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AFR

RESERVED

Misc. Single No. 20026 of 2017

M/s N.C.M.L. Industries Ltd. through Director and another

Vs.

Debts Recovery Tribunal, Lucknow and others

With

Misc. Bench No. 28806 of 2017

M/s Hindon Forge Pvt. Ltd. and another

Vs.

State of U.P. through D.M. Ghaziabad and others

Appearance:

For the petitioners:

Mr. Jaideep Narain Mathur, Senior Advocate,

with Mr. Amarjeet Singh Rakhra & Mr. Suneet

Kumar Sharma, Advocates and

Mr. Dinesh Kumar Pathak, Advocate

with Mr. Shashank Pathak, Advocate.

For the respondents:

Mr. Prashant Chandra, Senior Advocate,

with Mr. Kartikey Dubey, Mr. Prashant Kumar,

Mr. Shyam Kumar Raj & Ms. Mahima Pahwa,

Advocates.

Hon'ble Dilip B. Bhosale, Chief Justice

Hon'ble Dr. Devendra Kumar Arora, J.

Hon'ble Vivek Chaudhary, J.

(Per Dilip B Bhosale, CJ)

The order of Reference dated 19 September 2017, which has

occasioned the constitution of a larger Bench, has been passed by learned

Single Judge, after having noticed the divergent opinions expressed by two

Division Benches of this Court in Sushila Steels Vs. Union Bank of India

and others (Special Appeal No. 415 of 2014, decided on 23.04.2014), and

Aum Jewels and others Vs. Vijaya Bank (Writ-C No. 13476 of 2017,

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decided on 30.3.2017) on the question whether an application under Section

17(1) of the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (for short 'the Act'), at the

instance of a borrower, is maintainable even before physical (actual)

possession of the secured assets is taken by the Bank/FIs in exercise of its

powers under Section 13(4) thereof read with Rule 8 of the Security Interest

(Enforcement) Rules, 2002 (for short “the Rules”)

2.By means of this petition (No. 20026 of 2017) under Article 226 of

the Constitution of India, the petitioners (M/s N.C.M.L. Industries Ltd. and

another) called in question the validity of an order dated 2.8.2017, passed by

the Debts Recovery Appellate Tribunal, Delhi, (for short “DRAT”), as it then

was holding charge of DRAT, Allahabad, whereby an appeal No. 86 of 2017,

preferred under Section 18 of the Act, has been disposed of. The appeal was

preferred by the respondent-Bank against an order dated 27.02.2017 passed

by the Debts Recovery Tribunal, Lucknow (for short 'DRT'), on

Securitisation Application No. 435 of 2016 (for short “the Application”),

instituted under Section 17(1) of the Act. By this order (27.02.2017), the

DRT had granted interim relief in favour of the petitioners, restraining the

respondent-Bank from taking physical possession of the secured assets

during the pendency of the Securitisation Application. The DRAT, while

allowing the appeal inter alia held that the Application under Section 17 of

the Act is not maintainable as only “symbolic possession” was taken by the

Bank. For taking such a view, the DRAT placed heavy reliance upon the

judgment of a Division Bench of this Court in Sushila Steel (supra).

3.The facts leading to filing of the writ petition, to the extent, that are

necessary are as follows: The respondent-Bank had extended some financial

facilities to the petitioner No.1-Company to which petitioner No.2 stood

Guarantor. Since the petitioners made default in repayment of secured

debt/installments thereof, the respondent-Bank initiated proceedings under

the provisions of the Act by issuing a notice under Section 13(2) on

23.11.2015 requiring the borrower to discharge in full his liability. The

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notice was replied by the petitioners by way of a representation/raising

objections dated 20.1.2016. The objections/representation however came to

be rejected by the respondent-Bank vide its communication dated 9.2.2016.

Thereafter, the petitioners claim that they made additional representation

dated 14.2.2016 requesting the respondent-Bank to reconsider their earlier

representation/objections dated 20.1.2016. According to the petitioners, so

far the respondent-Bank has not considered and decided the same.

4.In this backdrop, it appears a notice, under Rule 8 read with Appendix

IV of the Rules for possession, was issued by the Bank, stating that a

symbolic possession of their immovable secured assets, as described in the

schedule to the notice, has been taken under Section 13(4) of the Act. It

appears that the Authorised Officer of the Bank did not take physical

possession of the secured assets. This notice made reference to the notice,

that was issued to the petitioners under Section 13(2) requiring them to

repay the due amount alongwith further interest and other charges within

sixty days. Since the petitioners failed to repay the amount, the notice under

Rule 8 of the Rules was issued to the petitioners as also to the public in

general, stating that the Authorized Officer of the Bank has taken “symbolic

possession” of the movable and immovable properties in exercise of the

powers conferred under Section 13(4) of the Act, read with Rule 4(8) and (9)

of the Rules. The petitioners challenged the notice dated 12.5.2016 under

Section 17 of the Act by way of Securitisation Application No. 435 of 2016

before the DRT. The prayer made in the application was to set aside the

measures taken by respondent-Bank under Section 13(4) of the Act and to

restrain the Bank from obtaining possession or selling or disposing of the

mortgaged properties (secured assets). It appears, as stated by the petitioners,

since the respondent-Bank attempted to take physical possession of the

mortgaged properties, an application for grant of interim relief was also filed

before the DRT.

5.The DRT vide its order dated 6.2.2016 rejected the application dated

1.12.2016 filed by the respondent-Bank, seeking rejection of the

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securitisation application filed by the petitioners under Section 17(1) of the

Act even before losing possession, as not maintainable. The DRT, while

passing the order, observed that since the respondent-Bank had taken

measures by issuing possession notice on 12.5.2016 in terms of Rule 8(1) of

the Rules, the same was a measure prescribed under Section 13(4) of the Act

and as such the securitisation application would be maintainable. We do not

propose to make further reference to the observations made by the DRT,

since it may not be relevant for addressing the question that falls for our

consideration. It appears that in the said proceedings an interim application

filed by the petitioners restraining the respondent-Bank from taking physical

(actual) possession, was also heard and allowed by the DRT vide its order

dated 27.2.2017. That order was challenged by the respondent-Bank before

DRAT. It appears that the order dated 6.2.2016 passed by DRT rejecting the

respondent-Bank's application for dismissing the application under Section

17(1) of the Act filed by the petitioners, as not maintainable, was not

challenged before DRAT.

6.The DRAT allowed the appeal filed by the respondent-Bank against

the order dated 27.2.2017 vide its order dated 2.8.2017. This order has been

assailed in the instant petition wherein the following question has been

framed and referred to a Larger Bench by learned Single Judge vide order

dated 19.9.2017:

“In view of the observations made by their Lordships of

Hon'ble Supreme Court in the case of Transcore Vs.

Union of India and another, (2008) 1 SCC 125 that the

dichotomy between symbolic and physical possession

does not find place in the SARFAESI Act, which of the

two Division Bench Judgements of this Court, either in

the case of Sushila Steels (supra) or in the case of Aum

Jewels (supra), enunciates the correct law so as to

constitute a binding precedence on the issue as to whether

remedy of filing appeal under section 17 of the

SARFAESI Act is available against an order

passed/notice issued under section 13(4)(a) of the Act for

possession of the secured assets ?”

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6.1The learned Single Judge formulated the aforesaid question in view of

the divergent opinions expressed by two Division Benches of this Court in

Sushila Steels (supra) and Aum Jewels (supra).

7.At this stage, it would be relevant and necessary to notice the views

(divergent) expressed by two Division Benches, in brief, to understand the

controversy and also the purpose for making reference to a Larger Bench.

The Division Bench of this Court while dealing with the case of Sushila

Steels (supra) considered the question whether the proceedings before the

Debt Recovery Tribunal under Section 17 of the Act would be maintainable

before the “actual possession” is taken. It appears, in that case the secured

creditor had issued possession notice dated 22.10.2012 under Section 13(4)

of the Act, and on service thereof, the borrower had initiated proceedings

before the DRT by filing securitisation application under Section 17 of the

Act. In the application, the secured creditor raised primary objection as to its

maintainability contending that the notice dated 22.10.2012 did not

constitute a “measure” as contemplated under Section 13(4) of the Act. The

application instituted by the borrower under Section 17 was dismissed by the

DRT as not maintainable vide its order dated 17.12.2012. This order was

challenged in a writ petition bearing Writ Petition No. 148 of 2013. The writ

petition was also dismissed by learned Single Judge on 21.1.2013. The order

of the learned Single Judge was carried in an intra court appeal which was

dismissed by the Division Bench vide its judgment and order dated

23.4.2014. The Division Bench, while dismissing the intra court appeal,

noticed that their exists a state of uncertainty as regards the remedy available

to the aggrieved person in the light of the judgment of the Supreme Court

which dealt with law on the subject. It was further observed that mere

issuance of possession notice becomes immaterial till the actual possession

is taken and that in some cases where there is resistance on the part of the

borrower to deliver possession, a recourse to Section 14 can be taken by the

secured creditor, then in such a situation also the proceedings under Section

17 of the Act would not lie till the physical possession of the mortgaged

property is delivered to the Bank. In short, it was held that no securitisation

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application under Section 17 of the Act would lie at the behest of the

borrower till he loses actual (physical) possession of the secured assets or

the possession thereof is actually delivered to the secured creditor.

7.1The DRAT, in the present case, while allowing the appeal filed by the

respondent-Bank and setting aside the order passed by the DRT placed

heavy reliance upon the judgment of the Division Bench in Sushila Steels

(supra). In Sushila Steels, the Division Bench had relied upon the judgment

of the Supreme Court in Mardia Chemicals Ltd. and others Vs. Union of

India and others, [(2004) 4 SCC 311]. We propose to make detailed

reference to Mardia Chemicals little later. At this stage, we would like to

notice that the DRAT while allowing the appeal remanded the matter to the

DRT for deciding the securitisation application on merits. The learned Single

Judge in the judgment considered this part of the order also and observed

that if the application under Section 17, at the stage at which the petitioners

had instituted, was not maintainable, the remand of the matter by DRAT

would be nothing but an exercise in futility. The learned Single Judge also

noticed few judgments relied upon by the Division Bench in Sushila Steels

(supra), namely, Mardia Chemicals (supra), Authorized Officer, Indian

Overseas Bank and another Vs. Ashok Saw Mill, [(2009) 8 SCC 366] and

Kanaiyalal Lalchand Sachdev and others Vs. State of Maharashtra and

others, [(2011) 2 SCC 782].

8.In Aum Jewels (supra), it appears, that after rejecting the objections

filed by the borrower under Section 13(3-A) of the Act, the secured creditor

had issued a possession notice under Section 13(4) on 6.3.2017. It is this

possession notice under Section 13(4) dated 6.3.2017 was under challenge.

Before the Court, in this case, an objection was taken by the secured creditor

that the petitioners had an statutory remedy of filing an application under

Section 17 of the Act against an order passed under Section 13(4) of the Act

in view of the law laid down by the Supreme Court in United Bank of India

Vs. Satyawati Tondon and others, [(2010) 8 SCC 110]. On the basis of the

judgment of the Supreme Court in Satyawati Tondon (supra), the Division

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Bench in Aum Jewels (supra) dismissed the writ petition filed by the

petitioners therein on the ground of availability of statutory alternative

remedy under Section 17 of the Act. In short, the Division Bench in Aum

Jewels held that against an action/measure taken by the secured creditor by

issuing a notice/passing an order of “symbolic possession” under Section

13(4) of the Act, a remedy under Section 17 is available and as such the

securitisation application/petition filed under Section 17 would be

maintainable against such a measure under Section 13(4)(a) of the Act. It is

pertinent to note that the Division Bench in Aum Jewels (supra) for taking

such a view placed heavy reliance upon the judgment of the Supreme Court

in Satyawati Tondon (supra) and Transcore Vs. Union of India and

another, (2008) 1 SCC 125. We would make reference to these judgments

of the Supreme Court a little later.

8.1Before we proceed further, it is necessary to clarify that we are

dealing with the question where any borrower, as defined by Section 2(f) of

the Act, is in possession of the secured assets. In other words, we are not

dealing with the question where either lessee or protected tenant is in

possession of the secured assets. The rights of a lessee/tenant, insofar as

secured assets are concerned, have already been considered by the Supreme

Court in Vishal N. Kalsaria Vs. Bank of India, (2016) 3 SCC 762 and

Harshad Govardhan Sondagar Vs. International Assets Reconstruction

Co. Ltd, (2014) 6 SCC 1. In these judgments the Supreme Court, in short,

has held that physical possession from a person holding possession of the

assets, as protected tenant or under a pre-existing valid lease, cannot be

taken except as per the conditions of lease or Rent Control Act. The

provisions of the Act, in short, cannot be used to override the provisions of

the Rent Control Act. Similarly, leases under the provisions of Transfer of

Property Act, 1882, would not stand automatically determined under action

being initiated under Section 13(4) of the Act and eviction of such lessees

cannot be done unless the lease is validly terminated. Thus, the question that

fall for our consideration will be addressed where the “measures” under

Section 13(4) are taken or being taken against the borrower/guarantor.

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9.In this backdrop, we have heard learned counsel for the parties at

great length and with their assistance gone through the provisions of the Act,

the Rules and judgments of the Supreme Court and High Courts, to which

our attention was drawn, in the light of the factual matrix, stated in the

foregoing paragraphs.

9.1Mr. Mathur, learned Senior Counsel appearing for the petitioners,

after drawing our attention to the relevant provisions of the Act and the

Rules and so also the judgments of the Supreme Court in Mardia

Chemicals (supra), Transcore (supra), Satyawati Tondon (supra), Ashok

Saw Mill (supra) etc., in particular, submitted that the Act does not contain

any adjudicatory mechanism at the stage of “taking of measures” for

recovery of the secured debt. Even consideration of a

representation/objections and communication of the order passed thereon by

the Bank also requires to be done without their being an adjudicatory

process and without any judicial or quasi judicial intervention. Section 34 of

the Act provides that no civil court will pass any order of injunction or

entertain any suit in respect of any action taken by a bank in pursuance of

the powers conferred under the Act. It is in this backdrop that a validity of

the provisions contained in Sections 13, 14 and 17 was challenged in

Mardia Chemicals (supra). Except Section 17(2) of the Act, the challenge

to these provisions was negated. He submitted that Section 13(4) was

declared constitutionally valid because the right of appeal or making a

securitisation application under Section 17 is available against any of the

measures provided under that provision. He submitted that in order to

prevent misuse of such wide powers, as are given to the Bank under Section

13 and to prevent prejudice being caused to a borrower on account of an

error on the part of the bank, checks and balances were introduced in the

Act. Section 17 allows any person including the borrower to approach the

DRT against any of the measures referred to Section 13(4) of the Act. He,

therefore, submitted that Section 17 of the Act must be interpreted in a

manner so as to give it the widest amplitude and an interpretation of such

Section which curtails its application or limits recourse to it must be avoided

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since such limitation is not provided in the Act. The right under Section 17,

as observed by the Supreme Court in Mardia Chemicals (supra), cannot be

restricted by any means whatsoever.

9.2Mr. Mathur, submitted that every action taken under Section 13(4) of

the Act is amenable to challenge under Section 17. There is no justification

for making an artificial distinction between the taking of “actual/physical”

possession and taking of “symbolic/constructive” possession. The provisions

contained in Section 13(4) do not make any such distinction. Rule 8(1)(3),

he submitted, indicate that both species of possession i.e. physical and

symbolic, are envisaged under the Act. By serving a notice as prescribed

under Appendix IV of the Rules, irrespective of the fact whether a bank

takes physical or symbolic possession, is a measure under Section 13(4)(a),

and therefore, an application under Section 17 is maintainable before DRT.

9.3Mr. Mathur, after specifically drawing our attention to the judgment of

the Supreme court in Transcore (supra) submitted that the dichotomy

between symbolic/constructive possession and actual/physical possession

does not find place in the Act. Section 13(4) refers to the word “possession”

simplicitor which means both, namely, “symbolic” and “physical”. He

submitted, it is neither open to the Banks to create such distinction nor can

such distinction be read in Section 13(4)(a) of the Act. He also invited our

attention to Black's Law Dictionary, Halsburys Law of England and Words

and Phrases (Permanent Edition, Volume-33) to contend that while actual

possession means a physical occupancy or control over the property,

symbolic possession means control or dominion over the property without

actual possession. In short, he submitted that the possession can mean

symbolic and physical possession both, and taking a symbolic possession

also amounts to taking of a measure under Section 13(4) and hence

application under Section 17 even in case of symbolic possession is

maintainable.

9.4Mr. Mathur submitted that a perusal of Section 13(4)(a) shows that the

right of a secured creditor to transfer by way of lease, its assignment or sale

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can be exercised with or without the secured creditor being in actual

physical possession and can be exercised even if the secured creditor is in

symbolic possession of the property. He submitted that once an action of

taking possession whether symbolic or physical, is taken, the right of the

secured creditor stands fructified in the property. It is, therefore, immaterial

whether physical possession is taken or symbolic, since the consequences

are serious and adverse to the borrower. In other words, the borrower loses

possessory rights over the property and/or ceases to be the owner of the

property.

9.5Insofar as the judgment of a Division Bench of this Court in Sushila

Steels (supra) is concerned, he submitted, in the light of the provisions

contained in Section 13 and 17 of the Act and the interpretation of the word

'possession' made by the Supreme Court in Transcore (supra), the view

taken by the Division Bench is erroneous. Insofar as the judgment of the

Supreme Court in Noble Kumar (supra), he submitted that the controversy

in the said case did not relate to whether physical possession was different

from symbolic possession. The Supreme Court in the facts of that case

ultimately held that the recourse could be taken under Section 14 by the

secured creditor even without attempting to obtain possession of its own. He

submitted that the judgment of the Supreme Court lays down that the right

of appeal is available only after losing possession of the secured assets and

losing possession does not mean physical possession but it also means losing

symbolic possession. In this backdrop, the Supreme court in Noble Kumar

(supra) reiterated the view of three Judges Bench in Mardia Chemicals

(supra) that it would be open to a borrower to file an appeal under Section

17 any time after the measure is taken under Section 13(4) and before the

date of sale/auction of the property. The word 'possession', therefore, will

have to be read to mean symbolic possession also and in which case a

remedy under Section 17 is available to the borrower. He submitted that the

law laid down by the Division Bench in Aum Jewels (supra) is the correct

position of law. The borrower is undoubtedly a person who is affected by the

action taken by the secured creditor when it takes over the symbolic

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possession of the secured assets and thus such a borrower who has been

deprived of “symbolic possession” can also take recourse to the proceedings

under Section 17 of the Act.

9.6Mr. Mathur also invited our attention to the Rules, in particular, Rule

8 and 9 and submitted that the delivery of notice in Appendix IV of the

Rules is a measure under Section 13(4)(a) and thus proceedings under

Section 17 of the Act are maintainable as soon as it is delivered to the

borrower. The notice under Appendix IV is akin to an order under Section

13(4)(a) and is not merely a notice by which a borrower has been required to

do or forbear from doing any particular act. It is neither a notice to show

cause nor an opportunity to explain but it is clearly akin to an order under

Section 13(4)(a) by which the borrower is informed that he has been

dispossessed of the secured asset.

10.Mr. Pathak, learned counsel appearing for the petitioners in Misc.

Bench No. 28806 of 2017, adopted the submissions advanced by Mr. Mathur

and in addition thereto, placed reliance upon two more judgments of the

Supreme Court in Canara Bank Vs. M. Amarender Reddy and Ors., AIR

2017 SC 1441 and of this Court in Dilip Kumar Singh and another Vs.

State of U.P. and others, [Writ-C No. 58329 of 2012. We have also heard

Mr. Anand Mani Tiwari, a member of the Bar, who expressed desire to make

submissions in support of the petitioners. He, however, repeated the

submissions advanced by Mr. Mathur and, therefore, we do not deem it

necessary to make specific reference to his arguments.

11.On the other hand Mr. Prashant Chandra, learned Senior Counsel for

the Bank invited our attention to the judgments of the Supreme Court, in

particular, Noble Kumar (supra) and submitted that unless actual/physical

possession is lost, the borrower has no right to file an application under

Section 17 of the Act. He submitted that if the arguments advanced by

learned counsel for the petitioners are accepted, that will defeat not only the

very objective of the Act but it shall also defeat rights of the Bank under the

provisions of the Act to recover its dues. It would not be possible for the

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Bank to conduct auction and fetch an attractive consideration for the secured

asset without taking physical possession and if the borrower, he submitted, is

allowed to approach the Tribunal, even at the stage of issuance of a notice

under Appendix IV, the proceedings would never come to an end and remain

pending before DRT and DRAT for years and as a consequence thereof the

financial institutions will never be able to recover their dues. He submitted,

the word “measures” employed in Section 13(4) means the measures

contemplated under clauses (a) to (d) of Section 13(4) and not a

measure/action, to be initiated under these clauses, such as taking steps

(measures) to acquire possession under Section 13(4)(a) of the Act. Mr.

