have been vehemently opposed also by the learned A.G.P. appearing for the respondent - the District Magistrate. According to the learned A.G.P., the writ applicant should be relegated to avail of the alternative remedy of filing an appropriate application / appeal before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act.
● ANALYSIS:
18 Having heard the learned counsel appearing for the parties and having considered the materials on record, the only question that falls for my consideration is whether the writ applicant, as an aggrieved person, has the remedy to approach the Tribunal under Section 17 of the Act.
Page 6 of 26C/SCA/18035/2018 JUDGMENT 19 The provisions of the SARFAESI Act have been sufficiently dealt
with and interpreted by not only the Apex Court, but also by various High Courts including our own High Court and the extensive examination including the dissection of the various provisions especially Sections 13, 17 and 34 of the Act makes the picture very clear. These provisions are not being specifically reproduced herein, however, the sum and substance of the section/ provisions, the parameters which emerge from these sections is that in cases where the property is mortgaged or is furnished as a security to a financial institutions or a bank by a person as a security for the loan which has been taken by him in the event of his default in payment of requisite installment of the loan or if he does not pay at all or if his account becomes nonperforming asset, the bank/financial institutions need not seek orders for attachment before judgment as is done in the civil law under Order XXXVIII, Rule 5 of the C.P.C. On the contrary, the bank can issue to such defaulter, a notice recalling such a facility and ask the defaulter borrower to clear the entire outstanding within a period of 60 days from the date of issuance of such a notice and in case the defaulter does not comply with the said notice then try to take the physical possession of the property mortgaged or furnished as a security by following various steps which are envisaged under Section 13(4) of the Act by giving a public notice and thereafter go to the District Magistrate / Court of CMM, as the case may be, under Section 14 of the Act and take actual possession of the said property as a secured creditor. In this scheme of things, it has been visualized by the legislature that there may be persons other than the borrowers who may have interest in the property who may have some objections regarding the realization of the loan amount from the secured assets and for such a person Section 17 (1) of the Act makes it abundantly clear that any person which will include a 'borrower' as well as nonborrower also if he feels aggrieved from any Page 7 of 26 C/SCA/18035/2018 JUDGMENT action of the bank he can approach the Debt Recovery Tribunal which is a specialized forum created under the Act itself to seek redressal of his grievance. Further, in order to make this scheme of the Act operative both functional as well as effective the jurisdiction of the Civil Court has been specifically barred under Section 34 of the Act. A conjoint reading of the Sections 13, 17 and 34 of the Act would clearly indicate that even though the writ applicant who may be claiming himself to be the lawful owner in respect of the property which was pledged with the Bank, as a secured asset, had to approach the Debts Recovery Tribunal in case he felt aggrieved from the action of the Bank in approaching the District Magistrate and obtaining an order under Section 14 of the SARFAESI Act. This scheme of thing has been clearly approved by the Apex Court in paras 51 and 59 of Mardia Chemicals vs. Union of India (AIR 2004 SC 2371). It will be worthwhile reproducing hereinbelow the relevant observations of the Apex Court:
51. "It has also been submitted that an appeal is entertainable before the Debt Recovery Tribunal only after such measures as provided in sub section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debt Recovery Tribunal or the appellate Tribunal is empowered to determine. Thus before any action or measure is taken under subsection (4) of Section 13, it is submitted by Mr. Salve one of the counsel for respondents that there would be no bar to approach the Civil Court. Therefore, it cannot be said no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of Section 34 shows that the jurisdiction of the Civil Court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under sub section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. The bar of Civil Court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken Page 8 of 26 C/SCA/18035/2018 JUDGMENT under subsection (4) of Section 13."
59. "We may like to observe that proceedings under Section 17 of the Act, in fact are not appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is brought before a Forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in Civil Court. As a matter of fact proceedings under Section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act in the present case. We may refer to a decision of this court reported in MANU/SC0020/1974 : (1974) 3 SCR 882, Smt. Ganga Bai v. Vjjay Kumar and Ors., where in respect of original and appellate proceedings a distinction has been drawn as follows:
".......There is a basic distinction between the right of suit and the right of appeal. There is an inherent right in very person to bring a suit of civil nature and unless one's choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and therefore an appeal for its maintainability must have the clear authority of law. That explains why the right of appeal is described as a creature of statute."
20 Thus, I am of the view that the writ applicant has an alternative remedy as an aggrieved person to question the legality and validity of the impugned order passed by the District Magistrate in exercise of its power under Section 14 of the SARFAESI Act before the Debt Recovery Tribunal under the provisions of Section 17 of the Act.
