Supreme Court Clarifies District Magistrate’s Power to Authorize Advocates Under SARFAESI Act: NKGSB Cooperative Bank vs. Subir Chakravarty (25 February 2022)

Date of the Judgment: 25 February 2022
Citation: (2022) INSC 179
Judges: A.M. Khanwilkar, J., C.T. Ravikumar, J.
Can a District Magistrate (DM) or Chief Metropolitan Magistrate (CMM) authorize an advocate to take possession of secured assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)? The Supreme Court of India addressed this crucial question, resolving conflicting views among various High Courts. This judgment clarifies the scope of powers under Section 14(1A) of the SARFAESI Act, impacting how banks recover loans.

Case Background

The core issue revolves around whether a DM or CMM can appoint an advocate to take possession of secured assets and related documents under Section 14(1A) of the SARFAESI Act. This section allows the DM/CMM to “authorize any officer subordinate to him” for this purpose. The Bombay High Court had ruled that an advocate, not being a subordinate officer, could not be authorized, while other High Courts held a contrary view.

In the cases before the Supreme Court, various banks had approached the CMM/DM to take possession of properties from defaulting borrowers. The CMM/DM, in turn, appointed advocates to take possession of the properties and forward them to the banks. This practice was challenged by borrowers, leading to conflicting judgments.

Timeline

Course of Proceedings

The Bombay High Court, in the case of NKGSB Cooperative Bank, ruled that the appointment of an advocate by the CMM/DM was illegal because an advocate is not a subordinate officer. This decision was appealed by the banks. Conversely, the Madras High Court, in a case involving Canara Bank, held that an advocate, being an officer of the court, could be appointed by the CMM/DM. This decision was appealed by the borrowers.
The High Courts of Kerala and Delhi had also taken a similar view as the Madras High Court, supporting the appointment of advocates.

Legal Framework

The core legal provision in question is Section 14 of the SARFAESI Act, specifically sub-section (1A), which states:
“(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.”
The Supreme Court also considered Section 14(1) and 14(2) of the SARFAESI Act, which detail the process for the secured creditor to request the DM/CMM to take possession of secured assets.
The Court also referred to the Security Interest (Enforcement) Rules, 2002, particularly Rule 8, which details the procedure for taking possession of secured assets.

Arguments

Arguments of the Banks:

• The banks argued that the term “officer subordinate to him” should be interpreted broadly to include advocates, who are officers of the court and can effectively assist in taking possession of secured assets.
• They contended that the CMM/DM are overburdened and have limited staff, making it practically difficult for them to personally take possession of assets.
• The banks cited previous decisions of High Courts of Kerala, Madras, and Delhi, which had upheld the appointment of advocates as commissioners for this purpose.
• The banks relied on the principle that the grant of statutory power carries with it the authority to use all reasonable means to make such grant effective.

Arguments of the Borrowers:

• The borrowers argued that Section 14(1A) of the SARFAESI Act clearly states that only an officer subordinate to the CMM/DM can be authorized, and an advocate does not fall under this category.
• They contended that the provision should be strictly interpreted, and any deviation would be a violation of the law.
• The borrowers relied on the Bombay High Court’s judgment, which had held that the appointment of an advocate was illegal.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the CMM/DM can appoint an advocate in exercise of powers under Section 14(1A) of the 2002 Act?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

The Court also referred to the following legal provisions:

• Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
• Rule 8 of the Security Interest (Enforcement) Rules, 2002

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Sakiri Vasu vs. State of Uttar Pradesh & Ors. [2008] 2 SCC 409* was used to support the view that statutory powers carry implied authority to use all reasonable means to make the grant effective.
• The decisions of the High Courts of Kerala, Madras, and Delhi were followed, which supported the appointment of advocates as commissioners.
• The decision of the Bombay High Court was overruled.
• A. St. Arunachalam Pillai vs. M/s. Southern Roadways Ltd. & Anr. AIR 1960 SC 1191* was discussed to differentiate between administrative, statutory and functional subordination.
• Lalit Mohan Das vs. The Advocate-General, Orissa & Anr. AIR 1957 SC 250* was cited to emphasize that a member of the Bar is an officer of the Court and owes a duty to the Court.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure the effective implementation of the SARFAESI Act. The Court recognized that:

