IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 30.07.2009 CORAM: THE HONOURABLE MR.JUSTICE P.K.MISRA AND THE HONOURABLE MR.JUSTICE R.SUBBIAH Writ Petition Nos.9043, 9044 and 10228 of 2009 and M.P.Nos.1 and 2 of 2009 W.P.No.9043 of 2009 M/s.Kathikkal Tea Plantations, rep.by its Managing Director, N.Thiruneelakandan, Melur, Kil-Kotagiri Bazaar Post, The Nilgiris-643 271. ..Petitioner ..vs.. 1. State Bank of India rep.by its Chief Manager, V.M.Palaniswamy, 5/273, Kil-Kotagiri Branch, Kil-Kotagiri Bazaar Post, The Nilgiris. 2. P.Srinivasa Varma (R2 impleaded vide order of Court dt.08.07.2009 in M.P.3/2009) ..Respondents W.P.No.9044 of 2009 M/s.B.P.V.Classic Tea Factory (P) Ltd., rep.by its Managing Director, D.K.Baskaran, 401/A, Kotagiri Road, Kattabettu Post, Nilgiris. ..Petitioner ..vs.. Corporation Bank, Coonoor Branch, rep.by its Authorized Officer, Mr.V.Bhaskar Pai, No.88, 89, Sims Park Road, Gray's Hill, Coonoor. ..Respondent https://hcservices.ecourts.gov.in/hcservices/ W.P.No.10228 of 2009 M/s.Merit Resorts Pvt.Ltd., rep.by its Director Mrs.S.Shalini, No.1997, 13th Main Road, Anna Nagar, Chennai-600 040. ..Petitioner ..vs.. 1. The Authorised Officer, Canara Bank, Teynampet Branch, Teynampet, Chennai-18. 2. Sri Lakshmi Ammal Educational Trust, rep.by its Authorised Signatory S.K.Anantharaj, No.29, Tilak Street, T.Nagar, Chennai-600 017. ..Respondents W.P.No.9043 of 2009 filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari, calling for the entire records on the file of the Sessions Judge, Nilgiris in Crl.M.P.No.424 of 2008 and quash the order dated 16.04.2009 granting police protection to take possession of the petitioner's property measuring a total extent of 14.17 acres including factory in R.S.No.163/3, 161, 210/1B, 210/2, 233/2, 121/10, 121/1, 372/3, 68/2C2 in Kengarai Village, Kotagiri Taluk, Nilgiris District and 8.74 acres in R.S.No.202/2, 203/1, 203/2A1 and 457/4 in Konavakorai Village, Kotagiri Taluk, Nilgiris District. W.P.No.9044 of 2009 filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari, calling for the entire records on the file of the Sessions Judge, Nilgiris, in Crl.M.P.No.2 of 2009 and quash the order dated 09.04.2009 granting police protection to take possession of the petitioner's property bearing door No.401-A and 1.23 acres of land in R.S.No.500/1 and 501/A, Naduhatty Panchayat, Kotagiri, The Nilgiris. W.P.No.10228 of 2009 filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari, calling for the records on the file of the Sessions Judge of Nilgiris at Udhagamandalam in Crl.M.P.No.141 of 2009 and quash the order dated 29.04.2009 granting police protection to take possession of the petitioner's property measuring to an extent of 10.34 acres, namely, the land and building bearing Door No.4/278, Ooty-Kothagiri Main Road, Doddabetta Junction, Nilgiris-643 001 comprised in R.S.No.222/1, New R.S.No.630/1 building measuring 77,222 sq.ft. https://hcservices.ecourts.gov.in/hcservices/ For Petitioners : Mr.K.Sridhar (W.P.9043 & 9044/2009) Mr.G.Desingu in W.P.10228/2009 For Respondents : Mr.K.Sankaran for R1(W.P.9043/2009 Ms.A.L.Gandhimathi for R2(9043/2009) Mr.S.Sethuraman in W.P.9044/2009 Mr.B.K.Seshadri for Mr.Srinath Sridevan for R1 (W.P.10228/2009) Mr.G.Masilamani, Senior Counsel for Mr.Venkatesh Mahadevan for R2 (W.P.10228/2009) COMMON ORDER R.SUBBIAH, J., Since the issue involved in all the writ petitions is one and the same, they are disposed of by a common judgment. 2. The core issue involved in all the writ petitions is, whether the respondents banks can take possession of the secured assets after issuing sale certificates in respect of auction purchasers. 3. The facts, which necessitated to raise the above question by the writ petitioners, are as follows: The petitioner in W.P.No.9043 of 2009 is M/s.Kathikkal Tea Plantations, represented by its Managing Director. The petitioner had availed a loan from the 1st respondent bank by mortgaging the property viz., the land measuring to 1.7 acres in R.S.No.163/3, 161, 210/1B, 210/2, 233/2, 121/10, 121/1, 372/3, 68/2C2 in Kengarai Village, Kotagiri Taluk, Nilgiris District and another 8.74 acres in R.S.No.202/2, 203/1, 203/2A1 and 457/4 in Konavakorai Village, Kotagiri Taluk, Nilgiris District. Since there was a default in making payment to the respondent