IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE J.B.KOSHY & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN WEDNESDAY, THE 13TH AUGUST 2008 / 22ND SRAVANA 1930 WA.No. 428 of 2008 --------------------------- AGAINST THE JUDGEMENT IN W.P.C.NO.4916/2008 DATED 11/02/2008. .................... APPELLANTS: --------------------- 1. MUHAMMED ASHRAF, AGED 38 YEARS, S/O. K.V.ABDULLA HAJI, ASHARAF MANZIL, PERUVALATH PARAMBA, IRIKKOOR, KANNUR DISTRICT. 2. SMT. C.ARIFA, AGED 31 YEARS, W/O. ASHRAF, ASHARAF MANZIL, PERUVALATH PARAMBA, IRIKKOOR, KANNUR DISTRICT. BY ADV. SRI.VARGHESE C.KURIAKOSE, ADV. SRI.PRAVEEN K. JOY, ADV. SRI.E.M.MURUGAN. RESPONDENTS: ----------------------- 1. UNION OF INDIA, REP. BY SECRETARY, MINISTRY OF BANKING AFFAIRS, NEW DELHI. 2. STATE OF KERALA, REP. BY ITS SECRETARY,MINISTRY OF HOME AFFAIRS, SECRETARIAT, TRIVANDRUM. 3. THE CHIEF JUDICIAL MAGISTRATE, THALASSERY, KANNUR DISTRICT. 4. THE STATE BANK OF TRAVANCORE, SREEKANDAPURAM, REP. BY ITS AUTHORISED OFFICER & CHIEF MANAGER, REGIONAL OFFICE, KANNUR. W.A. NO. 428/2008: 5. THE TAHSILDAR, TALUK OFFICE, THALIPARAMBA TALUK, KANNUR DISTRICT. *ADDL.R6. THE BRANCH MANAGER, VIJAYA BANK, M.G. ROAD BRANCH, JOSE ANNEXE, JUNCTION, ERNAKULAM. *ADDL. R6. IMPLEADED AS PER ORDER DATED 27/06/08 IN I.A. NO. 575/08. SR. GOVT. PLEADER SRI. BENNY GERVACIS FOR R2, R3 & R5, SRI.P.PARAMESWARAN NAIR,ASST.S.G FOR R.1 ADV. SRI.T.KRISHNAN UNNI (SR.) FOR R4, ADV. SRI.SANTHOSH MATHEW FOR R4, ADV. SMT.MOLY.E.V., CGC FOR R1, ADV. SRI.K.ANAND,SC, VIJAYA BANK FOR ADDL.RES. ADV. SMT.LATHA KRISHNAN,SC, VIJAYA BANK FOR ADDL.RES., ADV. SRI.SATHISH NINAN FOR R4. THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 17/07/2008, ALONG WITH W.P.(C). NO. 19440/ 2007 AND CONNECTED CASES, THE COURT ON 13/08/2008 DELIVERED THE FOLLOWING: prv. J.B.KOSHY & P.N.RAVINDRAN, JJ. --------------------------------------------------------- W.A.No.428 of 2008, W.P.(C)Nos.13512 of 2007, 7956, 13954, 14048, 14910, 15545, 16691, 17647, 17672, 18441, 19315, 19440 of 2008 and Crl.R.P.1726 of 2008 ---------------------------------------------------------- Dated August, 2008 JUDGMENT Koshy,J . In all these cases, the main point argued by the petitioners is that Chief Judicial Magistrate is not vested with the power and jurisdiction to deal with application under section 14 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act 54 of 2002) (in short `the Securitisation Act'). In some of the writ petitions, constitutional validity of section 14 of the Securitisation Act was also challenged, but, no arguments were raised regarding the same. In two writ petitions, it was also contended that Chief Judicial Magistrate, even if has jurisdiction, cannot depute a Commissioner for taking possession of the secured assets. We note that the Hon'ble Supreme Court has in Mardia Chemicals Ltd. etc. v. Union of India and others (AIR 2004 SC 237) upheld the validity of the provisions of the Securitisation Act except sub.section 2 of section 17 which was declared ultra vires Article 14 of the Constitution of India. The said sub-section originally provided deposit of seventy five per W.A.428/2008 & connected cases 2 cent of the amount claimed before entertaining an appeal before the Debts Recovery Tribunal under section 17 of the Securitisation Act. Thereafter, the Act was amended by Amendment Act 30 of 2004 and requirement of deposit of 75% of the amount claimed was deleted. In view of the above, it is not possible for the petitioners to challenge the constitutional validity of the section . Before answering the question whether Chief Judicial Magistrate has got power under section 14, we may consider the scope of section 14 of the Securitisation Act. 2. Section 14 of the Securitisation Act reads as follows: “14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.- (1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, 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 assets and documents to the secured creditor. W.A.428/2008 & connected cases 3 (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 done in pursuance of this section shall be called in question in any court or before any authority.” A plain reading of the above section shows that it is a procedural section wherein the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, shall render assistance to take possession of secured assets or documents relating to the assets and forward such assets and documents to the secured creditor. Under sub-section (2) of section 14, the authority is empowered to take such steps and use such force, as may be necessary, for taking possession of the secured assets and the documents relating thereto. Sub- section (3) of section 14 further provides that such act of the authority is protected and the action shall not be questioned in any court or before any authority. As pointed out by the petitioners, a trial or adjudication of dispute is not contemplated by the Magistrate under the above section. Of course, Magistrate can consider whether secured property is identifiable and whether 60 days' notice was issued under section 13(2) as secured creditor can resort to section 13(4) and take possession of the secured assets only after issuing W.A.428/2008 & connected cases 4 notice. In this connection, we refer to section 13 of the Securitisation Act which reads as follows: “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 the 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). (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. (3A) 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 W.A.428/2008 & connected cases 5 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 17A.) (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;” (rest not relevant for this case) Under section 14 of the Securitisation Act, Chief Metropolitan Magistrate or District Magistrate is only executing that power and assisting the secured creditor to take possession of the