21 Let me now deal with the submission of Mr. Raj, the learned counsel appearing for the writ applicant as regards actual possession not yet taken from his client and its effect on the remedy under Section 17(1) of the Act. The word "possession" has not been defined under the Act, but it has been interpreted by the Supreme Court in the case of Transcore vs. Union of India and another reported as (2008) 1 SCC 125 wherein it has been held that Act does not make any distinction between actual or symbolic possession. The Question No.2 examined in Page 9 of 26 C/SCA/18035/2018 JUDGMENT the said judgment is, "whether recourse to take possession of the secured assets of the borrower in terms of Section 13(4) of the NPA Act comprehends the power to take actual possession of the immovable property". The Court held as under: "73. The word possession is a relative concept. It is not an absolute concept. The dichotomy between symbolic and physical possession does not find place in the Act. As stated above, there is a conceptual distinction between securities by which the creditor obtains ownership of or interest in the property concerned (mortgages) and securities where the creditor obtains neither an interest in nor possession of the property but the property is appropriated to the satisfaction of the debt (charges). Basically, the NPA Act deals with the former type of securities under which the secured creditor, namely, the bank/FI obtains interest in the property concerned. It is for this reason that the NPA Act ousts the intervention of the courts/ tribunals.
74. Keeping the above conceptual aspect in mind, we find that Section 13(4) of the NPA Act proceeds on the basis that the borrower, who is under a liability, has failed to discharge his liability within the period prescribed under Section 13(2), which enables the secured creditor to take recourse to one of the measures, namely, taking possession of the secured assets including the right to transfer by way of lease, assignment or sale for realizing the secured assets. Section 13(4A) refers to the word "possession" simpliciter. There is no dichotomy in sub section (4A) as pleaded on behalf of the borrowers. Under Rule 8 of the 2002 Rules, the authorised officer is empowered to take possession by delivering the possession notice prepared as nearly as possible in Appendix IV to the 2002 Rules. That notice is required to be affixed on the property. Rule 8 deals with sale of immovable secured assets. Appendix IV prescribes the form of possession notice. It inter alia states that notice is given to the borrower who has failed to repay the amount informing him and the public that the bank/FI has taken possession of the property under Section read with Rule 9 of the 2002 Rules. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. Rule 9(6) states that on confirmation of sale, if the terms of payment are complied with, the authorised officer shall issue a sale certificate in favour of the purchaser in the form given in Appendix V to the 2002 Rules. Rule 9(9) states that the authorised officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor.. Section 14 of the NPA Act states that where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred, the secured creditor may, for the purpose of taking possession, request in writing to Page 10 of 26 C/SCA/18035/2018 JUDGMENT the District Magistrate to take possession thereof. Section 17(1) of NPA Act refers to right of appeal. Section 17(3) states that if the DRT as an appellate authority after examining the facts and circumstances of the case comes to the conclusion that any of the measures under Section 13 (4) taken by the secured creditor are not in accordance with the provisions of the Act, it may by order declare that the recourse taken to any one or more measures is invalid, and consequently, restore possession to the borrower and can also restore management of the business of the borrower. Therefore, the scheme of Section 13(4) read with Section 17(3) shows that if the borrower is dispossessed, not in accordance with the provisions of the Act, then the DRT is entitled to put the clock back by restoring the status quo ante. Therefore, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession. As stated above, the NPA Act provides for recovery of possession by non adjudicatory process; therefore, to say that the rights of the borrower would be defeated without adjudication would be erroneous. Rule 8, undoubtedly, refers to sale of immovable secured asset. However, Rule 8(4) indicates that where possession is taken by the authorised officer before issuance of sale certificate under Rule 9, the authorised officer shall take steps for preservation and protection of secured assets till they are sold or otherwise disposed of. Under Section 13 (8), if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the creditor before the date fixed for sale or transfer, the asset shall not be sold or transferred. The costs, charges and expenses referred to in Section 13(8) will include costs, charges and expenses which the authorised officer incurs for preserving and protecting the secured assets till they are sold or disposed of in terms of Rule 8(4). Thus, Rule 8 deals with the stage anterior to the issuance of sale certificate and delivery of possession under Rule 9. Till the time of issuance of sale certificate, the authorised officer is like a Court Receiver under Order 40 Rule 1 CPC. The Court Receiver can take symbolic possession and in appropriate cases where the Court Receiver finds that a thirdparty interest is likely to be created overnight, he can take actual possession even prior to the decree. The authorized officer under Rule 8 has greater powers than even a Court Receiver as security interest in the property is already created in favour of the banks/FIs. That interest needs to be protected. Therefore, Rule 8 provides that till issuance of the sale certificate under Rule 9, the authorized officer shall take such steps as he deems fit to preserve the secured asset. It is well settled that thirdparty interests are created overnight and in very many cases those third parties take up the defence of being a bona fide purchaser for value without notice. It is these types of disputes which are sought to be avoided by Rule 8 read with Rule 9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between symbolic and actual possession does not find place in the scheme of the NPA Act read with the 2002 Rules."
