2025 (5) TMI 999 - HC - Indian Laws

Violation of the constitutional and statutory rights - default in payment of the outstanding amount - loan classified as Non-Performing Asset (NPA) and the Bank issued a notice under Section 13(2) of the SARFAESI Act - manner in taking possession is neither sanctioned by law under Section 14 of the SARFAESI Act nor was it in consonance with the directions given by the DRT - possession of immovable and movable assets have been taken contrary to the mandatory provisions - HELD THAT - On a plain reading of the above said two provisions it is clear that Section 14 empowers the District Magistrate or the Chief Metropolitan Magistrate to take possession of the property concerned. Section 14(1-A) further empowers the District Magistrate or the Chief Metropolitan Magistrate to authorized any Officer subordinate to him to take possession of the said assets and thereafter to forward such assets to the secured creditor. Thus in terms of the mandate of Section 14 (1-A) it is clear that the District Magistrate or the Chief Metropolitan Magistrate can either take the possession himself or can authorize any officer subordinate to him. Admittedly the ADM did not take the possession himself and delegated the Additional Commissioner of Police with a further power to delegate it to a Police Officer for taking the possession. The question that arises whether the Additional Commissioner of Police is an officer subordinate to the District Magistrate and whether the District Magistrate was within his power further allow the delegation of powers by the Additional Commissioner of Police or not . There is no material on record by either of the parties to suggest or argue that the Additional Commissioner of Police can be termed as an officer subordinate to the Additional District Magistrate even if the functional subordination test is accepted for interpreting Section 14(1-A) as held by the Hon ble Supreme Court in the case of NKGSB Co-operative Bank Limited 2022 (3) TMI 3 - SUPREME COURT Admittedly as per the pleadings the possession of immovable property (mortgaged) was taken by an Officer who was delegated the authority by the Additional Commissioner of Police and the officer delegated by him are neither functionally subordinate to the Additional District Magistrate nor can be termed as an officer of the court. In addition the petitioners were also deprived of their possession over movable assets (which were not hypothecated/ mortgaged). As the possession of immovable and movable assets have been taken contrary to the mandatory provisions I have no hesitation in holding that the remedy of issuance of a writ court be available as prima facie there was a violation of the rights vested by virtue of Article 300A of the Constitution of India which have been on the face of it not followed and thus a writ petition would lie. Thus this conclusion deals with the argument of the Counsel for the respondents that a writ would not lie. Another aspect to be observed in the matter that even the directions of the ADM in its order dated 21.04.2023 were not complied as no notice was ever served to the guarantors i.e. the petitioners no.2 and 4. The notice admittedly was served only on the petitioner no.1 thus the intent of the order dated 21.04.2023 of giving prior notice so that the goods can be removed well in time was also not observed. It is also to be noticed that the directions given by the DRT in its order dated 12.05.2023 directing the ADM to issue at least 15 days prior notice before taking possession have also not observed in the present case. In view of the infirmities as noticed above clearly there is a infraction of the rights guaranteed under Article 300A of the Constitution of India the manner of taking the possession is not in accordance with the mandate of Section 14 (1-A) of the SARFAESI Act and taking of possession of movable assets was without any authority of law thus I have no hesitation in holding that the manner in which the possession was taken was contrary to law. As regards the submission of the Counsel for the respondents that a writ would not lie as it is not a State within the meaning of Article 12 of the Constitution of India the said argument merits rejection for the sole reason that in the present case the possession of the immovable and the movable assets have been taken by the Government Authorities and thus a writ would lie. Thus the present writ petition deserves to be allowed and is accordingly allowed. However the respondent no.2 would be at liberty to take possession in accordance with law strictly in terms of the mandate of Section 14 (1-A) of the SARFAESI Act. The ADM shall ensure that the possession should be taken strictly in terms of the mandate of Section 14 (1-A) of the SARFAESI Act.

Summary

The core legal questions considered in this judgment revolve around the legality and procedural correctness of the possession taken under the SARFAESI Act, 2002, specifically:

1. Whether the writ petition challenging the possession is maintainable or whether the petitioners should have availed the statutory remedy under the SARFAESI Act.

2. Whether the possession was taken in accordance with the statutory provisions of Section 14 and Section 14(1-A) of the SARFAESI Act.

3. Whether the manner of taking possession violated the petitioners' rights under Article 300A of the Constitution of India.

4. Whether the respondents, particularly the Asset Reconstruction Company (respondent no.2), can be considered a 'State' under Article 12 of the Constitution, thereby attracting writ jurisdiction.

Issue-wise Detailed Analysis

1. Maintainability of Writ Petition vs. Statutory Remedy under SARFAESI Act

The Court examined whether the petitioners were precluded from approaching the High Court under Article 226 of the Constitution, given the alternative remedy under the SARFAESI Act. The respondents contended that the petitioners had to exhaust the statutory remedy before the Debt Recovery Tribunal (DRT) or other quasi-judicial authorities as prescribed under the SARFAESI Act and that the writ petition was thus not maintainable.

The Court referred extensively to the Supreme Court's ruling in CELIR LLP vs Bafna Motors and United Bank of India vs Satyawati Tondon, which emphasize that the SARFAESI Act provides a comprehensive mechanism for enforcement and redressal, and courts should generally insist on exhaustion of these remedies before entertaining writ petitions. The Court noted the principle of judicial restraint in exercising writ jurisdiction when efficacious statutory remedies exist.

