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2016 (3) TMI 928 - ANDHRA PRADESH HIGH COURT

2016 (3) TMI 928 - ANDHRA PRADESH HIGH COURT - TMI - Chief Judicial Magistrate exercising his jurisdiction in Corporation area - whether CJM can assist secured creditor in taking possession of secured asset and pass an order in favour of secured creditor for the purpose of taking possession or control of any secured asset? - Held that:- The intention of the Legislature was to achieve speedier recovery of the dues without the intervention of Tribunals or the Courts and for quick resolution of dis .....

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eas, would not in anyway abrogate or contradict the words used in Section 14 of the SARFAESI Act, thereby causing prejudice to any of the parties. On the other hand, it would hasten the process of rendering assistance to the secured creditors to recover possession of their assets thereby achieving the object for which the SARFAESI Act has been introduced.

For the aforesaid reasons, we answer the reference holding that the nomenclature Chief Metropolitan Magistrate referred to in Secti .....

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veen Kumar) Disagreeing with the view expressed in W.P.No.5347 of 2014 another Division Bench of this Court vide its order dated 24.07.2014 in W.P.Nos.17589 and 17625 of 2014 referred the following question to be decided by a Full Bench. In terms of the said order of reference, these Writ Petitions are posted before us to answer the question framed in the order of reference, which is as under : Whether the Chief Judicial Magistrate exercising his jurisdiction in Corporation area can assist secur .....

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cial Magistrate, Nellore requesting the said Court to take physical possession of the schedule property by exercising powers under the said provision. By an order dated 08.05.2014, the learned Chief Judicial Magistrate passed an order appointing an Advocate-Commissioner to take physical possession of the schedule property by making an inventory of the articles in the schedule property after conducting a panchanama. He was further directed to deliver the property to the secured creditor under pro .....

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observing that the nomenclature Chief Metropolitan Magistrate (CMM) used in Section 14 of the SARFAESI Act is inclusive of the nomenclature Chief Judicial Magistrate (CJM) as the powers and functions of both are one and the same. Sri B.Chandrasen Reddy, the learned counsel for the petitioners mainly submits that under Section 14 of the SARFAESI Act, the Chief Judicial Magistrate has no jurisdiction to entertain an application made under the said provision. According to him, since SARFAESI Act is .....

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cial Magistrate in a non-metropolitan area for exercising the power of assistance under Section 14 of the SARFAESI Act. He further submits that since the power is exercised by the Chief Metropolitan Magistrate while doing a judicial act, the same cannot be delegated to Chief Judicial Magistrate by giving a wider meaning to the nomenclature Chief Metropolitan Magistrate. He places reliance on the word orders used in proviso to Section 14 of the SARFAESI Act in support of his plea. Sri Sharad Sang .....

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IndusInd Bank Limited (formerly known as Ashok Leyland Finance Ltd.) through its Legal Executive, Ravindrakumar Prakash Bhargodev v. The State of Maharashtra through Police Station. and also another Division Bench judgment of the Madras High Court in T.John Bose v. State Bank of India On the other hand, Sri B.S.Prasad the learned counsel for the respondents would submit that the purpose of the enactment would be defeated if the Chief Judicial Magistrate is excluded from exercising the power unde .....

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hraf and Smt. C.Arifa v. Union of India in support of his case. In order to deal with the rival contentions, it would be necessary to refer to the history of the enactment and the statement of objects and reasons of the SARFAESI Act. Since several hundred crores of public money got blocked in unproductive ventures, the Government of India constituted a committee under the chairmanship of Shri T. Tiwari to examine the legal and other difficulties faced by banks and financial institutions in the r .....

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udication of cases involving the dues of banks and financial institutions. After considering the reports of the two Committees and taking cognizance of the fact that as on 30-9-1990 more than 15 lakh cases filed by public sector banks and 304 cases filed by financial institutions were pending in various Courts for recovery of debts, etc. amounting to ₹ 6000 crores, the Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, 'the DRT Act .....

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man the Tribunals worked with great zeal for ensuring that cases involving recovery of the dues of banks and financial institutions are decided expeditiously. However, with the passage of time, the proceedings before the Tribunals became synonymous with those of the regular Courts and the lawyers representing the borrowers and defaulters used every possible mechanism and dilatory tactics to impede the expeditious adjudication of such cases. The flawed appointment procedure adopted by the Governm .....