Prashant Chandra, after taking us through the judgments in Transcore

(supra) and Satyawati Tondon (supra) and so also Aum Jewels (supra)

submitted that the Division Bench of this Court while interpreting the

provisions of law in the light of the judgment of the Supreme Court in

Transcore (supra) has not understood the spirit of the judgment and has

wrongly held that the borrower has a remedy under Section 17 even against

the notice issued under Rule 8 in Appendix IV of the Rules. His submissions

were based on the judgments of the Supreme Court, in particular, Mardia

Chemicals (supra) and Noble Kumar (supra). In short he submitted that

the law laid down by the Supreme Court in these judgments is binding,

which make it clear in unequivocal terms that unless the borrower is

dispossessed, being a measure under Section 13(4), he cannot take recourse

to Section 17 of the Act. Insofar as Transcore (supra) is concerned, he

submitted, this judgment needs to be read in proper perspective, which also

makes it clear that unless the borrower loses actual (physical) possession, he

cannot approach the DRT under Section 17 of the Act. Mr. Prashant Chandra

submitted that the purpose of the Act is to enable the secured creditor to

enforce any security interest without the intervention of the Court or the

Tribunal. He invited our attention to sub-section 4(a) of Section 13 and

submitted that it permits a Bank to take possession of the secured assets after

following the due procedure contemplated by sub-section (2) of sub-section

(3-A) of Section 13 in particular. Further, after drawing our attention to sub-

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section (3-A) of Section 13 and sub-section 3 of Section 17, he submitted

that, under any circumstance, the borrower cannot approach DRT under sub-

section (1) of Section 17 at any stage before he loses actual possession. He

further submitted that these provisions clearly obliges the borrower to raise

all contentions that are possible, including challenge to the reasons recorded

by the Bank under sub-section (3-A) of Section 13 at that stage and not

before losing actual possession of the asset and before the sale/auction of the

assets and the possession thereof is handed over to the purchaser. He

submitted that the powers of Authorized Officer are greater than the powers

conferred on the Court Receiver under Order XL Rule 1 of the Civil

Procedure Code.

12.Before we deal with the question that falls for our consideration, in

the light of the provisions of the Act, the Rules, judgments of the Supreme

Court and the High Court, it would be advantageous to look into the

backdrop against which the Act was introduced. The Recovery of Debts Due

to Banks and Financial Institutions Act, 1993 (for short ‘DRT Act, 1993’)

was enacted to facilitate creation of specialized forums, namely, the Debts

Recovery Tribunals and Debts Recovery Appellate Tribunals for expeditious

adjudication of disputes relating to recovery of the debts due to banks and

financial institutions. This Act bars the jurisdiction of the Civil Courts and

all pending matters were transferred to the Tribunals from the date of their

establishment.

12.1The primary object of the Act, 1993 was not only to bring into

existence special procedural mechanism for speedy recovery of the dues of

the banks and financial institutions, but also ensuring that defaulting

borrowers are not able to invoke the jurisdiction of Civil Courts for

frustrating the proceedings initiated by the banks and other financial

institutions. Undoubtedly, this new legislation initially worked well and even

the officers appointed to man the Tribunals worked with great zeal for

ensuring that cases involving the recovery of the dues of banks and financial

institutions are decided expeditiously. However, with the passage of time,

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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. In this backdrop, the Government of

India asked the very same committee, namely, the M. Narasimham

Committee, which was constituted to suggest setting up of special Tribunals

with special powers for adjudication of cases involving the dues of banks

and financial institutions, to suggest measures for expediting the recovery of

debts due to banks and financial institutions. That Committee made various

suggestions for bringing about radical changes in the then existing

adjudicatory mechanism. The Government of India then constituted one

more committee, namely, Andhyarujina Committee for examining banking

sector reforms. That Committee also considered the need for changes in the

legal system. Both, the Narasimham and Andhyarujina Committees

suggested enactment of new legislation for securitisation and empowering

the banks and financial institutions to take possession of the securities and

sell them without intervention of the Court. The recommendations of both

the committees ultimately led to enactment of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act,

2002 (for short 'the Act'), which can be termed as one of the most radical

legislative measures taken by the Parliament for ensuring that dues of

secured creditors including banks, financial institutions are recovered from

the defaulting borrowers without any obstruction. By this new legislation,

the secured creditors have been empowered to take steps for recovery of

their dues without intervention of the Courts or Tribunals. It is enacted for

quick enforcement of the security.

12.2In Mardia Chemicals, the Supreme Court after noticing the backdrop

against which the Act was enacted, made the following observations, which

are relevant:

“36. In its Second Report, the Narasimham Committee

observed that NPAs in 1992 were uncomfortably high for

most of the public sector banks. In Chapter VIII of the

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Second Report the Narasimham Committee deals about

legal and legislative framework and observed:

"8.1 A legal framework that clearly defines the

rights and liabilities of parties to contracts and

provides for speedy resolution of disputes is a sine

qua non for efficient trade and commerce,

especially for financial intermediation. In our

system, the evolution of the legal framework has

not kept pace with changing commercial practice

and with the financial sector reforms. As a result,

the economy has not been able to reap the full

benefits of the reforms process. As an

illustration, we could look at the scheme of

mortgage in the Transfer of Property Act, which

is critical to the work of financial

intermediaries...."

One of the measures recommended in the circumstances

was to vest the financial institutions through special

statutes, the power of sale of the asset without intervention

of the court and for reconstruction of assets. It is thus to

be seen that the question of non-recoverable or delayed

recovery of debts advanced by the banks or financial

institutions has been attracting attention and the

matter was considered in depth by the Committees

specially constituted consisting of the experts in the

field. In the prevalent situation where the amount of dues

are huge and hope of early recovery is less, it cannot be

said that a more effective legislation for the purpose was

uncalled for or that it could not be resorted to. It is again

to be noted that after the Report of the Narasimham

Committee, yet another Committee was constituted

headed by Mr. Andhyarujina for bringing about the needed

steps within the legal framework. We are therefore,

unable to find much substance in the submission made

on behalf of the petitioners that while the Recovery of

Debts Due to Banks and Financial Institutions Act was

in operation it was uncalled for to have yet another

legislation for the recovery of the mounting dues.

Considering the totality of circumstances the financial

climate world over, if it was thought as a matter of

policy, to have yet speedier legal method to recover the

dues, such a policy decision cannot be faulted with nor

is it a matter to be gone into by the courts to test the

legitimacy of such a measure relating to financial

policy.”

(emphasis supplied)

16

12.3At this stage, it would be relevant to notice the Statement of Object

and Reasons for introducing the Act. The relevant portion of the Statement

of Object and Reasons read thus:

“Statement of Objects and Reasons.– … … … Our

existing legal framework relating to commercial

transactions has not kept pace with the changing

commercial practices and financial sector reforms. This

has resulted in slow pace of recovery of defaulting loans

and mounting levels of non-performing assets of banks

and financial institutions. Narasimham Committee I and II

and Andhyarujina Committee constituted by the Central

Government for the purpose of examining banking sector

reforms have considered the need for changes in the legal

system in respect of these areas. These Committees,

inter alia, have suggested enactment of a new

legislation for securitisation and empowering banks

and financial institutions to take possession of the

securities and to sell them without the intervention of

the court. Acting on these suggestions, the Securitisation

and Reconstruction of Financial Assets and Enforcement

of Security Interest Ordinance, 2002 was promulgated on

the 21 st June, 2002 to regulate securitisation and

reconstruction of financial assets and enforcement of

security interest and for matters connected therewith or

incidental thereto. The provisions of the Ordinance

would enable banks and financial institutions to realise

long-term assets, manage problem of liquidity, asset

liability mismatches and improve recovery by

exercising powers to take possession of securities, sell

them and reduce non-performing assets by adopting

measures for recovery or reconstruction.

2. It is now proposed to replace the Ordinance by a

Bill, which, inter alia, contains provisions of the

Ordinance to provide for –

(a) to (g) … … ...

(h) empowering banks and financial

institutions to take possession of securities given

for financial assistance and sell or lease the same

or take over management in the event of default,

i.e. classification of the borrower's account as

non-performing asset in accordance with the

directions given or guidelines issued by the

Reserve Bank of India from time to time;

(i) … … …

(j) an appeal against the action of any bank

or financial institution to the concerned Debts

17

Recovery Tribunal and a second appeal to the

Appellate Debts Recovery Tribunal;

(k) to (m) … … ...”

(emphasis supplied)

13.In this backdrop, we now proceed to have a close look at the

provisions of the Act that are relevant for our purpose. Clause (f) of Section

2 defines “borrower” which means any person who has been granted

financial assistance by any bank or financial institution or who has given any

guarantee or created any mortgage or pledge as security for financial

assistance granted by any bank or financial institution and included a person

who becomes borrower of a securitisation company or reconstruction

company consequent upon acquisition by it of any rights or interest of any

bank or financial institution in relation to such financial assistance or who

has raised funds through a debt securities. Thus, the definition of ‘borrower’

is quite exhaustive which covers not only the “borrower” but it also takes in

its sweep the “guarantor” also.

13.1Section 13 of the Act, which is the heart of controversy in the present

case, contains detail mechanism for enforcement of security interest. It

would be necessary and advantageous to reproduce the relevant portion of

Section 13, which reads thus:

“13. Enforcement of security interest.-- (1)

Notwithstanding anything contained in Section 69 or

Section 69A of the Transfer of Property Act, 1882 (4 of

1882), any security interest created in favour of any

secured creditor may be enforced, without the intervention

of court or tribunal, by such creditor in accordance with

the provisions of this Act.

(2) Where any borrower, who is under a liability to

a secured creditor under a security agreement, makes any

default in repayment of secured debt or any instalment

thereof, and his account in respect of such debt is

classified by the secured creditor as non-performing asset,

then, the secured creditor may require the borrower by

notice in writing to discharge in full his liabilities to the

secured creditor within sixty days from the date of

notice failing which the secured creditor shall be entitled

to exercise all or any of the rights under sub-section (4):

18

Provided that –

…......

(3) The notice referred to in sub-section (2) shall

give details of the amount payable by the borrower and the

secured assets intended to be enforced by the secured

creditor in the event of non-payment of secured debts by

the borrower.

(3-A) If, on receipt of the notice under sub-section (2),

the borrower makes any representation or raises any

objection, the secured creditor shall consider such

representation or objection and if the secured creditor

comes to the conclusion that such representation or

objection is not acceptable or tenable, he shall

communicate within fifteen days of receipt of such

representation or objection the reasons for non-

acceptance of the representation or objection to the

borrower:

Provided that the reasons so communicated or the likely

action of the secured creditor at the stage of

communication of reasons shall not confer any right

upon the borrower to prefer an application to the

Debts Recovery Tribunal under Section 17 or the

Court of District Judge under Section 17-A.

(4) In case the borrower fails to discharge his liability

in full within the period specified in sub-section (2), the

secured creditor may take recourse to one or more of

the following measures to recover his secured debt,

namely: –

(a) take possession of the secured assets of the

borrower including the right to transfer by way

of lease, assignment or sale for realising the

secured asset;

(b) take over the management of the business of the

borrower including the right 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

19

management of such business of the borrower which

is relatable to the security for the debt:

(c) appoint any person (hereafter referred to as the

manager), to manage the secured assets the possession of

which has been taken over by the secured creditor;

(d)require at any time by notice in writing, any person

who has acquired any of the secured assets from the

borrower and from whom any money is due or may

become due to the borrower, to pay the secured creditor,

so much of the money as is sufficient to pay the secured

debt.

(5) Any payment made by any person referred to in

clause (d) of sub-section (4) to the secured creditor shall

give such person a valid discharge as if he has made

payment to the borrower.

(5-A) to (5-C) … … …

(6) Any transfer of secured asset after taking

possession thereof or take over of management under

sub-section (4), by the secured creditor or by the

manager on behalf of the secured creditor shall vest in

the transferee all rights in, or in relation to, the secured

asset transferred as if the transfer had been made by

the owner of such secured asset.

(7) Where any action has been taken against a

borrower under the provisions of sub-section (4), all costs,

charges and expenses which, in the opinion of the secured

creditor, have been properly incurred by him or any

expenses incidental thereto, shall be recoverable from the

borrower and the money which is received by the secured

creditor shall, in the absence of any contract to the

contrary, be held by him in trust, to be applied, firstly, in

payment of such costs, charges and expenses and

secondly, in discharge of the dues of the secured creditor

and the residue of the money so received shall be paid to

the person entitled thereto in accordance with his rights

and interests.

(8) Where the amount of dues of the secured

creditor together with all costs, charges and expenses

incurred by him is tendered to the secured creditor at

any time before the date of publication of notice for

public auction or inviting quotations or tender from

public or private treaty for transfer by way of lease,

assignment or sale of the secured assets, –

20

(i) the secured assets shall not be transferred by

way of lease assignment or sale by the secured

creditor; and

(ii) in case, any step has been taken by the

secured creditor for transfer by way of lease or

assignment or sale of the assets before tendering

of such amount under this sub-section, no

further step shall be taken by such secured

creditor for transfer by way of lease or

assignment or sale of such secured assets.

(9) to (13) … … … ”

(emphasis supplied)

13.2Sub-section (1) of Section 13 of the Act begins with “Notwithstanding

anything contained” under Section 69 of the Transfer of Property Act, 1882

any secured interest can be enforced without intervention of the Court or

Tribunal. From perusal of Section 69 of the Transfer of Property Act, it is

clear that the mortgaged property cannot be sold without intervention of the

Court except in three conditions as enumerated in clauses (a), (b) and (c) of

sub-section (1) thereof. It would be advantageous to reproduce Section 69,

which reads thus:

“69. Power of sale when valid.-(1) A mortgagee, or

any person acting on his behalf, shall, subject to the

provisions of this section, have power to sell or concur in

selling the mortgaged property, or any part thereof, in

default of the payment of mortgage-money, without the

intervention of the Court, in the following cases and in no

others, namely -

(a) where the mortgage is an English mortgage, and

neither the mortgagor nor the mortgagee is a Hindu,

Mohammadan or Buddhist or a member of any other race,

sect, tribe or class from time to time specified in this

behalf by the State Government, in the Official Gazette;

(b) where a power of sale without the intervention

of the Court is expressly conferred on the mortgagee by

the mortgage-deed, and the mortgagee is the Government;

(c) where a power of sale without the intervention

of the Court is expressly conferred on the mortgagee by

mortgage-deed, and the mortgaged property or any part

thereof was, on the date of the execution of the mortgage-

deed, situate within the towns of Calcutta, Madras,

21

Bombay, or in any other town or area which the State

Government may, by notification in the Official Gazette,

specify in this behalf.

(2) No such power shall be exercised unless and until –

(a) notice in writing requiring payment of the

principal money has been served on the mortgagor, or on

one of several mortgagors, and default has been made in

payment of the principal money, or of part thereof, for

three months after such service; or

(b) some interest under the mortgage amounting at

least to five hundred rupees is in arrear and unpaid for

three months after becoming due.

(3) When a sale has been made in professed exercise of

such a power, the title of the purchaser shall not be

impeachable on the ground that no case had arisen to

authorize the sale, or that due notice was not given, or that

the power was otherwise improperly or irregularly

exercised; but any person damnified by an unauthorized,

or improper, or irregular exercise of the power shall have

his remedy in damages against the person exercising the

power.

(4)-(5) … … …

It is clear that mortgaged property cannot be sold without

intervention of the court except in three conditions as

enumerated in clauses (a), (b) and (c) of sub-section (1) of

Section 69.”

13.2.1Thus, Section 13(1) provides that notwithstanding anything

contained in Section 69 a secured interest can be enforced without

intervention of the Court. That is to say, it overrides the provision as

contained under Section 69 where it is said that in no cases, other than those

as enumerated in clauses (a), (b) and (c), a mortgage shall be enforced

without intervention of the Court. Intervention of the Court has been

eliminated in case of action/measures to be taken under Section 13(4) of the

Act.

13.3Sub-section (2) of Section 13 enumerates first of many steps needed

to be taken by the secured creditor for enforcement of security interest. This

sub-section provides that if a borrower, who is under liability to a secured

creditor, makes any default in payment of secured debt and his account in

22

respect of such debt is classified as non-performing asset (NPA), then the

secured creditor may require the borrower by notice in writing to discharge

his liabilities within sixty days from the date of the notice with an indication

that if he fails to do so, the secured creditor shall be entitled to exercise all or

any of its rights in terms of Section 13(4).

13.4Sub-section (3) of Section 13 lays down that notices issued under

Section 13(2) shall contain details of the amount payable by the borrower as

also the details of the secured assets intended to be enforced by the bank or

financial institution.

13.5Sub-section 13(3-A) of the Act was inserted by amending Act 30 of

2004 after the judgment in Mardia Chemicals (supra), whereby borrower

is permitted or given an opportunity to make representation/objection to the

secured creditor against classification of his account as NPA and for not

exercising power under Section 13(4). Sub-section (2) is a condition

precedent to the invocation of sub-section (4) by secured creditor. Once the

two conditions under sub-section (2) of Section 13 are fulfilled, the next step

which the bank or financial institution is to take is, either to take possession

of the secured assets of the borrower or to take over management of the

business of the borrower or to appoint any manager to manage the secured

assets or require any person, who has acquired any of the secured assets

from the borrower, to pay the secured creditor towards liquidation of the

secured debt. Thus, it is clear that notice under Section 13(2) is not a mere

show cause notice and it constitutes an action taken by the bank for the

purpose of the Act. If the bank or financial institution comes to the

conclusion that the representation/objection of the borrower is not

acceptable, then reason for non-acceptance are required to be communicated

within one week. The proviso is added to sub-section (3-A) is relevant and

important, as it provides that the reasons communicated shall not confer any

right upon the borrower to file an application to DRT under Section 17 of the

Act.

23

13.6The scheme of sub-sections (2), (3) and (3-A) of Section 13 of the Act

shows that the notice under sub-section (2) is not merely a show cause

notice, it is also a notice of demand, which is based on the footing that the

borrower/debtor is under a liability and that his account in respect of such

liability has become substandard, doubtful or a loss. In fact, because it is a

notice of demand which constitutes an action, sub-section (3-A) provides for

an opportunity to the borrower to make representation to the secured

creditor. Section 13(2) is a condition precedent to the invocation of sub-

section (4) of Section 13 of the Act. The legislature has not conferred any

right to the borrower to take a recourse to a remedy under Section 17 at this

stage. Communication of reason for rejecting objections/representation is

only for the “knowledge” of the borrower, and if he feels aggrieved thereby,

he can challenge the same only when it is “legally permissible” to file an

application under Section 17 of the Act.

13.7Sub-section (4) of Section 13, which is relevant for our purpose,

specifies various modes/measures which can be adopted by the secured

creditor for recovery of secured debt. The secured creditor can take

possession of the secured assets of the borrower and transfer the same by

way of lease, assignment or sale for realizing the secured assets. The secured

creditor can also take over the management of the business of the borrower

including the right to transfer by way of lease, assignment or sale for

realising the secured assets. This is subject to the condition that the right to

transfer by way of lease etc. shall be exercised only where substantial part of

the business of the borrower is held as secured debt. If the management of

whole or part of the business is severable, then the secured creditor can take

over management only of such business of the borrower which is relatable to

security. The secured creditor can appoint any person to mange the secured

asset, the possession of which has been taken over. The secured creditor can

also, by notice in writing, call upon a person who has acquired any of the

secured assets from the borrower to pay the money, which may be sufficient

to discharge the liability of the borrower. A plain reading of Section 13(2)

24

read with Section 13(4), would show that the notice under Section 13(2) is

not a mere show cause notice, but it constitutes an action taken by the Bank.

13.8Sub-section (6), inter alia, provides that any transfer of secured assets

after taking possession or taking any other measure under sub-section (4) by

the creditor shall vest in the transferee all rights in relation to the secured

assets as if the transfer has been made by the owner of such secured assets.

Therefore, Section 13(6) inter alia provides that once the Bank takes

possession of the secured asset, then the right, title and interest in the asset

can be dealt with by the Bank as it is the owner thereof. Sub-section (7) of

Section 13 lays down that where any action has been taken against the

borrower under sub-section (4), all costs, charges and expenses properly

incurred by the secured creditor or any expenses incidental thereto can be

recovered from the borrower.

13.9Sub-section (8) of Section 13 imposes a restriction on the sale or

transfer of the secured assets if the amount due to the secured creditors

together with the costs, charges and expenses incurred by him are tendered

at any time before the time fixed for such sale or transfer. The argument that

by virtue of the provisions contained under sub-section (4) of Section 13, the

borrower lose their right of redemption of mortgage. Under sub-section (8)

of Section 13, a borrower is given option to tender to the creditor the amount

due with costs and expenses incurred, and in which case no further steps for

sale of property can be taken. The Supreme Court in Narandas Karsondas

Vs. S.A. Kamtam, [(1977) 3 SCC 247] had observed that a mortgagor can

exercise his right of redemption any time until the final sale of the property

by execution of a conveyance. The Supreme Court in Authorized Officer,

Indian Overseas Bank and another Vs. Ashok Saw Mill, [(2009) 8 SCC

366], observed that the Legislature by introducing sub-section (3) of Section

17 has gone to the extent of vesting the DRT with authority to even set aside

a transaction including sale and to restore possession to the borrower in

appropriate cases. Sub-section (9) deals with the situation in which more

than one secured creditor has stakes in the secured assets. Sub-section (10)

25

lays down that where dues of the secured creditors are not fully specified by

the sale proceeds of the secured assets, the secured creditors may file an

application before Tribunal under Section 17 for recovery of balance amount

from the borrower. Sub-section (11) states that without prejudice to the

rights conferred on the secured creditor under or by this section, it shall be

entitled to proceed against the guarantors or sell the pledged assets without

resorting to the measures specified in clauses (a) to (d) of sub-section (4) in

relation to the secured assets. Sub-section (12) lays down that rights

available to the secured creditor under the Act may be exercised by one or

more of its officers authorized in this behalf. Sub-section (13) lays down that

after receipt of notice under sub-section (2), the borrower shall not transfer

by way of sale, lease or otherwise any of his secured assets referred to in the

notice without prior written consent of the secured creditor.

