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2015 (11) TMI 140 - BOMBAY HIGH COURT

2015 (11) TMI 140 - BOMBAY HIGH COURT - TMI - Jurisdiction of In-charge Chief Metropolitan Magistrate - Application under section 14 of the SARFAESI Act - Held that:- Under section 14 of the SARFAESI Act, the bank / financial institution is to approach a pre-existing court already constituted under the provisions of the CrPC, 1973. It is well settled that the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, whilst deciding an Application under section 14 of the SARFA .....

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Magistrate had no jurisdiction to entertain the Applications filed by the Respondent Banks under section 14, is wholly without merit. - This doctrine, which is now well established, propounds that the acts of officers “de-facto” performed by them within the scope of their assumed official authority, in the interest of public or third persons and not for their own benefit, are generally as valid and binding, as if they were the acts of officers “de-jure”. This doctrine is founded on good sense, s .....

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nces a judgment, a litigation may be commenced for a declaration that the judgment is void because the Judge is not a Judge. This is exactly the case before us. Hence, the rule against collateral attack on the validity of judicial appointments cannot be permitted in such a fashion. We, therefore, find that even assuming that the In-charge Chief Metropolitan Magistrate did not have the actual authority, or was not clothed with the powers to entertain an Application under section 14 of the SARFAES .....

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agree with the decision of the Gujarat High Court in the case of Manjudevi R Somani [2013 (4) TMI 742 - GUJARAT HIGH COURT] - No merit in these Writ Petitions. - Writ petition (L) no. 2634 of 2015, writ petition no.640 of 2015, writ petition no.398 of 2015 & writ petition no.1776 of 2015 - Dated:- 28-10-2015 - S. C. Dharmadhikari And B. P. Colabawalla, JJ. For the Petitioner : Mr. Rohan Cama a/w Prathmesh Kamat, Ms Sapna Raichure, Mr T. N. Tripathi i/b T. N. Tripathi and Co For the Respondent : .....

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ons, the issue raised before us is that all these orders passed under section 14 by the In-charge Chief Metropolitan Magistrate, are a nullity on the ground that he had no authority and/or power to pass the impugned orders. In other words, it is the contention of the Petitioners in all these Petitions, that an Application under section 14 of the SARFAESI Act can be made only to the Chief Metropolitan Magistrate, and therefore, the orders passed by the In-charge Chief Metropolitan Magistrate are .....

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ad sanctioned certain credit facilities to Respondent No.4 (Sharavan Bishnoi, Proprietor of M/s Ganpat Steel). In respect of the aforesaid facilities, the Respondent Bank claims a mortgage over Flat No.15, 6th Floor, Building No.2, Navjeevan Co-operative Housing Society, Dr. D. V. Marg, Lamington Road, Mumbai, 400 008 (hereinafter referred to as mortgage property ). Since Respondent No.4 defaulted in repayment of the credit facilities granted to him, a Demand Notice dated 20th February, 2013 was .....

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Since the Respondent Bank was unable to get physical possession of the mortgaged property, it filed an Application under section 14 of the SARFAESI Act in the Court of the Chief Metropolitan Magistrate (being case No.192/SA/2013) requesting him to take possession of the mortgaged property and hand over the same to the Respondent Bank. This Application under section 14 came to be allowed on 15th October, 2013 by the In-charge Chief Metropolitan Magistrate. 5. This order dated 15th October, 2013 o .....

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he following week; and (iii) the balance outstanding debt with interest, within six months from 28th July 2015, the DRT -II, Mumbai, directed the Petitioners to deposit the aforesaid amounts as per the aforementioned time schedule, failing which, the Securitization Application was to stand dismissed. 6. It is the case of the Petitioners that due to financial constraints as well as non co-operation of the borrower (Respondent No.4 herein), the Petitioners could not comply with the aforesaid order .....

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ew thereof, on 4th September, 2015, the Petitioner moved a praecipe before the DRAT and prayed for urgent circulation for ad-interim relief, which circulation was denied to the Petitioners. It is in these circumstances that the Petitioners are before us. 7. In this background, Mr Cama, learned counsel appearing on behalf of the Petitioners, contended that the orders passed by the In-charge Chief Metropolitan Magistrate were without jurisdiction and ultra-vires the provisions of the SARFAESI Act. .....