secured assets. No appeal or any other proceedings will lie against the orders passed under section 14. Of course, right of judicial review under Articles 226 and 227 of the Constitution of India cannot be taken away. But, that power can be exercised only on very limited well settled grounds. The rights given to the borrower under the Securitisation Act are summarised by the Hon'ble Supreme Court in Mardia's case (supra) at paragraphs 80 and 81. We quote the same as follows: W.A.428/2008 & connected cases 6 “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 Debt Recovery Tribunal. The above noted provisions are for the purposes 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 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 Debt 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 Debt 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 as it may deem fit and proper to impose. W.A.428/2008 & connected cases 7 4. In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of 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 Debt 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.” 3. Section 17 of the Securitisation Act provides a right of appeal. If any person is aggrieved by any of the measures, referred to in sub-section (4) of section 13, taken by the secured creditor or his authorised officer, he may make an application to the Debts Recovery W.A.428/2008 & connected cases 8 Tribunal within 45 days from the date on which such measures had been taken. The Debts Recovery Tribunal/the appellate forum is also given power to restore possession. Section 17(1) to (4) of the Securitisation Act are quoted below: “17. Right to appeal.- (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 from the date on which such measures 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 sub-section (1) of section 17.) (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 W.A.428/2008 & connected cases 9 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 of the secured assets to the borrower or restoration or possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub- section (4) of section 13 taken by the secured assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the secured assets to the borrower, as the case may be, and pass such order 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.” Therefore, under section 14 of the Securitisation Act, Chief Metropolitan Magistrate or District Magistrate, as the case may be, is only rendering assistance to the secured creditor in exercising the right given to the creditor under section 13(4) and remedy of the aggrieved party is to file an appeal before the Debts Recovery Tribunal under section 17. It is clear that under sub-sections (2), (3) W.A.428/2008 & connected cases 10 and (4) of section 17 of the Securitisation Act, the statute has provided a complete code, including the powers to the Tribunal to declare any of the measures taken by the secured creditor under section 13(4) of the Securitisation Act invalid and consequential restoration of possession to the person from whom the possession was taken. In the absence of any adjudicatory power vested in the Magistrate under section 14, the above authority cannot exercise statutory powers vested in the Tribunal. From orders of the Tribunal a further appeal will lie to Appellate Tribunal under section 18 of the Securitisation Act. Under section 34 of the Securitisation Act, jurisdiction of Civil Courts to entertain any suit or proceeding is barred. Therefore, aggrieved person has to approach the Tribunal or Appellate Tribunal, as the case may be, under sections 17 and 18 and if possession is taken under section 14, other authorities are prohibited from dealing with the subject matter which can be exclusively determined by the Tribunal. Hence, the authority who is called upon to act under section 14 of the Securitisation Act can only assist the secured creditor in taking possession of the secured assets. The disputes raised between the parties before the authority cannot be adjudicated by it, but, the authority can relegate the aggrieved person to seek statutory remedy under the Securitisation Act after taking possession and handing over to the secured creditor. It is for the borrower to move for stay of the sale or W.A.428/2008 & connected cases 11 confirmation of sale of the property put in possession of the secured creditor. Possession handed over may be symbolic or physical. If physical possession is handed over, the creditor is entitled to put back the borrower in possession if borrower wins before the Tribunal. Before the secured creditor approaching the Magistrate under section 14, notice under section 13(2) must be issued. The Hon'ble Supreme Court has in M/s.Transcore v. Union of India (AIR 2007 SC 712) held as follows: “56. 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 sale certificate and delivery of possession. W.A.428/2008 & connected cases 12 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 of 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 NPA Act refers to right of appeal. Section 17(3) states that if the 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 the 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 W.A.428/2008 & connected cases 13 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, 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 XL, 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.” A reading of the statutory provisions would show that under section 14 of the Securitisation Act, the Magistrate is only rendering W.A.428/2008 & connected cases 14 assistance to the secured creditor in taking possession of the secured assets as provided under section 13(4) of the Securitisation Act. After 60 days' notice as prescribed under section 13(2), secured creditor can approach the Magistrate for taking possession of the land. Magistrate has no power to refuse the request, but, before taking action,