Gujarat High Court
The Kalupur Commercial Bank Ltd vs The District Magistrate, Surat on 19 October, 2023
Bench: Nirzar S. Desai
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 23333 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE NIRZAR S. DESAI
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1 Whether Reporters of Local Papers may
be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the
fair copy of the judgment ?
4 Whether this case involves a
substantial question of law as to the
interpretation of the Constitution of
India or any order made thereunder ?
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THE KALUPUR COMMERCIAL BANK LTD.
Versus
THE DISTRICT MAGISTRATE, SURAT
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Appearance:
MR JB DASTOOR(239) for the Petitioner(s) No. 1
MR JAY TRIVEDI ASSISTANT GOVERNMENT PLEADER for the
Respondent(s) No. 2
NOTICE SERVED for the Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 8
NOTICE UNSERVED for the Respondent(s) No. 6,7
SERVED BY AFFIX(N) for the Respondent(s) No. 3,4,5
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CORAM:HONOURABLE MR. JUSTICE NIRZAR S. DESAI
Date : 19/10/2023
ORAL JUDGMENT
1. With the consent of the parties, the matter was
taken up for final hearing. Hence, RULE. Learned
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Assistant Government Pleader Mr. Jay Trivedi
waives service of notice of rule on behalf of
the respondents No.1 and 2.
2. Considering the fact that the order under
challenge is passed by the District Magistrate,
Rajkot, considering the fact that the prayers
made in the petition are against State
Authorities, as also considering the fact that
the private respondents No.3, 4 and 5 are served
by affixing the notice and respondents No.6 and
7 have remained unserved, prima-facie, indicates
that they being the borrowers are not interested
to contest the petition. Further, as the
petition is preferred against an order passed
under Section 14 of the Securitization Act, the
presence of borrowers would not be required as
Section 14 of the Securitisation Act cast a duty
upon District Magistrate to pass an order under
Section 14 which is a Ministerial Act and
therefore, even in absence of the private
respondents, the matter was heard finally.
3. By way of this petition, the petitioner has
prayed for following reliefs :-
"(A) Your Lordships be pleased to allow
this petition;
(B) Your Lordships be pleased to issue a
writ of mandamus or certiorari or any
other writ, direction or order in nature
of mandamus or certiorari directing
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respondent No. 1 to decide application
dated 1/7/2022 received on 6/7/2022 within
a period of thirty days from the date of
receipt of the order in accordance with
Section 14(1)(b)(x) of the Securitization
Act.
(C) Your Lordship be pleased to grant any
other and further reliefs your Lordship
deems fit, just and proper in the interest
of justice.
(d) Your Lordship be pleased to quash and
set aside the communication dated
13/4/2023, annexed at Annexure-B to the
petition and direct the respondent No.1 to
pass fresh De-novo order under section 14
of the SARFAESI Act after giving an
opportunity of hearing to the petitioner
within a period of four weeks from the
date of receipt of the order."
4. The petitioner is a Multi State Schedule Bank
and the bank advanced some loan facilities to
respondent Nos. 3 and 4 wherein respondents
No.5, 6 and 7 were the guarantors of the
aforesaid financial facilities advanced by the
petitioners.
5. As the private respondents failed to adhere to
the terms and conditions of financial facilities
advanced by the petitioner, the bank issued a
notice under Section 13(2) of the Securitization
Act, 2002 to respondents No.3 to 7 calling upon
them to make payment of Rs.70,14,220/-.
6. Thereafter, on 8.2.2022, the petitioner Bank
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took the symbolic possession of the secured
assets after giving notice under Section 13(3)
of the Securitization Act.
7. Thereafter, on 1.7.2022 the petitioner preferred
an application under Section 14 of the SARFAESI
Act before the District Magistrate, Rajkot and
at that stage, as the aforesaid application
could not be decided within time scheduled
prescribed under Section 14 of the Act.
Initially, the petition was preferred seeking a
direction against the respondent No.1 to decide
the application preferred by the petitioner
under Section 14 preferred by the bank within a
period of 30 days from the date of receipt of
the order.