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ations under section 14, the In-charge Chief Metropolitan Magistrate had no authority and/or jurisdiction to do so. In support of the aforesaid argument, Mr Cama relied upon the following three judgments:- (i) Arjun Urban Co-operative Bank Ltd v/s Chief Judicial Magistrate & Ors. 2009 (5) Mh. L. J. 380; (ii) K. Arockiyaraj v/s the Chief Judicial Magistrate, Srivilliputhur & Anr. AIR 2013 Madras 206; (iii) Manjudevi R. Somani v/s Union of India & Ors. 3 AIR 2013 Gujrat 242. Therefore, .....

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ndent Banks that in all these cases, the Application under section 14 of the SARFAESI Act was admittedly filed in the Court of the Chief Metropolitan Magistrate. In these Applications, orders were passed by the In-charge Chief Metropolitan Magistrate only because the Chief Metropolitan Magistrate was absent. It is in these circumstances, that the Incharge Chief Metropolitan Magistrate was acting as the Chief Metropolitan Magistrate, and therefore, there was nothing incorrect and/or illegal about .....

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under Article 226 of the Constitution of India. In support of the aforesaid proposition, the Respondent Banks relied upon a decision of the Supreme Court in the case of Gokaraju Rangaraju v/s the State of Andhra Pradesh. (1981) 3 SCC 132 9. With the help of the learned counsel, we have perused the papers and proceedings in the above mentioned Writ Petitions, along with the orders passed by the In-charge Chief Metropolitan Magistrate and which have been impugned herein. Before we deal with the pr .....

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/ground that has been set out in the above Writ Petitions. 10. Having said this, we shall now deal with the rival contentions. To understand the above controversy, we would have to refer to certain provisions of the SARFAESI Act as well as the Code of Criminal Procedure, 1973 (for short, the CrPC, 1973 ). 11. The SARFAESI Act was brought into force to regulate the securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or inc .....

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did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not kept pace with the changing commercial practices and financial sector reforms, which resulted in delays in recovery of defaulting loans. This in turn had the effect of mounting levels of non-performing assets of banks and financial institutions. In order to bring the Indian Banking Sector on par with the International Standards, the Government set up two Narasimha .....

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FAESI Act deals with the enforcement of security interest and consists of sections 13 to 19 respectively. Section 13(1) stipulates that notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal, by such secured creditor in accordance with the provisions of this Act. Section 13(2) contemplates that where the borrower, who is .....

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sures under section 13(4) thereof. Section 13(3) and 13(3A) deal with the contents of the 13(2) notice as well as the procedure to be followed before any measures are taken under section 13(4). Thereafter, section 13(4) inter alia provides that in case the borrower fails to discharge his liability in full within the period specified in the 13(2) notice, the secured creditor may take recourse to one or more measures [as set out in section 13(4)] to recover his secured debt. Section 13(4) of the S .....

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to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for .....

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ut they are not really germane to the controversy in the present case. 13. Thereafter, comes section 14 which stipulates that a secured creditor, in order to take possession of the secured assets, may take assistance of the Chief Metropolitan Magistrate or the District Magistrate, as the case may be. Section 14 of the SARFAESI Act (after its amendment w.e.f. 15-01-2013), reads thus:- 14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secur .....

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o 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: Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that- (i) the aggr .....

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erred to in sub-clause (ii) above; (iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount; (v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non-performing asset; (vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted financial assistance has been served on th .....

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read with section 14 of the principal Act; (ix) that the provisions of this Act and the rules made thereunder had been complied with: Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets: Provided also that the requirement of filing affidavit stated in the fi .....

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sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate any officer authorised by the Chief Metropolitan Magistrate or District Magistrate done in pursuance of this section shall be called in question in any court or before any authority. (emphasis supplied) 14. Thereafter, sectio .....

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. As can be seen from the aforesaid provisions, wide powers have been given to banks and financial institutions to recover their secured debts by enforcing their security without the intervention of the Court. In order to gain possession of the secured assets, banks and financial institutions are also empowered to approach the Chief Metropolitan Magistrate or the District Magistrate, to take their assistance in that regard. All these provisions have been enacted keeping in mind the object and pu .....

