District Magistrate Not Vested With Adjudicatory Powers U/S 14 SARFAESI Act, Can Only Render Ministerial Assistance To Creditors: Gujarat High Court

Explaining that under Section 26E of the SARFAESI Act, the secured creditor has the first claim over the sale proceeds of secured assets and that the District Magistrate has to provide assistance under Section 14 to the secured creditor to take possession of the asset, the Gujarat High Court has quashed a communication which prohibited the Petitioner-bank from proceedings against the borrower-company. The borrower-company, M/S SSVB Business Limited had availed financial assistance from the Petitioner-bank in 2013 and 2015 and subsequently defaulted in repayment. The Petitioner then issued demand notice under Section 13(2) of the SARFAESI Act for recovery of dues. The Deputy Secretary, Home Department, Gandhinagar passed an order stating that the Borrower-company was involved in illegal activities of financial fraud and therefore, the authority was appointed to attach assets of the company. The company failed to discharge the liability as per the demand notice and thus, the Petitioner filed an application under Section 14 of the Act. However, the District Magistrate passed the impugned order stating that no action can be initiated against the borrowers. Consequently, the Petitioner filed a petition under Article 227 challenging the order. The Petitioner emphasised that when there is a conflict between the local act and the special act, importance is given to the special act which is the SARFAESI Act, in the instant case. A claim was made that the Petitioner had the rightful charge of the secured assets which were attached by the State Government pursuant to the FIR filed under Sections 3 and 7 of the Gujarat Protection of Interest of Depositors (In Financial Establishment) Act, 2003 and Sections 409, 406, 420, 120B of the IPC as well as Sections 4,5 and 6 of the Prize Chit and Money Circulation Schemes Banning Act 1978. Noting that no order was passed under Section 14 application and only a formal letter was addressed to the Petitioner-bank intimating about the decision of the Respondent, Justice Bhargav Karia placed reliance on Canara Bank Limited (Erstwhile Syndicate Bank) vs State of Gujarat, wherein the High Court had opined that the District Magistrate has to discharge the ministerial act of providing assistance to secured creditor to take physical possession of the secured assets when the secured creditor has initiated the proceedings under Section 13 of the SARFAESI Act. It was further held: "Therefore, it is the mandatory for the District Magistrate to pass an order to provide police assistance to the secured creditors to take the possession of the secured assets as per provision of section 14 of the SARFAESI Act." Reference was also made to the I.D.B.I. Bank Ltd. vs. Hytaisun Magnetics Ltd. [2011 (2) GLH 1438] judgement wherein the Court had laid down a few fundamentals pertaining to Section 14 of the SARFAESI Act, namely: The secured creditor can take assistant of the CMM or the DM under Section 14 only when the secured creditor finds difficulty to take possession of the secured asset.Measures undertaken in Section 14 amount to measures taken under Section 13(4) of the Act.Since the measures undertaken in Section 14 amount to measures taken under Section 13(4) of the Act, such measures cannot be called in question before any Court or Tribunal as per Section 14(3)If measures undertaken in section 14 amounting to measures under Section 13(4) are not in accordance with the SARFESI Act or the Rules, the aggrieved person has a remedy under Section 17 before the Debts Recovery Tribunal to show that the measures were against the Act or Rules.All such disputes are to be determined before the Debts Recovery Tribunal including the question whether the asset was a secured asset or not. The CMM or the DM are not empowered to adjudicate the dispute. They also do not have the powers to call for the secured creditor to produce any document to decide whether the asset is secured asset or not. The Canara Bank judgement had further explained that any dispute between the parties regarding the secured asset raised before the Authority could not be gone into by the Authority itself and that the dispute must be resolved by seeking a statutory remedy under the Securitisation Act after taking possession and handing over to the secured creditor. Thus, in Canara, as well where the facts of the matter were similar, the Gujarat High Court had not permitted the Magistrate to exercise powers under Section 14 over a dispute about the payment of amount. Keeping in view the limited powers of the District Magistrate under Section 14 of the Act, the High Court quashed the impugned notice while directing that fresh de novo order under section 14 be passed after giving an opportunity of hearing to the Petitioner-bank. But such exercise was directed to be completed within 4 weeks. Further, the attachment placed by the State...

District Magistrate Not Vested With Adjudicatory Powers U/S 14 SARFAESI Act, Can Only Render Ministerial Assistance To Creditors: Gujarat High Court

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