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cial institutions. In its Second Report, the Narasimham Committee noted that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. The Andhyarujina Committee constituted by the Central Government for examining banking sector reforms also considered the need for changes in the legal system. Both, the Narasimham and Andhyarujina Committees suggested enactment of new legislation for securitizati .....

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created in favour of a creditor, who by definition under the Act becomes a Secured creditor, can be enforced without the intervention either of the Court or Tribunal constituted under Act 51 of 1993 by following the procedure prescribed under Section 13 of the Act (Keshavlal Khemchand and Sons (P) Ltd., v. Union of India ). It is also to be noted that the SARFAESI Act, 2002 was challenged in Mardia Chemicals Limited v. Union of India , wherein the Apex Court observed as under : 81 the borrowers .....

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country and welfare of the people in general which would sub serve the public interest. From the above, it is clear that the object of the Act is to achieve speedier recovery of the dues declared as NPAs without the intervention of Tribunals or the Courts and for quick resolution of disputes arising out of the action taken for recovery of such dues apart from making better availability of capital liquidity and resources to help growth of economy and welfare of the people. But it is to be noted .....

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in Section 14 of the SARFAESI Act. In order to appreciate the same, it may be useful to refer to Section 14 and also certain provisions of the Code of Criminal Procedure. 14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset:- (1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisio .....

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and documents relating thereto; and (b) forward such assets 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 aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application; (ii) the borrower has created security interest over various properties and that the Bank or Fina .....

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ial assistance the amount of the borrower has been classified as a nonperforming 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 the borrower; (vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been .....

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strict 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 first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.] [(1A) The District Magistrate or the C .....

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e Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority. A reading of the Section 14 of the Act would show that Where the possession of any secured asset is required to be taken by a secured creditor or if secured asset is required to be sold or transferred by the secured creditor, the secured creditor may, for the purpose of taking possession or control of such secured asset, shall request, in .....

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ion 12 of the Code of Criminal Procedure (Cr.P.C.) provides that in every District (not being a Metropolitan area) the High Court shall appoint a Judicial Magistrate of First Class to be the Chief Judicial Magistrate. Under Section 17 of Code of Criminal Procedure the High Court shall, in relation to every metropolitan area within its local jurisdiction, appoint a Metropolitan Magistrate to be the Chief Metropolitan Magistrate for such metropolitan area. Therefore, in every District there will b .....

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Cr.P.C., postulates that any reference to Court of a Judicial Magistrate shall, in relation to a Metropolitan area be construed as a reference to the court of Metropolitan Magistrate for that area. Section 3(1)(d) states that any reference to Chief Judicial Magistrate shall in relation to a Metropolitan area be construed as a reference to Chief Metropolitan Magistrate exercising jurisdiction in that area. A Chief Judicial Magistrate working in a District Headquarters if posted in a metropolitan .....

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orking in metropolitan area are one and the same; their functions are same and one is synonym to the other depending upon the area under their jurisdiction. Section 20 of the Cr.P.C., states that in every District and in every Metropolitan area, the State Government may appoint as many persons as it think fit to be the Executive Magistrates and shall appoint one amongst them to be the District Magistrate. Under Section 22 of the Code, the District Magistrate may, from time to time, define the lo .....

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e of the Executive Magistrates as District Magistrate in every District and in every Metropolitan area. The Code of Criminal Procedure permits executive powers to be exercised by Executive Magistrate, whereas sifting of evidence, trial etc., shall be exercisable only by a Judicial Magistrate. One of the arguments that was advanced before us was that when the Legislature has made a clear demarcation of power by authorizing Chief Metropolitan Magistrates in metropolitan area and District Magistrat .....

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aks of State Government appointing one of the Executive Magistrates as District Magistrate even in Metropolitan areas. Such being the position, a secured creditor will have the option of invoking two Forums in a metropolitan area which benefit is lacking to a secured creditor/financial institution in a non- metropolitan area. Be that as it may, it has been urged by the counsel for the petitioners that in view of Section 35 of the Act and the words used in Section 14 being clear and unambiguous, .....

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is any provision in any other Law which is inconsistent therewith, the provisions of SARFAESI Act will have effect and not the provisions of any other law. It is nobodys case that there is any inconsistency between the provisions of the SARFAESI Act and the Code of Criminal Procedure. But, whether SARFAESI Act overrides the provisions of Code of Criminal Procedure in view of Section 35 of the said Act? Issues identical to the case on hand came up for consideration before various High Courts. A B .....

