VBC 1 wp8561.10-30.8 IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE WRIT PETITION NO.8561 OF 2010 Asset Recovery Corporation India Ltd. ..Petitioner. versus State of Maharashtra & Ors. ..Respondents. ..... Mr.Rafeek Peermohideen with Mr.Abhileen Chaturvedi and Mr.Atul Singh i/b. Paras Kuhad & Associates for the Petitioner. Mr.R.P. Behare, Addl.G.P. for Respondent No.1. Mr.Niranjan Shimpi for Respondent Nos.3 and 4. ..... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. August 30, 2011. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) : In these proceedings, the Petitioner, which is an Asset Reconstruction Company, registered under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, has impugned the validity of an order passed by the Sub Divisional Magistrate at Solapur on 16 July 2010 dismissing an application under Section 14. 2. The Petitioner issued a notice under Section 13(2) to the Third and Fourth Respondents on 15 July 2009. The Third VBC 2 wp8561.10-30.8 Respondent had taken a loan from the ICICI Bank for purchasing a house. The loan was secured by a mortgage of the immovable property in question, situate at Solapur. The Bank is stated to have assigned the debts and liabilities of the Third and Fourth Respondents to the Petitioner. Accordingly, by its notice dated 15 July 2009, issued under Section 13(2), the Petitioner called upon the Third and Fourth Respondents to pay an amount of Rs.5.41 lakhs on 21 December 2009. The Petitioner informed the Third and Fourth Respondents that it would take possession of the secured asset. The authorised officer sought to take possession on 4 January 2010, but according to the Petitioner, the Third and Fourth Respondents declined to hand over possession. On 15 February 2010, an application was filed before the Second Respondent, the Sub Divisional Magistrate at Solapur, for an order under Section 14. The Second Respondent dismissed the application by his impugned order dated 16 July 2011. The Second Respondent has observed that (i) The Petitioner had not furnished a reply to the objection raised by the Third and Forth Respondents to the notice under Section 13(2) in breach of the provisions of Section 13(3A); (ii) The panchanama drawn at the VBC 3 wp8561.10-30.8 stage of taking a measure under Section 13(4) appears to be doubtful; and (iii) The notice had not been published in the newspapers as required. Accordingly, the Second Respondent rejected the application holding that considering the legal and factual position, the Petitioner had failed to the follow proper procedure laid down under the Act. 3. Counsel appearing on behalf of the Petitioner submitted that the Second Respondent has transgressed the limits of his jurisdiction while passing an order under Section 14. Counsel submitted that by virtue of the judgment of a Division Bench of this Court in Trade Well vs. Indian Bank,1 the District Magistrate while exercising powers under Section 14 is required to decide only two issues namely: (i) Whether the immovable property falls within his jurisdiction; and (ii) Whether a notice of demand under Section 13(2) has been served on the borrower. In the present case, it was urged that admittedly the property is situated at Solapur within the jurisdiction of the Second Respondent. Moreover, it has been admitted that the notice under Section 1 2007 Bom.C.R. (Cri) 783 VBC 4 wp8561.10-30.8 13(2) was served on the Third and Fourth Respondents. 4. On the other hand, Counsel appearing on behalf of the Third and Fourth Respondents sought to rely upon the judgment of a Learned Single Judge of the Karnataka High Court in Vijaya Bank vs. Shameem Transport,2 and supported the reasoning contained in the impugned order. 5. The parameters of the jurisdiction that is exercised by the District Magistrate under Section 14 has been explained in a judgment of the Division Bench of this Court in Trade Well (supra). The Division Bench has observed that while passing an order under Section 14, the District Magistrate has to consider only two aspects. He has to first determine whether the secured asset falls within his territorial jurisdiction. Secondly, the District Magistrate has to determine whether the notice under Section 13(2) has been furnished. The Division Bench held that no adjudication is contemplated at that stage. The principles which have been enunciated in the judgment of the Division Bench are 2 (2007) 137 Comp Cas 428 Karnataka VBC 5 wp8561.10-30.8 inter alia as follows: “1. The bank or financial institution shall, before making an application under section 14 of the NPA Act, verify and confirm that notice under Section 13(2) of the NPA Act is given and that the secured asset falls within the jurisdiction of CMM/DM before whom application under section 14 is made. The bank and financial institution shall also consider before approaching CMM/DM for an order under section 14 of the NPA Act, whether section 31 of the NPA Act excludes the application of sections 13 and 14 thereof to the case on hand. 2. CMM/DM acting under section 14 of the NPA Act is not required to give notice either to the borrower or to the 3rd party. 