Page 11 of 26C/SCA/18035/2018 JUDGMENT 22 Subsection (4) of Section 13 of the Act authorizes the secured
creditor to take possession of the secured assets including that the secured creditor has a right to transfer by way of lease, assignment or sale for realising the secured debts. Still further, the District Magistrate or the Chief Metropolitan Magistrate or any Officer authorised by him is competent to take possession of any secured asset. There is no distinction between symbolic and physical possession either under Section 13(4) or under Section 14 of the Act or for that matter in any other provisions of the Act or the Rules made thereunder.
23 The Supreme Court in the judgment in Transcore's case (supra) was examining the right to take possession of the secured assets which the secured creditor may exercise. The Supreme Court held that the dichotomy between symbolic and physical possession does not find place in the Act. When the creditor obtains ownership of or interest in the property concerned, the property is appropriated to the satisfaction of the debt. Therefore, when the Bank takes the possession in terms of Section 13(4) of the Act, the aggrieved person has a right to file an application under Section 17 of the Act.
24 The invocation of jurisdiction of the District Magistrate under Section 14 of the Act is one of the modes available to the secured creditor to take possession of the secured assets. Therefore, when the District Magistrate under Section 14 of the Act hands over possession to the secured creditor, it is possession as is contemplated under sub section (4) of Section 13 of the Act. Therefore, for an aggrieved person against an action taken by the secured creditor either under subsection (4) of Section 13 or under Section 13 of the Act, the remedy is by way of an application under Section 17 of the Act before the Tribunal.
Page 12 of 26C/SCA/18035/2018 JUDGMENT 25 In respect of an argument that the order passed by the District
Magistrate or the Chief Metropolitan Magistrate, or any other officer authorized by them cannot be called in question in any Court or before any authority is again not tenable. Such provision excludes the jurisdiction of the Civil Court but not of the Tribunal, who has been conferred the jurisdiction to entertain an application under Section 17 of the Act. It is well settled principle of interpretation of statutes that there has to be conjoint and harmonious construction of the various provisions of a Statute. Keeping in view the said principle, if the provisions of Sections 13(4) and 14 (3) and Section 17 of the Act are read together, it is clear that bar under subsection (3) of Section 14 is not in respect of the remedy before the Tribunal in terms of Section 17 of the Act.
26 The contention of Mr. Raj that no remedy under Section 17(1) of the Act can be taken by the aggrieved person like his client unless he loses actual (physical) possession of the secured asset is without any merit, more particularly, in view of the recent pronouncement of the Supreme Court in the case of M/s. Hindon Forge Pvt. Ltd vs. The State of Uttar Pradesh through District Magistrate, Ghaziabad [Civil Appeal No.10873 of 2018 decided on 1st November 2018]. I may quote the relevant observations of the Supreme Court in this regard as follows:
"18. Another argument that was raised by learned senior counsel for the respondents is that the taking of possession under section 13(4)(a) must mean actual physical possession or otherwise, no transfer by way of lease can be made as possession of the secured asset would continue to be with the borrower when only symbolic possession is taken. This argument also must be rejected for the reason that what is referred to in section 13(4)(a) is the right to transfer by way of lease for realising the secured asset. One way of realising the secured asset is when physical possession is taken over and a lease of the same is made to a third Page 13 of 26 C/SCA/18035/2018 JUDGMENT party. When possession is taken under rule 8(1) and 8(2), the asset can be realised by way of assignment or sale, as has been held by us hereinabove. This being the case, it is clear that the right to transfer could be by way of lease, assignment or sale, depending upon which mode of transfer the secured creditor chooses for realising the secured asset. Also, the right to transfer by way of assignment or sale can only be exercised in accordance with rules 8 and 9 of the 2002 Rules which require various preconditions to be met before sale or assignment can be effected. Equally, transfer by way of lease can be done in future in cases where actual physical possession is taken of the secured asset after possession is taken under rule 8(1) and 8(2) at a future point in time. If no such actual physical possession is taken, the right to transfer by way of assignment 53 or sale for realising the secured asset continues. This argument must also, therefore, be rejected.