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synonymously depending upon the area where one is situated, and, therefore, apart from the District Magistrate, the powers can be exercised by the Chief Judicial Magistrate also. In W.P. No.5241 of 2012 a Division Bench of this Court, after considering Section 3(1)(d) and Section 3(2) of the Act held that the Chief Judicial Magistrate is always construed as Chief Metropolitan Magistrate and that the Chief Judicial Magistrate at Rajahmundry does not suffer from inherent lack of jurisdiction to e .....

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s for early disposal of cases filed under the SARFAESI Act. However, in Indus Ind Banks case, the Aurangabad Bench of Bombay High Court after referring to Section 14 of the Act held that in the absence of any reference to Chief Judicial Magistrate in the provision, it is only Chief Metropolitan Magistrate in the metropolitan area and District Magistrate in non metropolitan area who can entertain an application under Section 14. While dealing with Section 3 of the Code of Criminal Procedure, the .....

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re being no casus omissus since Chief Judicial Magistrate and Chief Metropolitan Magistrate stand on same footing and their designation are used synonymously, however held that as there is no adjudication of any issue, and the authority have to only render assistance to secured creditor to recover possession and where literal construction of Section 14 does not lead to any absurd results, there is no need to add one more authority to the two provided therein. The Full Bench judgment of the Madra .....

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de, particularly in the light of Section 35 read with Section 2(2) of the SARFAESI Act 2002. While dealing with Section 35 of the Act, the Full Bench held that the SARFAESI Act will override other laws including the provisions of Criminal Procedure Code. The Full Bench also held that since the language used in Section 14 is clear and unambiguous and when secured creditor is provided with a Forum to seek assistance even in non-metropolitan area, there is no necessity to add something and interpre .....

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d not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. A reading of Section 37 discloses that the provisions of SARFAESI Act or the Rules made there under are in addition to and not in derogation to any other law for the time being in .....

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ction 29 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Section 37 of the SARFAESI Act read with Rule 15 of the Second Schedule of the Income Tax Rules, 1962 it was contended that even under the provisions of SARFAESI Act there is a statutory requirement for re-notification to effect the sale and therefore non-compliance with the said requirement would render the sale effected by the Bank invalid in law. Dealing with such a situation, the Apex Court held as under : A .....

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sions contained under the SARFAESI Act, in respect of proceedings initiated under the said Act, it will be in order for a party to fall back upon the provisions of the other Acts mentioned in Section 37, namely, the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Finances Institutions Act, 1993, or any other law for the time being in force. Reference to the above principles laid dow .....

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atically. We have already extracted Section 29 of the RDDB Act, as well as Schedule 2 Part 1 Rule 15 of the Income Tax Rules, 1962. Therefore, what is to be considered is as to what is the mode prescribed under the above provisions, namely, Rule 15 prescribed under Schedule 2 Part 1 of the Income Tax Rules, 1962. In such circumstances going by the prescription contained in Section 37 of the SARFAESI Act, as we have reached a conclusion that the provision contained in Section 29 of the RDDB Act w .....

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ons 37,13(8) and 37 of the SARFAESI Act, read along with Section 29 with the aid of Rule 15 could alone be made and in no other manner. Therefore, the application of the provisions of Code of Criminal Procedure would be in addition to and not in derogation of the provisions of SARFAESI Act and the provisions of Code cannot be excluded from consideration while dealing with the SARFAESI Act. Hence, the finding of the Full Bench of the Tamil Nadu High Court that in view of Section 35 of the Act the .....

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slature never contemplated the same. It has been further urged that if really the intention of the Legislature was to give such power to Chief Judicial Magistrate, it would have referred to it atleast in the amendment brought to Section 14 in the year 2013. It is true that Section 14 of the Act refers only to Chief Metropolitan Magistrate and District Magistrate. But, if really the proceedings before the Chief Metropolitan Magistrate are judicial in nature, the Legislature would not have allowed .....

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der. The same cannot be accepted. It is to be noted that Section 14(1)(a)(b) which deal with assistance by Chief Metropolitan Magistrate and District Magistrate also refers to taking possession of such assets and documents and forwarding them to the secured creditor. Dealing with the word possession in Sections 13, 17 and the Rules made under SARFAESI Act, the Apex Court in Transcore v. Union of India (UOI) and another , held as under : 68. The word possession is a relative concept. It is not an .....

