S.14 SARFAESI Act | Magistrate Can't Exercise Adjudicatory Powers In Proceedings To Take Possession Of Secured Asset: Kerala High Court

The Kerala High Court has reiterated that the Chief Judicial Magistrate (CJM) cannot exercise adjudicatory powers in the proceedings for securing assets under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) 2002. Section 14 of SARFAESI Act states that Chief Metropolitan Magistrate or District Magistrate is to assist secured creditor in taking possession of secured asset. It explains 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 by the secured creditor, the creditor may request in writing to the concerned CJM or DM to take possession of such a secured asset. The provision thereafter states the steps that can be taken by CJM when such request is made which includes taking possession of such an asset.Justice P. Gopinath passed the order while hearing a Writ Petition filed by the petitioner Bank challenging the maintainability of a plea filed by the 2nd respondent before the CJM arguing that the issues raised in the plea before the CJM cannot be decided by the magistrateBackgroundThe petitioner bank had initiated SARFAESI proceedings against the party respondents for recovery of money due under a loan and the same was challenged by the 2nd respondent before the Debt Recovery Tribunal (DRT), wherein a conditional stay was granted. However, the 2nd respondent thereafter challenged the same before the High Court through an OP(DRT). The High Court was pleased to give a direction that the 2nd respondent shall not be ousted from his property on the condition that he pays Rs. 1 Crore. However, since the respondent did not pay the sum, the High Court dismissed the OP (DRT). It was subsequent to this that the 2nd respondent filed the petition in question before the CJM. Before the CJM respondent 2 sought various reliefs including a direction to recall the appointment of Advocate Commissioner appointed in the matter. As interim relief, the respondent had prayed before the CJM to pass an interim order directing the Advocate Commissioner to abstain from executing the order until the disposal of this CMP. Meanwhile the Bank moved the high court claiming that the CJM has not disposed of the respondent 2's petition despite it being brought to the court's notice that the petition is not maintainable. FindingsThe counsel for the 2nd respondent argued that rather than merely assisting secured creditors mechanically in taking possession of the secured asset, the CJM must exercise the statutory power envisaged under Section 14 of the SARFAESI Act by verifying the correctness of the contents in the affidavit filed by the Authorised Officer of the Bank. It was contended that Statement of Objects and Reasons of the SARFAESI Act to contend that the scheme of the SARFAESI Act makes it clear that the Magistrate has the power to adjudicate and decide the correctness of the information in the application. Therefore, while the CJM performs a ministerial act in matters filed under Section 14 of the SARFAESI Act, the CJM must verify the correctness of the details stated in the application filed.Rejecting the same, the high court observed:“Having heard the learned counsel as above, I am certain that the petitioner is entitled to succeed. The power exercised by a Magistrate under Section 14 of the SARFAESI Act has been the subject matter of many decisions of the Supreme Court…”The learned Single Judge referred to the various decisions passed by the Supreme Court on the subject matter, including R.D. Jain & Co. v. Capital First Ltd., and Balkrishna Rama Tarle (D) v. Phoenix ARC Private Limited. It also referred to M/S Sama Rubbers & Ors. v. South Indian Bank Ltd. & Anr., to reach the finding that the powers exercisable by the CJM under S.14 SARFAESI Act are "ministerial steps" and that it does not involve any "adjudicatory process" while doing so. The court further referred to high court's decision in State Bank of India, TVM and Another v. Chief Judicial Magistrate, Kollam and Others (2021) where it was held, "the statute does not contemplate an adjudicatory order to be passed by the Magistrate or to consider the application as in a judicial process. The procedure prescribed under section 14 of the SARFAESI Act is part of a non-judicial process". The Court, therefore, allowed the writ petition and observed:“In the facts of this case, after failing to comply with the conditional order in I.A. No.2861 of 2024 in S.A. No.432 of 2024 and after OP(DRT) No.264 of 2024 was dismissed by this Court, the 2nd respondent sought the adjudication of various issues by the CJM. This was clearly not maintainable, in the light of the decisions referred to above.Therefore, this Writ Petition is allowed. It is declared that the Chief Judicial Magistrate, Kozhikode has no jurisdiction to adjudicate on the issues set out in Exhibit P3 petition. The proceedings taken on...

S.14 SARFAESI Act | Magistrate Can't Exercise Adjudicatory Powers In Proceedings To Take Possession Of Secured Asset: Kerala High Court

K. Salma Jennath

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