19. Shri Ashish Dholakia, learned Advocate, appearing for the intervenor, State Bank of India, argued that if we were to upset the Full Bench judgment, there would be little difference between the Recovery of Debts Act and the SARFAESI Act as banks would not be able to recover their debts by selling properties outside the court process without constant interference by the Debts Recovery Tribunal. We are of the view that this argument has no legs to stand on for the reason that banks and financial institutions can recover their debts by selling properties outside the court process under the SARFAESI Act by adhering to the statutory conditions laid down by the said Act. It is only when such statutory conditions are not adhered to that the Debts Recovery Tribunal comes in at the behest of the borrower. It is needless to add that under the Recovery of Debts Act, banks/financial institutions could not recover their debts without intervention of the Debts Recovery Tribunal, which the SARFAESI Act has greatly improved upon, 54 the only caveat being that this must be done by the secured creditor following the drill of the SARFAESI Act and rules made thereunder. Shri Dholakia then referred to and relied upon section 3 of the Transfer of Property Act, 1882. Under the said section, "a person is said to have notice" of a fact when he actually knows that fact, or when, but for willful abstention from an inquiry or search which he ought to have made, or gross negligence, he would have known it. Shri Dholakia referred to and relied upon Explanation II to this definition, which reads as under:
"Explanation II.Any person acquiring any immoveable property or any share or interest in any such property shall be deemed to have notice of the title, if any, of any person who is for the time being in actual possession thereof."
We fail to understand what relevance Explanation II could possibly have Page 14 of 26 C/SCA/18035/2018 JUDGMENT for a completely different statutory setting, namely, that of the SARFAESI Act and the 2002 Rules thereunder. For the purpose of the Transfer of Property Act, a person acquiring immovable property shall be deemed to have notice of the title, if any, of any person who is for the time being in actual possession thereof. For the purpose of the SARFAESI Act read with the 2002 Rules, the taking of possession by a secured creditor of the secured asset of the borrower would include taking of possession in any of the modes prescribed under rule 8, as has been held by us hereinabove. This argument must also, therefore, be rejected.
20. We now come to some of the decisions of this Court. In Transcore v. Union of India & Anr., (2008) 1 SCC 125, this Court formulated the question which arose before it as follows:
"1. A short question of public importance arises for determination, namely, whether withdrawal of OA in terms of the first proviso to Section 19(1) of the DRT Act, 1993 (inserted by amending Act 30 of 2004) is a condition precedent to taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the NPA Act", for short)."
To this, the answer given is in paragraph 69, which is as follows:
"69. For the above reasons, we hold that withdrawal of the OA pending before DRT under the DRT Act is not a precondition for taking recourse to the NPA Act. It is for the bank/FI to exercise its discretion as to cases in which it may apply for leave and in cases where they may not apply for leave to withdraw. We do not wish to spell out those 56 circumstances because the said first proviso to Section 19(1) is an enabling provision, which provision may deal with myriad circumstances which we do not wish to spell out herein."
Thereafter, the Court went on to discuss whether recourse to take possession of secured assets of the borrower in terms of section 13(4) of the Act would comprehend the power to take actual possession of immovable property. In the discussion on this point in paragraph 71 of the judgment, learned counsel on behalf of the borrowers made an extreme submission which was that the borrower who is in possession of immovable property cannot be physically dispossessed at the time of issuing the notice under section 13(4) of the Act so as to defeat adjudication of his claim by the Debts Recovery Tribunal under section 17 Page 15 of 26 C/SCA/18035/2018 JUDGMENT of the Act and that therefore, physical possession can only be taken after the sale is confirmed in terms of rule 9(9) of the 2002 Rules. This submission was rejected by stating that the word "possession" is a relative concept and that the dichotomy between symbolic and physical possession does not find place under the Act. Having said this, the Court went on to examine the 2002 Rules and held:
"74. ......... Thus, Rule 8 deals with the stage anterior to the issuance of sale certificate and delivery of possession under Rule 9. Till the time of issuance of sale certificate, the authorised officer is like a Court Receiver under Order 40 Rule 1 CPC. The Court Receiver can take symbolic possession and in appropriate cases where the Court Receiver finds that a thirdparty interest is likely to be created overnight, he can take actual possession even prior to the decree. The authorised officer under Rule 8 has greater powers than even a Court Receiver as security interest in the property is already created in favour of the banks/FIs. That interest needs to be protected. Therefore, Rule 8 provides that till issuance of the sale certificate under Rule 9, the authorised officer shall take such steps as he deems fit to preserve the secured asset. It is well settled that thirdparty interests are created overnight and in very many cases those third parties take up the defence of being a bona fide purchaser for value without notice. It is these types of disputes which are sought to be avoided by Rule 8 read with Rule 9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between symbolic and actual possession does not find place in the scheme of the NPA Act read with the 2002 Rules."
