"Alarming Situation": Rajasthan HC Orders Authorities To Restore Bank's Possession Over Mortgaged Property Forcibly Taken By Defaulter

Justice Vinit Kumar Mathur highlighted that despite the petitioner– AU Small Finance bank approaching the authorities, no action was taken by them. It thus warned that if the authorities do not act it will result in lawlessness which is to be viewed seriously. The court said this after noting that the defaulter had used his "muscle power" to take back possession of the mortgaged property and that nothing had been done till date. 

It said, “The situation is alarming and the State functionaries are warned that if they do not act in such a situation, it will create lawlessness in the State of Rajasthan which will be viewed very seriously by this Court. Therefore, this court is of the view that stern action should be taken against the respondent No.1 for restoring possession of the mortgaged property immediately to the petitioner.”

It further said, "This Court is surprised that on one hand, a person had taken loan and when the same was not repaid, the possession of the mortgaged property was taken over by the petitioner bank as per law but by sheer muscle power, the petitioner bank has been dislodged and possession of the mortgaged property has been forcibly taken over by the respondent No.1 and despite having represented to the law enforcing officer, nothing has been done to uphold majesty of law till date".

The Court was hearing a petition filed by the petitioner-bank which had granted a loan that was not repaid and was declared a Non-Performing Asset (NPA). Proceedings under SARFAESI Act was initiated and the mortgaged property of the loan-defaulter was taken over by the bank. However, the loan-defaulter used his muscle power to forcibly enter into the property by breaking the locks and was unlawfully enjoying its possession since then.

The bank approached the District Collector as well as the Superintendent of Police, Sri Ganganagar, to restore the possession of the mortgaged property but no action was taken by the Authorities. Hence, the petitioner was filed before the Court.

After perusing the records, the Court expressed surprise at the inaction on part of the State functionaries and underscored,

“State functionaries are under an obligation to restore rule of law. If the petitioner is not allowed to take possession of the mortgaged property, it will amount to a clear case of defiance of rule of law and therefore, the respondents Nos.2 and 4 are under an obligation to act in consonance with the provisions of law…The respondent No.2 District Collector, Sri Ganganagar and respondent No.4- Superintendent of Police, Sri Ganganagar are directed to act immediately for restoring possession of the mortgaged property to the bank in accordance with law". 

Accordingly, the Authorities were directed to act immediately to restore the bank's possession of the mortgaged property within four weeks from the date of receipt of the certified copy of the order. 

Case Title: Au Small Finance Bank Ltd v Atmaram Bishnoi and Others And Batch 

Citation: 2025 LiveLaw (Raj) 49