8. Subsequently, during pendency of the petition,
the respondent No.1 vide order dated 13.4.2023
preferred by the petitioner and rejected the
same on the ground that the secured assets of
the petitioner bank is already in possession of
the State Government, in view of the order dated
12.7.2021 passed by the State under the Gujarat
Protection of Interest of Depositors (In
Financial Establishment) Act, 2003 and more
particularly, under Section 4(i) of the
aforesaid order.
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9. By considering the aforesaid aspect the
application preferred by the petitioner bank
under Section 14 was rejected.
10. Learned advocate Mr. J.B. Dastoor appearing
for the petitioner submitted that in an
application under Section 14 of the
Securitization Act, the respondent No.1 has no
power of adjudication. He states that Section 14
empowers the respondent No.1 District Magistrate
of a Ministerial Act only and in view of the
fact that there are no adjudicatory powers
available to the District Magistrate under
Section 14 of the SARFAESI Act by passing the
impugned order dated 13.4.2023, he has acted
beyond his powers and therefore, this order may
be quashed and set aside and matter be remanded
back to District Magistrate, Rajkot for
considering it afresh in terms of language of
Section 14 of the SARFAESI Act.
11. Learned advocate Mr. Dastoor relied upon
two decisions of this Court in case of Bajaj
Finance Ltd. Through Authorised Officer, Aniket
Pareshbhai Desai Versus Ld. District Collector,
Navsari and 1 others dated 5.5.2022 in Special
Civil Application No.6081 of 2022 and in case of
Canara Bank Limited (Erstwhile Syndicate Bank)
Versus State of Gujarat dated 13.1.2022 in
Special Civil Application No.8587 of 2021.
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12. By relying upon the aforesaid decisions,
learned advocate Mr. Dastoor submitted that in
similar set of facts when the order was passed
upon an application under Section 14 by the
District Magistrate on similar line, the Co-
ordinate Bench of this Court was pleased to
quash those orders and remanded back the matter
for considering it afresh in Special Civil
Application No.6081 of 2022 whereas in another
petition i.e. Special Civil Application No.8587
of 2021, the Court restored the order passed
under Section 14 of the Act and held the
petitioner bank entitle to take physical
possession of the secured assets from the
borrower.
13. By relying upon aforesaid two decisions
which are given in similar set of facts, learned
advocate Mr. Dastoor prayed for quashing of the
order dated 13.4.2023 passed by respondent No.1
upon an application made under Section 14 of the
SARFAESI Act.
14. Though learned Assistant Government Pleader
Mr.Jay Trivedi vehemently opposed the petition,
he could not dispute the fact that the similar
issue was decided by the Co-ordinate Bench of
this Court vide aforesaid two decisions and he
could not point out that the controversy in
those two petitions was different than the
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controversy in this petition and therefore, he
prayed for passing appropriate order.
15. I have heard learned advocates appearing
for the respective parties and perused the
record. On perusal of record, I found that the
facts of the present case are similar to the
facts of Special Civil Application No.6081 of
2022 in case of Bajaj Finance Limited (Supra)
wherein the Co-ordinate Bench of this Court in
paragraph No.6 to 9 observed as under :-
"6. Having heard the learned advocates for
the respective parties and having
considered the documents on record, it
appears that no order is passed under
section 14 application and only a formal
letter is addressed to the petitioner-bank
intimating about the decision of the
respondent no.1.
7. This Court in case of Canara Bank
Limited (Erstwhile Syndicate Bank) v.
State of Gujarat in Special Civil
Application No. 8587 of 2021 vide order
dated 13th January, 2022 in similar facts
has held as under :
"6. Having heard the learned advocates for
the respective parties and having
considered the documents on record, it is
necessary to refer to the provisions of
sections 14 and 26E of the SARFAESI Act
which reads as under :
"Section 14"
"14. Chief Metropolitan Magistrate or
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District Magistrate to assist secured
creditor in taking possession of secured
asset.--
(1) Where the possession of any secured
asset is required to be taken by the
secured creditor or if any of the secured
asset is required to be sold or
transferred by the secured creditor under
the provisions of this Act, the secured
creditor may, for the purpose of taking
possession or control of any such secured
asset, request, in writing, the Chief
Metropolitan Magistrate or the District
Magistrate within whose jurisdiction any
such secured asset or other documents
relating thereto may be situated or found
to take possession thereof, and the Chief
Metropolitan Magistrate or, as the case
may be, the District Magistrate shall, on
such request being made to him
(a) take possession of such asset and
documents relating thereto; and
(b) forward such assets and documents to
the secured creditor.............."