If the whole of paragraph 74 is read together with the extracted passage, it becomes clear that what is referred to in the extracted passage is the procedure provided by rule 8(3). It is clear that the authorised officer's powers, once possession is taken under rule 8(3), include taking of steps for preservation and protection of the secured assets which is referred to in the 58 extracted portion.
Thus, the final conclusion by the Bench, though general in nature, is really referable to possession that is taken under rule 8(3) of the 2002 Rules. Whether possession taken under rule 8(1) and 8(2) is called symbolic possession or statutory possession, the fact remains that rule 8(1) and rule 8(2) specifically provide for a particular mode of possession taken under section 13(4)(a) of the Act. This cannot be wished away by an observation made by this Court in a completely different context in order to repel an extreme argument. This Court was only of the opinion that the extreme argument made, as reflected in paragraph 71 of the judgment, would have to be rejected. This judgment therefore does not deal with the problem Page 16 of 26 C/SCA/18035/2018 JUDGMENT before us: namely, whether a section 17(1) application is maintainable once possession has been taken in the manner specified under rule 8(1) of the 2002 Rules.
21. Another case strongly relied upon by learned counsel for the respondents is Noble Kumar (supra). This judgment decided that it is not necessary to first resort to the procedure under section 13(4) and, on facing resistance, then approach the Magistrate under section 14. The secured creditor need not avail of any of the remedies under section 13(4), and can approach the Magistrate straightaway after the 60day period of the notice under section 13(2) is over, under section 14 of the Act. This Court therefore held:
"35. Therefore, there is no justification for the conclusion that the Receiver appointed by the Magistrate is also required to follow Rule 8 of the Security Interest (Enforcement) Rules, 2002. The procedure to be followed by the Receiver is otherwise regulated by law. Rule 8 provides for the procedure to be followed by a secured creditor taking possession of the secured asset without the intervention of the court. Such a process was unknown prior to the SARFAESI Act. So, specific provision is made under Rule 8 to ensure transparency in taking such possession. We do not see any conflict between different procedures prescribed by law for taking possession of the secured asset. The finding of the High Court in our view is unsustainable.
36. Thus, there will be three methods for the secured creditor to take possession of the secured assets:
36.1. (i) The first method would be where the secured creditor gives the requisite notice under Rule 8(1) and where he does not meet with any resistance. In that case, the authorised officer will proceed to take steps as stipulated under Rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor.
36.2. (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under Rule 8(1) is given. In that case he will take recourse to the mechanism provided under Section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinise the application as provided in Section 14, and then if satisfied, appoint an officer subordinate to him as provided under Section 14(1A) to take Page 17 of 26 C/SCA/18035/2018 JUDGMENT possession of the assets and documents. For that purpose the Magistrate may authorise the officer concerned to use such force as may be necessary. After the possession is taken the assets and documents will be forwarded to the secured creditor.
36.3. (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under Section 14 of the Act. The Magistrate will thereafter scrutinise the application as provided in Section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forward them to the secured creditor as under clause 36.2.(ii) above. 36.4. In any of the three situations above, after the possession is handed over to the secured creditor, the subsequent specified provisions of Rule 8 concerning the preservation, valuation and sale of the secured assets, and other subsequent rules from the Security Interest (Enforcement) Rules, 2002, shall apply."
When this Court referred to the first method of taking possession of secured assets in paragraph 36.1.(i), this Court spoke of a case in which, once possession notice is given under rule 8(1), no resistance is met with. That is why, this Court states that steps as stipulated under rule 8(2) onwards to take possession, and thereafter, for sale of the secured assets to realise the amounts that are claimed by the secured creditor would have to be taken, meaning thereby that advertisement must necessarily be given in the newspaper as mentioned in rule 8(2), after which steps for sale may take place. This case again does not deal with the precise problem that is before the Court in this case. The observation made in paragraph 36.1.(i), which is strongly relied upon by the Full Bench of the High Court, to arrive at the conclusion that actual physical possession must first be taken before the remedy under section 17(1) can be availed of by the borrower, does not flow from this decision at all.
22. In Canara Bank v. M. Amarender Reddy & Anr., (2017) 4 SCC 735, this Court after referring to Mathew Varghese v. M. Amritha Kumar and Ors., (2014) 5 SCC 610, which held that the 30day period mentioned under rule 8(6) is mandatory, then held:
"14. The secured creditor, after it decides to proceed with the sale of secured asset consequent to taking 62 over possession (symbolic or physical as the case may be), is no doubt required to give a notice of 30 days for sale of the immovable asset as per subrule (6) of Rule 8. However, there is nothing in the Rules, either express or implied, to take the view that a public notice under subrule (6) of Rule 8 must be issued only after the expiry of 30 days from issuance Page 18 of 26 C/SCA/18035/2018 JUDGMENT of individual notice by the authorised officer to the borrower about the intention to sell the immovable secured asset. In other words, it is permissible to simultaneously issue notice to the borrower about the intention to sell the secured assets and also to issue a public notice for sale of such secured asset by inviting tenders from the public or by holding public auction. The only restriction is to give thirty days' time gap between such notice and the date of sale of the immovable secured asset."