However, the Court also acknowledged that this rule is discretionary and must be exercised cautiously, especially where fundamental rights such as those under Article 300A are allegedly violated. The Court summarized the Supreme Court's conclusions that while the SARFAESI Act curtails the borrower's right of redemption and provides a detailed procedure for possession and sale, it does not oust the High Court's jurisdiction in cases of procedural irregularities or violations of constitutional rights.

Accordingly, the Court held that the writ petition would lie in the present case due to the nature of the alleged violations and procedural lapses.

2. Compliance with Section 14 and Section 14(1-A) of the SARFAESI Act

The Court analyzed the statutory framework under Section 14, which empowers the Chief Metropolitan Magistrate (CMM) or District Magistrate (DM) to assist secured creditors in taking possession of secured assets. Section 14(1-A) further authorizes the CMM or DM to delegate possession-taking powers to any officer subordinate to them.

The Court relied on the Supreme Court's decision in NKGSB Co-operative Bank Limited vs Subir Chakravarty, which clarified that an advocate appointed under Section 14(1-A) is an officer subordinate to the CMM/DM by virtue of functional subordination. This interpretation underscores the necessity of strict adherence to the statutory chain of authority in possession-taking.

In the present case, the ADM passed an order authorizing the respondent no.2 to take possession with police assistance. However, the possession was taken by officers delegated by the Additional Commissioner of Police, who is not subordinate to the ADM. The Court found no material to establish that the Additional Commissioner of Police or the officers delegated by him were functionally subordinate to the ADM or the CMM.

Moreover, possession was taken without the presence of any government official from the ADM's office, and movable assets not covered by the security interest were also seized without authority. This was held to be contrary to the mandatory provisions of Section 14 and Section 14(1-A).

The Court concluded that the possession-taking did not comply with the statutory mandate, rendering the act illegal.

3. Violation of Constitutional Rights under Article 300A

The petitioners contended that their rights under Article 300A, which protects against deprivation of property except by authority of law, were violated by the manner in which possession was taken.

The Court observed that the statutory procedure under the SARFAESI Act is designed to ensure due process in enforcement of security interests. The failure to follow prescribed procedures-such as prior notice to all guarantors, presence of authorized officers, and proper delegation of authority-amounted to a violation of the petitioners' constitutional rights.

The Court emphasized that the possession-taking process must scrupulously adhere to the rule of law, as underscored by the Supreme Court in ICICI Bank Ltd. vs Prakash Kaur, which condemns any violation of procedural safeguards and the supremacy of law.

Since the possession was taken without compliance with mandatory legal requirements and without proper notice to all parties, the Court held that the petitioners' rights under Article 300A were infringed.

4. Whether Respondent no.2 is 'State' under Article 12

The respondents argued that the Asset Reconstruction Company is not a 'State' under Article 12 and hence the writ petition should not lie against it.

The Court rejected this argument, noting that the possession was taken by government authorities (police officers) acting under the order of the ADM, a State authority. Since the State machinery was involved in the deprivation of possession, the writ jurisdiction was attracted.

Additional Findings and Observations

The Court noted that the directions of the ADM dated 21.04.2023 and the DRT dated 12.05.2023, which required prior notice of at least 15 days to be given before taking possession, were not complied with. The notice was served only on the primary borrower and not on the guarantors, violating the intent of the orders.

The Court also considered the report of the Court Commissioner, which confirmed that goods belonging to the petitioners were still inside the premises and some were inaccessible. The possession was partial and not in full compliance with the orders.

The affidavit filed by the police officers and the ADM confirmed that police assistance was provided, but the possession-taking was incomplete and not fully compliant with the statutory procedure.

Significant Holdings

"Section 14 empowers the District Magistrate or the Chief Metropolitan Magistrate to take possession of the property concerned. Section 14(1-A) further empowers the District Magistrate or the Chief Metropolitan Magistrate to 'authorize any officer subordinate to him' to take possession of the said assets and thereafter to forward such assets to the secured creditor."

"In the present case, admittedly, the ADM did not take the possession himself and delegated the Additional Commissioner of Police with a further power to delegate it to a Police Officer for taking the possession. There is no material on record ... to suggest or argue that the Additional Commissioner of Police can be termed as an officer subordinate to the Additional District Magistrate."

"As the possession of immovable and movable assets have been taken contrary to the mandatory provisions, I have no hesitation in holding that the remedy of issuance of a writ court be available as prima facie, there was a violation of the rights vested by virtue of Article 300A of the Constitution of India."

"The manner in which the possession was taken was contrary to law."

"The writ petition deserves to be allowed and is accordingly allowed."

Core Principles Established

- The statutory procedure under Section 14 and 14(1-A) of the SARFAESI Act must be strictly followed, including proper delegation of authority only to officers subordinate to the DM or CMM.

- Possession-taking without compliance with statutory mandates and without proper notice to all affected parties violates constitutional rights under Article 300A.

- Writ jurisdiction under Article 226 is not ousted by the existence of statutory remedies when fundamental procedural violations or constitutional rights infringements occur.

- The involvement of State authorities in possession-taking attracts writ jurisdiction, notwithstanding the private status of the secured creditor or Asset Reconstruction Company.

Final Determinations

- The writ petition challenging the manner of possession was maintainable and rightly entertained by the Court.

- The possession was taken in violation of the statutory provisions of Section 14 and Section 14(1-A) of the SARFAESI Act, as the delegation of authority was improper and the procedure was not followed.

- The petitioners' rights under Article 300A were violated due to procedural lapses, including failure to serve proper notice and absence of government officials during possession.

- The writ petition was allowed, quashing the possession taken in the present manner.

- The respondent no.2 was permitted to take possession again strictly in accordance with the law and the mandate of Section 14(1-A), with the ADM ensuring compliance.