Law Insider India

Legal News, Current Trends and Legal Insight | Supreme Court of India and High Courts

Bombay HC issues Directions for Expeditious Disposal of Creditors Applications U/S SARFAESI Act for Possession of Secured Assets

7 min read


Sanjeev Sirohi, Advocate

Published on: 05 May 2023 at 11:44 IST

Without mincing any words whatsoever, the Bombay High Court in a most learned, laudable, landmark and latest judgment titled L & T Finance Limited v State of Maharashtra in A.S. Writ Petition No. 15285 of 2022 that was pronounced as recently as on April 17, 2023 in the exercise of its civil appellate jurisdiction has held unambiguously that pendency of secured creditors applications for possession of secured assets is bad for financial health of the country.

It must be mentioned here that a Division Bench of Hon’ble Mr Justice Nitin Jamdar and Hon’ble Mr Justice Abhay Ahuja issued several commendable directions to streamline the process of disposal of applications under Section 14 of the SARFAESI Act before Chief Metropolitan Magistrates and District Magistrates.

It must be noted that the Court was dealing with a set of writ petitions by various secured creditors whose applications under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were pending.   

At the very outset, this remarkable, robust, rational and recent judgment authored by Hon’ble Mr Justice Nitin Jamdar for a Division Bench of the Bombay High Court comprising of himself and Hon’ble Mr Justice Abhay Ahuja sets the ball in motion by first and foremost putting forth in para 1 that, “Rule. Rule made returnable forthwith. Respondents waive service. Taken up for disposal by consent of parties.”

As we see, the Division Bench states in para 2 that, “These petitions are filed by the secured creditors who had applied under section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Since the applications have not been disposed of, the Petitioners have filed these petitions for directions for early disposal of these Petitions.”

To put things in perspective, the Division Bench envisages in para 3 that, “The Petitioner in Writ Petition No.15285/2022- L & T Finance Limited is a non-banking finance company that has made an application to the Chief Metropolitan Magistrate, Mumbai, on 22 December 2021,”.

“Writ Petition Nos.278 and 279/2023 are filed by the Petitioner- TJSB Sahakari Bank Ltd., and Writ Petition (L) No.3731/2021 is filed by the Petitioner- The National Co-operative Bank Ltd., the secured creditors since their applications filed under section 14 of the SARFAESI Act are still pending. In Writ Petition (L) No.3731/2021, the application under the SARFAESI Act is stated to be pending since the year 2016.”

Simply put, the Division Bench mentions in para 4 that, “The principal grievance of the Petitioners is common that, despite the power under section 14 of the SARFAESI Act of 2002 being ministerial and to be used to aid the secured creditors in taking steps to realize their dues expeditiously, the applications are kept pending for an unduly long period.”

 While continuing in the same vein, the Division Bench points out in para 5 that, “With the similar grievance, several secured creditors kept filing writ petitions in this Court alleging authorities’ lethargy and reluctance to proceed under Section 14 of the SARFAESI Act. Some petitioners accused borrowers of causing the delay,”.

“Consequently, we directed that such petitions be grouped together to direct the State Government and High Court administration to find a solution. Taking cognizance of this grievance, on the earlier dates, we had also called upon the State Government to place data of the pending applications filed under section 14 of the SARFAESI Act of 2002 before various District Magistrates,”.

“In Writ Petition No.15285 of 2022, the High Court Administration was made party Respondent since the grievance was that the application under section 14 of the SARFAESI Act of 2002 is not being considered expeditiously by the Chief Metropolitan Magistrates.”

Do note, the Division Bench notes in para 8 that, “Thus, the powers of the Chief Judicial Magistrate and the District Magistrate under Section 14 of the SARFAESI Act are merely administrative and do not involve pronouncing any judgment on the borrower’s objections to the secured creditor taking possession of the secured assets,”.

“Once the secured creditor has met all the requirements under Section 14 of the SARFAESI Act, it is the duty of the CMM/DM to assist the secured creditor in obtaining possession of the assets and related documents, with the help of any subordinate officer or appointed advocate commissioner,”.

“At this stage, the CMM/ DM does not need to adjudicate any dispute between the borrower, third parties, and the secured creditor concerning the secured assets. Any objections raised by the aggrieved parties should be dealt with under the SARFAESI Act before the Debts Recovery Tribunal.”

