SUPREME COURT DECIDES UPON THE JURISDICTION OF COURTS TO DECIDE THE APPLICATIONS UNDER SARFAESI ACT

In a recent Civil Appeal, a two Judge Bench of the Supreme Court, comprising of Justice M.R. Shah and Justice B.V. Nagarathna passed an Order and Judgement dated 27.07.2022 in ‘M/s R.D. Jain and Co. v. Capital First Ltd. & Ors., Civil Appeal No.175 of 2022’ and set aside the Order and Judgement dated 22.12.2017 passed by the High Court of Bombay, and held that the District Magistrate, Chief Metropolitan Magistrate are not the persons designated for the purposes of Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002 (SARFAESI) Act (Chief Metropolitan Magistrate or District Magistrate to assist Secured Creditor in taking possession of secured asset) and that the expression “District Magistrate” and the “Chief Metropolitan Magistrate” as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional District Magistrate and Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act.

In this case, the Respondent-Capital First Ltd. was the Secured Creditor. ‘Secured creditor’ means any bank or financial institution or any consortium or group of banks or financial institutions. The Secured Creditor instituted proceedings under the SARFAESI Act for recovery of the amount due and payable by the Appellant–Borrower under Section 13(4) of the SARFAESI Act (Enforcement of security interest) and the Secured Creditor proceeded to take possession of the secured asset. However, the Appellant–Borrower refused to hand-over the physical possession of the secured asset. The Secured Creditor took symbolic possession of the secured asset on 21.01.2017 and affixed the possession notice at the said property. On 17.03.2017, the Secured Creditor filed an Application under Section 14 of the SARFAESI Act with the Chief Metropolitan Magistrate Court (CMO), Esplanade, Mumbai, praying for assistance from the Chief Metropolitan Magistrate in taking physical possession of the secured asset. The matter was adjourned from time to time and lastly, it was adjourned to 29.07.2017. As mandated by second proviso to subsection (1) of Section 14 of the SARFAESI Act, the Application was required to be disposed of within a period of 30 days and as the Application was not decided within the period mandated by the statute, the Secured Creditor moved an Application for Advancement. This Application was dismissed by the CMO, on the ground that the Application was a fresh application and many old applications are pending.

Aggrieved by this Order of the CMO, the Respondent filed a Writ Petition before the High Court of Bombay. The Division Bench of the High Court issued directions to the CMO to make an endeavour to dispose of the pending applications as expeditiously as possible and preferably within a period of thirty days from the date of receipt of writ along with the order. The CMO vide Communication dated 14.08.2017 brought to the notice of the High Court that, “Even though, the SARFAESI Act, 2002 provides for expeditious disposal of the applications filed under Section 14 of the said Act, there are as many as 924 cases pending under the said Act as on 09.08.2017 on the file of the Court of the Chief Metropolitan Magistrate, Esplanade, Mumbai. Out of 924 cases, 509 cases are filed in the year 2017. However, there are 27 cases of the year 2014, 96 cases of the year 2015 and 291 cases of the year 2016, still pending for disposal. As per the direction of the Hon’ble High Court, preference should be given to the old pending cases for disposing of the same. Therefore, the preference is being given to the pending old cases rather than fresh new cases.”

The High Court proceeded to consider the issue as to how to minimize the pendency. After considering the relevant provisions of the SARFAESI Act as well as Section 17(2) of the Code of Criminal Procedure 1973 (CrPC) (Chief Metropolitan Magistrate and Additional Chief Metropolitan Magistrate) and Section 19 CrPC (Subordination of Metropolitan Magistrates), the High Court vide Order dated 22.12.2017 observed that the Additional Chief Metropolitan Magistrate (ACMM), being invested with all the judicial powers of the Chief Metropolitan Magistrate, can be considered at par with the Chief Metropolitan Magistrate. The High Court thus held that the District Magistrate, Chief Metropolitan Magistrate is not by persona designated for the purposes of Section 14 of the SARFAESI Act and that the expression “District Magistrate” and the “Chief Metropolitan Magistrate” as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional District Magistrate and Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act.

Aggrieved by this Order dated 22.12.2017 of the High Court, the Appellant–Borrower preferred an Appeal before the Supreme Court. The Apex Court observed as follows:

“As mandated by Section 14 of the SARFAESI Act, the CMM/DM has to act within the stipulated time limit and pass a suitable order for the purpose of taking possession of the secured assets within a period of 30 days from the date of application which can be extended for such further period but not exceeding in the aggregate, sixty days. Thus, the powers exercised by the CMM/DM is a ministerial act. He cannot brook delay. Time is of the essence. This is the spirit of the special enactment.”

The Supreme Court after detailed discussion held that the powers to be exercised by the Additional Chief Metropolitan Magistrate are at par with the powers to be exercised by the Chief Metropolitan Magistrate. Further, the Apex Court held that, “the steps to be taken by the Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act as observed hereinabove are ministerial in nature and does not involve any adjudicatory process and there is no element of any quasi-judicial function, we see no reason to take a different view than the view taken by the Bombay High Court in the impugned judgment. We hold that the expression “Chief Metropolitan Magistrate” as appearing in Section 14 of the SARFAESI Act shall deem to mean and include Additional Chief Metropolitan Magistrate for the purposes of Section 14 of the SARFAESI Act. Similarly, when the Additional District Magistrates are conferred with the powers to be exercised by the District Magistrates either by delegation and/or by special orders and the Additional District Magistrates are exercising the same powers which are being exercised by the District Magistrates, the same analogy can be applied, more particularly, when the powers exercisable under Section 14 of the SARFAESI Act, are ministerial steps.”

Thus, the Apex Court dismissed the Appeal and affirmed the Order dated 22.12.2017 passed by the High Court.

Anuradha Kumari

Associate

The Indian Lawyer & Allied Services

Edited by

Sushila Ram Varma

Chief Consultant and Editor

The Indian Lawyer & Allied Services