Though there was no focused argument on the controversy before us, this Court did recognise that possession may be taken over under rule 8 either symbolically or physically, making it clear that two separate modes for taking possession are provided for under rule 8.
23. Similarly, in ITC Limited v. Blue Coast Hotels Ltd. and Ors., AIR 2018 SC 3063, this Court held:
"45. As noticed earlier, the creditor took over symbolic possession of the property on 20.06.2013. Thereupon, it transferred the property to the sole bidder ITC and issued a sale certificate for Rs. 515,44,01,000/ on 25.02.2015. On the same day, i.e., 25.02.2015, the creditor applied for taking physical possession of the secured assets under Section 14 of the Act.
46. According to the debtor, since Section 14 provides that an application for taking possession may be made by a secured creditor, and the creditor having ceased to be a secured creditor after the confirmation of sale in favour of the auction purchaser, was not entitled to maintain the application. Consequently, therefore, the order of the District Magistrate directing delivery of possession is a void order. This submission found favour with the High Court that held that the creditor having transferred the secured assets to the auction purchaser ceased to be a secured creditor and could not apply for possession. The High Court held that the Act does not contemplate taking over of symbolic possession and therefore the creditor could not have transferred the secured assets to the auction purchaser. In any case, since ITC Ltd. was the purchaser of such property, it could only take recourse to the ordinary law for recovering physical possession.
47. We find nothing in the provisions of the Act that renders taking over of symbolic possession illegal. This is a wellknown device in law. In fact, this court has, although in a different context, held in Page 19 of 26 C/SCA/18035/2018 JUDGMENT M.V.S. Manikayala Rao v. M. Narasimhaswami [AIR 1966 SC 470] that the delivery of symbolic possession amounted to an interruption of adverse possession of a party and the period of limitation for the application of Article 144 of the Limitation Act would start from such date of the delivery."
24. This judgment also speaks of the taking over of symbolic possession under the SARFAESI Act. The judgment then goes on to discuss whether a creditor could maintain an application for possession under section 14 of the Act once it takes over symbolic possession before the sale of the property to the auction purchaser. The Court referred to various authorities and arrived at the conclusion that a secured creditor remains a secured creditor when only constructive or symbolic possession is given, as the entire interest in the property not having been passed on to the secured creditor in the first place, the secured creditor in turn could not pass on the entire interest in the property to the auction purchaser. In this behalf, it is important to refer to section 8 of the Transfer of Property Act, 1882 which states as follows:
"8. Operation of transfer. Unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property and in the legal incidents thereof.
xxx xxx xxx"
Section 13(6) of the SARFAESI Act makes it clear that a different intention is so expressed by the Act, as any transfer of a secured asset after taking possession thereof, shall vest in the transferee all rights in the secured asset so transferred as if the transfer had been made by the owner of such secured asset. It is clear, therefore, that statutorily, under section 13(6), though only the lesser right of taking possession, constructive or physical, has taken place, yet the secured creditor may, by lease, sale or assignment, vest in the lessee or purchaser all rights in the secured asset as if the transfer had been made by the original owner of such secured asset. This aspect of the matter does not appear to have been noticed in the aforesaid judgment. The ultimate conclusion in the said judgment is, however, correct as a secured creditor remains a secured creditor even after possession is taken over as the fiction contained in section 13(6) does not convert the secured creditor into the owner of the asset, but merely vests complete title in the transferee of the asset once transfer takes place in accordance with rules 8 and 9 of the 2002 Rules.
