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SC: CMM/DM Not Required to Decide Disputes b/w Borrower/Third Party & Secured Creditor u/s 14 of SARFAESI Act

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Prerna Gala

Published on: September 27, 2022 at 20:07 IST

The Supreme Court noted that the CMM/DM is not obligated to resolve any disagreements over the secured assets between the borrower and the secured creditor or between the secured creditor and any other third party while evaluating an application under Section 14 of the SARFAESI Act.

The CMM/DM is required to help the secured creditor obtain possession of the secured assets as well as the documents pertaining to them, the bench of Justice MR Shah observed.

The bench further said that this is after the secured creditor has complied with or satisfied all of the requirements under Section 14 of the SARFAESI Act.

In this instance, a secured creditor filed an application under Section 14 of the SARFAESI Act.

The District Magistrate/designated authority noted that only an application under Section 14 of the SARFAESI Act will be decided if and when the secured creditor terminates the third party’s tenancy rights by adhering to the proper legal procedure and further orders regarding possession of the mortgaged property.

This order was revoked by the Bombay High Court after it granted the writ petition.

In the appeal, the question posed to the Apex Court bench was whether the District Magistrate/designated authority could have made an order under Section 14 of the SARFAESI Act stating that an application under Section 14 of the SARFA Act shall not be made unless and until the secured creditor has terminated the tenancy rights of the third party by following due legal procedure and further orders regarding possession of the mortgaged property.

Referring to the Chief Metropolitan Magistrate’s and learned District Magistrate’s authority under Section 14 of the SARFAESI Act, the court noted:

“..The powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua 16 points raised by the borrowers against the secured creditor taking possession of the secured assets.”

“In that view of the matter once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner.”

“At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal.”

The designated authority has been directed to continue processing the application made according to Section 14 of the SARFAESI Act by the bench in agreement with the High Court, and to do so in accordance with the terms of Section 14.