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ties under which the secured creditor, namely, the bank/FI obtains interest in the property concerned. It is for this reason that the NPA Act ousts the intervention of the courts/tribunals. In Union Bank of India v. The State of Maharashtra through the Office of the Government Pleader, Public Works Department and others , the Bombay High Court held that Section 14 of the SARFAESI Act is procedural in nature and that the procedure stipulated therein enables the secured creditor to take the assist .....

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est District Magistrate with the jurisdiction to adjudicate and decide any dispute regarding the secured assets. Similar view was taken by a Division Bench of Bombay High Court in International Asset Reconstruction Company Private Limited through its Authorized Representative of the Constituted Attorney Shri Tushar B.Patel v. Union of India (UOI), through the District Magistrate and others . In Mansa Synthetic Pvt. Ltd. and others v. Union of India and another , a Division Bench of the Gujarat H .....

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consideration is different from the one that is before us. In Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd.s case , the issue was with regard to the procedure to be followed if the secured asset is in possession of lessee of a borrower. After referring to the provisions of SARFAESI Act and Transfer of Property Act held that if the lessee surrenders possession, the lease, even if valid gets determined in accordance with clause(f) of Section 111 of the Transfer of Prop .....

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an Magistrate or District Magistrate under Section 14 of the Act along with an affidavit disclosing the name and address of the lessee. Thereafter, the Chief Metropolitan Magistrate or District Magistrate will give notice and after hearing the alleged lessee and the secured creditor, consistent with the principle of natural justice, and take the decision. From the above, it is clear that the authority referred to in Section 14 is only assisting the secured creditor in securing his asset either t .....

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cured creditor. Dealing with the various provisions of the SARFAESI Act, the Apex Court observed as under : 26. These provisions stipulate that a secured creditor who is seeking the intervention of the Magistrate under Section 14 is required to file an affidavit furnishing the information contemplated under various Sub- clauses (i) to (ix) of the proviso and obligates the Magistrate to pass suitable orders regarding taking of the possession of the secured assets only after being satisfied with t .....

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the Code of Criminal Procedure is required to act in accordance with the provisions of the said Code unless expressly ordained otherwise by any other law. It is not a case that Code of Criminal Procedure never prescribed for the procedure to be followed by the Magistrate in a case where the Magistrate is required to take possession of property. 37. (i) (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under Rule 8(1) is given .....

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and documents will be forwarded to the secured creditor. (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under Section 14 of the Act. The Magistrate will thereafter scrutinize the application as provided in Section 14, and then if satisfied, authorize a subordinate Officer to take possession of the assets and documents and forwards them to the secured creditor as under Clause (ii) above. From the judgments referred to above, it is cl .....

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y an administrative order, made for taking possession of the secured asset, if all other conditions are fulfilled. That being so, authorizing or adding an authority to exercise the said power would not amount to delegation of power, thereby violating the mandate of the provision. In view of the above findings namely that the powers exercised by Chief Metropolitan Magistrate and District Magistrate are synonymous to each other and that they are not adjudicatory in nature, the question would be Wh .....

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guage of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence... ... ... . Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman's unskilfulness or .....

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Legislature and in construing a statute, it is necessary to seek the intention of its maker. A statute has to be construed according to the intent of those who make it and the duty of the court is to act upon the true intention of the Legislature. If a statutory provision is open to more than one interpretation the Court has to choose that interpretation which represents the true intention of the Legislature. This task very often raises difficulties because of various reasons, in as much as the .....

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the function of the Courts is only to expound and not to legislate. Legislation in a modern State is actuated with some policy to curb some public evil or to effectuate some public benefit. The legislation is primarily directed to the problems before the Legislature based on information derived from past and present experience. It may also be designed by use of general words to cover similar problems arising in future. But, from the very nature of things, it is impossible to anticipate fully th .....

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of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. (See District Mining Officer and Ors. v. Tata Iron and Steel Co. and Anr. (JT 2001 (6) SC 183 ). According to us, there is no casus omissus. We are not reading something into the provision which the Legislature never intended to nor are we trying to interpret the provision so as to defeat the intention of the Legislature. We are o .....

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