SARFAESI Act Does Not Mandate Secured Creditor To Approach DM For Taking Physical Possession: Madhya Pradesh High Court

The Madhya Pradesh High Court has held that a secured creditor is not mandatorily required to invoke Section 14 of the SARFAESI Act, 2002 for taking physical possession of secured assets, and may do so directly under Section 13(4) read with Rule 8 of the Security Interest (Enforcement) Rules, 2002, provided there is no resistance from the borrower.

Allowing a writ petition filed by UCO Bank, the Court set aside the orders passed by the Debts Recovery Tribunal, Jabalpur and the Debts Recovery Appellate Tribunal, Allahabad, which had directed the Bank to restore possession of the mortgaged properties to the borrower and refund the auction amount to the auction purchaser.

The dispute arose after M/s Asha Oil Industries and its proprietors availed a cash credit facility of ₹5 crores from UCO Bank by mortgaging industrial and residential properties. Upon default, the loan account was classified as a Non-Performing Asset (NPA) in October 2018. The Bank initiated proceedings under the SARFAESI Act and issued notices under Sections 13(2) and 13(4), followed by publication of possession notices as required under law.

The borrower approached the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, alleging that the Bank had illegally taken physical possession of the secured assets without resorting to proceedings under Section 14 of the Act. Accepting this contention, the DRT directed restoration of possession to the borrower and refund of the auction amount. The DRAT affirmed this decision, prompting the Bank to approach the High Court.

Before the High Court, the Bank argued that the tribunals had erred in holding that recourse to Section 14 of the SARFAESI Act was mandatory in all cases. It was contended that Section 13(4) itself empowers the secured creditor to take possession of secured assets, and Section 14 comes into play only when assistance of the Magistrate is required due to resistance or obstruction.

The Division Bench agreed with the Bank's submissions, holding that a combined reading of Sections 13(4) and 14 of the SARFAESI Act along with Rule 8 of the 2002 Rules makes it clear that approaching the Chief Metropolitan Magistrate or District Magistrate is not compulsory. The Court observed that Section 14 is an enabling provision intended to provide administrative assistance, not a mandatory precondition for taking possession.

Relying on Supreme Court decisions in Standard Chartered Bank v. Noble Kumar (2013) and Transcore v. Union of India (2008), the Court reiterated that there are three lawful modes available to a secured creditor for taking possession, including direct possession under Rule 8 when no resistance is faced. The Court also noted that the distinction between symbolic and physical possession has no statutory basis under the SARFAESI framework.

The Bench further observed that in the present case, the industrial unit was lying closed for several years and the residential property was under construction, with no occupants residing therein. The possession panchnama confirmed absence of resistance, rendering the tribunals' findings perverse and contrary to law.

Emphasising the object of the SARFAESI Act to ensure speedy recovery of public money and prevent procedural obstruction by defaulting borrowers, the Court held that accepting the borrower's arguments would defeat the very purpose of the legislation and reward persistent default.

Accordingly, the High Court set aside the impugned orders of the DRT and DRAT and permitted UCO Bank to proceed further in accordance with law from the stage required. The writ petition was allowed and disposed of.

Case: UCO BANK Vs. M/S ASHA OIL INDUSTRIES AND OTHERS

Case No: WRIT PETITION NO.31051/2025

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