"Section 26E"
"26E. Priority to secured creditors. --
Notwithstanding anything contained in any
other law for the time being in force,
after the registration of security
interest, the debts due to any secured
creditor shall be paid in priority over
all other debts and all revenues, taxes,
cesses and other rates payable to the
Central Government or State Government or
local authority.
Explanation.-- For the purposes of this
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section, it is hereby clarified that on or
after the commencement of the Insolvency
and Bankruptcy Code, 2016 (31 of 2016), in
cases where insolvency or bankruptcy
proceedings are pending in respect of
secured assets of the borrower, priority
to secured creditors in payment of debt
shall be subject to the provisions of that
Code.]"
7. On perusal of the above provisions, it
is clear that the District Magistrate has
to discharge the ministerial act of
providing assistance to the secured
creditor to take physical possession of
the secured assets when the secured
creditor has initiated the proceedings
under section 13 of the SARFAESI Act.
8. As per the provisions of section 26E of
the SARFAESI Act, the secured creditor has
first claim/charge over the sale proceeds
of the secured assets towards the recovery
of the outstanding dues. Therefore, it is
the mandatory for the District Magistrate
to pass an order to provide police
assistance to the secured creditors to
take the possession of the secured assets
as per provision of section 14 of the
SARFAESI Act. Merely because there was an
attachment of the property by the State
Government under the provisions of Act of
1978, the possession of the property
cannot be continued with the borrower and
as such physical possession of the
property ought to have been taken over by
the petitioner - secured creditor as per
the provisions of the SARFAESI Act.
9. This Court in case of Gruh Finance
Limited v. The District Magistrate and
others rendered on 9th February, 2017 in
Special Civil Application No.436/2017 in
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similar facts has held as under :
"4. Looking at the contents of the
impugned order whereby the District
Magistrate has rejected the application
under Section 14, it is viewed and stated
by the Magistrate that the Bank had not
approached with clean hands as certain
criminal proceedings were pending before
the court of Chief Judicial Magistrate,
Mehsana and the details about the said
proceedings were not disclosed. It was
next recorded that in Criminal Inquiry
No.3 of 2015 pending before the court of
Judicial Magistrate, First Class, Kadi, a
report under Section 202 of the Code of
Criminal Procedure was submitted and in
that report, it was stated that the
complainant had paid the amount and that
no amount was due. The learned District
Magistrate reasoned that the dispute was
sub-judice in that way. On the ground that
the dispute between the parties being sub-
judice, the Magistrate refused to exercise
the power and rejected the application of
the petitioner. It is evident that the
District Magistrate in his reasoning and
approach while passing the impugned order,
drifted into the adjudicatory arena of the
dispute. This was not the function to be
discharged by the District Magistrate
under Section 14 of the Act, nor such
adjudicatory exercise was within his ambit
of jurisdiction. The order was based upon
such exercise.
5. The question about the kind and nature
of powers exercised by the District
Magistrate under Section 14 and the order
which may be passed upon such application,
is no longer res integra.
5.1 Following observations are noticed
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from the decision of the Apex Court in
United Bank of India vs. Satyawati Tondon
[(2010) 8 SCC 110],
"In terms of Section 14, the secured
creditor can file an application before
the Chief Metropolitan Magistrate or the
District Magistrate, within whose
jurisdiction the secured asset or other
documents relating thereto are found for
taking possession thereof. If any such
request is made, the Chief Metropolitan
Magistrate or the District Magistrate, as
the case may be, is obliged to take
possession of such asset or document and
forward the same to the secured creditor."
