Section 14 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002, empowers the Chief Metropolitan Magistrate (CMM) or
District Magistrate (DM) to assist secured creditors in taking possession of
secured assets. Over time, various judicial precedents have clarified the scope
and application of this provision:
1. Inclusion of Chief Judicial
Magistrate (CJM):
In The Authorized Officer, Indian
Bank vs. D. Visalakshi and Ors., the Supreme Court held that in
non-metropolitan areas, a Chief Judicial Magistrate is equally competent to
handle applications under Section 14 of the SARFAESI Act. This decision aligned
with the views of the High Courts of Kerala, Karnataka, Allahabad, and Andhra
Pradesh, while overturning contrary decisions from the High Courts of Bombay,
Calcutta, Madras, Madhya Pradesh, and Uttarakhand.
2. Authority of Additional District
Magistrate (ADM) and Additional Chief Metropolitan Magistrate (ACMM):
The Supreme Court, in R.D. Jain
and Co v. Capital First Ltd (2022), addressed whether ADMs and ACMMs could
exercise powers under Section 14. The Court concluded that both ADMs and ACMMs
are on par with DMs and CMMs concerning the functions under Section 14, thereby
allowing them to assist secured creditors in taking possession of secured
assets.
3. Appointment of Advocates as
Receivers:
In Rahul Chaudhary v. Andhra Bank
& Ors., the Delhi High Court ruled that District Magistrates and Chief
Metropolitan Magistrates could appoint advocates as receivers to take
possession of secured assets. The court emphasized that as long as the
discretion is exercised with due care and caution, such appointments are
consistent with Section 14 of the SARFAESI Act.
4. Obligation of Magistrates to
Assist Secured Creditors:
The Allahabad High Court has
emphasized that it is the statutory duty of the District Magistrate or Chief
Judicial Magistrate to assist secured creditors in taking possession of secured
assets and related documents under Section 14 of the SARFAESI Act.
These judicial interpretations have
been instrumental in delineating the roles and responsibilities of various
magistrates under Section 14, ensuring that secured creditors can effectively
enforce their security interests in compliance with the SARFAESI Act.
Section 14 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002, empowers the secured creditor to approach the Chief
Metropolitan Magistrate (CMM) or District Magistrate (DM) to assist in taking
possession of secured assets and documents. It facilitates the enforcement of
security interest without court intervention in certain situations.
Key
Provisions of Section 14:
- Application by Secured Creditor:
- A secured creditor (such as a bank or financial
institution) can file an application with the CMM or DM to assist in
taking possession of a secured asset or documents related to the asset.
- Magistrate's Assistance:
- Upon receipt of the application, the CMM or DM is
obligated to provide necessary assistance to enable the secured creditor
to take possession of the asset or control over it.
- Time Frame:
- The amendment made to Section 14 mandates that the
magistrate must pass an order within 30 days of receiving the
application. This period may be extended by an additional 60 days
with written reasons for the delay.
- Appointment of Receivers:
- The CMM or DM may authorize an officer subordinate to
assist in taking possession. In certain cases, advocates are appointed as
receivers to ensure possession is taken appropriately.
- Requirements for Filing Application:
- The secured creditor must submit an affidavit stating:
- The details of the secured
asset.
- The borrower's default and
classification of the account as a Non-Performing Asset (NPA).
- That the secured creditor has
complied with all provisions of the SARFAESI Act and relevant rules.
- Enforcement without Borrower's Consent:
- Section 14 enables the secured creditor to enforce the
security interest even without the borrower’s consent, provided due
process under the Act is followed.
Important
Judicial Precedents:
- Harshad Govardhan Sondagar v. International Assets
Reconstruction Company Limited
(2014): The Supreme Court held that the rights of tenants, if any, must be
respected while taking possession of the secured asset.
- Standard Chartered Bank v. Noble Kumar (2013): Clarified that Section 14 proceedings are
purely administrative and the magistrate does not need to adjudicate any
disputes regarding the debt.
- Authorized Officer, Indian Bank v. D. Visalakshi (2019): Confirmed that both CMMs and Chief Judicial
Magistrates (CJMs) have jurisdiction in areas without metropolitan
magistrates.
Section 14 serves as a critical
mechanism in the SARFAESI framework, ensuring creditors can enforce their
security rights swiftly and effectively while balancing borrowers' and
third-party rights.