14.Section 14 provides a mechanism for taking possession of secured

asset with the assistance of Chief Metropolitan Magistrate or District

Magistrate. Section 14 reads thus:

“14. Chief Metropolitan Magistrate or District

Magistrate to assist secured creditor in taking

possession of secured asset. – (1) Where the possession

of any secured assets 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

provisions of this Act, the secured creditor may, for the

purpose of taking possession or control of any such

secured assets, request, in writing, the Chief

Metropolitan Magistrate or the District Magistrate

within whose jurisdiction any such secured asset or

other documents relating thereto 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:

26

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 Financial Institution is

holding a valid and subsisting security interest over such

properties and the claim of the Bank or Financial

Institution is within the limitation period;

(iii) the borrower has created security interest over

various properties giving the details of properties referred

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 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 communicated to the

borrower;

(viii) the borrower has not made any repayment of the

financial assistance in spite of the above notice and the

Authorised Officer is, therefore, entitled to take

possession of the secured assets under the provisions of

sub-section (4) of Section 13 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

27

secured assets within a period of thirty days from the date

of application:

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.

Provided further that if no order is passed by the

Chief Metropolitan Magistrate or District Magistrate

within the said period of thirty days for reasons beyond

his control, he may, after recording reasons in writing for

the same, pass the order within such further period but

not exceeding in aggregate sixty days.

(1-A) The District Magistrate or the Chief

Metropolitan Magistrate may authorise any officer

subordinate to him, –

(i) to take possession of such assets and documents

relating thereto; and

(ii) to forward such assets and documents to the

secured creditor.

(2) For the purpose of securing compliance with the

provisions of 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)

14.1Under this provision, the secured creditor can file an application

before the Chief Metropolitan Magistrate or the District Magistrate, within

whose jurisdiction the secured assets are situated or found to take possession

thereof. If any such request is made, the Chief Metropolitan Magistrate or

the District Magistrate, as the case may be, is obliged to take possession of

such asset or document and forward the same to the secured creditor. Sub-

section (2) empowers the CMM or DM to take such steps and use such

force, as may be necessary for the purpose of compliance with the provisions

28

of sub-section (1) of Section 14. Sub-section (3) lays down that no action of

the CMM or DM under Section 14(1)(2) shall be called in question in any

Court.

15.The another Section which is relevant for our purpose is Section 17,

of which the relevant portion for our purpose reads as under:

“17. Application against measures to recover

secured debts.–(1) Any person (including borrower)

aggrieved by any of the measures referred to in sub-

section (4) of Section 13 taken by the secured creditor or

his authorised officer under this chapter, may make an

application along with such fee, as may be prescribed, to

the Debts Recovery Tribunal having jurisdiction in the

matter within forty-five days form the date on which

such measure had been taken:

Provided that different fees may be prescribed for

making the application by the borrower and the person

other than the borrower.

Explanation. – For the removal of doubts, it is

hereby declared that the communication of the reasons

to the borrower by the secured creditor for not having

accepted his representation or objection or the likely

action of the secured creditor at the stage of

communication of reasons to the borrower shall not

entitle the person (including borrower) to make an

application to the Debts Recovery Tribunal under this

sub-section.

(1-A) …...

(a), (b), (c) …....

(2) The Debts Recovery Tribunal shall consider

whether any of the measures referred to in sub-section

(4) of Section 13 taken by the secured creditor for

enforcement of security are in accordance with the

provisions of this Act and the rules made thereunder.

(3)If, the Debts Recovery Tribunal, after

examining the facts and circumstances of the case and

evidence produced by the parties, comes to the

conclusion that any of the measures referred to in sub-

section (4) of Section 13, taken by the secured creditor

are not in accordance with the provisions of this Act

and the rules made thereunder, and require restoration

of the management or restoration of possession, of the

29

secured assets to the borrower or other aggrieved

person, it may, by order, –

(a) declare the recourse to any one or more measures

referred to in sub-section (4) of Section 13 taken by

the secured creditor as invalid; and

(b) restore the possession of secured assets or

management of secured assets to the borrower or

such other aggrieved person, who has made an

application under sub-section (1), as the case may

be; and

(c) pass such other direction as it may consider

appropriate and necessary in relation to any of the

recourse taken by the secured creditor under sub-

section (4) of Section 13.

(4) If, the Debts Recovery Tribunal declares the

recourse taken by a secured creditor under sub-section

(4) of Section 13, is in accordance with the provisions of

this Act and the rules made thereunder, then,

notwithstanding anything contained in any other law for

the time being in force, the secured creditor shall be

entitled to take recourse to one or more of the

measures specified under sub-section (4) of Section 13

to recover his secured debt.

(4-A) Where –

(i) & (ii) ….....

(5) Any application made under sub-section (1)

shall be dealt with by the Debts Recovery Tribunal as

expeditiously as possible and disposed of within sixty

days from the date of such application :

Provided that the Debts Recovery Tribunal may,

from time to time, extend the said period for reasons to be

recorded in writing, so, however, that the total period of

pendency of the application with the Debts Recovery

Tribunal, shall not exceed four months from the date of

making of such application made under sub-section (1).

(6) If the application is not disposed of by the Debts

Recovery Tribunal within the period of four months as

specified in sub-section (5), any party to the application

may make an application, in such form as may be

prescribed, to the Appellate Tribunal for directing the

Debts Recovery Tribunal for expeditious disposal of the

application pending before the Debts Recovery Tribunal

and the Appellate Tribunal may, on such application, make

an order for expeditious disposal of the pending application

by the Debts Recovery Tribunal.

30

(7) …........”

(emphasis supplied)

15.1The proceedings under Section 17 of the Act, in fact, are not appellate

proceedings and as observed by the Supreme Court in Mardia Chemicals

(supra) it is only an application which, in fact, is the initial action brought

before a forum as prescribed under the Act, raising a grievance against the

action or measures taken by one of the parties to the contract under Section

13(4) of the Act. It is the stage of initial proceeding like instituting a suit in

Civil Court. As a matter of fact, the proceedings under Section 17 of the Act

are in substitution of a civil suit, the institution of which is otherwise barred

under Section 34 of the Act.

15.2Thus, Section 17 provides remedies 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 of the Act. Such an aggrieved

person can make an application to the Tribunal within 45 days from the date

on which action is taken under Section 13(4). By way of abundant caution,

an explanation has been added to Section 17(1) and it has been clarified that

the communication of reasons to the borrower in terms of Section 13(3-A)

shall not constitute a ground for filing application under Section 17(1).

15.3Sub-section (2) of Section 17 of the Act casts a duty on the Tribunal to

consider whether the measures taken by the secured creditor under Section

13(4) for enforcement of security interest are in accordance with the

provisions of the Act and the Rules made thereunder. If the Tribunal, after

examining the facts and circumstances of the case and evidence produced by

the parties, comes to the conclusion that the measures taken by the secured

creditor are not in consonance with sub-section (4) of Section 13, then it can

direct the secured creditor to restore management of the business or

possession of the secured assets to the borrower.

15.4Section 17(3) states that if DRT, after examining the facts and

circumstances of the case and on the basis of evidence produced by the

parties, comes to the conclusion that any of the measures referred to in

31

Section 13(4), taken by the secured creditor is not in accordance with the

provisions of the Act, it may by order declare that the recourse taken to any

one or more measure is invalid, and consequently, restore possession to the

borrower and can also restore management of the business of the borrower.

15.5Sub-section (4) of Section 17 shows that the secured creditor is free to

take recourse to any of the measures under Section 13(4) notwithstanding

anything contained in any other law for the time being in force. Thus, even if

the measure undertaken by the secured creditor under Section 13(4) come in

conflict with any other law, then notwithstanding such conflict, the

provisions of Section 13(4) shall override the local law [see Transcore

(supra)]. This provision also stands clarified by Section 35 of the Act which

states that the provisions of the Act shall override all other laws which are

inconsistent with the Act.

15.6Sub-section (5) of Section 17 prescribes the time limit of sixty days

within which an application made under Section 17 is required to be

disposed of. The proviso to this sub-section envisages extension of time, but

the outer limit for adjudication of an application is four months. If the

Tribunal fails to decide the application within a maximum period of four

months, then either party can move the Appellate Tribunal for issue of a

direction to the Tribunal, to dispose of the application expeditiously.

15.7At this stage, we observe that a conjoint reading of Section 13(4) and

Section 17(3) show that if the borrower is dispossessed, not in accordance

with the provisions of the Act, then DRT is entitled to put the clock back by

restoring the status quo ante. Therefore, it cannot be said that if the

possession is taken before confirmation of sale, the right of the borrower to

get the dispute adjudicated upon is defeated by the Authorised Officer taking

possession. The Act, as matter of fact, provides for recovery of possession

by adjudicatory process and, therefore, to say that the right of the borrower

would be defeated without adjudication would be erroneous.

15.8A reference to Sections 18, 34 and 35 also is relevant. Section 18

provides for an Appeal to the Appellate Tribunal. Section 34 lays down that

32

no Civil Court shall have jurisdiction to entertain any suit or proceeding in

respect of any matter which a Tribunal or Appellate Tribunal is empowered

to determine. In other words, no interim order of whatsoever nature shall be

granted by any Court or authority in respect of any action taken or to be

taken in pursuance of any power conferred by or under the Act. Section 35

declares that the provisions of the Act shall have effect, notwithstanding

anything inconsistent therewith contained in any other law for the time being

in force or any instrument having effect by virtue of any such law.

16.The Rules are made in exercise of the powers conferred by sub-

section (1) and clause (b) of sub-section (2) of Section 38 read with sub-

sections (4), (10) and (12) of Section 13 of the Act. Rule 3 provides the

procedure for issuance of demand notice under sub- section (2) of Section 13

of the Act. Rule 3-A provides the procedure for the borrower to make a

representation as contemplated by sub-section (2) of Section 13. Rules 4, 5,

6 and 7 deal with movable secured assets. In the present case, we are not

concerned with the same. Rule 8 and Rule 9 are relevant for our purpose,

which read thus:

“8. Sale of immovable secured assets.—(1)

Where the secured asset is an immovable property,

the authorised officer shall take or cause to be taken

possession, by delivering a possession notice prepared

as nearly as possible in Appendix IV to these rules, to

the borrower and by affixing the possession notice on

the outer door or at such conspicuous place of the

property.

(2) The possession notice as referred to in sub-

rule (1) shall also be published, as soon as possible but

in any case not later than seven days from the date of

taking possession, in two leading newspapers, one in

vernacular language having sufficient circulation in that

locality, by the authorised officer.

(2-A) All notices under these rules may also be

served upon the borrower through electronic mode of

service, in addition to the modes prescribed under sub-

rule (1) and sub-rule (2) of Rule 8.

(3) In the event of possession of immovable

property is actually taken by the authorised officer,

such property shall be kept in his own custody or in the

33

custody of any person authorised or appointed by him,

who shall take as much care of the property in his

custody as a owner of ordinary prudence would, under

the similar circumstances, take of such property.

(4) The authorised officer shall take steps for

preservation and protection of secured assets and insure

them, if necessary, till they are sold or otherwise disposed

of.

(5) Before effecting sale of the immovable

property referred to in sub-rule (1) of rule 9, the

authorised officer shall obtain valuation of the property

from an approved valuer and in consultation with the

secured creditor, fix the reserve price of the property and

may sell the whole or any part of such immovable

secured asset by any of the following methods: –

(a) by obtaining quotations from the persons

dealing with similar secured assets or otherwise

interested in buying the such assets; or

(b) by inviting tenders from the public;

(c) by holding public auction including

through e-auction mode; or

(d) by private treaty.

Provided that in case of sale of immovable

property in the State of Jammu and Kashmir, the

provisions of Jammu and Kashmir Transfer of Property

Act, 1977 shall apply to the person who acquires such

property in the State.

(6) The authorised officer shall serve to the

borrower a notice of thirty days for sale of the

immovable secured assets, under sub-rule (5):

Provided that if the sale of such secured asset is

being effected by either inviting tenders from the public

or by holding public auction, the secured creditor shall

cause a public notice in two leading newspapers …......

(8) Sale by any method other than public auction or

public tender, shall be on such terms as may be settled

between the secured creditor and the proposed purchaser

in writing.

9. Time of sale, issues of sale certificate and

delivery of possession, etc.—(1) No sale of immovable

property under these rules, in first instance shall take

place before the expiry of thirty days from the date on

which the public notice of sale is published in

newspapers as referred to in the proviso to sub-rule (6)

of Rule 8 or notice of sale has been served to the

borrower.

34

Provided further that if sale of immovable property

by any one of the methods specified by sub-rule (5) of

Rule 8 fails and sale is required to be conducted again,

the authorised officer shall serve, affix and publish notice

of sale of not less than fifteen days to the borrower, for

any subsequent sale.

(2) The sale shall be confirmed in favour of the

purchaser who has offered the highest sale price in his

bid or tender or quotation or offer to the authorised

officer and shall be subject to confirmation by the

secured creditor:

Provided that no sale under this rule shall be

confirmed, if the amount offered by sale price is less than

the reserve price, specified under sub-rule (5) of rule 9:

Provided further that if the authorised officer fails

to obtain a price higher than the reserve price, he may,

with the consent of the borrower and the secured creditor

effect the sale at such price.

(3) On every sale of immovable property, the

purchaser shall immediately, i.e. on the same day or

not later than next working day, as the case may be,

pay a deposit of twenty five per cent of the amount of

the sale price, which is inclusive of earnest money

deposited, if any, to the authorised officer conducting the

sale and in default of such deposit, the property shall be

sold again.

(4) The balance amount of purchase price

payable shall be paid by the purchaser to the

authorised officer on or before the fifteenth day of

confirmation of sale of the immovable property or such

extended period as may be agreed upon in writing

between the purchaser and the secured creditor, in any

case not exceeding three months.

(5) In default of payment within the period

mentioned in sub-rule (4), the deposit shall be forfeited to

the secured creditor and the property shall be resold and

the defaulting purchaser shall forfeit all claim to the

property or to any part of the sum for which it may be

subsequently sold.

(6) On confirmation of sale by the secured

creditor and if the terms of payment have been complied

with, the authorised officer exercising the power of sale

shall issue a certificate of sale of the immovable property

in favour of the purchaser in the form given in Appendix

V to these rules.

(7) Where the immovable property sold is subject

to any encumbrances, the authorised officer may, if he

thinks fit, allow the purchaser to deposit with him the

35

money required to discharge the encumbrances and any

interest due thereon together with such additional amount

that may be sufficient to meet the contingencies or further

cost, expenses and interest as may be determined by him:

Provided that if after meeting the cost of removing

encumbrances and contingencies there is any surplus

available out of the money deposited by the purchaser

such surplus shall be paid to the purchaser within fifteen

days from the date of finalisation of the sale.

(8) On such deposit of money for discharge of the

encumbrances, the authorised officer shall issue or cause

the purchaser to issue notices to the persons interested in

or entitled to the money deposited with him and take steps

to make the payment accordingly.

(9) The authorised officer shall deliver the

property to the purchaser free from encumbrances

known to the secured creditor on deposit of money as

specified in sub-rule (7) above.

(10) The certificate of sale issued under sub-rule

(6) shall specifically mention that whether the

purchaser has purchased the immovable secured asset

free from any encumbrances known to the secured

creditor or not.”

(emphasis supplied)

16.1Appendix IV, is a format of notice under Rule 8 (1) read with Section

13(4) of the Act read with Rule 8 of the Rules. It would be advantageous to

reproduce Appendix IV also for better appreciation of the submissions and

the question that falls for our consideration in the instant writ petition.

Appendix IV reads thus:

“APPENDIX IV

[Rule 8(1)]

POSSESSION NOTICE

(For Immovable Property)

Whereas

The undersigned being the authorized officer of the

…....................... (name of the Institution) under the

Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 and in

exercise of powers conferred under Section 13(12) read

with Rule 3 of the Security Interest (Enforcement) Rules,

2002 issued a demand notice dated

….................................. calling upon the borrower Shri

…................................./M/s …............................. to

repay the amount mentioned in the notice being Rs

36

…................. (in words...........................................)

within 60 days from the date of receipt of the said notice.

The borrower having failed to repay the

amount, notice is hereby given to the borrower and

the public in general that the undersigned has taken

possession of the property described herein below in

exercise of powers conferred on him under sub-

section (4) of Section 13 of Act read with Rule 8 of the

Security Interest (Enforcement) Rules, 2002 on this

the ….......day of …..... of the year …........

The borrower in particular and the public in

general is hereby cautioned not to deal with the

property and any dealings with the property will be

subject to the charge of the …......................................

(name of the Institution) for an amount Rs.....................

and interest thereon.

The borrower's attention is invited to provisions of

sub-section (8) of Section 13 of the Act, in respect of

time available, to redeem the secured assets.

__________________________________________

Description of the Immovable Property

__________________________________________

All that part and parcel of the property consisting

of Flat No. …... /Plot No......... In Survey No.

….........../City or Town Survey No. ….............../Khasara

No. …................ within the registration sub-district

…............... and District …....................

Bounded;

On the North by

On the South by

On the East by

On the West by

sd/-

Authorized Officer”

16.2A glance at Rule 8, read with Appendix V, would show that the

Authorised Officer is empowered to take possession by delivering the

possession notice prepared in Appendix IV. The notice is required to be

affixed on the property (secured assets). This rule deals with sale of

immovable secured assets. Appendix IV prescribes the form of possession

notice. It inter alia states that notice is given to the borrower who has failed

to repay the amount informing him and the public that the Bank has taken

possession of the property under Section 13(4) read with Rule 9 of the

Rules. From perusal of Rule 9, it is clear that it relates to time of sale, issue

37

of sale certificate and delivery of possession. In other words, it states that on

confirmation of sale, if the terms of payment are complied, the Authorised

Officer shall issue a sale certificate in favour of the purchaser in the form

given in Appendix V to the Rules. Rule 9(9) states that the Authorised

Officer shall deliver the property to the buyer free from all encumbrances

known or not known to the secured creditor. Thus, Rule 8 deals with the

stage anterior to the issuance of sale certificate and delivery of possession

under Rule 9. Rule 8 provides that till issuance of the sale certificate under

Rule 9, the Authorised Officer shall take such steps as he deems to be fit to

preserve the secured creditor. It is well settled, as observed by the Supreme

Court in Transcore (supra), that third party interests are created overnight

and in many cases those third parties take up the defence of being a bona

fide purchaser for value without notice. It is these types of disputes which

are sought to be avoided by Rule 8 read with Rule 9 of the Rules.

16.3From the scheme of Rules 8 and 9, it appears to us that no sale of an

immovable property under these Rules should take place before the expiry of

30 days from the date on which the public notice of sale is published in

newspapers as referred to in the proviso to sub-rule (6) or Rule 8 or notice of

sale has been served to the borrower. Sub-rule (6) of Rule 8 again states that

the Authorised Officer should serve to the borrower a notice of 30 days for

sale of the immovable secured asset. From a conjoint reading of sub-rule (6)

of Rule 8 and sub-rule (1) of Rule 9, it is clear that the service of individual

notice to the borrower, specifying clear 30 days' time gap for effecting sale

of immovable secured asset is a statutory mandate. It also stipulates that no

sale should be effected before the expiry of 30 days from the date on which

the public notice of sale is published in the newspaper. The requirement

under Rule 8(6) and Rule 9(1), thus, contemplate a clear 30 days’ individual

notice to the borrower and also a public notice by way of publication in the

newspapers. It is, thus, clear that a safeguard is provided to the borrower and

this seems to be only with a view to enable the borrower to arrange

repayment of outstanding dues and get the property released before the

auction/sale of the immovable assets. Non-compliance of this mandatory

38

requirement can result in any further action to be declared void and illegal in

the proceedings under Section 17 (1) instituted by the borrower.

16.4In Canara Bank Vs. M. Amarender Reddy & Anr., AIR 2017 SC

1441, the Supreme Court dealt with the view expressed by a Division Bench

of the High Court of Judicature at Hyderabad that Rule 8(6) read with Rule 9

of the Rules, mandates that the secured creditor must put the borrower on a

separate individual notice prior to deciding on the mode of sale of the

secured asset. Further, such notice should be in addition to the notice of 30

days' duration to be given by the secured creditor conveying its intention to

put the secured asset on sale, which is mandatory. The High Court in that

case, had observed that the subject sale notification issued by the bank did

not conform to the stated mandatory requirement and was, thus, vitiated on

that count. The respondent, who was one of the two guarantors, had

approached the High Court for declaration that e-auction notice dated

15.10.2015 was illegal and in contravention of the provisions of the Act and

the Rules. While dealing with the writ petition, the High Court took the view

that a separate notice of 30 days' duration ought to have been given by the

bank to the respondent before the public notice fixing the date of

auction/sale was issued. After noticing the provisions of Rules 8 and 9 and

the judgment in Mathew Varghese Vs. M. Amritha Kumar & Ors., (2014)

5 SCC 610, the Supreme Court in paragraphs 12 and 13 of the judgment in

M. Amarender Reddy (supra), observed thus:

“12. The secured creditor, after it decides to

proceed with the sale of secured asset consequent to

taking over possession (symbolic or physical as the case

may be), is no doubt required to give a notice of 30 days

for sale of the immovable asset as per sub-rule (6) of

Rule 8. However, there is nothing in the Rules, either

express or implied, to take the view that a public notice

under sub-rule (6) of Rule 8 must be issued only after the

expiry of 30 days from issuance of individual notice by

the authorized officer to the borrower about the intention

to sell the immovable secured asset. In other words, it is

permissible to simultaneously issue notice to the

borrower about the intention to sell the secured assets

and also to issue a public notice for sale of such

39

secured asset by inviting tenders from the public or

by holding public auction. The only restriction is to

give thirty days’ time gap between such notice and the

date of sale of the immovable secured asset.

