TMI Blog2011 (8) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be issued to the concerned Magistrates asking them to dispose of the said applications expeditiously. The said petition was, therefore, permitted to be converted into public interest litigation and has been renumbered as Public Interest Litigation No.24 of 2011. By amending the petition, the petitioners have added Union of India through the District Magistrate, Daman Diu and State Maharashtra as respondents 2 and 3. Kotak Mahindra Bank Limited, the Shamrao Vithal Cooperative Bank Limited and Janakalyan Sahakari Bank Limited had filed intervention applications. Their intervention was granted by this court and pursuant to the liberty granted by this court, they have been brought on record as respondents 4 to 6 respectively. The prayer clause has been suitably amended. We must, at the outset, note that though at first blush, it appears that through this petition, the banks and financial institutions are trying to serve their personal interest as they are seeking possession of secured assets, we cannot lose sight of the fact that ultimately, the banks and financial institutions deal with public money and it is in the interest of general public to see that they take possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts to take possession of the secured assets are granted, the borrowers and intervenors are unnecessarily asked to submit large number of documents and the DMs and the CMMs enter into adjudication of various issues which they cannot, in law, do. The entire exercise is given trappings of a civil suit. This leads to delay in disposal of the applications and it defeats the purpose of the SARFAESI Act. Counsel relied on the judgment of the Division Bench of this court in Union Bank of India Vs. State of Maharashtra Ors. AIR 2010 Bom. 150 : [2010(4) ALL Mr 497] and judgment of learned Single Judge of this court in Kotak Mahindra Bank Limited Vs. State of Maharashtra Ors. decided on 26/9/2008 in Criminal Writ Petition No.161 of 2008. Counsel also relied on the judgment of the Delhi High Court in Sajay Bansal Vs. Rakesh K. Ahlawat Ors. (2006) 130 Comp. Cases 634 (Delhi) and judgment of the Madras High Court in Sree Lakshmi Products Vs. State Bank of India, AIR 2007 Mad 148. Written submissions were submitted by the petitioners and by respondents 4 and 5, which we have carefully perused. In order to find out what could be the difficulties faced by the DMs and CMMs while disposing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he secured assets could not be liquidated in time. The SARFAESI Act was enacted to reduce mounting nonperforming assets by empowering banks to liquidate the assets and secure interest. The SARFAESI Act deals with crystallized liabilities and it proceeds on the basis that the asset is created in favour of bank which could be assigned to the assets management company which steps into the shoes of the secured creditors. The Supreme Court further clarified that Section 13(2) thereof, proceeds on the basis that the borrower is under a liability and his account in the books of account of the bank is classified as sub-standard or doubtful or loss. Since Section 13(2) deals with liquidation of liability on the basis that the account of the borrower has become nonperforming, there is no scope for any dispute regarding liability. The SARFAESI Act does not deal with disputes between the secured creditors and the borrowers but it deals with the rights of the secured creditors inter se. The Supreme Court further clarified that Section 13( 1) and Section 13(2) of the SARFAESI Act proceed on the basis that the security interest in the bank and financial institution needs to be enforced expeditiou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere third party interests are created overnight and in very many cases those third parties take up the defence of being a bona fide purchaser for value without notice. In Satyawati Tondon, the Supreme Court reiterated its view in Transcore. The Supreme Court made it clear that in terms of Section 14 of the SARFAESI Act, the secured creditor can file an application before the DMs or the CMMs within whose jurisdiction the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the DM or CMM, as the case may be. is obliged to take possession of such asset or document and forward the same to the secured creditor. The Supreme Court further observed that Section 17 of the SARFAESI Act speaks of the remedies available to any person including the borrower, who may have grievance against the action taken by the secured creditor under sub-section (4) of Section 13. The Supreme Court further clarified that Sub-section (2) of Section 17 casts a duty on the DRT to consider whether the measures taken by the secured creditor for enforcement of security interest are in accordance with the provisions of the SARFAESI Act and the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by secured creditor under Section 14 of the SARFAESI Act is required to give notice to the borrower or any other person, who may be in possession of the secured assets and give him a hearing. After referring to Transcore, this court answered the question in the negative and gave the following directions. 1. The bank or financial institution shall, before making an application under section 14 of the NPA Act, verify and confirm that notice under section 13(2) of the NPA Act is given and that the secured asset falls within the jurisdiction of CMM/DM before whom application under section 14 is made. The bank and financial institution shall also consider before approaching CMM/DM for an order under section 14 of the NPA Act, whether section 31 of the NPA Act excludes the application of sections 13 and 14 thereof to the case on hand. 2. CMM/DM acting under section 14 of the NPA Act is not required to give notice either to the borrower or to the 3rd party. 3. He has to only verify from the bank or financial institution whether notice under section 13(2) of the NPA Act is given or not and whether the secured assets fall within his jurisdiction. There is no adjudication of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the secured assets. That application was allowed. The CMM directed the Assistant Registrar to take possession of the secured assets. The CMM directed that the possession will be taken by the Assistant Registrar after issuing notice of taking possession and after giving reasonable time of not more than 15 days to hand over possession. Learned Single Judge (A.S. Oka, J.) referred to Trade Well and observed that before passing order under Section 14 of the SARFAESI Act, learned CMM is not required to give notice or hearing either to the borrower or to the affected third party. There was no occasion for the CMM to issue 15 days' notice before taking possession. Learned Single Judge observed that if the law does not contemplate notice before passing the order under Section 14, no direction of issuing notice could have been given after passing the order under Section 14 of the SARFAESI Act. It is distressing to note that despite the authoritative pronouncements of the Supreme Court and of this court, the DMs and CMMs continue to issue notices to the borrowers, adjudicate the disputes between the parties, grant intervention applications and give long hearing to the intervenor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led the contention and held that the protection under the Delhi Rent Control Act was not available against the mortgagee who seeks to enforce his right under the SARFAESI Act against the principal borrower who had mortgaged the property in question by duly and validly executing the memorandum of mortgage in favour of the mortgagee. In Sree Laxmi Products, the Division Bench of Madras High Court was considering the contention of the petitioners that a tenant cannot be dispossessed in pursuance of the recovery proceedings against borrower under the SARFAESI Act and, therefore, even if the landlord of the petitioner is indebted to the respondentbank the respondent bank has to take possession only by due process of law, it cannot take forcible possession from the tenant. The Madras High Court considered the Supreme Court judgment in Transcore and the Delhi High Court judgment in Sajay Bansal and held as under : 9. On a plain reading of the observations made in Transcore case it is clear that the bank/FI is entitled to take actual possession of the secured assets from the borrower or from any other person in terms and Section 13(4) of the SARFAESI Act. Any transfer of secured asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the SARFAESI Act. Noticing the guidelines laid down by this court in Trade Well, the Division Bench expressed that the Collector was bound to follow the principles of law which has been laid down by this court. The Division Bench, in the circumstances, gave a general direction to all the Collectors and District Magistrates to endeavour to conclude the hearing of such applications and pass final orders thereon as expeditiously as possible and in any event within a period of two months. In the aforementioned circumstances, it is necessary for this court to issue certain guidelines to streamline the procedure. The DMs and CMMs have in their reports submitted pursuant to our order, set out their difficulties. We find that heavy workload, lack of staff and infrastructural facilities are some of the reasons which lead to slow disposal of the applications. But, those difficulties will have to be sorted out either at the Government level or on the administrative side of this Court, but solely on those grounds, we cannot overlook the delay in disposal of the applications which is frustrating the object of the SARFAESI Act. We deem it appropriate to lay down the following Guidelines wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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