LEGAL ISSUE: Scope and jurisdiction of the District Magistrate under Section 14 of the SARFAESI Act.
CASE TYPE: Securitisation and Asset Reconstruction Law
Case Name: Balkrishna Rama Tarle Dead Thr LRS & Anr. vs. Phoenix ARC Private Limited & Ors.
Judgment Date: 26 September 2022
Date of the Judgment: 26 September 2022
Citation: (2022) INSC 907
Judges: M.R. Shah, J. and Krishna Murari, J.
Can a District Magistrate, when asked to assist a secured creditor in taking possession of a property under the SARFAESI Act, delay the process by requiring the creditor to first evict a tenant? The Supreme Court addressed this critical question in a recent judgment, clarifying the scope of the District Magistrate’s powers under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Court held that the District Magistrate’s role is ministerial and does not extend to adjudicating disputes between parties. The judgment was delivered by a bench comprising Justices M.R. Shah and Krishna Murari, with Justice M.R. Shah authoring the opinion.
Case Background
Religare Finvest Ltd. sanctioned a loan of Rs. 6 crores to certain borrowers, secured by a registered mortgage on their property. When the borrowers defaulted, Religare classified the account as a Non-Performing Asset (NPA). On 13 April 2018, Religare issued a notice under Section 13(2) of the SARFAESI Act, demanding payment. Subsequently, on 29 September 2018, Religare assigned its rights to Phoenix ARC Private Limited. Phoenix ARC, now the secured creditor, issued another notice on 21 May 2019 under Section 13(2) to the borrowers for Rs. 5,83,22,866/-. Following this, Phoenix ARC took symbolic possession of the secured assets under Section 13(4) of the SARFAESI Act on 21 September 2019, which was also communicated to the borrowers.
Phoenix ARC then applied to the District Magistrate of Nashik under Section 14 of the SARFAESI Act to obtain physical possession. Balkrishna Rama Tarle, claiming to be a tenant on the ground and first floor of the secured property, intervened, citing a 20 April 2018 order from a civil suit that restrained one of the borrowers from dispossessing him. Neither the borrowers nor the tenant filed any proceedings before the Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act. The District Magistrate, on 27 August 2021, declined to assist Phoenix ARC, stating that the secured creditor must first terminate the tenant’s rights through due process before possession could be considered. This order was challenged by Phoenix ARC before the High Court.
Timeline
| Date | Event |
|---|---|
| NA | Religare Finvest Ltd. sanctioned a loan of Rs. 6 crores to borrowers. |
| 13 April 2018 | Religare issued a notice under Section 13(2) of the SARFAESI Act to the borrowers. |
| 20 April 2018 | Civil Court order restraining one borrower from dispossessing the tenant. |
| 29 September 2018 | Religare assigned its rights to Phoenix ARC Private Limited. |
| 21 May 2019 | Phoenix ARC issued a notice under Section 13(2) of the SARFAESI Act to the borrowers for Rs. 5,83,22,866/-. |
| 21 September 2019 | Phoenix ARC took symbolic possession of the secured assets under Section 13(4) of the SARFAESI Act. |
| 27 August 2021 | District Magistrate declined to assist Phoenix ARC under Section 14 of the SARFAESI Act. |
| 3 August 2022 | High Court set aside the District Magistrate’s order. |
| 26 September 2022 | Supreme Court dismissed the Special Leave Petition. |
Course of Proceedings
The High Court of Judicature at Bombay, in its judgment dated 3 August 2022, set aside the District Magistrate’s order of 27 August 2021. The High Court held that the District Magistrate’s order was beyond the scope of powers under Section 14 of the SARFAESI Act. The High Court directed the District Magistrate to reconsider the application under Section 14 in accordance with the provisions of the SARFAESI Act. The tenant, claiming to be affected by the High Court’s order, filed a Special Leave Petition before the Supreme Court.
Legal Framework
The core legal provision in question is Section 14 of the SARFAESI Act, which outlines the procedure for a secured creditor to seek the assistance of the Chief Metropolitan Magistrate (CMM) or District Magistrate (DM) in taking possession of secured assets. The section states:
“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:”
The provision further details the process, including the requirement for the secured creditor to provide an affidavit affirming compliance with the Act, and mandates the CMM/DM to take possession of the assets within a stipulated time frame.
Arguments
Arguments by the Petitioners (Tenants):
- The tenant argued that their tenancy was established before the mortgage of the property.