While dealing with an application
under Section 14 of the SARFAESI Act, 2002, the Magistrate (Chief Metropolitan
Magistrate or District Magistrate) must ensure compliance with certain
requirements to fulfill the statutory mandate. The following are nine critical
checkpoints:
1.
Jurisdiction of the Magistrate:
- Confirm whether the Magistrate has territorial
jurisdiction over the secured asset mentioned in the application.
2.
Affidavit as per Section 14(1A):
- Verify that the secured creditor has filed an affidavit
as mandated under Section 14(1A), which includes:
- Details of the secured asset.
- Borrower’s default.
- Classification of the account as a Non-Performing
Asset (NPA).
- Compliance with Sections 13(2) (demand notice) and
13(4) (enforcement of security interest).
- No judicial or tribunal stay against the secured
creditor’s actions.
3.
Demand Notice Under Section 13(2):
- Ensure the secured creditor has issued a demand notice
under Section 13(2) to the borrower and waited for the statutory 60-day
period for repayment or rectification of the default.
4.
Authorization from the Secured Creditor:
- Confirm that the person filing the application is duly
authorized by the secured creditor, such as the Authorized Officer, to
take possession of the secured asset.
5.
Details of the Secured Asset:
- Ensure the application includes accurate details of the
secured asset and its location, allowing the Magistrate to pass an
effective possession order.
6.
No Pending Dispute:
- Ascertain that there are no pending cases, disputes, or
injunction orders related to the secured asset that might prevent the
Magistrate from proceeding with the application.
7.
Compliance with Timelines:
- Verify that the secured creditor has approached the
Magistrate within a reasonable time frame after invoking its rights under
Section 13(4) of the Act.
8.
Appointment of an Appropriate Receiver (if required):
- If appointing a receiver, ensure that the individual is
competent to carry out the task of taking possession of the secured asset
in accordance with the law.
9.
Fair Procedure and Borrower's Rights:
- Confirm that the secured creditor has followed due
process as prescribed under the SARFAESI Act, including ensuring that the
borrower's fundamental rights are not violated during the enforcement of
the security interest.
By adhering to these checkpoints,
the Magistrate ensures compliance with the SARFAESI Act, safeguards the rights
of all parties involved, and avoids legal challenges to the possession order.
Section 14 of the SARFAESI Act,
2002, is not applicable to agricultural land. This is because the
SARFAESI Act explicitly excludes certain categories of property, including
agricultural land, from its purview.
Legal
Basis for Exclusion of Agricultural Property:
- Provisions under Section 31(i):
- Section 31(i) of the SARFAESI Act states that the
provisions of the Act do not apply to:
"A
lien on any goods, money, or security given under the Agricultural Credit
Operations and Miscellaneous Provisions (Banks) Act, 1974, or any other law for
the time being in force relating to agricultural loans."
- This exclusion includes agricultural land as it is
tied to agricultural loans.
- Purpose of Exclusion:
- The SARFAESI Act aims to facilitate faster recovery of
secured loans for financial institutions. However, agricultural land is
excluded to protect farmers, as their livelihood depends on this land.
- It is aligned with social justice policies and the
constitutional mandate to protect agriculturists and weaker sections of society.
- Judicial Precedents:
- Lakshmi Devi v. Punjab National Bank (2010): The court observed that agricultural land
cannot be subjected to proceedings under the SARFAESI Act as per Section
31(i).
- Indian Bank v. K. Natarajan (2013): The court reiterated the exclusion of
agricultural property from the ambit of the SARFAESI Act.
Implications:
- Secured Creditors:
Secured creditors cannot invoke Section 14 or other provisions of the
SARFAESI Act to recover loans secured against agricultural property.
- Alternative Remedies:
Lenders may need to rely on other legal mechanisms, such as filing suits
under the Civil Procedure Code or negotiating repayment plans, to recover
loans associated with agricultural property.
Conclusion:
The exclusion of agricultural
property under the SARFAESI Act reflects a balance between enabling efficient
loan recovery for financial institutions and safeguarding the interests of
farmers who depend on agricultural land for their livelihood.
Recent judicial precedents have
provided clarity on the applicability of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002,
to agricultural lands. Notably, the Supreme Court has emphasized that the mere
classification of land as 'agricultural' in revenue records does not
automatically exempt it from the Act's provisions. The actual use of the land
at the time of creating the security interest is a crucial determinant.