25. We may also add that by a notification dated 17.10.2018, rule 8 has since been amended adding two subrules as follows:
Page 20 of 26C/SCA/18035/2018 JUDGMENT "3. In the said rules, in rule 8 (i) in subrule (6), for the proviso, the following proviso shall be substituted, namely: "Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the Form given in Appendix IVA to be published in two leading newspapers including one in vernacular language having wide circulation in the locality.";
(ii) for subrule (7), the following subrule shall be substituted, namely:-
"(7) every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorised officer shall upload the detailed terms and conditions of the sale, on the web site of the secured creditor, which shall include;
(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold;
(c) reserve price of the immovable secured assets below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be completed;
(e) deposit of earnest money as may be stipulated by the secured creditor;
(f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property.";
Appendix IVA which is now inserted by the said notification reads as follows:
"APPENDIX IVA [See proviso to rule 8 (6)] Sale notice for sale of immovable properties EAuction Sale Notice for Sale of Immovable Assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 read with proviso to Rule 8 (6) of the Security Interest (Enforcement) Rules, 2002 Notice is hereby given to the public in general and in particular to the Borrower (s) and Guarantor (s) that the Page 21 of 26 C/SCA/18035/2018 JUDGMENT below described immovable property mortgaged/charged to the Secured Creditor, the constructive/physical ______________ (whichever is applicable) possession of which has been taken by the Authorised Officer of ______________ Secured Creditor, will be sold on "As is where is", "As is what is", and "Whatever there is" on ______________ (mention date of the sale), for recovery of Rs. due to the ______________ Secured Creditor from (mention name of the Borrower (s)) and ______________ (mention name of the Guarantor (s)). The reserve price will be Rs. ______________ and the earnest money deposit will be Rs. ______________ (Give short description of the immovable property with known encumbrances, if any) For detailed terms and conditions of the sale, please refer to the link provided in ______________ Secured Creditor's website i.e. www.(give details of website) Date:
Authorised Officer Place:"
This appendix makes it clear that statutorily, constructive or physical possession may have been taken, pursuant to which a sale notice may then be issued under rule 8(6) of the 2002 Rules. Appendix IVA, therefore, throws considerable light on the controversy before us and recognises the fact that rule 8(1) and 8(2) refer to constructive possession whereas rule 8(3) refers to physical possession. We are therefore of the view that the Full Bench judgment is erroneous and is set aside. The appeals are accordingly allowed, and it is hereby declared that the borrower/debtor can approach the Debts Recovery Tribunal under section 17 of the Act at the stage of the possession notice referred to in rule 8(1) and 8(2) of the 2002 Rules. The appeals are to be sent back to the Court/Tribunal dealing with the facts of each case to apply this judgment and thereafter decide each case in accordance with the law laid down by this judgment."
27 I do not find any merit in the contention that the District Magistrate should have provided an opportunity of hearing to the writ applicant in the proceedings under Section 14 of the SARFAESI Act. The Supreme Court in the case of Harshad Govardhan Sondagar (supra) and Vishal N. Kalsaria vs. Bank of India [(2016) 3 SCC 762] has not laid down the law that the borrower or any aggrieved person may also be extended an opportunity of hearing in the proceedings under Section Page 22 of 26 C/SCA/18035/2018 JUDGMENT 14 of the SARFAESI Act. In the case of Vishal N. Kalsaria (supra) , the relevant observations of the Supreme Court read as under:
"35. The decision of this Court rendered in the case of Harshad Govardhan Sondagar (supra) cannot be understood to have held that the provisions of the SARFAESI Act override the provisions of the Rent Control Act, and that the Banks are at liberty to evict the tenants residing in the tenanted premises which have been offered as collateral securities for loans on which default has been done by the debtor/landlord.
36. As far as granting leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken. We have already taken this view in the case of Harshad Govardhan Sondagar (supra). We have not stated anything to the effect that the tenancy created after mortgaging the property must necessarily be registered under the provisions of the Registration Act and the Stamp Act.
37. It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant. A non obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze the statutory rights vested on the tenants under the Rent Control Act. The expression "any other law for the time being in force" as appearing in Section 35 of the SARFAESI Act cannot mean to extend to each and every law enacted by the Central and State legislatures. It can only extend to the laws operating in the same field."