- They contended that their rights should be protected.
- The secured creditor, stepping into the shoes of the original landlord, must initiate eviction proceedings before obtaining possession under Section 14 of the SARFAESI Act.
- The petitioners relied on the decisions of the Supreme Court in Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited and Ors.; (2014) 6 SCC 1 and Vishal N. Kalsaria Vs. Bank of India and Ors.; (2016) 3 SCC 762.
Arguments by the Respondent (Secured Creditor):
- The secured creditor argued that the District Magistrate’s role under Section 14 of the SARFAESI Act is ministerial.
- The District Magistrate is only required to verify compliance with the procedural requirements of the Act and assist in taking possession, not adjudicate disputes between parties.
Submissions Table
| Main Submission | Sub-Submissions (Petitioners/Tenants) | Sub-Submissions (Respondent/Secured Creditor) |
|---|---|---|
| Tenancy Rights |
|
|
| Possession |
|
|
| Reliance on Precedents |
|
|
Issues Framed by the Supreme Court
The Supreme Court framed the following issue for consideration:
- Whether, while exercising powers under Section 14 of the SARFAESI Act, the District Magistrate/designated authority could pass an order that unless the secured creditor terminates the tenancy rights of a third person by following due process, the application under Section 14 of the SARFAESI Act will not be decided?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether the District Magistrate can delay possession under Section 14 until tenancy is terminated. | No. The District Magistrate cannot delay possession. | The District Magistrate’s role is ministerial, not adjudicatory. They must assist the secured creditor once the requirements of Section 14 are met. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was Considered | Legal Point |
|---|---|---|---|
| Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited and Ors.; (2014) 6 SCC 1 | Supreme Court of India | Distinguished | The Court clarified that while notice and opportunity of hearing are required for a Class (1) or (2) lessee, the DM/CMM does not have to adjudicate rights between the parties. |
| Vishal N. Kalsaria Vs. Bank of India and Ors.; (2016) 3 SCC 762 | Supreme Court of India | Distinguished | The Court held that the case pertained to a conflict between the Maharashtra Rent Control Act and the SARFAESI Act, and the scope of Section 14 was not directly in question. |
| NKGSB Cooperative Bank Limited Vs. Subir Chakravarty & Ors. (Civil Appeal No. 1637/2022) | Supreme Court of India | Followed | The Court reiterated that the act of the CMM/DM under Section 14 is a ministerial act and should not be delayed. |
| M/s R.D. Jain and Co. Vs. Capital First Ltd. & Ors. (Civil Appeal No. 175/2022) | Supreme Court of India | Followed | The Court reiterated that the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial. |
| Section 14 of the SARFAESI Act | Statute | Interpreted | The Court interpreted the provision to mean that the CMM/DM has a ministerial role in assisting the secured creditor to take possession of the secured assets. |
Judgment
| Submission by Parties | How it was treated by the Court |
|---|---|
| The tenant’s submission that the secured creditor must initiate eviction proceedings before obtaining possession under Section 14 of the SARFAESI Act. | Rejected. The Court held that the District Magistrate’s role under Section 14 is ministerial and does not include adjudicating disputes or requiring the secured creditor to first evict the tenant. |
| The secured creditor’s submission that the District Magistrate’s role is ministerial and limited to assisting in taking possession. | Accepted. The Court agreed that the District Magistrate’s role is to verify compliance with the procedural requirements of the SARFAESI Act and assist in taking possession, not to adjudicate disputes. |
How each authority was viewed by the Court?
- The court distinguished Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited and Ors.; (2014) 6 SCC 1* stating that while notice and opportunity of hearing are required for a Class (1) or (2) lessee, the DM/CMM does not have to adjudicate rights between the parties.
- The court distinguished Vishal N. Kalsaria Vs. Bank of India and Ors.; (2016) 3 SCC 762* stating that the case pertained to a conflict between the Maharashtra Rent Control Act and the SARFAESI Act, and the scope of Section 14 was not directly in question.
- The court followed NKGSB Cooperative Bank Limited Vs. Subir Chakravarty & Ors. (Civil Appeal No. 1637/2022)* stating that the act of the CMM/DM under Section 14 is a ministerial act and should not be delayed.
- The court followed M/s R.D. Jain and Co. Vs. Capital First Ltd. & Ors. (Civil Appeal No. 175/2022)* stating that the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial.
