Court’s Decision
The Bombay High Court ruled that once an order is issued under Section 14 of the SARFAESI Act, requiring the Court Commissioner to take possession of a secured asset, the Chief Judicial Magistrate (CJM) has the authority to extend the period for execution beyond 90 days without requiring the secured creditor to file a fresh application under Section 14. The Court found that the CJM’s refusal to extend the time and insistence on a fresh application was contrary to the legislative intent of the SARFAESI Act and the judgments of the Supreme Court and Bombay High Court.
To address this issue, the Court issued two writs:
- Writ of Certiorari directing the CJM to follow the State Government’s April 10, 2023 circular and previous Bombay High Court rulings, particularly L&T Finance Limited vs. State of Maharashtra (2023).
- Writ of Mandamus directing the CJM to execute the February 28, 2023 possession order without delay, with the assistance of police authorities, if required.
Facts
The petitioner is a Multi-State Scheduled Co-operative Bank and a secured creditor under the SARFAESI Act, 2002. The bank had sanctioned a loan of ₹641.67 lakhs to a borrower who had secured the loan by mortgaging a plot of land measuring 33,620 sq. meters in Talegaon Floriculture Park, Pune.
Loan Default and SARFAESI Proceedings
- The borrower defaulted on repayment, and on March 31, 2022, the petitioner classified the account as a Non-Performing Asset (NPA).
- On September 5, 2022, the petitioner issued a demand notice under Section 13(2) of the SARFAESI Act, demanding repayment of ₹7,06,07,991.39.
- The borrower failed to repay the loan and did not raise any objections under Section 13(3A).
Legal Action Under Section 14 SARFAESI Act
- The petitioner filed Criminal M.A. No. 220 of 2023 before the Chief Judicial Magistrate, Pune, under Section 14 of the SARFAESI Act.
- On February 28, 2023, the CJM passed an order appointing the Court Commissioner to take possession of the secured asset.
- The petitioner complied with all formalities, and the CJM issued a Writ of Commission (No. 11489 of 2023) on August 21, 2023, directing the Court Commissioner to take possession within 90 days.
Borrower’s Delayed Settlement Proposal
- Before possession could be taken, the borrower approached the petitioner with a settlement proposal, and the petitioner temporarily postponed the possession proceedings.
- However, the borrower defaulted again, leading the petitioner to request a new possession date from the respondent authorities (the police).
- The respondent refused, citing the expiry of the 90-day validity period and demanded a fresh Section 14 application.
- The CJM also refused to extend the Writ of Commission, insisting that the petitioner must file a new application.
Petitioner’s Writ Petition
- Aggrieved by the CJM’s refusal, the petitioner filed a Writ Petition before the Bombay High Court seeking:
- A declaration that the CJM has the power to extend the Writ of Commission beyond 90 days.
- A direction to the CJM to comply with the State Government’s guidelines and previous High Court judgments.
- A Writ of Mandamus directing the CJM to execute the possession order expeditiously.
Issues
- Does the Chief Judicial Magistrate have the power to extend the Writ of Commission beyond 90 days without requiring a fresh application under Section 14 of SARFAESI Act?
- Does the failure of the Chief Judicial Magistrate to extend the order violate the SARFAESI Act and its objectives?
- Is the secured creditor entitled to police assistance in executing the possession order?
Petitioner’s Arguments
- The CJM’s refusal to extend the Writ of Commission violates the SARFAESI Act’s objective of enabling fast recovery of secured assets.
- The April 10, 2023, State Government Circular and the Bombay High Court’s decision in L&T Finance Limited (2023) explicitly allow for the appointment of an advocate as Commissioner to execute possession orders under Section 14.
- The Supreme Court in NKGSB Co-operative Bank Limited vs. Subir Chakravarty (2022) recognized that CMM/DM can appoint an advocate as Court Commissioner.
- The CJM’s refusal to execute the order amounts to dereliction of duty.
- The CJM has an obligation under Section 14 to ensure execution of possession orders without unnecessary procedural delays.
- Requiring a fresh application imposes unnecessary burdens on secured creditors and contradicts the legislative intent of the SARFAESI Act.
Respondent’s Arguments
- Since the 90-day period expired, the CJM was justified in refusing to extend the Writ of Commission.
- The petitioner could have filed a fresh application, which would have been considered under the law.
- The CJM’s actions were based on procedural limitations rather than an intentional refusal to act.
Analysis of the Law
SARFAESI Act, 2002
- The SARFAESI Act was enacted to help banks recover debts swiftly without judicial intervention.
- Section 14 mandates that the Chief Judicial Magistrate or District Magistrate assist secured creditors in taking possession of secured assets.
Supreme Court Judgment: NKGSB Co-operative Bank Limited vs. Subir Chakravarty (2022) (10 SCC 286)
- Held that the CMM/DM can appoint an advocate as Court Commissioner for executing possession orders under Section 14.
- Delays in execution defeat the SARFAESI Act’s purpose.
- The CMM/DM must act expeditiously to assist secured creditors.
Bombay High Court Judgment: L&T Finance Limited vs. State of Maharashtra (2023)
- Reiterated that the CJM has a duty to execute possession orders expeditiously.
- Directed CJMs to comply with State Government Circular allowing advocate Commissioners to execute SARFAESI orders.
Precedent Analysis
- NKGSB Co-operative Bank Limited vs. Subir Chakravarty (2022)
- The CMM/DM must act immediately upon receiving an application under Section 14.
- Time is of the essence in SARFAESI proceedings.
- L&T Finance Limited vs. State of Maharashtra (2023)
- CJMs must follow State Government Guidelines and ensure timely execution of possession orders.
Court’s Reasoning
- The SARFAESI Act’s objective is to enable secured creditors to recover debts efficiently.
- Once a possession order is passed, it does not automatically lapse after 90 days.
- The CJM has the authority to extend the Writ of Commission.
- The CJM’s refusal to act contradicts the Supreme Court and Bombay High Court’s rulings.
- CJMs must ensure execution of possession orders without imposing unnecessary procedural requirements.
Conclusion
The Bombay High Court ruled:
- CJMs have the power to extend Writs of Commission beyond 90 days without requiring fresh applications.
- Issued a Writ of Certiorari directing the CJM to follow previous court rulings and government guidelines.
- Issued a Writ of Mandamus directing the CJM to execute the possession order expeditiously, with police assistance if necessary.
Implications
- Secured creditors can now enforce possession orders without being forced to file fresh applications.
- CJMs must comply with the SARFAESI Act’s intent and avoid unnecessary procedural delays.
- Banks and financial institutions benefit from faster debt recovery mechanisms.