13. We hold that the High Court has committed

a manifest error in assuming that the notice of

intention of sale to be given to the borrower and a

public notice for sale cannot be simultaneously issued.

The High Court was also not right in observing that after

a notice regarding intention to sell the secured asset

under sub-rule (6) of Rule 8 is given by the authorized

officer to the borrower, only on expiry of 30 days

therefrom can the secured creditor take a decision about

the mode of sale referred to in sub-rule (5) of Rule 8 after

giving notice to the borrower and then issue a public

notice after expiry of further thirty days. By this

interpretation, the High Court has virtually re-

written the provisions and inevitably extended the

time frame of 30 days specified in sub-rule (6) of Rule

8 (at least in relation to the sale of secured asset by

inviting tenders from the public or by holding public

auction).”

(emphasis supplied)

16.5In Mathew Varghese (supra), Supreme Court considered the

provisions contained in Rules 8 and 9, in depth, in the light of the provisions

contained in Section 13 of the Act. It would be advantageous to notice the

contents of paragraphs 30, 31, 33, 35 and 53 to understand the scheme of

these provisions better, which read thus:

“30. Therefore, by virtue of the stipulations

contained under the provisions of the SARFAESI Act, in

particular, Section 13(8), any sale or transfer of a

secured asset, cannot take place without duly

informing the borrower of the time and date of such

sale or transfer in order to enable the borrower to

tender the dues of the secured creditor with all costs,

charges and expenses and any such sale or transfer

effected without complying with the said statutory

requirement would be a constitutional violation and

nullify the ultimate sale.

31. Once the said legal position is ascertained, the

statutory prescription contained in Rules 8 and 9 have

also got to be examined as the said Rules prescribe as to

the procedure to be followed by a secured creditor while

resorting to a sale after the issuance of the proceedings

40

under Sections 13(1) to (4) of the SARFAESI Act. Under

Rule 9(1), it is prescribed that no sale of an

immovable property under the Rules should take

place before the expiry of 30 days from the date on

which the public notice of sale is published in the

newspapers as referred to in the proviso to sub-rule

(6) of Rule 8 or notice of sale has been served to the

borrower. Sub-rule (6) of Rule 8 again states that the

authorized officer should serve to the borrower a notice

of 30 days for the sale of the immovable secured assets.

Reading sub-rule (6) of Rule 8 and sub-rule (1) of

Rule 9 together, the service of individual notice to the

borrower, specifying clear 30 days’ time-gap for

effecting any sale of immovable secured asset is a

statutory mandate. It is also stipulated that no sale

should be affected before the expiry of 30 days from the

date on which the public notice of sale is published in the

newspapers. Therefore, the requirement under Rule 8(6)

and Rule 9(1) contemplates a clear 30 days’ individual

notice to the borrower and also a public notice by way of

publication in the newspapers. In other words, while the

publication in newspaper should provide for 30 days’

clear notice, since Rule 9 (1) also states that such

notice of sale is to be in accordance with the proviso

to sub-rule (6) of Rule 8, 30 days’ clear notice to the

borrower should also be ensured as stipulated under

Rule 8(6) as well. Therefore, the use of the expression

“or” in rule 9(1) should be read as “and” as that alone

would be in consonance with Section 13(8) of the

SARFAESI Act.

33. Such a detailed procedure while resorting to

a sale of an immovable secured asset is prescribed

under Rules 8 and 9(1). In our considered opinion, it has

got a twin objective to be achieved:

33.1. In the first place, as already stated by us, by

virtue of the stipulation contained in Section 13(8)

read along with Rules 8(6) and 9(1), the

owner/borrower should have clear notice of 30 days

before the date and time when the sale or transfer of

the secured asset would be made, as that alone would

enable the owner/borrower to take all efforts to retain

his or her ownership by tendering the dues of the

secured creditor before that date and time.

33.2. Secondly, when such a secured asset of an

immovable property is brought for sale, the intending

purchasers should know the nature of the property, the

extent of liability pertaining to the said property, any

other encumbrances pertaining to the said property, the

41

minimum price below which one cannot make a bid and

the total liability of the borrower to the secured creditor.

Since, the proviso to sub-rule (6) also mentions that any

other material aspect should also be made known when

effecting the publication, it would only mean that the

intending purchaser should have entire details about

the property brought for sale in order to rule out any

possibility of the bidders later on to express ignorance

about the factors connected with the asset in question.

33.3. Be that as it may, the paramount objective

is to provide sufficient time and opportunity to the

borrower to take all efforts to safeguard his right of

ownership either by tendering the dues to the creditor

before the date and time of the sale or transfer, or

ensure that the secured asset derives the maximum

price and no one is allowed to exploit the vulnerable

situation in which the borrower is placed.

35. Under sub-rule (4) of Rule 8, it is further

stipulated that the authorized officer should take steps

for preservation and protection of secured assets and

insure them if necessary till they are sold or otherwise

disposed of. Sub-rule (4), governs all secured assets,

movable or immovable and a further responsibility is

created on the authorized officer to take steps for the

preservation and protection of secured assets and for that

purpose can even insure such assets, until they are sold or

otherwise disposed of. Therefore, a reading of Rules 8

and 9, in particular, sub-rules (1) to (4) and (6) of Rule

8 and sub-rule (1) of Rule 9 makes it clear that simply

because a secured interest in a secured asset is created

by the borrower in favour of the secured creditor, the

said asset in the event of the same having become a

non-performing asset cannot be dealt with in a light-

hearted manner by way of sale or transfer or disposed

of in a casual manner or by not adhering to the

prescriptions contained under the SARFAESI Act and

the above said Rules mentioned by us.

53. We, therefore, hold that unless and until a

clear 30 days’ notice is given to the borrower, no sale

or transfer can be resorted to by a secured creditor. In

the event of any such sale property notified after giving

30 days’ clear notice to the borrower did not take place as

scheduled for reasons which cannot be solely attributable

to the borrower, the secured creditor cannot effect the sale

or transfer of the secured asset on any subsequent date by

relying upon the notification issued earlier. In other

words, once the sale does not take place pursuant to a

notice issued under Rules 8 and 9, read along with

42

Section 13 (8) for which the entire blame cannot be

thrown on the borrower, it is imperative that for

effecting the sale, the procedure prescribed above will

have to be followed afresh, as the notice issued earlier

would lapse. In that respect, the only other provision to

be noted is sub-rule (8) of Rule 8 as per which sale by

any method other than public auction or public tender can

be on such terms as may be settled between the parties in

writing. As far as sub-rule (8) is concerned, the parties

referred to can only relate to the secured creditor and the

borrower. It is, therefore, imperative that for the sale to be

effected under Section 13(8), the procedure prescribed

under Rule 8 read along with Rule 9(1) has to be

necessarily followed, inasmuch as that is the prescription

of the law for effecting the sale as has been explained in

detail by us in the earlier paragraphs by referring to

Sections 13(1), 13(8) and 37, read along with Section 29

and Rule 15. In our considered view any other

construction will be doing violence to the provisions of

the SARFAESI Act, in particular Sections 13(1) and (8)

of the said Act.”

(emphasis supplied)

16.6The observations made by the Supreme Court in M. Amarender

Reddy (supra) and Mathew Varghese (supra) make the scheme of the

Rules absolutely clear and it is not necessary for us to reproduce any portion

thereof to hold that the scheme of Rules 8 and 9, read with Section 13, gives

ample powers to the Banks/FIs to take physical possession (actual) of the

secured assets without interference of the Court and the only remedy open to

the borrower is to approach DRT challenging such an action and seeking

interim orders including restoration of possession even after transfer of the

secured assets by way of sale, lease on the ground that the procedure

contemplated under sub-section (4) of Section 13 was not in accordance with

the provisions of the Act. Even from the observations made in this judgment,

it is clear that physical/actual possession cannot be stalled by the Court at

any point of time after taking recourse to the procedure contemplated under

Rules 8 and 9 of the Rules. The intent of providing such a procedure under

Section 13 read with Rule 8 and Rule 9 for that matter is that the

borrower/owner should have clear notice (at every stage) before the date and

43

time of sale/transfer of the secured assets in order to enable him to tender the

dues of the secured creditor with all other charges and to provide a remedy

under Section 17(1) at appropriate stage. We will deal with the question

what taking “measures” would exactly mean little later.

17.The scheme of Sections 13, 14 and 17, read with Rule 8, 9 and

Appendix IV of the Rules, would show that the Legislature has envisaged a

clear tilt in favour of Banks/FI's, but at the same time interest of the

borrower has been safeguarded by providing for checks and balances, at

every stage of the proceedings. After the judgment of the Supreme Court in

Mardia Chemicals (supra), the Legislature by Act 30 of 2004 (w.e.f.

11.11.2004) inserted sub-section (3-A) in Section 13 and an Explanation,

added to Section 17(1). By this amendment, it provided a remedy of making

a representation or raising an objection to the notice under sub-section (2),

obliging the Bank to consider such representation or objection and if it is

found to be not acceptable or tenable, to communicate within fifteen days

the reasons for non-acceptance of the representation or objections to the

borrower. While inserting sub-section (3-A) in Section 13, the Legislature

also made it clear, consistent with the scheme of Section 13 and also keeping

in view the object of the Act, that the borrower shall not prefer an

application to the DRT under Section 17 or the Court of District Judge under

Section 17-A of the Act. Even by way of an explanation added to Section

17(1) doubts have been removed that the borrower shall not be entitled to

make an application to DRT against the order not accepting the

representation. In other words, the borrower cannot take a remedy under

Section 17(1) against the order rejecting his representation/objections. This

also makes it clear and supports the scheme of Section 13 that unless

measures under sub-section (4) of Section 13 are taken, the borrower cannot

approach DRT under Section 17(1), challenging only the order rejecting the

representation/objections. It does not mean that the Legislature left the

borrower without any remedy. The borrower, as and when takes a remedy

after the measures are taken under Section 13(4) or the stage at which he is

allowed to take a remedy under Section 17(1) of the Act, can certainly raise

44

challenge to the reasons for non-acceptance of the representation or

objections and to the measures taken under Section 13(4) on the ground that

the due procedure was not followed or the possession was not taken in

accordance with law and if the DRT is satisfied, it is empowered under sub-

section (3) of Section 17 of the Act to restore the possession of the secured

assets to the borrower or other aggrieved person declaring that the recourse

to any one or more measures referred to in sub-section (4) of Section 13

taken by the secured creditor is either invalid; and restore the possession of

secured assets who has made an application under sub-section (1) of Section

17 and pass such direction as it may consider appropriate and necessary in

relation to any of the recourse taken by the secured creditor under sub-

section (4) of Section 13. It is also pertinent to note that the provisions

contained in Sections 13 and 17 of the Act, read with Rule 8 and 9 of the

Rules, provide a calendar so as to enable both, the Bank as well as the

borrower, to take all measures/steps/safeguards in their interest at every

stage. For instance, clear 30 days' notice is provided only to enable the

borrower to tender the dues before the actual sale/transfer of secured assets

is effected. It is also clear that the steps contemplated under these provisions

clearly demonstrate that without taking physical possession of the secured

assets, it would not be possible to take any steps to sell or transfer the

secured assets. The Supreme Court in Mardia Chemicals (supra) made it

clear that communication of reasons to the borrower, rejecting his

objections, is only for the purpose of his knowledge, which would be a step

forward towards his right to know as to why his objections have not been

accepted by the Bank, who intend to resort to harsh step of taking possession

without intervention of the Court. It further makes it clear that he can

challenge the reasons only when his right to challenge matures, i.e. after the

measures under Section 13(4) are taken.

18.We would like to have a close look at the judgment of Supreme Court

in Mardia Chemicals (supra). The Supreme Court in this case considered

the validity of the Act, more particularly, the provisions as contained in

Sections 13, 15, 17 and 34 thereof. In the course of judgment, after referring

45

to Section 17, in paragraph 40 of the judgment, the Supreme Court observed

that an appeal under sub-section (1) of Section 17 would lie only after “some

measure” has been taken under sub-section (4) of Section 13 and not before

the stage of taking of any such measure. The question that was considered

by the Supreme Court was whether there is absolute bar of any remedy to

the borrower, before an action is taken under sub-section (4) of Section 13 of

the Act, in view of non-obstante clause under sub-section (1) of Section 13

and the bar of the jurisdiction of Civil Courts under Section 34 of the Act.

18.1The backdrop against which the Act was introduced after considering

Narasimham Committee and Andhyarujina Committee reports the Supreme

Court in Mardia Chemicals (supra) in paragraphs 45, 46, 47 and 48

observed thus:

“45. In the background we have indicated above,

we may consider as to what forums or remedies are

available to the borrower to ventilate his grievance. The

purpose of serving a notice upon the borrower under

sub-section (2) of Section 13 of the Act is, that a reply

may be submitted by the borrower explaining the

reasons as to why measures may or may not be taken

under sub-section (4) of Section 13 in case of non-

compliance with notice within 60 days. The creditor

must apply its mind to the objections raised in reply to

such notice and an internal mechanism must be

particularly evolved to consider such objections raised

in the reply to the notice. There may be some

meaningful consideration of the objections raised rather

than to ritually reject them and proceed to take drastic

measures under sub-section (4) of Section 13 of the Act.

Once such a duty is envisaged on the part of the

creditor it would only be conducive to the principles of

fairness on the part of the banks and financial

institutions in dealing with their borrowers to apprise

them of the reason for not accepting the objections or

points raised in reply to the notice served upon them

before proceeding to take measures under sub-section

(4) of Section 13. Such reasons, overruling the

objections of the borrower, must also be

communicated to the borrower by the secured

creditor. It will only be in fulfillment of a requirement

of reasonableness and fairness in the dealings of

institutional financing which is so important from the

46

point of view of the economy of the country and would

serve the purpose in the growth of a healthy economy.

It would certainly provide guidance to the secured

debtors in general in conducting the affairs in a manner

that they may not be found defaulting and being made

liable for the unsavoury steps contained under sub-

section (4) of Section 13. At the same time, more

importantly we must make it clear unequivocally that

communication of the reasons for not accepting the

objections taken by the secured borrower may not be

taken to give occasion to resort to such proceedings

which are not permissible under the provisions of the Act.

But communication of reasons not to accept the

objections of the borrower, would certainly be for the

purpose of his knowledge which would be a step

forward towards his right to know as to why his

objections have not been accepted by the secured

creditor who intends to resort to harsh steps of taking

over the management/business of viz. secured assets

without intervention of the court. Such a person in

respect of whom steps under Section 13(4) of the Act are

likely to be taken cannot be denied the right to know the

reason of non- acceptance of his objections. It is true, as

per the provisions under the Act, he may not be

entitled to challenge the reasons communicated or the

likely action of the secured creditor at that point of

time unless his right to approach the Debts Recovery

Tribunal as provided under Section 17 of the Act

matures on any measure having been taken under

sub- section (4) of Section 13 of the Act.

46. We are holding that it is necessary to

communicate the reasons for not accepting the objections

raised by the borrower in reply to the notice under

Section 13(2) of the Act, more particularly for the

reason that normally in the event of non- compliance

with notice, the party giving notice approaches the

court to seek redressal but in the present case, in view

of Section 13(1) of the Act the creditor is empowered

to enforce the security himself without intervention of

the Court. Therefore, it goes with logic and reason

that he may be checked to communicate the reason

for not accepting the objections, if raised and before

he takes the measures like taking over possession of

the secured assets etc.

47. This will also be in keeping with the concept

of right to know and lender's liability of fairness to keep

the borrower informed particularly of the developments

47

immediately before taking measures under sub-section

(4) of Section 13 of the Act. It will also cater to the cause

of transparency and not secrecy and shall be conducive

in building an atmosphere of confidence and healthy

commercial practice. Such a duty, in the circumstances

of the case and the provisions, is inherent under Section

13(2) of the Act.

48. The next safeguard available to a secured

borrower within the framework of the Act is to

approach the Debts Recovery Tribunal under Section

17 of the Act. Such a right accrues only after

measures are taken under sub-section (4) of Section

13 of the Act.”

(emphasis supplied)

18.2From perusal of the observations made by the Supreme Court, it is

clear to us that a person against whom measures/steps under Section 13(4) of

the Act are likely to be taken cannot be denied the right to know the reason

why his application or objections have not been accepted, as a fulfillment of

a requirement of reasonableness and fairness in dealing with the same.

While so observing the Supreme Court did not forget to state that the

borrower may not be entitled to challenge the reasons communicated or

likely action of the secured creditor under Section 13(4) of the Act. In other

words, the borrower is not intended to challenge the reasons communicated

or the likely action of the secured creditor at that point of time unless his

right to approach the DRT as provided under Section 17 matures on any

measure having been taken under sub-section (4) of Section 13 of the Act.

The borrower gets an opportunity either to clear the dues or to furnish his

objections making it mandatory for the secured creditor to deal with the

objections and apprise the borrower of the reasons for not accepting the

objections or points raised in reply to the notice served upon them before

proceeding to take measures under sub-section (4) of Section 13. In short, it

is a responsibility of the secured creditor to keep the borrower informed

particularly of the developments immediately after taking measures under

sub-section (4) of Section 13 of the Act. Thus, the safeguard available to the

borrower to approach the Debt Recovery Tribunal under Section 17 is only

after measures are taken under sub-section (4) of Section 13.

48

18.3The main thrust in Mardia Chemicals (supra) before the Supreme

Court while challenging the validity of the Act, was on non-availability of

adjudicatory mechanism to the borrower to ventilate his grievance through

an independent adjudicatory authority. Access to justice, it was submitted, is

the hallmark of our system. While dealing with the challenge, the Supreme

Court in paragraphs 68 and 69 of the report observed thus:

“68. … Section 34 of the Act bars the jurisdiction

of the civil courts to entertain a suit in matters of recovery

of loans. The remedy of appeal available under the Act

as contained in Section 17 can be availed only after

measures have already been taken by the secured

creditor under sub-section (4) of Section 13 of the Act

which includes sale of the secured assets, taking over

its management and all transferable rights thereto.

Virtually it is no remedy at all also in view of the

onerous condition of deposit of 75% of the claim of the

secured creditor. Before filing an appeal under Section

17 of the Act, decision is to be taken in respect of all

matters by the bank or financial institution itself which

can hardly be said to be an independent agency; rather

they are a party to the transaction having unilateral power

to initiate action under sub-section (4) of Section 13 of

the Act. So far as remedy under Article 226 of the

Constitution of India is concerned, the submission is that

it may not always be available since the dispute may be

only between two private parties, the banking companies,

co-operative Banks or financial institutions, foreign

banks, some of them may not be authorities within the

meaning of Article 12 of the Constitution of India against

whom a writ petition could be maintainable. Thus the

position that emerges is that a borrower is virtually left

with no remedy. Where access to the court is prohibited

and no proper adjudicatory mechanism is provided such a

law is unconstitutional and cannot survive. In support of

the aforesaid contentions besides others, reliance has

particularly been placed upon the case L. Chandra

Kumar v. Union of India, (1997) 3 SCC 261 : 1997 SCC

(L&S) 577 and Surya Dev Rai v. Ram Chander Rai,

(2003) 6 SCC 675. A reference has also been made to the

decision of Kihoto Hollohan v. Zachillhu, 1992 Supp (2)

SCC 651. In the case of L.Chandra Kumar (supra) it is

held, some adjudicatory process through an

independent agency is essential for determining the

rights of the parties, more particularly when the

49

consequences which flow from the offending Act

defeat the civil rights of a party.

69. On behalf of the respondents time and again stress has

been given on the contention that in a contractual matter

between the two private parties they are supposed to act

in terms of the contract and no question of compliance

with the principles of natural justice arises nor the

question of judicial review of such actions needs to be

provided for. However, at the very outset, it may be

pointed that the contract between the parties as in the

present case, is no more as private as sought to be

asserted on behalf of the respondents. If that was so, in

that event parties would be at liberty to seek redressal of

their grievances on account of breach of contract or

otherwise taking recourse to the normal process of law as

available, by approaching the ordinary civil courts. But

we find that a contract which has been entered into

between the two private parties, in some respects has

been superseded by the statutory provisions or it may

be said that such contracts are now governed by the

statutory provisions relating to recovery of debts and

bar of jurisdiction of the civil court to entertain any

dispute in respect of such matters. Hence, it cannot be

pleaded that the petitioners cannot complain of the

conduct of the banking companies and financial

institutions for whatever goes on between the two is

absolutely a matter of contract between private

parties, therefore, no adjudication may be necessary.”

(emphasis supplied)

18.4Then the Supreme Court while dealing with the contentions based on

the principles of natural justice exercising of the powers under Section 13, in

paragraphs 75, 76, 77 and 78, observed thus:

“75. In relation to the argument on behalf of the

petitioners that they are entitled to be heard before a

notice under sub-section (2) of Section 13 is issued

failing which there is denial of the principles of

natural justice, a reference has been made to certain

decisions to submit that in every case, it is not

necessary to make a provision for providing a hearing.