The Supreme Court held that the High Court was correct in setting aside the District Magistrate’s order. The District Magistrate’s role under Section 14 of the SARFAESI Act is ministerial, and the Magistrate is required to assist the secured creditor in obtaining possession of the secured assets once the requirements under Section 14 are met. The Court emphasized that the District Magistrate does not have the power to adjudicate disputes between the parties or require the secured creditor to initiate eviction proceedings before taking possession.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the understanding that the SARFAESI Act is a special enactment designed to expedite the recovery of debts by secured creditors. The court emphasized that Section 14 of the Act is intended to provide a quick and efficient mechanism for secured creditors to take possession of their assets without unnecessary delays. The court’s reasoning was also driven by the need to ensure that the District Magistrate’s role remains ministerial, preventing them from becoming involved in adjudicatory functions that are beyond their statutory mandate under Section 14 of the SARFAESI Act.
| Sentiment | Percentage |
|---|---|
| Ministerial Role of DM | 40% |
| Expeditious Recovery | 30% |
| No Adjudication | 20% |
| Compliance with Act | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Fact:Law Ratio Analysis: The ratio of Fact:Law is 30:70. This indicates that the court’s decision was more influenced by the legal interpretation of Section 14 of the SARFAESI Act and its purpose, than the specific factual matrix of the case.
Logical Reasoning
Key Takeaways
- The District Magistrate’s role under Section 14 of the SARFAESI Act is ministerial, not adjudicatory.
- The District Magistrate must assist the secured creditor in taking possession of the secured assets once the requirements of Section 14 are met.
- The District Magistrate cannot delay the process by requiring the secured creditor to first evict a tenant or adjudicate disputes between parties.
- Aggrieved parties must pursue their remedies under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal.
- This judgment reinforces the expeditious nature of the SARFAESI Act and clarifies the limited role of the District Magistrate in the process.
Directions
The Supreme Court directed the designated authority to proceed further with the application under Section 14 of the SARFAESI Act and to dispose of the same in accordance with the provisions of Section 14 of the SARFAESI Act.
Development of Law
The ratio decidendi of this case is that the District Magistrate’s role under Section 14 of the SARFAESI Act is purely ministerial and does not involve any adjudicatory powers. This clarifies the scope of the District Magistrate’s authority and reinforces the expeditious nature of the SARFAESI Act. This judgment reaffirms the previous position of law that the District Magistrate’s role is limited to assisting the secured creditor in obtaining possession of the secured assets and does not extend to adjudicating disputes or requiring the secured creditor to initiate eviction proceedings before taking possession.
Conclusion
The Supreme Court’s judgment in Balkrishna Rama Tarle vs. Phoenix ARC Private Limited clarifies that the District Magistrate’s role under Section 14 of the SARFAESI Act is ministerial, not adjudicatory. The District Magistrate must assist the secured creditor in taking possession of the secured assets once the procedural requirements are met, without delaying the process by requiring prior eviction of tenants. This decision underscores the expeditious nature of the SARFAESI Act and ensures that secured creditors can recover their dues efficiently.
Category
Parent Category: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
Child Categories:
- Section 14, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- District Magistrate Powers
- Secured Creditor Rights
- Property Possession
- Debt Recovery
FAQ
Q: What is the role of the District Magistrate under Section 14 of the SARFAESI Act?
A: The District Magistrate’s role is ministerial. They are required to assist the secured creditor in taking possession of the secured assets once the requirements of Section 14 are met. They do not have the power to adjudicate disputes or delay the process.
Q: Can a District Magistrate ask the secured creditor to evict a tenant before taking possession of the property?
A: No, the District Magistrate cannot ask the secured creditor to evict a tenant before taking possession. Their role is limited to assisting in taking possession, not adjudicating tenancy rights.
Q: What should a tenant do if they are affected by a possession order under the SARFAESI Act?
A: An aggrieved tenant should pursue their remedies under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal.
Q: What does “ministerial role” mean in the context of the District Magistrate’s powers?
A: A “ministerial role” means that the District Magistrate’s actions are limited to carrying out the specific duties prescribed by law without exercising any discretionary or adjudicatory powers. They must verify compliance with the requirements of Section 14 and assist in taking possession of the assets.
Q: What is the significance of this Supreme Court judgment?
A: This judgment clarifies the scope of the District Magistrate’s powers under Section 14 of the SARFAESI Act and reinforces the expeditious nature of the Act. It ensures that secured creditors can recover their dues efficiently without unnecessary delays caused by disputes over tenancy or other third-party claims.