• The CMM/DM are often overburdened and lack sufficient staff to personally take possession of secured assets in every case.
• Advocates, as officers of the court, are well-suited to assist in this process, ensuring that the secured assets are taken possession of and forwarded to the secured creditor without delay.
• A strict interpretation of “officer subordinate” would hinder the smooth functioning of the SARFAESI Act, defeating its purpose.
• The Court emphasized the functional subordination of advocates to the CMM/DM in the context of the specific task of taking possession of assets.

The ratio of fact:law shows that the court was more influenced by the legal interpretation of the statute and the role of advocates as officers of the court, rather than the factual aspects of the case.

Logical Reasoning

The Court rejected the strict interpretation of “officer subordinate” which would have excluded advocates. It emphasized the need for a practical and functional approach, given the realities of the CMM/DM’s workload. The Court also noted that the advocate is an officer of the court, and there is an intrinsic de jure functional subordinate relationship between the CMM/DM and the advocate.

The Court explicitly overruled the Bombay High Court’s judgment, which had taken a contrary view. The Supreme Court held that the Bombay High Court’s strict interpretation was not in line with the legislative intent of the SARFAESI Act.

The Supreme Court quoted the following from the judgment:

• “The underlying purpose of the 2002 Act is to empower the financial institutions in India to have similar powers as enjoyed by their counterparts, namely, international banks in other countries. One such feature is to empower the financial institutions to take possession of securities and sell them.”
• “Indeed, logistical problems of the Office of the CMM/DM cannot be the basis to overlook the statutory provision. However, we are persuaded to take the view that an advocate is and must be regarded as an officer of the court and subordinate to the CMM/DM for the purposes of Section 14(1A) of the 2002 Act.”
• “Whereas, applying the “functional subordination” test, we are persuaded to take the view that sub-Section (1A) of Section 14 of the 2002 Act is no impediment for the CMM/DM to engage services of an advocate (an officer of the court) — only for taking possession of secured assets and documents relating thereto and to forward the same to the secured creditor in furtherance of the orders passed by the CMM/DM under Section 14(1) of the 2002 Act in that regard.”

Key Takeaways

• District Magistrates (DM) and Chief Metropolitan Magistrates (CMM) can appoint advocates to take possession of secured assets under the SARFAESI Act.
• Advocates are considered officers of the court and functionally subordinate to the CMM/DM for this specific task.
• This decision ensures the smooth and effective implementation of the SARFAESI Act, aiding banks in recovering loans.
• The judgment overrules the Bombay High Court’s view, aligning with the views of the High Courts of Kerala, Madras, and Delhi.

Directions

The Supreme Court directed that the special leave petition filed by the borrowers against the Madras High Court’s judgment be delinked and heard separately on the limited issue of compliance with clauses (i) to (ix) of Section 14 of the SARFAESI Act.

Development of Law

The Supreme Court’s judgment clarifies the interpretation of “officer subordinate” in Section 14(1A) of the SARFAESI Act. It establishes that for the specific task of taking possession of secured assets, an advocate can be considered functionally subordinate to the CMM/DM. This interpretation ensures that the legislative intent of the SARFAESI Act is upheld, which is to facilitate the recovery of secured assets by banks and financial institutions. This judgment overrules the Bombay High Court’s view and aligns with the views of the High Courts of Kerala, Madras, and Delhi.

Conclusion

The Supreme Court’s judgment in NKGSB Cooperative Bank vs. Subir Chakravarty settles the legal position regarding the appointment of advocates by the CMM/DM under the SARFAESI Act. The Court’s decision, based on a functional interpretation of the statute, ensures that banks can effectively recover secured assets while also upholding the integrity of the judicial process. This ruling provides clarity and consistency in the application of the SARFAESI Act across the country.