Madhya Pradesh High Court

Paramjeet Singh Loanee vs A.U. Small Finance Bank on 13 February, 2025

                                                              1                              WP-3783-2025
                              IN     THE       HIGH COURT OF MADHYA PRADESH
                                                     AT JABALPUR
                                                         BEFORE
                                         HON'BLE SHRI JUSTICE SANJEEV SACHDEVA
                                                            &
                                           HON'BLE SHRI JUSTICE VINAY SARAF
                                                ON THE 13th OF FEBRUARY, 2025
                                                 WRIT PETITION No. 3783 of 2025
                                          PARAMJEET SINGH LOANEE AND OTHERS
                                                         Versus
                                          A.U. SMALL FINANCE BANK AND OTHERS
                           Appearance:
                                   Shri Narinder Pal Singh Ruprah - Senior Advocate with Shri Rajrish
                           Nagaich - Advocate for petitioners.
                                   Shri Praveen Namdeo - Government Advocate for the respondents
                           no.2 and 3/State.

                                                                  ORDER

Per: Justice Sanjeev Sachdeva

Petitioner impugns order dated 23.12.2024 whereby the Additional District Magistrate, on an application filed by the respondent no.1/Bank under Section 14 of the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act (hereinafter referred to as "the Act") has directed the concerned Tahsildar to take physical possession of the secured assets.

2. Learned Senior Counsel for the petitioner submits that petitioner has been regular in payment of the installments and as such there was no cause for the Additional Collector, Bhopal, to have issued directions under Section

2 WP-3783-2025 14 of the Act.

3 . Learned counsel appearing for respondent No.2 and 3 raises a preliminary objection with regard to maintainability of the present petition and submits that the petitioner should have approached the Debts Recovery Tribunal impugning the action of the respondent no.1/Bank.

4. Learned Senior counsel for the petitioner submits that the petitioner has no remedy of approaching the Debts Recovery Tribunal for the reason that there is no appeal provided against an action taken under Section 14 of the Act. He further submits that a false affidavit was filed by the Bank affirming under Section 13(2) of the Act that petitioner had failed to comply with the notice. He submits that no notice was ever received by

petitioner/borrower. Reference is drawn to the judgment of the Supreme Court in The Authorised Officer, Indian Bank Vs. D. Visalakshi and another, reported in (2019) 20 SCC 47 to contend that a remedy of appeal is not available in respect of steps taken under Section 14 of the Act. Further reliance is placed on judgment of the Supreme Court in Harshad Govardhan Sondagar Vs. International Assets Reconstruction Co.Ltd. and others, reported in (2014) 6 SCC 1 to contend that in terms of Section 14(3) of the Act, no action of the Chief Metropolitan Magistrate or the District Magistrate can be called in question in any Court or before any authority and the decision of the Chief Metropolitan Magistrate or District Magistrate is final and cannot be challenged before any Court or authority.

5. We are unable to accept the contention of the leaned Senior counsel for the petitioner for the reason that the action was taken by the Additional

3 WP-3783-2025 Collector in the instant cases pursuant to a decision by the financial institution in terms of Section 13(4) of the Act. For appreciating the controversy reference may be had to the Section 13 and 14 of Act which read as under :-

"Section 13: Enforcement of security interest.- (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).

Provided that--

(i) the requirement of classification of secured debt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and

(ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee.

(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.

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(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate 3[within fifteen days] of receipt of such representation or objection the reasons for non- acceptance of the representation or objection to the borrower:

Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.

(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:--

a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;

[(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:

Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:

Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is

5 WP-3783-2025 relatable to the security for the debt;

(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.

(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.

(5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale.

(5B) Where the secured creditor, referred to in sub- section (5A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of section

(5C) The provisions of section 9 of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under sub-section (5A).] (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.

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(7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.

(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,--

(i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and

(ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-

section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.]