28 In the case of Harshad Govardhan Sondagar (supra) the Supreme Court has held as under:
"28. .....When, therefore, a lessee becomes aware of the possession being taken by the secured creditor, in respect of the secured asset in respect of which he is the lessee, from the possession notice which is delivered, affixed or published in subrule(1) and subrule(2) of Rule 8 of the Security Interest (Enforcement) Rules, 2002, he may either surrender possession or resist the attempt of the secured creditor to take the possession of the secured asset by producing before the authorised officer proof that he was inducted as a lessee prior to the creation of the mortgage or that he was a lessee under the mortgagor in accordance with the provisions of Section 65 Page 23 of 26 C/SCA/18035/2018 JUDGMENT A of the Transfer of Property Act and that the lease does not stand determined in accordance with Section 111 of the Transfer of Property Act. If the lessee surrenders possession, the lease even if valid gets determined in accordance with clause (f) of Section 111 of the Transfer of Property Act, but if he resists the attempt of the secured creditor to take possession, the authorised officer cannot evict the lessee by force but has to file an application before the Chief Metropolitan Magistrate or the District Magistrate under Section 14 of the SARFAESI Act and state in the affidavit accompanying the application, the name and address of the person claiming to be the lessee. When such an application is filed, the Chief Metropolitan Magistrate or the District Magistrate will have to give a notice and give an opportunity of hearing to the person claiming to be the lessee as well as to the secured creditor, consistent with the principles of natural justice, and then take a decision. If the Chief Metropolitan Magistrate or the District Magistrate is satisfied that there is a valid lease created before the mortgage or there is a valid lease created after the mortgage in accordance with the requirements of Section 65A of the Transfer of Property Act that the lease has not been determined in accordance with the provisions of Section 111 of the Transfer of Property Act, he cannot pass an order for delivering possession of the secured asset to the secured creditor. But in case he comes to the conclusion that there is in fact no valid lease made either before creation of the mortgage or after creation of mortgage satisfying the requirements of Section 65A of the Transfer of Property Act or that even though there was a valid lease, the lease stands determined in accordance with Section 111 of the Transfer of Property Act, he can pass an order for delivering possession of the secured asset to the secured creditor."
29 The observations aforesaid in no manner provide that a borrower is also to be afforded an opportunity of hearing in the proceeding under Section 14 of the SARFAESI Act. That no such opportunity is envisaged in relation to the borrower remains a settled principle and may not require much elaboration.
30 A Division Bench of the Madhya Pradesh High Court, speaking through Hon'ble Justice Hemant Gupta (as His Lordship then was), in the case of in the case of India Sem Asset Reconstruction Co. Ltd. vs. State of M.P. and others Writ Appeal Nos.489 of 2016 (Indore Bench) decided on 21st December 2017 has held that there is effective Page 24 of 26 C/SCA/18035/2018 JUDGMENT remedy to approach the Tribunal under Section 17 of the Act in respect of an order passed under Section 14 of the Act. It was held that an order under Section 14 of the Act could be challenged before the Tribunal under Section 17 of the Act. The relevant extract from the judgment reads as under:
"22. On due consideration of the aforesaid and the law laid down by the Five Judges Bench of this court in the case of Jabalpur Bus Operators Association & Others Vs. State of M.P. & Another, 2003 (1) MPLJ 513, so also the fact that judgment of United Bank of India, Jagdish Singh V/s. Heeralal & Others, (2014) 4 SCC 479, were not considered while upholding the view taken in the matter of M/s. Ambika Solvex Ltd. Vs. State Bank of India and others, (2016) SCC Online MP 5772, we are more incline to follow the earlier judgment of the Hon'ble Supreme Court where the question of maintainability of writ petition has been considered in great detail, we find that the appellant has an effective alternative remedy to approach the Debt Recovery Tribunal under Section 17 of the SARFAESI Act, the writ appeal filed by the appellant has no merit and is accordingly, dismissed with a liberty to the appellant to avail the remedy of appeal under Section 17 of the SARFAESI Act, in accordance with law."
31 The Apex Court in the case of Punjab National Bank vs. O.C. Krishnan and Ors. reported in (2001) 6 SCC 569 : AIR 2001 SC 3208, while deprecating the entertainment of writ petition in the matters arising of the proceedings pending before Debts Recovery Tribunal under 1993 Act, observed in Para 6:
"6. the Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fasttrack procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the Court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions. This was a case where the High Court should not have entertained the petition under Article 227 of the Constitution and should have directed the respondent to take recourse to the appeal mechanism provided by the Act."Page 25 of 26
C/SCA/18035/2018 JUDGMENT 32 The observations made by the Apex Court in the above quoted
dictum about the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 equally holds good for the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as both the Acts were enacted to provide a special procedure for speedier recovery of debts due to the banks and financial institutions. As hierarchy of appeal is provided in both the Acts of 1993 and 2002, the fast track procedure, provided under these Acts are speedier recovery of the debts, cannot be allowed to be derailed at the behest of the defaulters by taking recourse to the proceedings under Articles 226 and 227 of the Constitution of India.
33 To sum up, the writ petitions involve several disputed questions of fact. The parties would be required to lead evidence in support of their respective claims. In my opinion, it would be appropriate for the petitioner to invoke the jurisdiction of the Debts Recovery Tribunal under Section 17 of 2002 Act.
34 In view of the aforesaid discussion, I relegate the writ applicant to the remedy of preferring an appropriate application before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act.
35 With the above liberty, this writ application and the connected writ applications are disposed of. Notice stands discharged. The ad interim order earlier granted stands vacated forthwith.
(J.B.PARDIWALA, J) CHANDRESH Page 26 of 26