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tes that besides the High Courts and the Courts constituted under any law, other than this Code, there shall be, in every State, the following classes of Criminal Courts, namely, (i) Courts of Session; (ii) Judicial Magistrates of the first class and, in any metropolitan area, the Metropolitan Magistrate; (iii) Judicial Magistrates of the second class; and (iv) Executive Magistrates. Thereafter, section 8 talks about metropolitan areas and stipulates that the State Government may, by notificatio .....

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tification, specify. Section 16 further provides that the Presiding Officers of such Courts shall be appointed by the High Court and the jurisdiction and powers of every Metropolitan Magistrate shall extend throughout the metropolitan area. Thereafter, section 17 deals with the appointment of the Chief Metropolitan Magistrate and the Additional Chief Metropolitan Magistrate. It reads thus:- 17. Chief Metropolitan Magistrate and Additional Chief Metropolitan Magistrate.- (1) The High Court shall, .....

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on 17 therefore empowers the High Court to appointment the Chief Metropolitan Magistrate for every metropolitan area within its jurisdiction. Additionally, in relation to every metropolitan area within its local jurisdiction, the High Court is empowered to appoint any Metropolitan Magistrate to be an Additional Chief Metropolitan Magistrate and such Magistrate would have all or any of the powers of a Chief Metropolitan Magistrate under the CrPC, 1973 or under any other law for time being in forc .....

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s Code, define the extent of the subordination, if any, of the Additional Chief Metropolitan Magistrates to the Chief Metropolitan Magistrate. (3) The Chief Metropolitan Magistrate may, from time to time, make rules or give special orders, consistent with this Code, as to the distribution of business among the Metropolitan Magistrates and as to the allocation of business to an Additional Chief Metropolitan Magistrate. 19. Section 19(1) stipulates that the Chief Metropolitan Magistrate and every .....

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an Magistrate may from time to time make rules or give special orders, consistent with this Code, as to the distribution of business among the Metropolitan Magistrates and as to the allocation of business to an Additional Chief Metropolitan Magistrate. 20. What can be discerned from the aforesaid provisions is that the Court of the Chief Metropolitan Magistrate as well as that of the Additional Chief Metropolitan Magistrate are courts constituted under the CrPC, 1973 and exercise powers as stipu .....

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ate or the District Magistrate, as the case may be, whilst deciding an Application under section 14 of the SARFAESI Act, acts in a very limited jurisdiction and does not adjudicate any lis between the bank and the borrower. His jurisdiction is invoked only for the limited purpose of seeking his assistance in taking the possession of the secured assets. This assistance would be rendered to the banks/financial institutions subject to them complying with the conditions and stipulations set out in s .....

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e any other authority, and therefore, the Respondent Banks had approached the correct forum as stipulated in section 14 of the SARFAESI Act. The Respondent Banks, having filed their Applications under section 14 before the correct forum / authority, were entitled to presume that the In-charge Chief Metropolitan Magistrate had the power and/or authority to hear and decide their Applications. It is not as if the Respondent Banks were aware of the authority/power, or the lack thereof, of the In-cha .....

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id In-charge Chief Metropolitan Magistrate to pass the orders impugned herein and thereby thwart the securitization proceedings initiated by the Respondent Banks. We, therefore, find that the argument canvassed on behalf of the Petitioners that the In-charge Chief Metropolitan Magistrate had no jurisdiction to entertain the Applications filed by the Respondent Banks under section 14, is wholly without merit. 22. Equally without merit, we find the argument canvassed by Mr. Cama that absent a Noti .....

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f their assumed official authority, in the interest of public or third persons and not for their own benefit, are generally as valid and binding, as if they were the acts of officers de-jure . This doctrine is founded on good sense, sound policy and practical expedience. It is aimed at the prevention of public and private mischief and the protection of public and private interest. It avoids unnecessary confusion and needless chaos. Even though an illegal appointment may be set aside and a proper .....

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w and English Law, the Supreme Court at paragraph 17 held as under:- 17. A judge, de facto, therefore, is one who is not a mere intruder or usurper but one who holds office, under colour of lawful authority, though his appointment is defective and may later be found to be defective. Whatever be the defect of his title to the office, judgments pronounced by him and acts done by him when he was clothed with the powers and functions of the office, albeit unlawfully, have the same efficacy as judgme .....