Key Judicial Precedents:
- K. Sreedhar v. Raus Constructions Pvt. Ltd. (2023):
- The Supreme Court held that for a property to be
exempt under Section 31(i) of the SARFAESI Act, it must be actively used
for agricultural purposes at the time the security interest is created.
The Court stated that mere classification in revenue records is
insufficient; tangible evidence of agricultural activity is required.
- Indian Bank v. K. Pappireddiyar (2018):
- In this case, the Supreme Court ruled that the
determination of whether land is 'agricultural' should be based on its
actual use and the purpose for which it was set apart at the time of
creating the security interest. The Court emphasized that revenue records
alone are not conclusive evidence of the land's nature.
- ITC Limited v. Blue Coast Hotels Ltd. (2018):
- The Supreme Court observed that even if land is
recorded as 'agricultural' in official records, if it is used for
non-agricultural purposes, such as commercial activities, it does not
qualify for exemption under Section 31(i) of the SARFAESI Act. The intent
and actual use at the time of creating the security interest are pivotal.
Implications:
- For Borrowers:
To claim exemption under Section 31(i), borrowers must provide concrete
evidence of the land being used for agricultural purposes when the
security interest was established.
- For Lenders:
Financial institutions should assess the actual use of the land, beyond
its classification in revenue records, before initiating proceedings under
the SARFAESI Act.
These judgments underscore the
importance of the land's functional use over its nominal classification,
ensuring that the protections intended for genuine agricultural activities are
upheld.
Recent judicial precedents have
further clarified the applicability of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, to
agricultural land. Notably, courts have examined whether properties classified
as agricultural land fall within the purview of the SARFAESI Act, considering
both their classification and actual use.
Key Judicial Precedents:
- Co. Ltd vs. The State of West Bengal and Another (16
January 2024):
- In this case, the petitioner challenged the
application of the SARFAESI Act, arguing that the property in question
was classified as "Sali" land, a category of agricultural land,
and thus exempt under Section 31(i) of the Act.
- The court observed that the mere classification of
land as agricultural in revenue records does not conclusively determine
its exemption under the SARFAESI Act. The actual use of the land at the
time of creating the security interest is a crucial factor. Since the
property had structures indicating non-agricultural use, the court held
that the SARFAESI Act was applicable.
- Eshwar Purushothaman Gardens v. Authorized Officer,
Indian Bank (2023):
- The petitioner, engaged in agricultural operations,
contended that their property was agricultural land and thus exempt from
the SARFAESI Act under Section 31(i).
- The Madras High Court examined the land's
classification and actual use, concluding that the property was indeed
agricultural. Consequently, the court ruled that the SARFAESI Act did not
apply, quashing the bank's possession notice.
- K. Sreedhar v. M/S Raus Constructions Pvt. Ltd. (2023):
- The Supreme Court addressed the applicability of the
SARFAESI Act to properties classified as agricultural land.
- The court emphasized that the classification in
revenue records is not solely determinative; the actual use of the land
at the time of creating the security interest must be considered. If the
land was not used for agricultural purposes, the SARFAESI Act could be
invoked.
Implications:
These judgments underscore that both
the classification and actual use of the property are pivotal in determining
the applicability of the SARFAESI Act. Financial institutions and borrowers
must assess the nature and use of the collateral to ascertain whether it falls
within the Act's ambit. The courts have clarified that the exemption under
Section 31(i) is intended to protect genuine agricultural land used for
agricultural purposes, aligning with the legislative intent to safeguard
farmers' livelihoods.
he case K. Sreedhar v. M/S Raus
Constructions Pvt. Ltd. & Ors. was adjudicated by the Supreme Court of
India on January 5, 2023. The neutral citation for this judgment is 2023
INSC 17. The bench comprised Hon'ble Mr. Justice M.R. Shah and Hon'ble
Mr. Justice C.T. Ravikumar.
In this landmark decision, the
Supreme Court addressed the applicability of the SARFAESI Act, 2002, to
properties classified as agricultural land. The Court held that merely being
designated as agricultural land in revenue records does not automatically
exempt a property from the SARFAESI Act's provisions. The actual use of the
land at the time of creating the security interest is a crucial factor. If the
land was not utilized for agricultural purposes, the SARFAESI Act could be
invoked for recovery proceedings.
This judgment clarifies that the
exemption under Section 31(i) of the SARFAESI Act is intended to protect
genuine agricultural activities. Properties not actively used for agriculture,
despite their classification, may still be subject to the Act's enforcement
mechanisms.