(Para 21)
5.2 The observation applied by the Supreme
Court is that the District Magistrate is
oblige to take possession. This Court in
Bank of India vs. Pankaj Dilipbhai Hemani
[2007 (2) GLH 326] considered the scope of
powers exercisable under Section 14 and it
was stated that the role assigned to the
District Magistrate is of a ministerial
kind in rendering assistance. It was
observed and held as under inter alia that
adjudicatory powers are conferred on the
Tribunal functioning under Section 17 and
the District Magistrate cannot enter into
that arena,
"On a plain reading it is apparent that
the said provision is a procedural
provision whereunder the Chief
Metropolitan Magistrate or the District
Magistrate, (the Authority) as the case
may be, shall, on a request being made to
him (a) take possession of such asset and
documents relating to the assets; AND (b)
forward such assets and documents to the
secured creditor. Under subsection (2) of
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Section 14 of the Securitisation Act the
authority is empowered to take such steps
and use such force as may be necessary for
taking possession of the secured assets
and the documents relatable thereto. Under
sub-section (3) of Section 14 of the
Securitisation Act, such act of the
authority is protected and the action
shall not be questioned in any Court or
before any authority. Thus, it is apparent
that the role envisaged by the legislature
in so far as the Authority is concerned,
is a ministerial role in the form of
rendering assistance and exercising powers
by virtue of the authority vested in the
District Magistrate or the Chief
Metropolitan Magistrate including use of
force as may be necessary. The said
Authority, namely, the Chief Metropolitan
Magistrate or the District Magistrate is
not vested with any adjudicatory powers.
There is no other provision under the
Securitisation Act in exercise of which
the said Authority, who is approached by a
secured creditor, can undertake
adjudication of any dispute between the
secured creditor and the debtor or the
person whose property is the secured asset
of which possession is to be taken. If
such adjudicatory powers were to be vested
in the Authority, the Securitisation Act
would have made a specific provision in
this regard." (Para 6)
5.2.1 It was thereafter stated,
"Section 13(4) of the Securitisation Act
provides for various measures a secured
creditor may take to recover the secured
debt; one of such measures is to take
possession of the secured asset. A person
aggrieved by any of the measures referred
to in sub-section (4) of Section 13 of the
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Securitisation Act is granted a right to
make an application to the Debts Recovery
Tribunal (the Tribunal) within the
prescribed period under Section 17(1) of
the Securitisation Act. Under subsections
(2), (3) and (4) of Section 17 of the
Securitisation Act the statute has
provided a complete code, including the
powers to the Tribunal to declare any of
the measures taken by the secured creditor
under Section 13(4) of the Securitisation
Act invalid and consequential restoration
of possession to the person from whom the
possession was taken. A person aggrieved
by any order made by the Tribunal under
Section 17 of the Securitisation Act has a
statutory right of appeal under Section 18
of the Securitisation Act. Therefore,
under the guise of acting under Section 14
of the Securitisation Act the Authority
cannot be permitted to usurp statutory
powers vested in the Tribunal." (Para 7)
5.2.2 It was finally observed,
"Hence, the Authority who is called upon
to act under Section 14 of the
Securitisation Act can only assist, nay,
is bound to assist the secured creditor in
taking possession of the secured asset.
Any dispute between the parties regarding
the secured asset raised before the
Authority cannot be gone into by the
Authority; the Authority has to relegate
the aggrieved person to seek statutory
remedy under the Securitisation Act after
taking possession and handing over to the
secured creditor. The Authority cannot be
permitted to read anything beyond this is
Section 14 of the Securitisation Act.
(Para 9)
5.3 In Bharatbhai Ramniklal Sata vs.
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Collector and District Magistrate [2010
(2) GLR 985], after relying on the
decision of the Supreme Court in Transcore
vs. Union of India [(2008) 1 SCC 125]
observed as under,
"From the aforesaid provisions of law and
the decision of the Supreme Court, it will
be clear that for taking possession, one
of the measures for recovery of secured
debts under subsection (4) to Section 13
of the Act includes the measures taken by
secured creditor under Section 14 and
therefore, if any order is passed under
Section 14, though it cannot be challenged
before any Court of law in view of sub-
section (3) to Section 14, but one can
raise the legality and propriety of such
measures of taking possession under
Section 17, if such measure is against the
Securitisation Act or Rules framed
thereunder." (Para 11)
5.4 Similar view was reiterated in Canara
Bank vs. Sulay Traders through Bipin
Kantilal Vakta [2010 (1) GLR 770],
"After the aforesaid details are
submitted, the learned Magistrate would be
required to examine the same and verify
the aspects being condition precedent for
exercise of the power under Section 13(4)
of the Act. If the learned Magistrate has
any doubt about the genuineness of the
statement or the reliability of the
statement made, or about the compliance of
any condition precedent for exercise of
the power under Section 13(4) of the
Securitisation Act, he has two options;
one is that, he may call upon the Bank
itself to supply the necessary details on
any aspects, if he is not satisfied about
the condition precedent for exercise of
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the power under Section 13(4) of the
Securitisation Act; the second is that he
may issue the notice to the borrower for
verification of the existence of any fact
which is required to be verified by him.