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a judge. Two litigants litigating their private titles cannot be permitted to bring in issue and litigate upon the title of a judge to his office. Otherwise so soon as a judge pronounces a judgment a litigation may be commenced for a declaration that the judgment is void because the judge is no judge. A judge s title to his office cannot be brought into jeopardy in that fashion. Hence the rule against collateral attack on validity of judicial appointments. To question a judge s appointment in an .....

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d. To assume that the Presiding Officer entered upon or took office unlawfully or illegally is not correct. It is pertinent to note that the Presiding Officer passing the impugned order was presiding over the Court of the Chief Metropolitan Magistrate. He was the chosen one being next in seniority to the Chief Metropolitan Magistrate demitting office or on leave temporarily. Thus, an officer duly appointed as an Additional Chief Metropolitan Magistrate and functioning as such took charge as a Ch .....

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the acts done by him when he was clothed with the powers and functions of office, have the same efficacy as a judgment pronounced, and acts done by him de-jure. It is important to note that the Supreme Court has categorically stated that though a defective appointment of a de-facto Judge may be questioned directly in a proceeding to which he is a party, it cannot be permitted to be questioned in a litigation between two private litigants, a litigation which is of no concern or consequence to the .....

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fashion. We, therefore, find that even assuming that the In-charge Chief Metropolitan Magistrate did not have the actual authority, or was not clothed with the powers to entertain an Application under section 14 of the SARFAESI Act, by applying the de-facto doctrine, it would make no difference in the present case. 25. Even otherwise, we find that in pursuance of section 17(2) of the CrPC, 1973, by a Notification No.A-3902 / 2015 dated 21st October, 2015 the High Court has empowered the Additio .....

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ications filed under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. 26. In this view of the matter and considering the fact that a specific Notification has now been issued, it would be an exercise in futility to accept the submissions made on behalf of the Petitioners and set aside the impugned orders and remand the matter back to the Court of the Chief Metropolitan Magistrate for fresh consideration. 27. In all these Peti .....

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securitization proceedings initiated against them. On this aspect of the matter, it would be apposite to refer to the observations of a Division Bench [M. C. Chagla, C.J. and S T Desai J] of this Court in the case of the State of Bombay Vs. Morarji Cooverji. (1958) LXI BLR 318 which [at Pg 332] reads as under:- But it is not sufficient that a party should come to this Court and make out a case that a particular requisition order is not valid. In order to get that relief from the Court on a writ .....

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f Arjun Urban Co-operative Bank Ltd.1 The facts of this case reveal that one Hindmata Cloth Emporium (borrower), had availed of cash credit facilities from the Petitioner and offered security by mortgaging a flat. Since the said borrower had failed and neglected to repay the debts due to the Petitioner, it initiated action under the SARFAESI Act and after following the necessary procedure approached the Chief Judicial Magistrate, Solapur, under section 14 of the SARFAESI Act for securing his ass .....

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14. Clearly, this judgment has no application to the facts of the present case. In the case of Arjun Urban Co-Operative Bank Ltd.1, the Petitioner had approached the wrong authority which was not at all empowered to entertain and decide Applications filed under section 14 of the SARFAESI Act. It is in these circumstances that the findings given in the aforesaid judgment have to be considered and read. In the facts before us such is not the case. In the present case, admittedly, the Applications .....

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. The next judgment relied upon by Mr Cama is the judgment of the Madras High Court in the case of K. Arockiyaraj.2 Here also we find that the Application under section 14 of the SARFAESI Act was made to the Chief Judicial Magistrate as was done in the case of Arjun Urban Co-operative Bank Ltd.1 We, therefore, find that for the same reason this decision also would have no application to the facts of the present case. 30. The last judgment relied upon by Mr Cama was the judgment of the Gujarat Hi .....

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the Chief Metropolitan Magistrate dated 4th February, 2012 in exercise of his powers under section 19(3) of the CrPC, 1973 by which Applications under the provisions of the SARFAESI Act, arising within the limits of the Ahmedabad Municipal Corporation were ordered to be filed in the Court of the Additional Chief Metropolitan Magistrate, Ahmedabad. The Gujarat High Court after analyzing the provisions of the CrPC, 1973 as well as the SARFAESI Act, came to the conclusion that the allocation of the .....

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