(9) [Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of] financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less t h a n 8[sixty per cent.] in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:

Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall

7 WP-3783-2025 be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956):

Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act:

Provided also that liquidator referred to in the second proviso shall intimate the secured creditor the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimate dues with the liquidator:

Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator:

Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any.

Explanation.--For the purposes of this sub-section,--

(a) "record date" means the date agreed upon by the secured creditors representing not less than 8[sixty per cent.] in value of the amount outstanding on such date;

(b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor.

8 WP-3783-2025 (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.

(11) Without prejudice to the rights conferred on the secured creditor under or by this section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measured specifies in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act.

(12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor."

14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.--(1) Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured assets 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 assets, 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 asset and documents to the secured creditor:

9 WP-3783-2025

[Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that--

(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;

(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;

(iii) the borrower has created security interest over various properties giving the details of properties referred to in sub-clause (ii)above;

(iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount;

(v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non-performing asset;

(vi) affirming that the period of sixty days notice as required by the provisions of sub-

section (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower;

(vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower;

(viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13

10 WP-3783-2025 read with section 14 of the principal Act;

(ix) that the provisions of this Act and the rules made thereunder had been complied with:

Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets1 [within a period of thirty days from the date of application]:

[Provided also that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days.] Provided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.] 2 [(1A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,--

(i) to take possession of such assets and documents relating thereto; and

(ii) to forward such assets and documents to the secured creditor.]

(2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate 1 [any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any court or before any authority."

11 WP-3783-2025

6. Section 13(2) of the Act stipulates that where any borrower makes any default in repayment of secured debt or any instalment thereof and his account in respect of said debt is classified as a non-performing asset, then the secured creditor may require the borrower, by notice in writing, to discharge in full his liabilities to the secured creditor within 60 days from the date of notice; failing which the secured creditor is entitled to exercise all or any of the rights under sub-section (4).

7 . Sub-section (4) further stipulates that if any borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the measures mentioned therein to recover the secured debt. One of the measures mentioned is to take possession of the secured assets of the borrower including the right to transfer the secured asset by lease, assignment or sale.

8 . For giving effect to the right to take recourse to the measures specified in Section 13(4) of the Act, the financial institution may make a request to the Chief Metropolitan Magistrate or District Magistrate (in the instant case Additional District Magistrate) for the purposes of taking possession or control of the secured assets. The powers exercised by the District Magistrate are administrative in nature. Section 14(1) Proviso stipulates that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, inter alia declaring that notice as required by section 13(2) of the Act, demanding payment of the defaulted financial assistance has been

12 WP-3783-2025 served on the borrower and that the borrower has not made any repayment of the financial assistance despite service of the notice.

9 . In the instant case, the impugned order dated 23.12.2024 specifically records that an affidavit has been filed affirming that a notice under section 13(2) of the Act was duly served on the borrower and the borrower has not made any representation against the same and there is a specific averment that payment has not been made. In the instant case, the impugned order categorically records compliance of section 14(1) Proviso as well as compliance of section 13(2) of the Act.

1 0 . Reliance placed by learned Senior counsel on the judgment of D. Visalakshi (supra) to contend that there is no right of appeal is misplaced for the reason that the Supreme Court in the said judgment has held that an inquiry conducted by the stated authority under section 14 of the Act is a sue generis inquiry and majorly it is an administrative or executive function regarding the verification of the affidavit and relied upon documents filed by the parties.

11. In Harshad Govardhan Sondagar (supra), the Supreme Court has held that right of appeal is available to any person including a borrower

aggrieved by any measure referred to in sub- section (4) of section 13 of the Act.

12. Reference may be had to section 17 of the Act, which reads as under :-

"17. Application against measures to recover secured debts.--(1) Any person (including borrower), aggrieved

13 WP-3783-2025 by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter,1 [may make an application along with such fee, as may be prescribed,] to the Debts Recovery Tribunal having jurisdiction in the matter within fortyfive days from the date on which such measure had been taken:

[Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.] [(1A) An application under sub-section (1) shall be filed before the Debts Recovery Tribunal within the local limits of whose jurisdiction--

(a) the cause of action, wholly or in part, arises;

(b) where the secured asset is located; or

(c) the branch or any other office of a bank or financial institution is maintaining an account in which debt claimed is outstanding for the time being.]