Thereafter, he may proceed for exercise of
the power under Section 14 of the
Securitisation Act.
Be it noted that the Magistrate while
exercising power under Section 14 of the
Securitisation Act is required to verify
the existence of the facts attracting
power under Section 13(4) of the
Securitisation Act, and he is not required
to examine or adjudicate the rights of the
parties, if it is demonstrated before him
that certain facts do exist. It is the
only factual verification to be made by
the learned Magistrate. For example, the
existence of equitable mortgage wherein he
will be required to verify whether there
is a document of equitable mortgage and
whether the original Title Deeds are
deposited with the Bank or not. Similarly,
whether notice under Section 13(2) of the
Securitisation Act has been served upon
the person concerned or not, whether any
reply or objection is raised or not and if
yes, whether decision is taken or not and
whether such decision is communicated or
not and whether any payment is made or not
after the notice under Section 13(2) of
the Securitisation Act and if yes, any
amount outstanding, etc. There cannot be
any exhaustive list of the verification of
facts, but suffice it to state that he
would only be required to verify the
existence of the fact which are relevant
to have condition precedent for exercise
of the power under Section 13(4) of the
Securitisation Act. But he will not be
required to adjudicate on the aspects of
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illegality and validity of such facts or
the rights flowing therefrom." (Para 7 &
8)
5.5 In I.D.B.I. Bank Ltd. vs. Hytaisun
Magnetics Ltd. [2011 (2) GLH 1438], the
same issue was addressed by the Division
Bench and in the context various decisions
on the point were surveyed. In that case,
the borrowers had not disputed the fact of
having taken financial assistance, however
a plea was taken that the Bank was not
holding any original title deeds of the
property and therefore had no security
interest which was essential for
enforcement of the mortgage under the
Securitisation Act. The District
Magistrate dismissed the application of
the Bank under Section 14 of the Act. The
Division Bench while setting aside the
order proceeded to lay down the following
principles, reproducing those relevant to
the subject matter issue here,
"(a) Only when the secured creditor finds
difficulty to take possession of the
secured asset, it may take assistance of
the Chief Metropolitan Magistrate or the
District Magistrate under Section 14 of
the Act.
(b) The measures taken under Section 14
amounts to measures taken under Section
13(4) of the Act.
(c) As the measures taken under Section 14
amount to measures taken under Section
13(4) of the Act, under Section 14(3) such
measures cannot be called in question
before any Court or Tribunal.
(d) If such measures taken under Section
14 which amount to measures taken under
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Section 13(4) is not in accordance with
the Securitization Act or the Rules framed
thereunder, including the objection, if
any, raised that the asset is not a
secured asset to be taken under Section
13(4), the aggrieved person has a remedy
under Section 17 before the Debts Recovery
Tribunal to show that the measures taken
are against the Act [Section 13(4)] or the
Rules framed thereunder.
(e) All such determination is to be made
by the Debts Recovery Tribunal including
the question whether the asset is a
secured asset or not and the Chief
Metropolitan Magistrate or the District
Magistrate has not been empowered to
adjudicate such dispute, but is directed
only to assist the secured creditor in
taking possession of the secured asset. If
they are not empowered to adjudicate the
dispute, they cannot also call for the
secured creditor to produce any document
to decide whether the asset is secured
asset or not, which will be futile
exercise in absence of power to adjudicate
such issue." (Para 20)
5.6 In yet another decision of the
Division Bench in Mansa Synthetic Private
Limited vs. Union of India being Special
Civil Application No.1829 of 2012, the
principle was reiterated that the
Magistrate is bound upon an application
made, to assist the secured creditor in
taking possession of the secured assets
and is not empowered to decide the
question of legality and propriety of any
of the actions taken by the secured
creditor under Section 13(4) of the Act.