3. He has to only verify from the bank or financial institution whether notice under section 13(2) of the NPA Act is given or not and whether the secured assets fall within his jurisdiction. There is no adjudication of any kind at that stage. 4. It is only if the above conditions are not fulfilled that the CMM/DM can refuse to pass an order under section 14 of the NPA Act by recording that the above conditions are not fulfilled. If these two conditions are fulfilled, he cannot refuse to pass an order under section 14. 5. Remedy provided under section 17 of the NPA Act is available to the borrower as well as the third party. 6. Remedy provided under section 17 is an efficacious alternative remedy available to the third party as well as to the borrower where all grievances can be raised.” VBC 6 wp8561.10-30.8 6. The impugned order of the Second Respondent has clearly transgressed the limitations on his jurisdiction. The Second Respondent has virtually entered upon an adjudication by coming to the conclusion that the procedure under the Act has not been complied with. The objection of the Third and Fourth Respondents to the adoption of a measure under Section 13(4), has to be addressed before the DRT under Section 17 of the Act. Those objections cannot be either urged before the District Magistrate or be adjudicated at the stage when the Bank or financial institution seeks an order under Section 14. Under Section 14, it has been provided that the District Magistrate, within whose jurisdiction the secured asset is situated, can be moved where possession of the asset is required to be taken by the secured creditor or if any of the secured assets is required to be sold or transferred by the secured creditor under the Act. The order of the District Magistrate under Section 14 is in aid of the measure that the secured creditor seeks to take under Section 13 (4) by taking over possession of the secured asset. As a matter of fact, as was held by the Division Bench in Trade Well, even a notice to the borrower is not contemplated at that stage. The remedy of the borrower is under VBC 7 wp8561.10-30.8 Section 17, once the measure has been taken under Section 13(4). The judgment of the Learned Single Judge of the Karnataka High Court in Vijaya Bank case, in fact, also adopts a position in law consistent with what has been stated in the judgment of this Court in Trade Well. In any event, the Second Respondent was duty bound to act in accordance with the law laid down by this Court, which is binding upon him. In failing to do so and in virtually entering upon the merits of the entitlement of the Petitioner, the Second Respondent has exceeded his jurisdiction. There is absolutely no dispute about the position that a notice under Section 13(2) was served on the Third and Fourth Respondents and that the secured asset is within the jurisdiction of the Second Respondent. Once these two facts were established, the Second Respondent could not have refused to pass an order under Section 14. 7. The Learned AGP has placed on the record of the Court, two letters addressed to the Second Respondent on 18 November 2010 and 17 January 2011 by the office of the Government Pleader requesting him to furnish instructions to file an affidavit in reply in VBC 8 wp8561.10-30.8 these proceedings. No reply has been filed by the Second Respondent despite adequate communication to that effect by the office of the Government Pleader. 8. For these reasons, we allow the Petition by setting aside the impugned order of the Sub Divisional Magistrate at Solapur dated 16 July 2010 in Application No.4 of 2010. We direct that the Second Respondent shall, within a period of one week from the date on which an authenticated copy of this judgment is produced before him, pass an order under Section 14 and thereupon take steps forthwith to effectuate compliance with the order. The Second Respondent shall take necessary steps under Sub-section (2) of Section 14 for effectuating compliance. 9. The Petition is disposed of in the aforesaid terms. No order as to costs. ( Dr.D.Y.Chandrachud, J.) ( A. A. Sayed, J.)