[(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.

[(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management or restoration of possession, of the secured assets to the borrower or other aggrieved person, it may, by order,--

(a) declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the secured creditor as invalid; and

14 WP-3783-2025

(b) restore the possession of secured assets or management of secured assets to the borrower or such other aggrieved person, who has made an application under sub-

section (1), as the case may be; and

(c) pass such other direction as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.]

(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.

[(4A) Where--

(i) any person, in an application under sub- section (1), claims any tenancy or leasehold rights upon the secured asset, the Debt Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine whether lease or tenancy,--

(a) has expired or stood determined; or

(b) is contrary to section 65A of the Transfer of Property Act, 1882 (4 of 1882); or

(d) is created after the issuance of notice of default and demand by the Bank under subsection (2) of section 13 of the Act; and

(ii) the Debt Recovery Tribunal is satisfied that tenancy right or leasehold rights claimed in secured asset falls under the sub-clause (a) or sub-clause (b) or sub-clause (c) or sub- clause (d) of clause (i), then notwithstanding

15 WP-3783-2025 anything to the contrary contained in any other law for the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act.]

(5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application:

Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1). (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any part to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder.] 17A. Making of application to Court of District Judge in certain cases.- In the case of a borrower residing in the State of Jammu and Kashmir, the application under Section 17 shall be made to the Court of District Judge in that State having jurisdiction over the borrower which shall pass an order on such application.

1 3 . Section 17 of the Act provides for an appeal by any person including the borrower aggrieved by any measure referred to in sub-section

16 WP-3783-2025 (4) of section 13 of the Act taken by the secured creditor. No doubt that there is no right of appeal in respect of any order or direction passed by the District Collector under section 14 of the Act but section 14 of the Act does not stand alone. It draws its source from section 13(4) of the Act, which provides for the measures that may be taken by a secured creditor in case of breach by the borrower of notice under section 13(2) of the Act. Section 14 of the Act is merely an administrative or executive function. What needs to be challenged by the borrower is the decision of financial institution taken under section 13(4) of the Act and not the administrative exercise of the powers by the District Magistrate under section 14 of the Act pursuant to a request made by the financial institution for assistance to take possession of the secured asset.

14. Reference may be had to the decision of the Supreme Court in United Bank of India & Ors. Vs. Satyawati Tondon reported in (2010) 8 SCC 110, wherein the Supreme Court has categorically held that the remedy of a person aggrieved by an action under section 13(4) of the Act is by filing an application under section 17 of the Act. The Supreme Court in the said case also laid a caution that High Courts should not normally entertain a petition under section 226 of the Constitution of India, if an effective remedy is available to the aggrieved person and said rule of restraint applied with greater rigour in matters involving recovery of taxes, cess, fee and other type of public money and dues of Banks and other financial institution.

15. Consequently, we are of the view that since there is a right of appeal available to the petitioner under section 17 of the Act before the

17 WP-3783-2025 Debts Recovery Tribunal, a restraint should be exercised in entertaining the present petition and consequently we relegate the petitioner to avail of the remedy of an appeal under section 17 of the Act.

1 6 . The dispute as to whether notice was served on the petitioner under section 13(2) of the Act or not, is left open to be considered by the Debts Recovery Tribunal, if so raised by the petitioner.

17. The petition is accordingly dismissed, leaving it open to the Petitioner to approach the Debts Recovery Tribunal.

18. We further clarify that this Court has neither considered nor commented on the merits of the contentions of the either parties. All rights and contentions of the parteis are reserved.

Certified copy today.

(SANJEEV SACHDEVA) (VINAY SARAF) JUDGE JUDGE TG /-