SUPREME COURT HOLDS STATUTORY TIME LIMIT STIPULATED UNDER SARFAESI ACT TO BE DIRECTORY IN NATURE

Recently, a Three-Judge Bench of the Hon’ble #SupremeCourt of India in the case of C. Bright v. District Collector, Civil Appeal No. 3441 OF 2020, passed a Judgment dated 05.11.2020 and upheld an Order dated 19.7.2019 passed by the Division Bench of the #Kerala High Court, wherein it was held that Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘#SARFAESI Act’), which mandates the District #Magistrate to pass suitable orders for taking #possession of a #securedasset within 30 days, is not a mandatory provision.

The issue before the Supreme Court was whether the remedy under Section 14 of SARFAESI Act becomes redundant if District Magistrate is unable to pass suitable orders for taking possession of secured assets within the stipulated time limit?

The contentions raised that the Proviso to Section 14 of the SARFAESI Act mandates the District Magistrate to record reasons, if the order is not passed within 30 days and an extended period of a total 60 days has to be availed. This shows that the provision is mandatory. It was also contended that the Proviso mandates the District Magistrate to pass an order within 30 days as the word “shall” is used in first part of the Proviso to the Section 14 of the Act. Thus, the time limit provided is unambiguous and the provision is mandatory.

The Supreme Court observed that it is a well settled rule of interpretation of the statutes that the use of the word “shall” in a statute, does not necessarily mean that in every case it is mandatory that unless the words of the statute are literally followed, the proceeding or the outcome of the proceeding would be invalid. It is not always correct to say that if the word “may” has been used, the statute is only permissive or directory, in the sense that non-compliance with those provisions will not render the proceeding invalid. However, when a statute uses the word “shall”, prima facie, it is mandatory, but the Court may ascertain the real intention of the Legislature by carefully attending to the whole scope of the statute.

In view of the above observations, the Supreme Court noticed that the time limit stipulated under the SARFAESI Act is to instill a confidence in creditors that the District Magistrate would make an attempt to deliver possession as well as to impose a duty on the District Magistrate to make an earnest effort to comply with the mandate of the Statute to pass orders for taking possession of the secured assets within 30 days and for reasons to be recorded within 60 days. Hence, the remedy under Section 14 of the Act is not rendered redundant if the District Magistrate is unable to handover the possession. The District Magistrate will still be enjoined upon, the duty to facilitate delivery of possession at the earliest.

The Supreme Court also looked into the object and reason of the SARFAESI Act and observed that the object and purpose of the said time limit is to ensure that such applications are decided expeditiously so as to enable secured creditors to take physical possession quickly and realize their dues. Moreover, as stated earlier, the consequences of non-compliance with the time limit are not specified and the conclusion thereof would be that the district collector/district magistrate concerned would not be divested of jurisdiction upon expiry of the time limit. In this connection, it is also pertinent to bear in mind that if the “consequences of non-compliance” test is applied, the borrower, guarantor or lessee, as the case may be, are not adversely affected or prejudiced, in any manner, whether such applications are decided in 60, 70 or 80 days. On the other hand, the secured creditor is adversely affected if the provision is construed as mandatory and not directory in as much as it would delay the process of taking physical possession of assets instead of expediting such process by entailing the filing of another application for such purpose. For all these reasons, the time limit stipulation in the amended Section 14 of the SARFAESI Act is directory and not mandatory.

Therefore, the Supreme Court did not find any error in the Order passed by the High
Court. Consequently, the Order dated 19.7.2019 was upheld and the Appeal was dismissed.

Lakshmi Vishwakarma

Associate

The Indian Lawyer