For example, in the case of a licensing statute, see Kishan

Chand Arora v. Commr. of Police, AIR 1961 SC 705 :

(1961) 3 SCR 135. The other decisions referred to are :

Lachhman Das v. State of Punjab, AIR 1963 (SC) 222 :

(1963) 2 SCR 353, Chairman, Board of Mining

50

Examination v. Ramjee, and (1977) 2 SCC 256 : 1977

SCC (L&S) 226, SCC at p. 262 and Haryana Financial

Corpn. v. Jagdamba Oil Mills, (2002) 3 SCC 496, SCC at

p. 504, para 7 to submit that concept of natural justice is

not a straight jacket formula. It, on the other hand,

depends upon the facts of the case, nature of the enquiry,

the rules under which the Tribunal is acting and what is to

be seen is that no one should be hit below the belt.

Relationship between the creditor and the debtor, it is

submitted, is essentially in the realm of a contract.

76. In regard to the submission made by the parties

as indicated in the preceding paragraphs, we would like

to make it clear that issue of a notice to the debtor by

the creditor does not attract the application of the

principles of natural justice. It is always open to tell

the debtor what he owes to repay. No hearing can be

demanded from the creditor at this stage. So far as the

provision of appeal is concerned, we have already

discussed in the earlier part of the judgment that

proceedings under Section 17 of the Act have been

wrongly described as appeal before the Debts

Recovery Tribunal. It is in fact a forum where

proceedings are originally initiated in case of any

grievance against the creditor in respect of any

measure taken under sub-section (4) of Section 13 of

the Act. Hence, the decisions on the point as to whether

provision for an appeal is essential or not are not of any

assistance in the facts of the present case.

77. It is also true that till the stage of making of

the demand and notice under Section 13(2) of the Act,

no hearing can be claimed for by the borrower. But

looking to the stringent nature of measures to be

taken without intervention of court with a bar to

approach the court or any other forum at that stage,

it becomes only reasonable that the secured creditor

must bear in mind the say of the borrower before

such a process of recovery is initiated so as to

demonstrate that the reply of the borrower to the

notice under Section 13(2) of the Act has been

considered applying mind to it. The reasons,

howsoever brief they may be for not accepting the

objections, if raised in the reply, must be communicated

to the borrower. True, presumption is in favour of

validity of an enactment and a legislation may not be

declared unconstitutional lightly more so, in the matters

relating to fiscal and economic policies resorted to in the

public interest, but while resorting to such legislation it

51

would be necessary to see that the persons aggrieved

get a fair deal at the hands of those who have been

vested with the powers to enforce drastic steps to

make recovery.

78. It was sought to be argued that fairness cannot

be a one-way street. The plea of absence of natural

justice lies ill in the mouth of chronic defaulters who

have not paid the principal amounts admittedly due to

the banks. The said argument pre-supposes admission of

the liability by the borrowers and all of them to be

chronic defaulters. It would only be pre-judging an issue.

We hope it was not meant to be said that all those who

defaulted according to the banks and financial institutions

must be condemned unheard who might not deserve any

hearing to place their side of the case, unless they must go

through the crushing pre-conditions of deposit of 75% of

the amount demanded over and above their secured assets

already having been taken possession of. We feel this can

well be one example of hitting below the belt.”

(emphasis supplied)

18.5In the concluding paragraphs 80 and 81, after dealing with the

challenge, Supreme Court observed thus:

“80. Under the Act in consideration, we find

that before taking action a notice of 60 days is

required to be given and after the measures under

Section 13(4) of the Act have been taken, a mechanism

has been provided under Section 17 of the Act to

approach the Debts Recovery Tribunal. The above

noted provisions are for the purpose of giving some

reasonable protection to the borrower. Viewing the matter

in the above perspective, we find what emerges from

different provisions of the Act, is as follows :-

1. Under sub-section (2) of Section 13 it is

incumbent upon the secured creditor to serve 60 days

notice before proceeding to take any of the measures

as provided under sub-section (4) of Section 13 of the

Act. After service of notice, if the borrower raises any

objection or places facts for consideration of the

secured creditor, such reply to the notice must be

considered with due application of mind and the

reasons for not accepting the objections, howsoever

brief they may be, must be communicated to the

borrower. In connection with this conclusion we have

already held a discussion in the earlier part of the

52

judgment. The reasons so communicated shall only

be for the purposes of the information/knowledge

of the borrower without giving rise to any right to

approach the Debts Recovery Tribunal under

Section 17 of the Act, at that stage.

2. As already discussed earlier, on measures

having been taken under sub-section (4) of Section

13 and before the date of sale/auction of the

property it would be open for the borrower to file

an appeal (petition) under Section 17 of the Act

before the Debts Recovery Tribunal.

3. That the Tribunal in exercise of its

ancillary powers shall have jurisdiction to pass any

stay/interim order subject to the condition at it may

deem fit and proper to impose.

4. In view of the discussion already held in this

behalf, we find that the requirement of deposit of 75%

of the amount claimed before entertaining an appeal

(petition) under Section 17 of the Act is an oppressive,

onerous and arbitrary condition against all the canons

of reasonableness. Such a condition is invalid and it is

liable to be struck down.

5. As discussed earlier in this judgment, we find

that it will be open to maintain a civil suit in civil

court, within the narrow scope and on the limited

grounds on which they are permissible, in the matters

relating to an English mortgage enforceable without

intervention of the court.

81. In view of the discussion held in the judgment

and the findings and directions contained in the

preceding paragraphs, we hold that the borrowers

would get a reasonably fair deal and opportunity to

get the matter adjudicated upon before the Debts

Recovery Tribunal. The effect of some of the

provisions may be a bit harsh for some of the

borrowers but on that ground the impugned

provisions of the Act cannot be said to be

unconstitutional in view of the fact that the object of

the Act is to achieve speedier recovery of the dues

declared as NPAs and better availability of capital

liquidity and resources to help in growth of economy

of the country and welfare of the people in general

which would subserve the public interest.”

(emphasis supplied)

53

18.6The Supreme Court in Mardia Chemicals (supra), thus holds that the

remedy of appeal is available only after measures under Section 13(4) have

been taken. The issue of notice under Section 13(2) to the borrower does not

attract the application of the principles of natural justice. No hearing at that

stage is necessary. The objective of inviting objection is only to make the

creditor bear in mind the say of the borrower before the measures under

Section 13(4) are initiated so as to demonstrate that the reply of the borrower

has been considered applying mind to it. Further, the time of 60 days is

provided after the measures under Section 13(4) have been taken so as to

enable the borrower to approach the DRT. The Tribunal in such an

eventuality in exercise of its ancillary powers shall have jurisdiction to pass

any stay/interim order, subject to conditions. Thus, the borrower would get a

reasonably fair deal and opportunity to get the matter adjudicated upon

before DRT. It is clear that where a secured creditor has taken

measures/action under Section 13(4) of the Act, only in such cases, it would

be open to borrowers to file securitisation application under Section 17 of

the Act within the limitation prescribed thereunder.

19.The Supreme Court in Transcore (supra) considered the question

whether withdrawal of OA in terms of the first proviso to Section 19(1) of

the DRT Act, 1993 (inserted by amending Act 30 of 2004) is a condition

precedent to take recourse to the Act. While dealing this question, the

Supreme Court in paragraph 37 of the judgment framed three questions. We

are concern with the question “whether recourse to take possession of the

secured assets of the borrower in terms of Section 13(4) of the NPA Act

comprehends the power to take actual possession of the immovable property.

The Act is referred as NPA Act in the said judgment.

19.1Before we have a look at the relevant observations made by Supreme

Court while dealing with the above question, it would be advantageous to

reproduce the arguments advanced by counsel appearing for the borrowers

so as to understand the context in which the findings on the above question

54

were recorded by the Supreme Court. The arguments are covered in

paragraph 71 of the judgment:

“71. Mr. N.C. Sahni and Mr. Pankaj Gupta, learned

advocates appearing on behalf of the respective

borrowers submitted that Section 13(4) of the NPA Act

empowers the secured creditor to take possession of the

secured immovable assets of the borrower on expiry of

sixty days and notice served under Section 13(2) of that

Act. It is pointed out that in many cases, the

banks/FIs. have taken actual physical possession

whereas in other cases they have taken only a

symbolic possession. Learned advocates submitted that

in Kalyani Sales Co., the High Court has rightly held that

if physical possession is taken on expiry of sixty days,

the remedy of application under Section 17 of the NPA

Act by the borrower would become illusory and

meaningless as the borrower or the person in possession

would be dispossessed even before adjudication of the

objections by the tribunal. Learned advocates further

submitted that under Section 13(8), the bank/FI is

prevented from selling the secured assets, if the dues

of the secured creditor with all costs, charges and

expenses are tendered to the secured creditor at any

time before the date fixed for sale. Learned advocates

pointed out that under Rule 8(1) of the 2002 Rules, a

secured creditor is empowered to take possession as

per notice appended in terms of Appendix IV. That

notice cautions the borrower not to deal with the

property. Learned advocates submitted that notice in

terms of Rule 8(1) of the 2002 Rules operates as

attachment. It contemplates a symbolic possession.

Learned advocates submitted that actual physical

possession of immovable assets can be taken under

Rule 8(3), in cases where there is a vacant plot or a

property which is lying unattended, but where the

immovable property is in actual physical possession of

any person, the person in possession cannot be

dispossessed by virtue of a notice under Rule 8(1);

that actual physical possession is to be delivered only

after confirmation of sale under Rule 9(6) read with

Appendix V under which the authorised officer is

empowered to deliver the property to the purchaser

free from all encumbrances in terms of Rule 9(9) of

the 2002 Rules. Learned advocates, therefore, submitted

that the High Court was right in holding that the

borrower or any other person in possession of the

55

immovable property cannot be physically dispossessed at

the time of issuing notice under Section 13(4) of the NPA

Act so as to defeat the adjudication of his claim by the

DRT under Section 17 of the NPA Act, and that, physical

possession can be taken only after the sale is confirmed

in terms of Rule 9(9) of the 2002 Rules.”

19.2The findings are recorded on the question in paragraphs 73 and 74,

which reads thus:

“73. The word possession is a relative concept. It

is not an absolute concept. The dichotomy between

symbolic and physical possession does not find place

in the Act. As stated above, there is a conceptual

distinction between securities by which the creditor

obtains ownership of or interest in the property concerned

(mortgages) and securities where the creditor obtains

neither an interest in nor possession of the property but

the property is appropriated to the satisfaction of the debt

(charges). Basically, the NPA Act deals with the former

type of securities 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.

74. Keeping the above conceptual aspect in mind,

we find that Section 13(4) of the NPA Act proceeds on

the basis that the borrower, who is under a liability,

has failed to discharge his liability within the period

prescribed under Section 13(2), which enables the

secured creditor to take recourse to one of the

measures, namely, taking possession of the secured

assets including the right to transfer by way of lease,

assignment or sale for realizing the secured assets.

Section 13(4-A) refers to the word "possession"

simpliciter. There is no dichotomy in sub-section (4-A) as

pleaded on behalf of the borrowers. Under Rule 8 of the

2002 Rules, the authorised officer is empowered to

take possession by delivering the possession notice

prepared as nearly as possible in Appendix IV to the

2002 Rules. That notice is required to be affixed on the

property. Rule 8 deals with sale of immovable secured

assets. Appendix IV prescribes the form of possession

notice. It inter alia states that notice is given to the

borrower who has failed to repay the amount informing

him and the public that the bank/FI has taken possession

of the property under Section 13(4) read with Rule 9 of

the 2002 Rules. Rule 9 relates to time of sale, issue of

56

sale certificate and delivery of possession. Rule 9(6)

states that on confirmation of sale, if the terms of

payment are complied with, the authorised officer

shall issue a sale certificate in favour of the purchaser

in the form given in Appendix V to the 2002 Rules.

Rule 9(9) states that the authorised officer shall

deliver the property to the buyer free from all

encumbrances known to the secured creditor or not

known to the secured creditor. (emphasis supplied)

Section 14 of the NPA Act states that 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, the secured creditor

may, for the purpose of taking possession, request in

writing to the District Magistrate to take possession

thereof. Section 17(1) of the NPA Act refers to the

right of appeal. Section 17(3) states that if DRT as an

appellate authority after examining the facts and

circumstances of the case comes to the conclusion that

any of the measures under Section 13(4) taken by the

secured creditor are not in accordance with the

provisions of the Act, it may by order declare that the

recourse taken to any one or more measures is

invalid, and consequently, restore possession to the

borrower and can also restore management of the

business of the borrower. Therefore, the scheme of

Section 13(4) read with Section 17(3) shows that if the

borrower is dispossessed, not in accordance with the

provisions of the Act, then DRT is entitled to put the

clock back by restoring the status quo ante. Therefore,

it cannot be said that if possession is taken before

confirmation of sale, the rights of the borrower to get

the dispute adjudicated upon is defeated by the

authorised officer taking possession. As stated above,

the NPA Act provides for recovery of possession by non-

adjudicatory process; therefore, to say that the rights of

the borrower would be defeated without adjudication

would be erroneous. Rule 8, undoubtedly, refers to sale

of immovable secured asset. However, Rule 8(4)

indicates that where possession is taken by the

authorised officer before issuance of sale certificate

under Rule 9, the authorised officer shall take steps

for preservation and protection of secured assets till

they are sold or otherwise disposed of. Under Section

13(8), if the dues of the secured creditor together with

all costs, charges and expenses incurred by him are

tendered to the creditor before the date fixed for sale

or transfer, the asset shall not be sold or transferred.

57

The costs, charges and expenses referred to in Section

13(8) will include costs, charges and expenses which

the authorised officer incurs for preserving and

protecting the secured assets till they are sold or

disposed of in terms of Rule 8(4). Thus, Rule 8 deals

with the stage anterior to the issuance of sale

certificate and delivery of possession under Rule 9.

Till the time of issuance of sale certificate, the authorised

officer is like a Court Receiver under Order 40 Rule 1

CPC. The Court Receiver can take symbolic possession

and in appropriate cases where the Court Receiver finds

that a third-party interest is likely to be created overnight,

he can take actual possession even prior to the decree.

The authorized officer under Rule 8 has greater

powers than even a Court Receiver as security

interest in the property is already created in favour of

the banks/FIs. That interest needs to be protected.

Therefore, Rule 8 provides that till issuance of the sale

certificate under Rule 9, the authorized officer shall

take such steps as he deems fit to preserve the secured

asset. It is well settled that 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. It is these types of disputes

which are sought to be avoided by Rule 8 read with Rule

9 of the 2002 Rules. In the circumstances, the drawing

of dichotomy between symbolic and actual possession

does not find place in the scheme of the NPA Act read

with the 2002 Rules.”

(emphasis supplied)

19.3The judgment in Transcore (supra), as quoted above, needs to be

read in the light of the question that fell for consideration. The question in

short was whether taking possession contemplated under Section 13(4)

comprehends the power to take actual possession. While dealing with this

question, the Supreme Court considered the relevant Rules which prescribe

the procedure for taking over possession of secured assets. The Supreme

Court did not consider the question whether an application under Section

17(1) of the Act could be filed even before the measures/possession are/is

taken as contemplated under sub-section 4 of Section 13. In other words, the

Supreme Court did not consider the question whether an application under

Section 17(1) of the Act is maintainable before the measures, such as taking

58

possession as provided for under Section 13(4)(a) is available. A notice

under Rule 8 of the Rules, as prescribed with Appendix IV is required to be

given to the borrower who has failed to repay the amount informing him and

the public that the bank has taken possession of the property under sub-

section (4) of Section 13, read with Rule 9 of the Rules.

19.4The Supreme Court in this case (Transcore) observed that the word

“possession” is a relative concept. It is not an absolute concept. The

dichotomy between symbolic and physical possession does not find place in

the Act. The scheme of Section 13(4), read with Section 17(3), shows that if

the borrower is dispossessed, not in accordance with the provisions of the

Act, then DRT is entitled to put the clock back by restoring the status quo

ante. After referring to Rule 8, the Supreme Court observes that Rule 8

provides that till issuance of sale certificate under Rule 9, the Authorised

Officer shall take such steps as he deems fit to preserve the secured assets. It

further observes that under Section 13(8), if the dues of the secured creditor

together with all costs, charges and expenses incurred by him are tendered to

the creditor before the date fixed for sale or transfer, the asset shall not be

sold or transferred. From the observations made in this judgment in the light

of the provisions contained in Sections 13(2), (3), (3-A) and (4), in particular

Section 8, Sections 17(1) (2) of the Act and Rules 8 and 9 of the Rules

would show that the borrower can seek restoration of possession.

19.5Rule (9) relates to time of sale, issue of sale certificate and delivery of

possession. Rule 9(6) states that on confirmation of sale, if the terms of

payment are complied with, the authorised officer shall issue a sale

certificate in favour of the purchaser in the form given in Appendix V to the

2002 Rules. Rule 9(9) states that the authorised officer shall deliver the

property to the buyer free from all encumbrances known to the secured

creditor or not known to the secured creditor. Thus it is clear that the

provisions of the relevant Rules simply prescribe the procedure to be

followed for taking possession and delivering it to the purchaser and it does

not deal with the situation whether the procedure contemplated under these

59

Rules can also be subject matter of the application under Section 17(1) of the

Act before the actual possession is taken. The scheme of Section 13(4) read

with Section 17(3), as matter of fact, shows that if the borrower is

dispossessed, not in accordance with the provisions of the Act, then DRT is

entitled to put the clock back by restoring the status quo ante. Therefore, it

cannot be said that if the possession is taken before confirmation of sale, the

rights of the borrower to get the dispute adjudicated upon is defeated by the

authorised officer taking possession. Rule 8 deals with the stage anterior to

the issuance of sale certificate and delivery of possession under Rule 9. If we

hold that the borrower cannot be physically dispossessed till the stage of

delivering possession to the purchaser under Rule 9, that will frustrate the

very objective of the Act. The observations made by the Supreme Court in

this case would render nugatory/redundant. The borrower's right to get back

possession even after the sale is kept intact or stands recognised under the

scheme of the relevant provisions. On the other hand, if the possession

(physical) is not with the creditor at the time of sale/auction, no buyer would

ever come forward or would hesitate to purchase the secured assets, and as

one of the consequences, the assets would not fetch the desired

consideration. Till the time of issuance of sale certificate, the authorised

officer is like a court receiver under Order 40 Rule 1 CPC who can take

symbolic possession and in appropriate cases where the court receiver finds

that a third party interests are created, he can take actual possession even

prior to the decree. While making this observation, the Supreme Court was

not unmindful of the extraordinary powers of authorised officer under Rule

8. It was categorically observed that the powers of authorised officer of the

bank under Rule 8 are greater than the receiver. It is true, the Supreme Court

in Transcore (supra), has not stated in so many words that a recourse to the

remedy provided under Section 17(1) can be taken only after the borrower

loses possession, may be for the reason that such was not the question before

the Supreme Court. But from the above quoted observations it cannot be

accepted that taking possession means symbolic and not actual possession

under Section 13(4)(a) of the Act. The question that falls for our

60

consideration is whether recourse can be taken to Section 17(1) before

actually (physically) losing possession.

19.6It is also necessary to notice the context in which such observations

were made by the Supreme Court. The context is clear from the following

observations: “it is well settled that 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. It is these types of disputes

which are sought to be avoided by Rule 8 read with Rule 9 of the Rules”.

After so observing, the Supreme Court held that the dichotomy between

symbolic and actual possession does not find place in the scheme of the Act

read with the Rules.

20.In Satyawati Tondon (supra), the Supreme Court considered the

question whether the Division Bench of the High Court was justified in

restraining the appellant (Bank) from proceeding under Section 13(4) of the

Act against the property of respondent No.1. Respondent no. 1 before the

Supreme Court was the guarantor whereas respondent no. 2 was the

borrower. Respondent no. 1, for the loan sanctioned in favour of respondent

no. 2, gave guarantee for payment of the loan and mortgaged her house

property by deposit of title deeds. Since the borrower was irregular in

making repayment of loan, the appellant sent letters to both the respondents

requiring them to deposit the outstanding dues. In response to the letters, the

borrower deposited a paltry amount. In view thereof, the appellant was

compelled to issue notice to respondent nos. 1 and 2 under Section 13(2)

requiring them to pay the outstanding dues along with future interest and

incidental expenses within 60 days. Upon receipt of the notice, respondent

no. 1 was called to pay a sum of Rs. 18 lacs for settlement of the loan

account, but the appellant did not accept the offer and filed an application

under Section 14 of the Act, which was allowed by the District Magistrate,

Collector, Allahabad, vide his order dated 25.8.2008. Thereafter the

appellant issued notice dated 21.1.2009 to the respondents under Section

13(4) of the Act. Faced with the imminent threat of losing the mortgaged

61

property, respondent no. 1 filed writ petition and prayed for restrain order.

Respondent no. 1 (guarantor) pleaded that the notices issued by the appellant

(Bank) for recovery of the outstanding dues are ex facie illegal and liable to

be quashed because no action had been taken against the borrower i.e.

respondent no.2 for recovery of the outstanding dues.

20.1While dealing with this situation, the Supreme Court also considered

the question whether the appellant could have issued notice to respondent

no. 1 under Section 13(2) and (4) and filed an application under Section 14

of the Act without first initiating action against the borrower i.e., respondent

No.2 for recovery of the outstanding dues. The question was answered by

the Supreme Court in the affirmative in the light of the judgments in Bank

of Bihar Ltd. Vs. Damodar Prasad & Anr (AIR 1969 SC 297), State

Bank Of India Vs. Indexport Registered And Ors., [1992 (3) SCC 159]

and Industrial Investment Bank of India Ltd. Vs. Bishwanath

Jhunjhunwala, [(2009) 9 SCC 478] holding that the High Court completely

misdirected itself in assuming that the appellant could not have initiated

action against respondent no.1 (guarantor) without making efforts for

recovery of its dues from respondent No.2 (borrower).

