No Bar On Power Of DM To Entertain A Second Plea U/S 14 SARFAESI Act: Allahabad HC Endorses Bombay HC's View

Following the decision of the Bombay High Court in The Nashik Merchant Co-operativeBank (Multi State Scheduled Bank) v. The District Collector, Jalna and others, a bench of Justice Shekhar B Saraf and Justice Praveen Kumar Giri directed an Additional District Magistrate to decide and pass orders on fresh application under Section 14 of 2002 Act, when the borrower trespasses on the secured asset.

The bench was essentially dealing with a plea moved by DCB Bank, which had sanctioned a loan of around Rs. 18 lakhs where equitable mortgage of secured asset was created by the borrower.

Since the borrower failed to repay the bank, the mortgaged property was declared a Non-Performing Asset. The bank issued a notice under Section 13 to the borrower and proceeded to take symbolic possession of the property.

Subsequently, the petitioner-Bank filed an application under Section 14 of the SARFAESI Act for obtaining possession of the secured asset. The same was allowed.

Thereafter, auction proceedings were conducted and a sale certificate was issued in favour of the successful bidder. However, the borrowers allegedly broke the locks and trespassed into the property.

Due to the inaction on the part of the authorities in restoring the possession of the property in favour of the petitioner, the Bank filed an application under Section 14 of SARFAESI Act, which was rejected on the grounds that once the order for possession had already been executed, a fresh application could not be entertained.

Petitioner approached the High Court seeking restoration of possession of the secured asset forcefully taken over by the borrower. Relying on the aforesaid decision of the Bombay High Court, it was argued that in case of illegal trespass by the borrower, the Additional District Magistrate has the power to decide a fresh application under Section 14 of SARFAESI.

The petitioner specifically relied upon the following paragraph of the Bombay HC judgment in Nashik Merchant Co-operative Bank case (supra)

"The uncontroverted factual aspects in present matter depict that the respondent Nos. 5 and 6 have devised novel, unimaginable and unsustainable modus operandi to defeat ends of justice and fair play. It is not only the matter of physical altercation, but would tantamount to assault on the law and statute. They have the audacity to overrule the law. The growing tendency of overpowering the law cannot be tolerated. In peculiar facts and circumstances of this case, we are inclined to exercise powers under Article 226 of the Constitution of India to protect the rule of law and deprecate rising tendency of using criminal force against recovery proceeding undertaken by the financial institutions in terms of SARFAESI Act".

For context, in this case, the Bombay High Court specifically held that there on no bar in law on the powers of the District Magistrate or his delegate to exercise the powers under Section 14 of the SARFAESI Act for a second time to pass orders on an application filed for execution.

Following this ruling, the division bench directed the Additional District Magistrate to grant the petitioner bank an opportunity of hearing and pass orders of the application filed by it.

"Upon considering the issue at hand, we are at consensus ad idem of the view taken by the Bombay High Court, and accordingly, direct the Additional District Magistrate to grant him opportunity of hearing to the petitioner and pass a fresh order on the fresh application under Section 14 of SARFAESI Act filed before him, in accordance with law. The entire exercise should be completed within a period of two months by the respondent concerned," the bench said as it disposed of the plea.