The proposition of law was followed and
reiterated in Consumer Protection and
Analytic Committee vs. State of Gujarat
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[2013 (4) GLR 3642]. The other decision on
the same line is in Gruh Finance Limited
vs. District Magistrate & Collector [2012
(2) GCD 1288]. The reiterative
pronouncements in Kotak Mahindra Bank vs.
District Magistrate decided by the
Division Bench on 25.08.2011 being Special
Civil Application No.8326 of 2011, in
Kotak Mahindra Bank vs. District
Magistrate decided on 18.06.2015 being
Special Civil Application No.7512 of 2014
and in Gruh Finance Limited Vs District
Magistrate decided on 03.07.2015 being
Special Civil Application No.4838 of 2015,
the later two decisions being by learned
Single Judge.
5.7 In Gruh Finance Limited Vs District
Magistrate, Surat being Special Civil
Application No.18551 of 2015 decided on
25.11.2016, this Court held and observed
in respect of scope of powers under
Section 14 of the SARFAESI Act as under
"The powers and the jurisdiction under
Section 14 of the Act exercisable by the
District Magistrate is not adjudicatory in
nature. What are the rights of the parties
in the civil realm, are not required to be
gone into by the District Magistrate, nor
the District Magistrate has powers to
pronounce upon the rights of the parties
in the context of any other law while
entertaining the application under Section
14 of the Act. The function is anything
but adjudicatory. The claims in respect of
rights over the property cannot be
considered at all. The powers are
executory nature. What the Magistrate is
supposed to see is whether ingredients of
Section 14 of the Act are satisfied or
not. The power is described as ministerial
where the District Magistrate would turn
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line his adjudicatory eye. No rights are
determined for the parties in Section 14
proceedings, as for that the Legislature
has provided a special remedy before the
Debt Recovery Tribunal who exercises the
adjudicatory powers in respect of the
disputes which may arise between the Bank
and borrower and other aggrieved persons
in course of the steps under the SARFAESI
Act, 2002." (Para 6.1)
6. The case of the respondents about
payment of amount was disputed by the
petitioner. In any view, said aspect may
be a defence for the respondents in the
proceedings which may be initiated by the
petitioner, but it does not constitute a
ground for the District Magistrate to
exercise powers under Section 14 of the
Act."
8. In view of above, the communication
dated 23rd December, 2021 is quashed and
set aside and respondent no.1 is directed
to pass fresh de novo order under section
14 of the SARFAESI Act after giving an
opportunity of hearing to the petitioner.
Such exercise shall be completed within a
period of four weeks from the date of
receipt of this order.
9. It is made clear that the attachment
placed by the State Government under the
Act of 1978 shall continue to operate
without being affected by taking over the
possession by the petitioner- secured
creditor under section 14 of the SARFAESI
Act."
16. In case of Canara Bank Limited (Supra),
which is also in similar set of facts, the court
has taken similar view.
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17. The aforesaid observations made by the Co-
ordinate Bench in similar set of facts are
applicable to the facts of the present case as
well and therefore, in view of that as the
District Magistrate, Rajkot has acted beyond his
powers under Section 14, the impugned order
dated 13.4.2023 is required to be quashed and
set aside and the same is accordingly quashed
and set aside. The matter is remanded back to
respondent No.1 to pass a De-novo order under
Section 14 of the SARFAESI order in respect of
an application which is already preferred by the
petitioner bank. He is directed to take a fresh
decision after giving an opportunity of hearing
to the petitioner and such exercise is required
to be completed within a period of 30 days from
the date of receipt of the order. In case of
Canara Bank Limited (Supra) also, in similar
set of facts the court has taken similar view.
18. It is made clear that the attachment placed
by the State Government under the Act of 1978
shall continue to operate without being affected
by taking over the possession by the petitioner
- secured creditor under section 14 of the
SARFAESI Act.
19. In view of that the petition is allowed.
The impugned order dated 13.4.2023 passed by the
NEUTRAL CITATION
C/SCA/23333/2022 JUDGMENT DATED: 19/10/2023
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respondent No.1 is hereby quashed and set aside.
Rule made absolute. No order as to costs.
(NIRZAR S. DESAI,J)
Pallavi