20.2In Satyawati Tondon (supra), the Supreme Court was essentially

considering the question whether the Division Bench of the High Court was

justified in restraining the appellant from proceeding under Section 13(4) of

the Act against the property of respondent and not the question that falls for

our consideration.

20.3The Supreme Court considered its several judgments including the

judgments in Damodar Prasad (supra), Indexport Registered (supra) and

Bishwanath Jhunjhunwala (supra), Mardia Chemicals (supra) and

observed that the High Court had completely misdirected itself in assuming

that the appellant could not have initiated action against respondent no.1

(guarantor) without making efforts for recovery of its dues from respondent

No.2 (borrower). The observations made by the Supreme Court in

paragraphs 42 and 43, reads thus:

62

“42. There is another reason why the impugned

order should be set aside. If Respondent 1 had any

tangible grievance against the notice issued under

Section 13(4) or action taken under Section 14, then she

could have availed remedy by filing an application under

Section 17(1). The expression “any person” used in

Section 17(1) is of wide import. It takes within its fold,

not only the borrower but also the guarantor or any

other person who may be affected by the action taken

under Section 13(4) or Section 14. Both, the Tribunal

and the Appellate Tribunal are empowered to pass

interim orders under Sections 17 and 18 and are required

to decide the matters within a fixed time schedule. It is

thus evident that the remedies available to an aggrieved

person under the SARFAESI Act are both expeditious

and effective.

43. Unfortunately, the High Court overlooked the

settled law that the High Court will ordinarily not

entertain a petition under Article 226 of the Constitution

if an effective remedy is available to the aggrieved person

and that this rule applies with greater rigour in matters

involving recovery of taxes, cess, fees, other types of

public money and the dues of banks and other financial

institutions. In our view, while dealing with the petitions

involving challenge to the action taken for recovery of

the public dues, etc., the High Court must keep in mind

that the legislations enacted by Parliament and State

Legislatures for recovery of such dues are a code unto

themselves inasmuch as they not only contain

comprehensive procedure for recovery of the dues but

also envisage constitution of quasi-judicial bodies for

redressal of the grievance of any aggrieved person.

Therefore, in all such cases, the High Court must insist

that before availing remedy under Article 226 of the

Constitution, a person must exhaust the remedies

available under the relevant statute.”

(emphasis supplied)

20.4Further, it is necessary to notice that after referring to several

judgments, the Supreme Court considered the remedy under Article 226 of

the Constitution of India and observed “in cases relating to recovery of the

dues of banks, financial institutions and secured creditors, stay granted by

the High Court would have serious adverse impact on the financial health of

such bodies/institutions, which ultimately prove detrimental to the economy

of the nation. Therefore, the High Court should be extremely careful and

63

circumspect in exercising its discretion to grant stay in such matters”. The

Supreme Court while setting aside the order of the High Court also observed

that if “respondent no.1 had any tangible grievance against the notice issued

under Section 13(4) or action taken under Section 14, then she could have

availed remedy by filing an application under Section 17(1). The expression

“any person” shall also explain to mean to cover even borrower. In

concluding paragraphs 55 and 56, the Supreme Court observed thus:

“55. It is a matter of serious concern that despite repeated

pronouncement of this Court, the High Courts continue

to ignore the availability of statutory remedies under the

DRT Act and the SARFAESI Act and exercise

jurisdiction under Article 226 for passing orders which

have serious adverse impact on the right of banks and

other financial institutions to recover their dues. We

hope and trust that in future the High Courts will

exercise their discretion in such matters with greater

caution, care and circumspection.

56. Insofar as this case is concerned, we are convinced

that the High Court was not at all justified in

injuncting the appellant from taking action in

furtherance of notice issued under Section 13(4) of the

Act. In the result, the appeal is allowed and the

impugned order is set aside. Since the respondent has not

appeared to contest the appeal, the costs are made easy.”

(emphasis supplied)

20.5From bare perusal of the judgment, it is clear that the Supreme Court

did not consider the question that falls for our consideration and simply

observed that when a remedy under Section 17(1) is available against the

action under Section 13(4) or 14, the High Court should not exercise

jurisdiction under Article 226 of the Constitution of India. In other words,

against the action/measures under Section 13(4) or 14 of the Act, the

borrower or a guarantor has a remedy of making an application under

Section 17(1) of the Act.

21.The Supreme Court in Authorized Officer, Indian Overseas Bank

and another Vs. Ashok Saw Mill, [(2009) 8 SCC 366], after considering

64

the provisions contained in Sections 13 and 17 in paragraph 36 and 39

observed thus:

“36. The intention of the legislature is, therefore, clear

that while the Banks and Financial Institutions have

been vested with stringent powers for recovery of their

dues, safeguards have also been provided for

rectifying any error or wrongful use of such powers by

vesting the DRT with authority after conducting an

adjudication into the matter to declare any such

action invalid and also to restore possession even

though possession may have been made over to the

transferee.

39. We are unable to agree with or accept the submissions

made on behalf of the appellants that the DRT had no

jurisdiction to interfere with the action taken by the

secured creditor after the stage contemplated under

Section 13(4) of the Act. On the other hand, the law is

otherwise and it contemplates that the action taken by

a secured creditor in terms of Section 13(4) is open to

scrutiny and cannot only be set aside but even the

status quo ante can be restored by the DRT.”

(emphasis supplied)

21.1The further observations made by the Supreme Court in Ashok Saw

Mill (supra) in paragraphs 29, 34, 35, 36, 37 and 39 are also relevant, which

read thus:

“29. The said amendments were made in order to give

an opportunity to the borrower to approach the DRT

at any stage against any measure taken by the secured

creditor under Sub-Section (4) of Section 13 which

were not in conformity therewith and to have the

possession of secured assets restored in the event such

action was found to be invalid. At the same time, more

power was given to the secured creditor to exercise

control over the management of the business of the

borrower which included the right to transfer by way of

lease, assignment or sale of the secured assets for

releasing the same.

34. The provisions of Section 13 enable the secured

creditors, such as Banks and Financial Institutions,

not only to take possession of the secured assets of the

borrower, but also to take over the management of the

business of the borrower, including the right to transfer

by way of lease, assignment or sale for realizing secured

65

assets, subject to the conditions indicated in the two

provisos to clause (b) of sub-section (4) of Section 13.

35. In order to prevent misuse of such wide powers

and to prevent prejudice being caused to a borrower

on account of an error on the part of the banks or

financial institutions, certain checks and balances

have been introduced in Section 17 which allow any

person, including the borrower, aggrieved by any of

the measures referred to in sub-section (4) of Section

13 taken by the secured creditor, to make an

application to the DRT having jurisdiction in the

matter within 45 days from the date of such measures

having taken for the reliefs indicated in sub-section

(3) thereof.

36. The intention of the legislature is, therefore, clear that

while the banks and financial institutions have been

vested with stringent powers for recovery of their

dues, safeguards have also been provided for

rectifying any error or wrongful use of such powers

by vesting the DRT with authority after conducting

an adjudication into the matter to declare any such

action invalid and also to restore possession even

though possession may have been made over to the

transferee.

37.The consequences of the authority vested in DRT

under sub-section (3) of Section 17 necessarily implies

that the DRT is entitled to question the action taken by

the secured creditor and the transactions entered into by

virtue of Section 13(4) of the Act. The legislature by

including sub-section (3) in Section 17 has gone to the

extent of vesting the DRT with authority to even set

aside a transaction including sale and to restore

possession to the borrower in appropriate cases.

Resultantly, the submissions advanced by Mr. Gopalan

and Mr. Altaf Ahmed that the DRT has no jurisdiction to

deal with a post 13(4) situation, cannot be accepted.

39.We are unable to agree with or accept the

submissions made on behalf of the appellants that the

DRT had no jurisdiction to interfere with the action taken

by the secured creditor after the stage contemplated

under Section 13(4) of the Act. On the other hand, the

law is otherwise and it contemplates that the action

taken by a secured creditor in terms of Section 13(4)

is open to scrutiny and cannot only be set aside but

even the status quo ante can be restored by the DRT.”

(emphasis supplied)

66

21.2The Supreme Court in this case, after referring to Sections 13(4) and

Section 17 holds that while the banks and financial institutions have been

vested with stringent powers for recovery of their dues, safeguards have

already been provided for rectifying any error or wrongful use of such

powers by vesting the DRT with authority after conducting an adjudication

into the matter to declare any such action invalid and also to restore even

though possession may have been made over to the transferee. Thus, the

borrower can even seek restoration of the status quo ante and the DRT has

sufficient powers to deal with such an application if it is satisfied that the

measures taken by the secured creditor under sub-section (4) of Section 13

were not in conformity therewith. The safeguard provided under the scheme

makes it further clear that if the bank/financial institutions wish to take

actual possession of the assets that cannot be stalled by the interference of a

Court. In other words, any security interest created in favour of any secured

creditor may enforce, without intervention of Court or Tribunal, in

accordance with the provisions of the Act.

22.In Kanaiyalal Lalchand (supra), the Supreme Court once again after

referring to the provisions contained in Section 13(4) and 17(1) and making

detail reference to its several judgments including in Mardia Chemicals

(supra) in paragraphs 21 and 22 observed thus:

“21. In Indian Overseas Bank v. Ashok Saw Mill, the

main question which fell for determination was whether

the DRT would have jurisdiction to consider and

adjudicate post Section 13(4) events or whether its

scope in terms of Section 17 of the Act will be confined

to the stage contemplated under Section 13(4) of the

Act? On an examination of the provisions contained in

Chapter III of the Act, in particular Sections 13 and 17,

this Court held as under (SCC pp. 375-76, paras 35-36 &

39)

"35. In order to prevent misuse of such wide

powers and to prevent prejudice being caused to a

borrower on account of an error on the part of the

banks or financial institutions, certain checks and

balances have been introduced in Section 17 which

allow any person, including the borrower, aggrieved

by any of the measures referred to in sub-section (4) of

67

Section 13 taken by the secured creditor, to make an

application to the DRT having jurisdiction in the

matter within 45 days from the date of such measures

having taken for the reliefs indicated in sub- section

(3) thereof.

36. The intention of the legislature is, therefore,

clear that while the banks and financial institutions have

been vested with stringent powers for recovery of their

dues, safeguards have also been provided for

rectifying any error or wrongful use of such powers

by vesting the DRT with authority after conducting

an adjudication into the matter to declare any such

action invalid and also to restore possession even

though possession may have been made over to the

transferee.

39. We are unable to agree with or accept the

submissions made on behalf of the appellants that the

DRT had no jurisdiction to interfere with the action

taken by the secured creditor after the stage

contemplated under Section 13(4) of the Act. On the

other hand, the law is otherwise and it contemplates that

the action taken by a secured creditor in terms of Section

13(4) is open to scrutiny and cannot only be set aside but

even the status quo ante can be restored by the DRT."

22. We are in respectful agreement with the above

enunciation of law on the point. It is manifest that an

action under Section 14 of the Act constitutes an action

taken after the stage of Section 13(4), and therefore, the

same would fall within the ambit of Section 17(1) of the

Act. Thus, the Act itself contemplates an efficacious

remedy for the borrower or any person affected by an

action under Section 13(4) of the Act, by providing for

an appeal before the DRT.”

(emphasis supplied)

22.1In this judgment, the Supreme Court after considering the scheme of

Sections 13 and 17 observes that certain checks and balances have been

introduced in Section 17 which allow any person, including the borrower,

aggrieved by any of the measures referred to in sub-section (4) of Section 13

taken by the secured creditor, to make an application to the DRT having

jurisdiction in the matter within 45 days from the date of such measures

having been taken for the reliefs indicated in sub-section 3 thereof. Section

17 provides that if DRT after examining the facts and circumstances of the

68

case and on the basis of evidence produced by the parties, comes to the

conclusion that any of the measures referred to in Section 13(4), taken by the

secured creditor is not in accordance with provisions of the Act, it may by

order declare that the recourse taken to any one or more measures is invalid

and secondly, restore possession to the borrower and can also restore

management of the business of the borrower. This is again clear from the

observations made by the Supreme Court in Kanaiyalal Lalchand (supra),

that taking the measure under Section 13(4)(a) means taking actual

possession and the remedy under Section 17(1) is available only after losing

possession of the secured assets.

23.In Aum Jewels (supra), the Division Bench of this Court was

considering challenge to the possession notice issued by the authorized

officer of the respondent Bank under the provisions of the Act, read with

Rule 8 of the Rules. While dealing with the challenge, the Division Bench

considered the judgment of the Supreme Court in Satyawati Tondon

(supra) and in the concluding paragraphs observed thus:

“The aforesaid judgment of the Supreme Court in

Satyawati Tandon emphasises that a borrower, a

guarantor or any other person who may be affected by

the action taken under Section 13(4) of the Act have an

efficacious and effective statutory remedy of filing an

appeal under Section 17 of the Act and, therefore, the

High Courts should not overlook the settled law that a

petition, in such circumstances, should not be

entertained, particularly when matters relating to dues of

Bank and other financial Institutions are involved. In fact

in all such cases, the High Courts must insist that the

alternative remedies under the relevant Statutes are first

exhausted.

Thus, when the petitioners have a statutory

alternative remedy of filing an appeal under Section 17

of the Act in which all the factual aspects can properly

be examined, we do not consider it appropriate to

examine these issues in the present petition. The petition

is, accordingly, dismissed.”

23.1The Division Bench in Aum Jewels (supra) basically considered the

question whether a writ petition under Article 226 of the Constitution was

69

maintainable at the stage when measure under Section 13 is taken or being

taken by the creditor. In view thereof, the Division Bench made the above

observations. The Division Bench did not discuss the stage at which one can

take a remedy under Section 17(1) of the Act. It would not be proper to

assume that even the stage at which the writ petition was filed, one can take

a remedy under Section 17(1), on the basis of the above observations. It is

pertinent to note that the judgments of the Supreme Court in Mardia

Chemicals (supra) and Standard Chartered Bank Vs. V. Noble Kumar

and others [2013 (2) D.R.T.C. 609 (S.C.)] were not brought to the notice of

the Division Bench. Moreover, the question that falls for our consideration

was not framed, considered and decided in that case and the petitioner was

simply relegated to a remedy under Section 17(1) of the Act, relying upon

the observations made in Satyawati Tondon (supra).

24.The Supreme Court in Harshad Govardhan Sondagar Versus

International Assets Reconstruction Company Limited and others,

(2014) 6 SCC 1, while dealing with the provisions of the Act and the Rules

including Appendix IV, in paragraphs 26, 28 and 32, observed thus:

“26. The opening words of sub-section (1) of

Section 14 of the SARFAESI Act also provides that if

any of the secured assets is required to be sold or

transferred by the secured creditor under the provisions

of the Act, the secured creditor may take the assistance of

the Chief Metropolitan Magistrate or the District

Magistrate. Where, therefore, such a request is made by

the secured creditor and the Chief Metropolitan

Magistrate or the District Magistrate finds that the

secured asset is in possession of a lessee but the lease

under which the lessee claims to be in possession of the

secured asset stands determined in accordance with

Section 111 of the Transfer of Property Act, the Chief

Metropolitan Magistrate or the District Magistrate may

pass an order for delivery of possession of secured asset

in favour of the secured creditor to enable the secured

creditor to sell and transfer the same under the provisions

of the SARFAESI Act. Sub-section (6) of Section 13 of

the SARFAESI Act provides that any transfer of

secured asset after taking possession of secured asset

by the secured creditor shall vest in the transferee all

70

rights in, or in relation to, the secured asset

transferred as if the transfer had been made by the

owner of such secured asset. In other words, the

transferee of a secured asset will not acquire any right

in a secured asset under sub-section (6) of Section 13

of the SARFAESI Act, unless it has been effected after

the secured creditor has taken over possession of the

secured asset. Thus, for the purpose of transferring the

secured asset and for realising the secured debt, the

secured creditor will require the assistance of the Chief

Metropolitan Magistrate or the District Magistrate for

taking possession of a secured asset from the lessee

where the lease stands determined by any of the modes

mentioned in Section 111 of the Transfer of Property Act.

28. A reading of sub- rules (1) and (2) of Rule 8 of

the Security Interest (Enforcement) Rules, 2002 would

show that the possession notice will have to be affixed on

the outer door or at the conspicuous place of the property

and also published, as soon as possible but in any case

not later than seven days from the date of taking

possession, in two leading newspapers, one in vernacular

language having sufficient circulation in that locality, by

the authorised officer. At this stage, the lessee of an

immovable property will have notice of the secured

creditor making efforts to take possession of the

secured assets of the borrower. When, therefore, a

lessee becomes aware of the possession being taken by

the secured creditor, in respect of the secured asset in

respect of which he is the lessee, from the possession

notice which is delivered, affixed or published in sub-

rule (1) and sub-rule (2) of Rule 8 of the Security

Interest (Enforcement) Rules, 2002, he may either

surrender possession or resist the attempt of the

secured creditor to take the possession of the secured

asset by producing before the authorised officer proof

that he was inducted as a lessee prior to the creation

of the mortgage or that he was a lessee under the

mortgagor in accordance with the provisions of

Section 65-A of the Transfer of Property Act and that

the lease does not stand determined in accordance

with Section 111 of the Transfer of Property Act. If the

lessee surrenders possession, the lease even if valid gets

determined in accordance with clause (f) of Section 111

of the Transfer of Property Act, but if he resists the

attempt of the secured creditor to take possession, the

authorised officer cannot evict the lessee by force but has

to file an application before the Chief Metropolitan

Magistrate or the District Magistrate under Section 14 of

71

the SARFAESI Act and state in the affidavit

accompanying the application, the name and address of

the person claiming to be the lessee. When such an

application is filed, the Chief Metropolitan Magistrate or

the District Magistrate will have to give a notice and give

an opportunity of hearing to the person claiming to be the

lessee as well as to the secured creditor, consistent with

the principles of natural justice, and then take a decision.

If the Chief Metropolitan Magistrate or District

Magistrate is satisfied that there is a valid lease created

before the mortgage or there is a valid lease created after

the mortgage in accordance with the requirements of

Section 65-A of the Transfer of Property Act and that the

lease has not been determined in accordance with the

provisions of Section 111 of the Transfer of Property Act,

he cannot pass an order for delivering possession of the

secured asset to the secured creditor. But in case he

comes to the conclusion that there is in fact no valid lease

made either before creation of the mortgage or after

creation of the mortgage satisfying the requirements of

Section 65-A of the Transfer of Property Act or that even

though there was a valid lease, the lease stands

determined in accordance with Section 111 of the

Transfer of Property Act, he can pass an order for

delivering possession of the secured asset to the secured

creditor.

32. When we read sub-section (1) of Section 17 of

the SARFAESI Act, we find that under the said sub-

section "any person (including borrower)", aggrieved by

any of the measures referred to in sub-section (4) of

Section 13 taken by the secured creditor or his authorised

officer under the Chapter, may apply to the Debts

Recovery Tribunal having jurisdiction in the matter

within 45 days from the date on which such measures

had been taken. We agree with Mr. Vikas Singh that the

words “any person” are wide enough to include a lessee

also. It is also possible to take a view that within 45

days from the date on which a possession notice is

delivered or affixed or published under sub-rules (1)

and (2) of Rule 8 of the Security Interest

(Enforcement) Rules, 2002, a lessee may file an

application before the Debts Recovery Tribunal

having jurisdiction in the matter for restoration of

possession in case he is dispossessed of the secured

asset. But when we read sub-section (3) of Section 17 of

the SARFAESI Act, we find that the Debts Recovery

Tribunal has powers to restore possession of the secured

asset to the borrower only and not to any person such as a

72

lessee. Hence, even if the Debt Recovery Tribunal

comes to the conclusion that any of the measures

referred to in sub-section (4) of Section 13 taken by

the secured creditor are not in accordance with the

provisions of the Act, it cannot restore possession of

the secured asset to the lessee. Where, therefore, the

Debts Recovery Tribunal considers the application of the

lessee and comes to the conclusion that the lease in

favour of the lessee was made prior to the creation of

mortgage or the lease though made after the creation of

mortgage is in accordance with the requirements of

Section 65-A of the Transfer of Property Act and the

lease was valid and binding on the mortgagee and the

lease is yet to be determined, the Debts Recovery

Tribunal will not have the power to restore possession of

the secured asset to the lessee. In our considered opinion,

therefore, there is no remedy available under Section 17

of the SARFAESI Act to the lessee to protect his lawful

possession under a valid lease.”

(emphasis supplied)

24.1In this case also, the Supreme Court after dealing with the provisions

contained in Section 13, in particular, sub-section (6) thereof and the

provisions contained in Rule 8 observed that any transfer of secured asset

after taking possession thereof by the secured creditor shall vest in the

transferee all rights in, or in relation to, the secured asset transferred as if the

transfer had been made by the owner of such secured assets. In other words,

the transferee of a secured asset would acquire right, title and interest in the

secured asset under sub-section (6) of Section 13 of the Act, once the

secured creditor transfers the asset in his favour and that is possible only if

the possession was taken before the sale/transfer. Thus, for the purpose of

transferring the secured asset and for realising the secured debt, the secured

creditor requires to take possession of the secured asset, may be by taking

recourse to the provisions of Section 14 of the Act. The Supreme Court also

considered the rights of a lessee in the secured property and, after referring

to sub-rule (1) and (2) of Rule 8 of the Rules, held that a lessee may file an

application before a Debt Recovery Tribunal having jurisdiction in the

matter for restoration of possession in case he is dispossessed of the secured

asset and if the DRT comes to conclusion that any of the measures referred

73

to in sub-section (4) of Section 13 taken by the secured creditor is in

accordance with the provisions of the Act, it can even restore the possession

to the lessee.

