The HC of Delhi was dealing with the petition filed under Article 227 of the Constitution of India impugns orders passed by the Chief Metropolitan Magistrate (CMM), South West, Dwarka Courts, New Delhi.
Brief Facts:
A loan of was disbursed by the petitioner to respondents for the purchase of a Flat. Upon failure of the respondents to pay the amount, an application under Section 14 of the SARFAESI Act was filed by the petitioner before the Court of the CMM. The CMM appointed a court receiver and gave the said receiver three months’ time to execute the said order. The court receiver issued a notice and fixed the date for taking possession of the subject property. A Securitization Application under Section 17 of the SARFAESI Act was filed on behalf of the respondents before the DRT and the DRT passed an interim order in terms of which the taking over of possession of the subject property was delayed. On 30th March, 2021, the petitioner moved an application before the CMM seeking extension of the order dated 15th October, 2019 and the CMM granted an extension of three months for taking possession of the subject property. An application was filed on behalf of the respondents before the DRT on 20th April, 2021 seeking stay against the taking of possession. The said application was dismissed by DRT. The respondent no.3 filed a suit for mandatory injunction against the respondents no.1 and 2, in respect of the subject property, where the petitioner was not impleaded as a party. In the said suit, the Dwarka Courts, New Delhi directed parties to the suit to maintain status quo qua the suit property. The court appointed receiver did not take possession of the property. The petitioner filed an application before the CMM seeking, inter alia change of court appointed receiver and extension of time for compliance of the order passed by the CMM under Section 14 of the SARFAESI Act.
Petitioner’s Contention:
The learned counsel for the petitioner has submitted that there is no jurisdiction vested in the CMM to fix a time limit for compliance of the order passed by the Court of CMM in exercise of its jurisdiction under Section 14 of the SARFAESI Act. It was submitted that Section 14 is an aiding provision to Section 13(4) of the SARFAESI Act, whereby the role of CMM is to assist the secured creditors in taking possession of the secured assets. It was also submitted that there is no rationale for providing any time limit. In fact, fixing of a time limit results in filing of applications for extension of the term of the court receiver for execution of orders and defeats the very purpose of speedy recovery. It was contended that it is a matter of record that the petitioner was not a party in the civil suit filed by the respondent no.3. Therefore, the status quo order passed in the said suit on 12th July, 2021 shall not be binding on the petitioner as also on the CMM.
Respondent’s Contention:
The learned counsel for the state has submitted that the petitioner committed a fraud on the respondents by claiming amounts more than what were due in terms of the home loan agreement dated 05th August, 2011. It was also submitted that the said respondents have always been ready and willing to pay the legitimate amounts due to the petitioner and a floating rate of interest was applicable for payment of interest for the home loan, but the petitioner charged amounts at a higher rate of interest than what was charged from other customers. It was also submitted that the respondents have paid amounts in excess of what were due from them. He contended that the present petition under Article 227 of the Constitution of India is not maintainable.
HC’s observations:
The questions before the HC were:
- Whether there is any requirement or justification to fix a time limit by the CMM for taking possession of the secured asset while exercising jurisdiction under Section 14 of the SARFAESI Act?
- In the context of proceedings initiated under the SARFAESI Act, whether an order passed in a civil suit instituted by a third party in respect of the mortgaged property/secured asset would bind the secured creditor, if the said secured creditor was not a party to the Civil Suit?
The HC observed that Section 14 of the SARFAESI Act is an enabling provision through which the secured creditor may seek the assistance of the CMM in taking physical possession of the secured asset, which is within the jurisdiction of the CMM. There is no provision under Section 14 that requires imposition of any time limit for the aforesaid purpose. The only time limit provided in Section 14 is in the proviso to Section 14, that the CMM is required to pass an order within thirty days from the date the application has been filed before the CMM by the secured creditor. The said period of thirty days is extendable by a further period of thirty days, and therefore, the maximum period provided is sixty days.
The SC relied upon the case of Sansar Chand Sharma Vs. Kotak Mahindra Bank Ltd., wherein it was held that “there are no provisions of law in terms of which the CMM could not extend the time period granted for taking physical possession of the secured asset and technicalities cannot come to the aid of the borrower to frustrate the object behind the SARFAESI Act.” The Court found that that there is no requirement or rationale in providing a time limit in orders passed by the CMM under Section 14 of the SARFAESI Act, in respect of taking possession of the secured asset. In fact, setting of a time limit by the CMM for taking possession of a secured asset is contrary to the legislative intent.
With regard to the second issue the Court relied upon the case of Sh. Nishant Shukla Vs. District Magistrate, Ludhiana and others, where the Court while analysing the provisions of the SARFAESI Act, observed that “if the secured creditor is not a party to a suit initiated by a third party against the borrower, any order passed in the said suit would not be applicable to the secured creditor.”
HC held:
The HC found that “the CMM, while exercising jurisdiction under Section 14 of the SARAFESI Act could not have taken cognizance of the aforesaid order passed in the civil suit. The scope of the proceedings before the CMM are entirely different from the proceedings in the civil suit. In any event, in view of Section 34 of the SARFAESI Act, a civil court does not have jurisdiction to adjudicate the rights of a secured creditor or the enforcement of such rights by the secured creditor. Such rights can only be challenged by the borrower or any affected person before the DRT in terms of Section 17 of the SARFAESI Act. Further, in terms of Section 34, no injunction can be granted by any court in respect of any action taken in pursuance of any power under the SARFAESI Act. Therefore, the civil court, in the present case, did not have any jurisdiction to pass an injunction against the petitioner.”
The HC ordered the CMM to pass fresh orders appointing a receiver to take physical possession of the secured asset without fixing any time limit within which possession may be taken.
Bench: Hon'ble Mr. Justice Amit Bansal
Case Title: Housing Development Finance Corporation Ltd. v. Rakesh Kumar & Ors.
Case Details: CM(M) 647/2021
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