ACMM And DM Can Also Proceed Under Section 14 Of SARFAESI Act 2002, SC Holds

The Supreme Court, on July 27, held, that District Magistrate and Chief Metropolitan Magistrate were not persona designata in terms of Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002 (SARFAESI Act).

The plea challenged an order of the Division Bench of the Bombay High Court, whereby it was held that the expression “District Magistrate” and the “Chief Metropolitan Magistrate” as appearing in Section 14 of the (SARFAESI Act) shall deem to mean and include Additional District Magistrate and Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act.

The borrower preferred an appeal against the aforementioned order.

Facts

Respondent, a Financial Institution, was a secured creditor within the meaning of Section 2 (1)(zd) of the SARFAESI Act. The secured creditor instituted proceedings under the SARFAESI Act for recovery of the amount due and payable by the appellant (borrower). In the said proceedings initiated under Section 13(4) of the SARFAESI Act, the secured creditor proceeded to take possession of the secured asset. However, the borrowers refused to handover the physical possession of the secured asset. The secured creditor took symbolic possession of the secured asset on 21.01.2017 and affixed the possession notice at the said secured asset. That on 17.03.2017, the secured creditor filed an application under Section 14 of the SARFAESI Act with the learned Chief Metropolitan Magistrate Court, Esplanade, Mumbai and prayed for assistance from the learned Chief Metropolitan Magistrate in taking physical possession of the secured asset.

After several adjournments the secured creditor approached the High Court and prayed for an appropriate direction and order directing the learned Chief Metropolitan Magistrate to dispose of their cases/applications under Section 14 of the SARFAESI Act in a time bound manner.

The High Court passed an order with a direction to the Chief Metropolitan Magistrate that the pending application may be disposed of within 30 days. The CMM communicated with the High Court that due to enormous pendency the older cases were being given preference and it will not be able to comply with the order of disposing the application within 30 days.

Upon receiving the report, the High Court opined that the CMM would not be able to dispose of the application under Section 14 of the SARFAESI Act. The High Court went on to observe as to how to reduce pendency and increase disposal. High Court, after having considered Section 17 (2) of the SARFAESI Act and Section 19 of the Cr.P.C., the Court held that the Additional Chief Metropolitan Magistrate (ACMM) being invested with all the judicial powers of the CMM, can be considered at par with CMM. The Court held that CMM and ACMM are courts with identical jurisdiction and therefore observed that CMM in Section 14 of SARFAESI Act would mean ACMM as well.

Feeling aggrieved by the High Court order which held that CMM was not persona designata for the purposes of Section 14 of SARFAESI Act, the present appeal was filed.

2013 Amendment Inserting Section 14 (1A)

The Court noted the 2013 amendment to the SARFAESI Act and noted that now CMM or DM may authorise any other officer subordinate to him to take possession of such assets and document and forward them to secured creditor.

The Court further observed that Sub Section (1A) is in the nature of an explanatory provision and it merely restates the implicit power of the CMM/DM in taking services of any officer subordinate to him.  

Scheme of the SARFAESI Act

The Court affirmed that the objective of the Act was to enable financial institutions to approach authorities and take possession of assets in case of default by borrower. 

The Court observed that the powers under Section 14 have to be exercised within 30 days of receipt of application and therefore the functions under the Section are not “ministerial”.

“The powers exercised by the CMM/DM is a ministerial act. He cannot brook delay. Time is of the essence. This is the spirit of the special enactment,” the Court observed.

Key Observations

Bench of Justices MR Shah and BV Nagarathna affirmed that, “disposing of the application under Section 14 of the SARFAESI Act, no element of quasi-judicial function or application of mind would require. The Magistrate has to adjudicate and decide the correctness of the information given in the application and nothing more. Therefore, Section 14 does not involve an adjudicatory process qua points raised by the borrower against the secured creditor taking possession of secured assets.”

It was held that as per the Cr.P.C., the ACMM cannot be said to be subordinate to CMM in so far as exercise of judicial powers are concerned.

The Court noted that litigations under the SARFAESI Act were increasing by the day and the functions performed under Section 14 were ministerial and did not involve any adjudicatory process and there was no element of any quasi-judicial functions. 

It was held that the expression “Chief Metropolitan Magistrate” as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act.    

The appeal was dismissed.