Be it noted, the Division Bench notes in para 14 that, “We appreciate the initiative taken by the learned Advocate General, which has resulted in the State issuing the guidelines dated 10 April 2023,”.

“The guidelines will not only assist in expeditious disposal of applications but also in reducing the inflow of petitions by the secured creditors, as the guidelines now provide a time mandate and grievance redressal forum to the secured creditors whose applications have not been disposed of and they need not directly file writ petitions in this Court.”

It cannot be glossed over that the Division Bench propounds in para 15 that, “The Petitioners submitted that orders under Section 14 of the SARFAESI Act often go unimplemented due to the unavailability of police support. We cannot issue general directions in this regard as there could be various situations, but we do observe that the police authorities should assist in implementation speedily, as far as feasible. The implementation of an e-system, as stated in clause 8 of the Circular, will improve transparency and efficiency, and keep all parties informed about pending applications. This initiative be implemented within 16 weeks.”

As a corollary, the Division Bench then expounds in para 17 that, “In view of the above Circular by the State Government and the statement of High Court administration, which we accept, we intend to issue certain directions,”.

“It is needless to stress the importance of expeditious disposal of the applications under section 14 of the SARFAESI Act, as the pendency of a large number of applications hinders the recovery of bad loans, which has a significant impact on the financial health of the country.”

Most significantly, the Division Bench then concludes by holding in para 18 that, “Thus, we dispose of this writ petitions directing as follows:

(a) The Application filed by a Secured creditor under section 14 of the SARFAESI Act with due compliance (the Application) should be disposed of by the District Magistrate/ Collector in the State of Maharashtra not later than 30 days of the Application is filed.

(b) Every order (Order) passed by the District Collector under section 14 of the SARFAESI Act should be implemented and executed not later than four weeks of the passing of the Order.

(c) If the officers entrusted with implementation of the Order are engaged in other pressing public duties, the option of appointing an advocate to implement the Order be explored within the parameters of the law. The same option can also be considered by the Judicial Magistrate, if so permissible in law.

(d) The District Magistrates/Collectors shall submit a report giving the details of the Applications which have not been disposed of within thirty days or any Order which has not been implemented within thirty days with reasons thereof to the Divisional Commissioner in the first week of each month.

(e) Any party whose Application is not disposed of within sixty days of its filing or the Order has not been implemented within sixty days of passing it, may make representation to the Divisional Commissioner who shall within 15 days of receipt of the representation consider the representation and after satisfying that there is a no justifiable reason, will pass appropriate directions to ensure that the Application is disposed off or the Order is implemented within fifteen days of the direction.

(f) Each District Magistrate/Collector shall maintain proper details and records of the filing of the Applications, the disposal thereof, the implementation of the Orders and submit monthly statistics in that regard to the Divisional Commissioner on or before the seventh day of the following month in the specified format of submissions.

(g) The State Government will take steps to implement an e-system placing information on an online platform regarding the Applications, such as the date of filing of the Application, the date of passing the Order on the Application, and the date of implementation of the Order, on an online platform. The same shall be done within a period of sixteen weeks from today.

(h) The High Court Administration would consider issuing necessary directions to the Chief Metropolitan Magistrate to take a special drive for the disposal of pending Applications under section 14 of the SARFAESI Act.

(i) The High Court Administration would consider creating a separate category in the Case Information System software for the Applications under Section 14 of the SARFAESI Act so that these cases can be identified for the special drive.”

For sake of clarity, the Division Bench clarifies in para 19 stating that, “We make it clear that the above directions are to streamline the process of disposal of the applications filed under Section 14 of the SARFAESI Act and to effectuate the intent of the governing legislation. This order is not to be construed as in any manner modifying the inter se legal rights of the secured creditors, the borrowers, guarantors and other affected parties.”

Finally, the Division Bench concludes by holding in para 20 that, “Rule is made absolute in the above terms of the order.”

In sum, there can certainly be no quarrelling or quibbling with the irrefutable fact that what guidelines have been issued so very commendably by the Bombay High Court for the expeditious disposal of the creditors applications under Section 14 of the SARFAESI Act for possession of secured assets must be implemented in totality and at the earliest. This is exactly what is the crying need of the hour also.