25.The Supreme Court in Agarwal Tracom Pvt. Ltd. Vs. Punjab

National Bank & Ors., Civil Appeal No. 19847 of 2017, 2018 (126) ALR

472, considered the question whether the High Court was justified in holding

that the remedy of the auction purchaser (appellant) lies in challenging the

action of the secured creditor in forfeiting the deposit by filing an

application under Section 17 of the Act before the DRT or the remedy of

auction purchaser is in filing the writ petition under Article 226/227 of the

Constitution of India to examine the legality of such action. Having regard

to the facts and circumstances of the case against which the question arose,

the Supreme Court, after considering the provisions of Sections 13 (4) and

17 of the Act and Rules 8 and 9 of the Rules, in paragraphs 28 and 29, held

thus:

“28. The reason is that Section 17 (2) empowers

the Tribunal to examine all the issues arising out of the

measures taken under Section 13(4) including the

measures taken by the secured creditor under Rules 8 and

9 for disposal of the secured assets of the borrower. The

expression "provisions of this Act and the Rules made

thereunder" occurring in sub-sections (2), (3), (4) and

(7) of Section 17 clearly suggests that it includes the

action taken under Section 13(4) as also includes

therein the action taken under Rules 8 and 9 which

deal with the completion of sale of the secured assets.

In other words, the measures taken under Section

13(4) would not be completed unless the entire

procedure laid down in Rules 8 and 9 for sale of

secured assets is fully complied with by the secured

creditor. It is for this reason, the Tribunal has been

empowered by Section 17(2), (3) and (4) to examine all

the steps taken by the secured creditor with a view to

find out as to whether the sale of secured assets was

made in conformity with the requirements contained in

Section 13(4) read with the Rules or not?

29. We also notice that Rule 9(5) confers express

power on the secured creditor to forfeit the deposit made

by the auction purchaser in case the auction purchaser

74

commits any default in paying installment of sale money

to the secured creditor. Such action taken by the secured

creditor is, in our opinion, a part of the measures

specified in Section 13(4) and, therefore, it is regarded as

a measure taken under Section 13(4) read with Rule 9(5).

In our view, the measures taken under Section 13(4)

commence with any of the action taken in clauses (a) to

(d) and end with measures specified in Rule 9.”

(emphasis supplied)

25.1In this case, the Supreme Court makes it clear that taking measures

under Section 13(4) of the Act would not be completed unless the entire

procedure laid down in Rules 8 and 9 for sale of the secured asset is fully

complied by the secured creditor. We have already noticed the scheme of

these Rules which provide sufficient safeguards to the borrower to protect

his property till the actual sale takes place and that he can even seek

restoration of possession after the sale is effected.

26.A Division Bench of this Court in Dilip Kumar Singh & Anr. Vs.

State of U.P. & Ors., Writ-C No. 58329 of 2012, decided on 14.12.2012,

while dealing with the writ petition instituted for quashing the order passed

by the District Magistrate, for providing police help for taking possession of

the mortgaged assets, dealt with Rule 8 in the light of the provisions of

Sections 14 and 17, and observed as under:

“The words "possession notice" as mentioned

in Rule 8(1) and (2) is a notice for taking possession

both actual possession or otherwise. Sub-rule (3) of

Rule 8 of the Security Interest (Enforcement) Rules,

2002 uses the words "in the event of possession of

immovable property is actually taken" which clearly

indicates that taking of possession may be actual or

may be constructive. Certain consequences follow

after taking actual possession as indicated in sub-

rules (3) and (4) of Rule 8. Thus before proceeding for

sale of the mortgaged assets Bank can take actual

possession as well as symbolic possession and the

scheme of the 2002 Act and the 2002 Rules do not

indicate that without taking actual possession, the Bank

cannot proceed with the sale of the mortgaged assets.”

(emphasis supplied)

75

26.1The Division Bench, in the concluding paragraph, recorded its opinion

that by mere filing an application under Section 17 of the Act, there is no

embargo on the Bank from proceeding under the Act.

27.A Full Bench of the Madras High Court in Lakshmi Shanker Mills

(P) Ltd. & Ors. Vs. Authorised Officer/Chief Manager, Indian Bank &

Ors., AIR 2008 Madras 181, considered the scheme of the provisions of

Section 13(4) and Section 17 and in paragraphs 10, 13 and 17, and observed

thus:

“10. The first question is whether the right of the

Bank to take proceedings under Section 13(4) shall

remain suspended on filing an application under Section

17. The second question concerns the jurisdiction of the

Debt Recovery Tribunal to impose a condition of deposit

for grant of stay of auction. Section 13(4) of the

Securitisation Act is pivotal to the whole controversy. It

provides that a secured creditor may enforce any security

interest without intervention of the court or tribunal

irrespective of Section 69 or Section 69-A of the Transfer

of Property Act where according to sub-section (2) of

Section 13 the borrower is a defaulter in repayment of the

secured debt or any instalment of repayment and further

the debt standing against him has been classified as a

non-performing asset by the secured creditor. Sub-section

(2) of Section 13 further provides that before taking any

steps in the direction of realizing the dues, the secured

creditor must serve a notice in writing to the borrower

requiring him to discharge the liabilities within a period

of 60 days failing which the secured creditor would be

entitled to take any of the measures as provided in sub-

section (4) of Section 13. Sub-section (4) of Section 13

provides for four measures which can be taken by the

secured creditor in case of non-compliance with the

notice served upon the borrower namely, (a) to take

possession of the secured assets including the right to

transfer the secured assets by way of lease, assignment or

sale; (b) to take over the management of the secured

assets including the right to transfer, (c) to appoint a

manager to manage the secured assets which have been

taken possession of by the secured creditor, and (d) to

require any person who had acquired any secured assets

from the borrower or from whom any money is due to

the borrower to pay the same as it may be sufficient to

pay the secured debt. Sub-section (3-A), which has been

76

inserted by the amendment, provides that if on receipt of

the notice under sub-section (2), the borrower makes any

representation or raises any objection, the secured

creditor shall consider such representation or objection

and if the secured creditor comes to the conclusion that

such representation or objection is not acceptable or

tenable, he shall communicate within one week of receipt

of such representation or objection the reasons for non

acceptance of the representation or objection to the

borrower. The proviso to sub-section (3-A) provides that

the reasons so communicated or the likely action of the

secured creditor at the stage of communication of reasons

shall not confer any right upon the borrower to prefer an

application to the Debts Recovery Tribunal under Section

17 or the Court of District Judge under Section 17-A. In

Mardia Chemical's case, the Supreme Court has clearly

held that such right accrues only if measures are taken

under sub-section (4) of Section 13 of the Securitisation

Act (para. 48 SCC page 348). Therefore, only if one or

other measure is taken by the secured creditor, a

cause of action arises for any person or borrower to

prefer an application under Section 17 of the

Securitisation Act.

13. Learned counsel for the borrowers however

argued that the use of the expressions "if" and "then"

would only mean that the bank can take one or more

measures laid down under Section 13(4) only if the

Tribunal declares that the action taken already is in

accordance with the provisions of the Securitisation Act

and the rules made thereunder. It was submitted that the

use of the word "if" connotes a condition precedent and

no further action can be taken unless the condition is

fulfilled. We are unable to accept the submission of the

learned counsel for the borrowers. The provisions of

Sections 13 and 17 are amended after the Marida

Chemicals case. The Statement of Objects and

Reasons makes it manifestly clear that the

amendment has been effected in view of the judgment

of the Supreme Court and to discourage the

borrowers to postpone the repayment of their dues

and also to enable the secured creditor to speedily

recover their dues, if required by enforcement of

security or other measures specified in sub-section (4)

of Section 13 of the Act. Legislature was clearly aware

of the ruling in Marida Chemicals case which interpreted

Section 17 as granting to the Tribunal a discretionary

power of stay. Accepting the submission of the

borrowers would mean that the Legislature intended

77

to undo this by enacting Section 17 so as to suspend

the power of the banks to take appropriate measures

under Section 13. It is a recognized rule of

interpretation of Statutes that expressions used

therein should ordinarily be understood in a sense in

which they harmonized with the object of the statute

and which effectuate the object of the legislature (See

New India Sugar Mills Ltd. v. Commissioner of Sales

Tax, AIR 1963 SC 1207). The provisions of Section 17

must therefore receive such construction at the hands

of the Court as would advance the object and at any

event not thwart it. In other words, the principle of

purposive interpretation should be applied while

construing the said provision. The Securitisation Act

is enacted to provide a speedy and summary remedy

for recovery of thousands of crores which were due to

the banks and financial institutions and accepting the

interpretation suggested by the counsel for the

borrowers would defeat the very object of the Act.

17. We accordingly hold that there will be no

automatic stay on filing of an application under Section

17 of the Securitisation Act, and the Tribunal while

granting stay of auction can impose a condition relating

to deposit.”

(emphasis supplied)

27.1The Full Bench in paragraph 22, summarised its opinion as follows:

“22. In the light of the foregoing discussion, we

summarise our findings as follows:-

(i) The right of the bank is not automatically

suspended upon filing of an application under Section 17

of the Securitisation Act and the secured creditor can

proceed to auction secured asset where no stay is granted

by the Tribunal.

(ii) The Tribunal has power to impose the

condition relating to deposit for grant of stay of auction.

(iii) The Tribunal has no power to pass any

interim mandatory order relating to restoration of

possession or restoration of management before the

finalisation of the proceedings under Section 17 of the

Securitisation Act, and

(iv) All such grounds, which rendered the action of

the bank/financial institution illegal, can be raised in the

proceedings under Section 17 of the Securitisation Act

before the Debt Recovery Tribunal. It is for the Debt

Recovery Tribunal to decide in each case whether the

action of the bank/financial institution was in accordance

78

with the provisions of the said Act and legally

sustainable.”

(emphasis supplied)

28.Next we would like to make detailed reference to the judgment of the

Supreme Court in Standard Chartered Bank Vs. V. Noble Kumar & Ors.,

(2013) 9 SCC 620, heavily relied upon by the Bank. A detailed reference to

this judgment perhaps would clinch the issue that falls for our consideration.

In that case, the first respondent was a guarantor to a loan transaction. The

first respondent had created a mortgage on certain property owned by him to

secure the loan. A notice under Section 13(2) of the Act was issued

demanding repayment of the loan amount alongwith interest within a period

of 60 days. The borrower neither made payment nor raised any objection to

the demand. Consequently, the Bank made an application under Section 14

of the Act in the Court of Chief Judicial Magistrate, requesting him to take

possession of the secured asset and to handover the same to the Bank. It was

argued before the High Court as well as before the Supreme Court that a

secured creditor before invoking the authority of the Magistrate under

Section 14 must necessarily make an attempt to take possession of the

secured assets. Only when the creditor faces resistance to such an attempt, it

can resort to the procedure under Section 14 of the Act. According to the

borrower, Section 17 of the Act provides an appeal only against the

measures taken by the creditor under Section 13(4) of the Act and no such

appeal is available against an action taken by the Judicial Magistrate under

Section 14 and therefore, permitting the creditor to invoke Section 14

without first resorting to the procedure under Section 13(4) would deprive

the owner of the secured assets an opportunity to prefer an appeal to have his

grievance adjudicated. In this backdrop, the Supreme Court, after

considering the scheme of Sections 13 and 17 of the Act, in paragraphs 26,

27 and 28 , observed thus:

“26. It is in the abovementioned background of

the legal frame of Sections 13 and 14, we are required

to examine the correctness of the conclusions recorded

by the High Court. Having regard to the scheme of

79

Sections 13 and 14 and the object of the enactment, we

do not see any warrant to record the conclusion

that it is only after making an unsuccessful attempt

to take possession of the secured asset, a secured

creditor can approach the Magistrate. No doubt that

a secured creditor may initially resort to the

procedure under Section 13(4) and on facing

resistance, he may still approach the Magistrate under

Section 14. But, it is not mandatory for the secured

creditor to make attempt to obtain possession on

his own before approaching the Magistrate under

Section 14. The submission that such a construction

would deprive the borrower of a remedy under Section

17 is rooted in a misconception of the scope of

Section 17.

27. The "appeal" under Section 17 is available to

the borrower against any measure taken under Section

13(4). Taking possession of the secured asset is only

one of the measures that can be taken by the secured

creditor. Depending upon the nature of the secured asset

and the terms and conditions of the security agreement,

measures other than taking the possession of the secured

asset are possible under Section 13(4). Alienating the

asset either by lease or sale etc. and appointing a person

to manage the secured asset are some of those possible

measures. On the other hand, Section 14 authorises the

Magistrate only to take possession of the property and

forward the asset along with the connected documents

to the borrower (sic the secured creditor). Therefore, the

borrower is always entitled to prefer an "appeal"

under Section 17 after the possession of the secured

asset is handed over to the secured creditor. Section

13(4)(a) declares that the secured creditor may take

possession of the secured assets. It does not specify

whether such a possession is to be obtained directly by

the secured creditor or by resorting to the procedure

under Section 14. We are of the opinion that by

whatever manner the secured creditor obtains

possession either through the process contemplated

under Section 14 or without resorting to such a

process obtaining of the possession of a secured asset

is always a measure against which a remedy under

Section 17 is available.

28. It can be noticed from the language of the

proviso to Section 13(3-A) and the language of Section

17 that an "appeal" under Section 17 is available to

the borrower only after losing possession of the

secured asset. The employment of the words "aggrieved

80

by ... taken by the secured creditor" (emphasis supplied)

in Section 17(1) clearly indicates the appeal under

Section 17 is available to the borrower only after

losing possession of the property. To set at naught any

doubt regarding the interpretation of Section 17, the

proviso to sub-section (3-A) of Section 13 makes it

explicitly clear that either the reasons indicated for

rejection of the objections of the borrower or the

likely action of the secured creditor shall not confer

any right under Section 17.”

(emphasis supplied)

28.1The Supreme Court also considered the Rules, in particular Rule 8 and

having regard to the scheme thereof, in paragraphs 31, 32 and 33, observed

thus:

“31. Under Rule 8, the secured creditor is

required to deliver to the borrower a notice prepared

as nearly as possible in Appendix IV to the Rules and

by affixing such notice to the property. Further sub-rule

(2) which came to be substituted in 2007 in original

provides that the notice contemplated under sub-rule (1)

is required to be published in two leading newspapers

having sufficient circulation in the locality of which at

least one should be in vernacular language. Prior to 2007

the requirement of publication in vernacular newspaper

was not there.

32. The High Court recognized that the language

of Rule 8 does not expressly warrant the compliance

with the procedure contemplated therein when Section

14 is resorted to for obtaining possession of the

secured asset:

"In the absence of the rule, the strict

compliance with the provisions of Section

13(4) and Rule 8, even in case of

possession taken by virtue of an order under

Section 14, assumes importance."

33. We are of the opinion that the High Court

clearly erred in recording such a conclusion. The

language of Rule 8 does not demand such a

construction. On the other hand, a Magistrate whose

functioning is structured by 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 Cr.P.C.

never prescribed for the procedure to be followed by the

Magistrate in a case where the Magistrate is required to

81

take possession of property. For example, under Section

83 of the Code, a criminal Court is authorized to attach

the movable or immovable property or both belonging to

a proclaimed offender. Sub-sections (3) and (4) to Section

83 specifically provide that once an order of attachment

under sub-section (1) is made by the criminal Court, the

property which is the subject matter of such attachment

shall either be seized or taken possession of as the case

may be depending upon the fact whether the property

is movable or immovable. Both the sub-sections

contemplate the appointment of receiver. It is declared

under sub-section(6) that the powers, duties and liabilities

of a receiver appointed under Section 83 are the same as

those of a receiver appointed under the Code of Civil

Procedure, 1908.”

(emphasis supplied)

28.2Then, in paragraph 36 of the judgment, the Supreme Court carved out

three methods for the secured creditor to take possession of the secured

assets. Paragraphs 36 and 37 of the judgment, read thus:

“36. Thus, there will be three methods for the

secured creditor to take possession of the secured assets:

36.1. (i) The first method would be where the

secured creditor gives the requisite notice under Rule

8(1) and where he does not meet with any resistance.

In that case, the authorised officer will proceed to take

steps as stipulated under Rule 8(2) onwards to take

possession and thereafter for sale of the secured assets to

realise the amounts that are claimed by the secured

creditor.

36.2. (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. In

that case he will take recourse to the mechanism provided

under Section 14 of the Act viz. making application to the

Magistrate. The Magistrate will scrutinize the application

as provided in Section 14, and then if satisfied, appoint an

officer subordinate to him as provided under Section 14

(1-A) to take possession of the assets and documents. For

that purpose the Magistrate may authorise the officer

concerned to use such force as may be necessary. After

the possession is taken the assets and documents will be

forwarded to the secured creditor.

36.3. (iii) The third situation will be one where

the secured creditor approaches the Magistrate

concerned directly under Section 14 of the Act. The

82

Magistrate will thereafter scrutinize the application as

provided in Section 14, and then if satisfied, authorise a

subordinate officer to take possession of the assets and

documents and forward them to the secured creditor as

under clause 36.2.(ii) above.

36.4. In any of the three situations, after the

possession is handed over to the secured creditor, the

subsequent specified provisions of Rule 8

concerning the preservation, valuation and sale of the

secured assets, and other subsequent rules from the

Security Interest (Enforcement) Rules, 2002, shall

apply.

37. In this connection, it is material to refer to the

judgment in Mardia Chemicals wherein the Court was

concerned with the legality and validity of the

SARFAESI Act. The Court held the Act to be valid

except Section 17(2) thereof as it then stood. In paras 59,

62 and 76 of the judgment the Court in terms held that in

remedy under Section 17 of the Act was essentially like

filing a suit in a civil court though it was called an

appeal. It is also relevant to note that in the ultimate

conclusions in para 80 of the judgment this Court held

in sub-para (2) thereof as follows: (SCC p. 362)

“80. (2) As already discussed earlier, on

measures having been taken under sub-section

(4) of Section 13 and before the date of

sale/auction of the property it would be open for

the borrower to file an appeal (petition) under

Section 17 of the Act before the Debts

Recovery Tribunal."

The grievance of the respondent that it will be left with

no remedy is, therefore, misplaced. As held by a

Bench of three Judges in Mardia Chemicals, it would

be open to the borrower to file an appeal under Section

17 any time after the measures are taken under Section

13(4) and before the date of sale/auction of the

property. The same would apply if the secured

creditor resorts to Section 14 and takes possession of

the property with the help of the officer appointed by the

Magistrate.”

(emphasis supplied)

28.3Thereafter, in the concluding paragraph 40, the Supreme Court

observed thus:

“40. In view of our conclusion on the scope of

Section 17 recorded earlier it would normally have been

open to the respondent to prefer an appeal under

83

Section 17 raising objections regarding legality of the

decision of the Magistrate to deprive the respondent of

the possession of the secured asset. But in view of the fact

that the respondent chose to challenge the decision of the

Magistrate by invoking the jurisdiction of the High

Court under Article 226 of the Constitution and in view

of the fact that the respondent does not have any

substantive objection as can be discerned from the

record, we make it clear that the respondent in the instant

case would not be entitled to avail the remedy under

Section 17 as the respondent stalled the proceedings for

a period of almost 4 years. It is worthwhile remembering

that the respondent did not even choose to raise any

objections to the demand issued under Section 13(2) of

the Act. However, we make it clear that it is always

open to the respondent to seek restoration of his

property by complying with sub-section 8 of Section

13 of the Act.”

(emphasis supplied)

28.4The Supreme Court in this case made it absolutely clear that no

remedy under Section 17(1) can be taken by the borrower unless he loses

actual possession of the secured assets. In other words, the borrower is

entitled to prefer an appeal under Section 17 after possession of the secured

asset is actually handed over to the secured creditor. The Supreme Court

observed that Section 13(4)(a) declares that the secured creditor may take

possession of the secured assets and it could be obtained directly by the

secured creditor or by restoring to the procedure under Section 14 of the Act.

In whatever manner, the secured creditor obtains possession, either through

the process contemplated under Section 14 or without restoring to such a

process, it is always a measure contemplated by Section 13(4), against

which a remedy under Section 17 is available. In other words, before losing

actual possession or unless the secured creditor obtains physical possession

of the secured asset it is not open to the borrower to take a remedy under

Section 17(1) of the Act. The Supreme Court in this judgment has also

noticed the safeguards provided to the borrower to protect his property

including seeking restoration thereof.

84

29.The upshot of legal position that emerges from the judgments of the

Supreme Court, insofar as the question referred to for our consideration is

concerned, briefly stated, is as under:

(a) The remedy of an application under Section 17(1) is available only after

the measures under Section 13(4) have been taken by the Bank/FIs against

the borrower.

(b) The issue of notice under Section 13(2) to the borrower and

communication contemplated by Section 13(3-A) stating that his

representation/objection is not acceptable or tenable, does not attract the

application of principles of natural justice. In other words, no recourse to an

application under Section 17(1), at that stage, is available/maintainable.

