Bombay High Court Upholds Ministerial Role of Chief Judicial Magistrate Under Section 14 of SARFAESI Act: Procedural Defects in Bank’s Application Not Grounds for Dismissal; No Notice Required to Borrowers During Possession Process

Court’s Decision

The Bombay High Court dismissed the writ petition filed by borrowers challenging the Chief Judicial Magistrate’s (CJM) denial of their request to obtain copies of documents submitted by the bank under Section 14 of the SARFAESI Act. The Court held that the CJM’s role under Section 14 is purely ministerial, requiring no adjudication or notice to the borrowers at this stage. It further held that procedural defects in the application, such as missing affidavits, could be rectified and did not invalidate the bank’s request.

Facts

1. Loan Transaction:
   • The petitioners secured an Open Cash Credit (OCC) limit of ₹2.5 crores from the respondent bank in 2016, which was enhanced multiple times, reaching ₹5 crores by 2019.
   • They mortgaged residential and non-agricultural properties as security and agreed to an interest rate of 12.25% per annum.
2. Default:
   • The petitioners defaulted on repayment, leading the bank to classify their loan account as a Non-Performing Asset (NPA) on 31st March 2021.
3. SARFAESI Notices:
   • The bank issued notices under Sections 13(2) and 13(4) of the SARFAESI Act, initiating the process to take possession of secured properties.
   • The petitioners challenged the first notice before the Debts Recovery Tribunal (DRT). The DRT disposed of the matter after the bank withdrew the notice, granting it liberty to pursue alternative remedies.
4. Subsequent Notices:
   • On 14th September 2022, the bank issued another notice under Section 13(2), which was served on the petitioners. They neither replied to the notice nor challenged it.
5. Applications Under Section 14:
   • The bank initially approached the District Magistrate under Section 14, but the application was dismissed for procedural deficiencies.
   • The bank then filed a fresh application with the CJM for physical possession of the secured assets.
6. Borrowers’ Objections:
   • The petitioners requested copies of the bank’s application and related documents filed under Section 14, arguing that they were entitled to these under the Act. The CJM denied their request.

Issues

1. Is the CJM’s order rejecting the borrowers’ request for documents valid under the SARFAESI Act?
2. Can the bank’s fresh application under Section 14 be entertained despite procedural deficiencies noted in its earlier application to the District Magistrate?

Petitioner’s Arguments

1. Procedural Non-Compliance:
   • The bank failed to provide copies of its application, affidavit, and notices issued under Section 13(2), as required under the SARFAESI Act.
   • The absence of these documents violated mandatory procedural requirements.
2. Second Application Non-Maintainable:
   • The bank’s fresh application to the CJM should have been dismissed, as it failed to address deficiencies pointed out in the District Magistrate’s earlier dismissal.
3. Fresh Notice Required:
   • After withdrawing the earlier notice, the bank should have issued a new Section 13(2) notice before filing its application under Section 14.

Respondent’s Arguments

1. Compliance with SARFAESI:
   • The bank argued that it had duly served a second notice under Section 13(2) on the petitioners, which was neither replied to nor challenged.
   • The application under Section 14 complied with all procedural requirements.
2. Role of CJM is Ministerial:
   • The CJM’s function under Section 14 is limited to verifying procedural compliance and assisting the creditor in taking possession, without requiring notification to the borrower.
3. Procedural Defects Curable:
   • The absence of an affidavit is a procedural defect and does not invalidate the application under Section 14.

Analysis of the Law

1. Role of CJM under Section 14:
   • Section 14 empowers the CJM or District Magistrate to assist a secured creditor in taking possession of secured assets. Their role is strictly ministerial, involving verification of procedural compliance, such as ensuring the issuance of a notice under Section 13(2) and confirming territorial jurisdiction.
2. Case Law:
   • Trade Well v. Indian Bank: Held that Section 14 does not require the CJM to notify or hear borrowers or third parties.
   • Balkrishna Rama Tarle v. Phoenix ARC Pvt. Ltd.: Clarified that Section 14 does not involve adjudication of disputes and is limited to assisting creditors with possession.
   • R.D. Jain & Co. v. Capital First Ltd.: Procedural defects like missing affidavits can be cured without invalidating the application.
3. Procedural Compliance:
   • The Court found that the bank had complied with the core requirements of Section 14. The missing affidavit, being a procedural defect, did not invalidate the application, as it could be remedied.

Precedent Analysis

The court emphasized that Section 14 applications are purely ministerial, relying heavily on precedent that excludes borrower participation or dispute adjudication at this stage. Borrowers must raise objections through Section 17 proceedings before the DRT.

Court’s Reasoning

1. Ministerial Role of CJM:
   • The CJM’s role is limited to verifying procedural compliance, such as the issuance of Section 13(2) notices and the description of secured assets.
2. Procedural Defects:
   • The absence of an affidavit was a minor procedural defect that could be rectified.
3. Borrowers’ Conduct:
   • The petitioners failed to reply to the second notice under Section 13(2) and concealed its service. This undermined their credibility and their objections.
4. Lawful Possession:
   • The bank had fulfilled all statutory requirements to secure possession of the assets, rendering the petitioners’ objections baseless.

Conclusion

The High Court upheld the CJM’s decision and dismissed the petition. It reiterated that the CJM is not required to provide borrowers with copies of the bank’s application or other documents under Section 14. Procedural defects in the application do not invalidate it and can be remedied.

Implications

1. Clarification of CJM’s Role:
   • This judgment reinforces that the CJM acts as a procedural facilitator, not an adjudicator, under Section 14 of the SARFAESI Act.
2. Creditor-Friendly Approach:
   • The ruling emphasizes timely and efficient enforcement of creditors’ rights under the SARFAESI Act, limiting borrowers’ ability to delay proceedings through procedural objections.
3. Borrowers’ Remedies:
   • Borrowers are reminded to raise objections in Section 17 proceedings before the DRT, as disputes cannot be adjudicated at the Section 14 stage.

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