(c) The borrower/person against whom measures under Section 13(4) of the

Act are likely to be taken, cannot be denied to know the reason why his

application or objections have not been accepted, as a fulfillment of the

requirement of reasonableness and fairness in dealing with the same.

(d) One of the reasons for providing procedure under Section 13(4) read

with Rule 8 for taking possession is that the borrower should have a clear

notice before the date and time of sale/transfer of the secured assets, in order

to enable him to tender the dues of the secured creditor with all other

charges or to take a remedy under Section 17, at appropriate stage.

(e) The time of 60 days is provided after the “measures” under Section 13(4)

have been taken so as to enable the borrower to approach DRT and in such

an eventuality, the DRT shall have a jurisdiction to pass any order/interim

order, may be subject to conditions, on the application under Section 17(1)

of the Act.

(f) The scheme of relevant provisions of the Act and the Rules shows that

the Bank/FIs have been conferred with powers to take physical (actual)

possession of the secured assets without interference of the Court and the

only remedy open to the borrower is to approach DRT challenging such an

action/measure and seeking appropriate relief, including restoration of

85

possession, even after transfer of the secured assets by way of sale/lease, on

the ground that the procedure for taking possession or dispossessing the

borrower was not in accordance with the provisions of the Act/Rules.

(g) If the dues of the secured creditor together with all costs, charges and

expenses incurred by them are tendered to them (secured creditors) before

the date fixed for sale or transfer, the assets shall not be sold or transferred

and in such an eventuality, possession can also be restored to the borrower.

(h) If the possession is taken before confirmation of sale, it cannot be stated

that the right of the borrower to get the dispute adjudicated upon is defeated.

The borrower's right to get back possession even after the sale remains intact

or stands recognised under the scheme of the provisions of the Act.

(i) The borrower is not entitled to challenge the reasons communicated or

likely measure, to be taken by the secured creditor under Section 13(4) of

the Act, unless his right to approach DRT, as provided for under Section

17(1), matures. The borrower gets all the opportunities, at different stages,

either to clear the dues or to challenge the measures under Section 13(4) or

even to challenge the reasons rejecting his objections/not accepting the

objections, after the measures under Section 13(4) have been taken.

(j) While the banks have been vested with stringent powers for recovery of

their dues, safeguards have also been provided for rectifying any error or

wrongful use of such powers by vesting DRT with authority, after

conducting an adjudication into the matters, to declare any such action

invalid and also to restore even though the possession may have been made

over to the transferee.

(k) The safeguards provided under the scheme make it further clear that if

the Bank/FIs proceeds to take actual possession of the assets that cannot be

stalled by the interference of a Court.

(l) If DRT after examining the facts and circumstances of the case and on

the basis of evidence produced by the parties, comes to the conclusion that

any of the measures referred to in Section 13(4), taken by the secured

86

creditor is not in accordance with the provisions of the Act, it may by order

declare that the recourse taken to any one or more measures is invalid and

restore possession to the borrower.

(m) Any transfer of secured asset after taking possession thereof by the

secured creditor shall vest in the transferee all rights in, or in relation to the

secured asset as if the transfer had been made by the owner of such secured

assets.

(n) No remedy under Section 17(1) can be taken by the borrower unless he

loses actual (physical) possession of the secured assets. In other words,

before losing actual possession or unless the secured creditor obtains

physical possession of the secured asset under Section 13(4), it is not open to

the borrower to take a remedy under Section 17(1) of the Act.

30.It can thus be clearly seen that unless a notice under Section 13(2) of

the Act is issued to the borrower, giving him an opportunity to discharge in

full his liabilities to the secured creditor within sixty days (from the date of

notice), the secured creditor shall not be entitled to exercise all or any of the

rights under sub-section (4). Sub-section (3-A) of Section 13 of the Act, as

observed earlier, was introduced after the Mardia Chemicals (supra)

judgment, which gives further opportunity to the borrower, on receipt of the

notice under sub-section (2), to make any representation or raise any

objection, which the secured creditor is obligated not only to consider but

also to record its reasons if it comes to the conclusion that such

representation or objection is not acceptable or tenable and communicate the

reasons for non-acceptance to the borrower. Though such a procedure is so

prescribed, it is also made clear, by adding proviso to sub-section (3-A) and

Explanation to sub-section (1) of Section 17 that unless the “measures”

under sub-section (4) are taken, the borrower shall not have any right to take

recourse under Section 17(1) of the Act, by making an application to DRT

for any relief. Thus, under the provisions of the Act, it is not open to the

borrower to file an application at any stage till the “measures” under Section

13(4) are taken by the secured creditor.

87

31.Section 13(4) of the Act provides that if the borrower fails to

discharge his liability within the period prescribed under Section 13(2), the

secured creditor can take recourse to one of the measures, such as taking

possession of the secured assets, including the right to transfer by way of

lease, assignment or sale for realising the secured asset. From the language

of this provision, it is further clear that taking measure under Section 13(4)

(a) would mean taking actual (physical) possession, and if we do not read it

in the said provision to say so, the right and power of the secured creditor to

transfer the assets by way of lease, assignment or sale for realizing the

secured assets, as provided for therein, would render redundant. In other

words, putting such an interpretation on the language of Section 13(4) of the

Act would be atrocious and would defeat the very objective of bringing the

legislation. It is, therefore, not possible to hold that taking “measures” under

Section 13(4)(a) also means taking only “symbolic possession” and not

“physical possession”. We record further reasons to say so in following

paragraph. From the scheme of Section 13(4) and Sections 14 and 17 of the

Act and the relevant Rules 8 and 9 of the Rules, it appears to us that unless

physical possession is taken, the measure, contemplated under Section 13(4),

cannot be stated to have been taken.

31.1One of the rights conferred on a secured creditor is to transfer by way

of lease, the secured asset, possession or management whereof has been

taken under clauses (a) or (b) of sub-section (4) of Section 13. We have

already held that sale or assignment of the secured assets could only be

undertaken if actual physical possession has been taken over by the

bank/FI's. If we pose a question whether right to transfer the secured assets

by way of lease could be exercised without taking actual physical possession

of the secured asset or management of the business of the borrower, our

answer would be obviously in the negative.

31.2The word 'lease' has not been defined under the Act, but it has been

used in the Act in the same sense as under the Transfer of Property Act,

1882. Thereunder, Section 105 defines lease as “transfer of a right to enjoy

88

such property, made for a certain time, express or implied, or in perpetuity,

in consideration of a price paid or promised, or of money, a share of crops,

service or any other thing of value, to be rendered periodically or on

specified occasions to the transferor by the transferee, who accepts the

transfer on such terms. Lease is a contract between the lessor and the lessee

for the possession and profits of land, etc. on one side and the recompense

by rent or other consideration on the other. The estate transferred to the

lessee is called the leasehold. The estate remaining in the lessor is called the

reversion.

31.3The absolute owner, who is under no personal incapacity can grant

lease for any term he pleases. However, the limited owner like a tenant for

life can grant lease but it would not endure beyond his death. The Supreme

Court in Associated Hotels of India Ltd. Vs. R.N. Kapoor, AIR 1959 SC

1262, while making a distinction between lease and license observed thus:-

“A lease is a transfer of an interest in land. The

interested transferred is called the leasehold interest. The

lessor parts with his right to enjoy the property during the

term of the lease, and it follows from it that the lessee

gets that right to the exclusion of the lessor.

Under S. 52 if a document gives only a right to use

the property in a particular way or under certain terms

while it remains in possession and control of the owner

thereof, it will be a licence. The legal possession,

therefore, continues to be with the owner of the property,

but the licensee is permitted to make use of the

permissive for a particular purpose. But for the

permission, his occupation would be unlawful. It does

not create in his favour any estate or interest in the

property. There is, therefore, clear distinction between

the two concepts.”

31.4One of the essential indicia of lease is parting of exclusive possession

by the lessor to the lessee with conferment of reciprocal right in the lessee to

protect his possession during subsistence of the lease to the exclusion of the

lessor. Although in some cases, a licensee may also be given exclusive

possession of a property, but as observed above, parting of exclusive

possession to the lessee is a sine qua non for creating a valid lease. Thus,

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where a person is not in physical possession of a property nor in a position

to deliver physical possession in future, he is incompetent to create a valid

lease. The reason being that he is not in a position to confer upon the lessee

the right to enjoy the property to the exclusion of the lessor and everyone

else.

31.5It thus necessarily follow that the ultimate object of taking possession

of the secured asset or management of the business of the borrower would

not be achieved unless the secured creditor is in a position to further exercise

his right to transfer the same, inter alia, by way of lease or sale, which could

be possible only if physical (actual) possession has been taken over and not

constructive or symbolic possession. The language of Section 13(6) also

supports our view. Thus, while there is no bar in first taking symbolic

possession of the secured assets, but it is implicit in sub-section (4) of

Section 13 that the secured creditor has to thereafter proceed to take physical

(actual) possession in order to exercise its right to transfer by way of lease,

assignment or sale.

32.It is necessary to bear in mind that while the banks and financial

institutions have been vested with stringent powers for recovery of their

dues, safeguards have also been provided for rectifying any error or

wrongful use of such powers by vesting the DRT with authority after

conducting an adjudication into the matter to declare any such

“action/measure” invalid and also to “restore possession” even though

possession may have been made over to the transferee. Sub-section (3) of

Section 17 vest the DRT with authority to even set aside the transaction

including sale or to restore possession to the borrower in appropriate cases.

The provisions contained in Rules 8 and 9, lay down the procedure to take

possession of immovable secured assets from the borrower, to conduct its

sale and to deliver possession thereof to the transferee. As observed by the

Supreme Court in Noble Kumar (supra), there are three methods for the

secured creditor to take possession of the secured assets, firstly, to give

notice under Rule 8(1) of the Rules and take possession where the secured

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creditor does not meet with any resistance, secondly, after notice under Rule

8(1), if the secured creditor meets with resistance it would take recourse to

the mechanism provided under Section 14 of the Act, and thirdly, to directly

approach the Magistrate under Section 14 of the Act to take possession.

These observations further support our view that mere issuing a notice in

Appendix IV under 8(1) of the Rules, would not, in a given case, amounts to

taking “physical possession” particularly when the secured creditor meets

with resistance. After notice in Appendix IV, the borrower may resist the

attempt of a secured creditor to take “physical possession” and in which case

the act of taking actual possession would stand postponed/deferred. In other

words, merely because possession notice in Appendix IV is issued, does not

mean the measure under Section 13(4) is complete.

33.The possession notice in Appendix IV under Rule 8(1), appended to

the Rules, though states that the secured creditor has taken possession of the

secured asset, it informs the borrower and the public in general that

possession is taken and they are cautioned not to deal with the property. The

employment of the language of the notice in Appendix IV further supports

our view that giving notice itself would not mean taking physical possession.

The word “possession notice” undoubtedly means a notice for taking actual

possession or otherwise. The language of Rule 8(3) clearly demonstrates that

mere issuance of possession notice (Appendix IV) does not mean the

borrower loses possession. This provision starts with the expression “In the

event of possession of immovable property is actually taken”, which means

the first method of taking possession as observed by the Supreme Court in

Noble Kumar (supra), where borrower hands over possession or does not

resist the attempt to take possession by serving the possession notice in

Appendix IV. The process of taking measure under sub-section (4) of

Section 13 would be complete only when “physical possession” is taken and

not either “constructive” or “symbolic” possession. The scheme of the Act

and the judgment of the Supreme Court in Noble Kumar (supra), thus,

would show that in a given case the borrower may resist the attempt or act of

the secured creditor to take actual possession of the secured assets and in

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which case one may approach the Magistrate under Section 14 of the Act.

Taking steps under Rule 8 by issuing possession notice, thus, by itself would

not mean the borrower loses possession. Issuing notice in Appendix IV and

taking steps, where the secured creditor meets with resistance, in our

opinion, would not confer any right on the borrower to prefer any

application under sub-section (1) of Section 17 of the Act. If we hold that

even taking steps or an attempt of the bank of taking “measures” meeting

with resistance under Section 13(4) also attracts the provisions of sub-

section (1) of Section 17, that would be disastrous in the sense the very

objective of the Act would stand defeated/frustrated and no bank would ever

be able to recover the dues on time.

34.Thus, the scheme of the provisions of Sections 13 and 17 of the Act,

read with Rules 8 and 9 of the Rules, would show that the “measure” taken

under Section 13(4)(a) read with Rule 8 would not be complete unless actual

(physical) possession of the secured assets is taken by the Bank/Financial

Institutions. In our opinion, taking measure under Section 13(4) means either

taking actual/physical possession under clause (a) of sub-section (4) of

Section 13 or any other measure under other clauses of this Section and not

taking steps to take possession or making unsuccessful attempt to take

measure under Section 13(4) of the Act. Similarly, following the procedure

laid down under Section 14 and/or Rules 8 and 9, where the Bank meets

with resistance, would only mean taking steps to seek possession under

Section 13(4)(a) and the “measure” under sub-section (4)(a) of Section 13

would stand concluded only when actual/physical possession is taken or the

borrower loses actual/physical possession. It is at this stage alone or

thereafter, the borrower can take recourse to the provisions of Section 17(1)

of the Act. The transfer of possession is an action. Mere declaration of

possession by a notice, in itself, cannot amount to transfer of possession,

more particularly where such a notice meets with resistance. When the

possession is taken by one party, other party also loses it. In the present case,

adversial possession in being claimed by the secured creditor against the

borrower. It is not possible that both will have possession over the secured

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assets. The possession of the secured creditor would only come into place

with the dispossession of the borrower. We may also observe that in a

securitisation application under Section 17(1), the borrower will have to

make a categoric statement that he lost possession or he has been

dispossessed and pray for possession.

35.Issuance of possession notice, as observed earlier, gives borrower and

the public in general an intimation that the secured creditor has taken

possession of the property and at that stage, it is quite possible, may be in

view of resistance or if the Banks chooses to take only symbolic possession,

to state that the secured creditor has taken symbolic/constructive possession

and not physical possession, but that by itself would not entitle the borrower

to raise challenge under Section 17(1) of the Act, as held by the Supreme

Court in Noble Kumar (supra). Unless the borrower loses actual (physical)

possession, he cannot take recourse to provisions of Section 17(1). Even

while taking steps under Section 13(4) of the Act read with Rule 8 of the

Rules, in a given case, the bank may not physically dispossess the borrower

and wait till it takes steps to conduct actual sale/auction of the secured assets

i.e. till he issues notice under Rule 8(6) of the Rules. Even that by itself,

from the scheme of the Act and the Rules, in the backdrop of the objective of

the Act, in our opinion, does not confer any right to take recourse to Section

17(1). The borrower can file securitisation application under Section 17(1)

only when he physically loses possession.

36.Though the provisions of Section 13(4) show that the banks and

financial institutions have been vested with stringent powers for recovery of

dues, it is seen from various judgments of the Supreme Court, interpreting

the provisions of the Act, lots of safeguards are provided at different stages,

and when the right to make an application under Section 17(1) matures and

the borrower approaches DRT, it is open to the DRT, if it comes to the

conclusion that any of the measures referred to in sub-section (4) of Section

13, taken by the secured creditor, are not in accordance with the provisions

of the Act, to restore possession of the secured asset to the lessee. In other

93

words, in order to prevent misuse of such wide powers and to prevent

prejudice being caused to a borrower on account of an error on the part of

the banks or financial institutions, checks and balances have been introduced

in Section 17, which allow any person, including the borrower, aggrieved by

any of the measures referred to in sub-section (4) of Section 13 taken by the

secured creditor, to pass such an order that may be necessary in the interest

of justice including restoration of possession, even after sale/transfer of the

secured assets.

37.In the present case, it appears that the bank had issued notice under

Rule 8, read with Appendix IV of the Rules, for possession, and it was

specifically mentioned therein that a “symbolic possession” of their

immovable secured assets, as described in the Schedule to the notice had

been taken under Section 13(4) of the Act. We are not on the language used

by the bank in the notice and we are also not considering merits of the case.

We are only looking into the provisions of the Act and the judgments of the

Supreme Court, interpreting the provisions of the Act and the Rules, so as to

answer the question referred to for our consideration. The Bank's wrong, if

any, would certainly not guide us in interpreting the provisions of law and to

answer the question referred to for our consideration. The right to make an

application, as observed earlier, would get matured only when actual

(physical) possession is taken under Section 13(4) of the Act. Mr. Mathur,

learned counsel for the borrower, vehemently submitted that “every action

(including issuing notice under Rule 8 in Appendix V) taken under Section

13(4)” of the Act is amenable to challenge under Section 17 and that there is

no justification for making an artificial distinction between the taking of

“actual/physical” possession and taking of “symbolic/constructive”

possession. The submission “every action taken under Section 13(4)” would,

in our opinion, not mean steps taken for taking action/measure under Section

13(4)(a). Merely taking step to take possession is not amenable to challenge

under Section 17. The action of taking possession is not an automatic

process, in the sense that the moment notice is issued, means “physical

possession” is taken or the borrower stands dispossessed physically or loses

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possession. The expression “symbolic possession” means “constructive

possession” or in other words “paper possession” and not “physical” or

“actual possession”.

38.The concept of “symbolic possession” needs to be understood in the

light of the scheme of the Act and Rules and also the object in introducing

the Act. As observed earlier, the primary objective of the Act was not only to

bring into existence special procedural mechanism for speedy recovery of

the dues of the banks and financial institutions, but also for ensuring that

defaulting borrowers are not able to frustrate the proceedings initiated by the

banks and other financial institutions. Even in the Statement of Objects and

Reasons, after making reference to the Narasimham Committee and

Andhyarujina Committee, it was stated that these Committees, inter alia,

have suggested enactment of new legislation for securitisation and

empowering the banks and financial institutions to take possession of the

securities and sell them without intervention of the Court. The Statement of

Objects and Reasons further state that the provisions in the Act would enable

banks and financial institutions to realise long term assets, manage problems

of liquidity, asset liability mismatches and improve recovery by exercising

powers to take possession of the securities, sell them and reduce non-

performing assets by adopting measures for recovery or reconstruction.

Having regard to the objective of the Act and the Rules framed thereunder

and also considering the scheme of the relevant provisions, it is not possible

for us to hold that taking “symbolic possession” means taking a measure

under sub-section (4) of Section 13 so as to attract the provisions of Section

17(1) of the Act. If we so hold, that would only mean that the moment

“symbolic possession” is taken and before further steps for seeking actual

(physical) possession for recovery of outstanding dues are taken including

for transferring the assets by way of lease, assignment or sell, the borrower

would be entitled to challenge the action of taking symbolic possession by

way of an application under Section 17(1) of the Act, and in which case the

DRT would have powers to grant stay of all further proceedings at that stage.

This is not the intent of the Legislature.

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39.As observed by the Supreme Court in Noble Kumar (supra) the

grievance of the respondent that it will be left with no remedy, is misplaced.

We have also observed in the foregoing paragraphs that there are several

stages at which the safeguards are provided in interest of the borrower. The

last such a safeguard is to give a notice of thirty days for sale of immovable

assets as per sub-rule (6) of Rule 8 so as to enable the borrower to arrange

the dues and seek release of the property. We have also seen from the

judgments of the Supreme Court and even while looking into the provisions

of the Act that how the safeguards are provided in the scheme of the Act and

the Rules and why, under any circumstance, it can not be stated that the

borrower is not left with any remedy. The borrower is always entitled to

prefer an application under Section 17 even after the actual possession of the

secured assets is taken and/or handed over to the secured creditor. In our

opinion, at the cost of repetition, the scheme of the Act shows that even if

the notice under Appendix IV under the Rules is given, it would not mean

that actual or physical possession is taken. Such an attempt, if there is a

resistance from the borrower, would only amount to taking steps to take

physical possession, and therefore, the borrower will have to wait till he

loses actual/physical possession for taking recourse to Section 17(1) of the

Act. In case of resistance, the secured creditor can file an application, in

writing, to the District Magistrate or Chief Metropolitan Magistrate, for the

purpose of taking possession of such secured assets. The difference between

“taking measures or initiating the measures” and “completing the measures”

needs to be understood in the light of the objective of the Act. Till actual

(physical) possession is taken, it cannot be stated that the measures taken

under Section 13(4) are complete and unless the “measures” are taken that is

to say “physical/actual” possession is taken or the borrower loses

possession, he shall not have any right to approach DRT under Section 17(1)

of the Act on any ground whatsoever.

40.We are, therefore, of the firm and considered opinion that taking

“symbolic possession” or issuance of possession notice under Appendix IV

of the Rules, meeting with any resistance, cannot be treated as “measure”/s

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taken under Section 13(4) of the Act and, therefore, the borrower at that

stage cannot file an application under Section 17(1) before DRT. In other

words, a securitisation application under Section 17(1) of the Act is

maintainable only when actual/physical possession is taken by the secured

creditor or the borrower loses actual/physical possession of the secured

assets. Once the right to approach DRT matures and securitisation

application under Section 17(1) is filed by the borrower, it is open to DRT to

deal with the same on merits and pass appropriate orders in accordance with

law. Thus, the question referred to for our consideration stands answered in

terms of this judgment. The judgment of this Court in Aum Jewels (supra),

in our opinion, does not enunciate the correct law.

41.The Registry is directed to place the writ petitions before appropriate

Bench for hearing on merits in the light of the opinion expressed (law laid

down) in this judgment.

February 6

th

, 2018

VMA

(Dilip B Bhosale, CJ)

(Dr. D.K. Arora, J)

(Vivek Chaudhary, J)