bank by the petitioner, the debt is classified as 'non-performing asset' and the respondent bank had issued notice on 27.01.2006 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the Act") to discharge the liability to the bank within sixty days from the date of notice. Subsequently, on failure to discharge the liability in full by the petitioner, as required under section 13(4) of the Act, the respondent bank had issued a possession notice under Section 13(4) on 11.12.2006 to the petitioner. Pursuant to the said notice, the respondent bank had taken a symbolic possession of the property and sold the said property by a private treaty on 09.04.2007 to one P.Srinivasa Varma, Hyderabad, for a sale consideration of Rs.75.60 lakhs and issued a sale certificate in favour of the purchaser on 09.04.2007. Since only symbolic possession was taken by the bank and the secured https://hcservices.ecourts.gov.in/hcservices/ debtor, namely, the petitioner, was not actually dispossessed and had continued to be in de facto possession of the property, even after issuance of the sale certificate in favour of the purchaser and, therefore, the respondent bank filed an application in Crl.M.P.No.424 of 2008 before the Chief Judicial Magistrate, Udhagamandalam, on 13.11.2008 under Section 14(1)(2) of the Act, seeking an order to take possession of the petitioner's property with the help of police aid and hand over the same to the respondent bank. By order dated 16.04.2009, permission was granted to the respondent bank to take possession of the property with the help of police assistance. Aggrieved over the same, the petitioner has filed the present writ petition to set aside the order dated 16.04.2009 passed in Crl.M.P.No.424 of 2008. The facts in the other writ petition namely W.P.No.9044 of 2009 are also similar to the facts of W.P.No.9043 of 2009. Hence, it is not necessary to narrate the facts of W.P.No.9044 of 2009. 4. So far as W.P.No.10228 of 2009 is concerned, the writ petitioner is a Private Limited Company. The directors of the writ petitioner company are M/s.Sarangapani, Shalini and Harshavardhan. The said petitioner company borrowed a loan from the 1st respondent to the tune of Rs.13 crores and subsequently, defaulted in making the repayment. Therefore, demand notice under section 13(2) was issued followed by notice under section 13(4). After several legal proceedings, finally the bank had issued a sale certificate in favour of the 2nd respondent auction purchaser, viz., Sri Lakshmi Ammal Educational Trust on 15.10.2007 and the sale certificate was issued and registered on 17.10.2007. One of the mortgaged properties, namely, R.S.No.222/1 in the Sub-Registration District of Ootacamund in the Doddabetta Panchayat together with a building thereon measuring 77.222 sq.ft.bearing door No.4/278, Ooty-Kotagiri Road, Doddabetta Junction, Nilgiris was leased out to M/s.Merit International Education Foundation from 15.02.2007 pursuant to a lease agreement entered into between the writ petitioner company and the said Merit International Education Foundation. But the Directors of both the firms are one and the same. Hence, the 1st respondent bank filed an application under section 14(1) in Crl.M.P.No.141 of 2009 as against the writ petitioner and its directors and also the lessee before the Sessions Judge, Udhagamandalam, seeking necessary police protection to take possession of the secured property and the permission sought was also granted by order dated 29.04.2009. Aggrieved over the same, the petitioner company has filed the present writ petition to set aside the order passed by the learned Sessions Judge, Udhagamandalam. 5. In view of the bone of contentions raised by the borrowers in the respective writ petitions, the questions which have now arisen for consideration before this Court are, whether the respective banks are legally entitled to take physical possession of the properties after issuance of the sale certificates in favour of the auction https://hcservices.ecourts.gov.in/hcservices/ purchasers and as a follow up action, whether the respondents banks can maintain an application under Section 14(1)(2) of the Act before the concerned Judicial Magistrate, seeking the police assistance to take possession of the secured assets ? 6. According to the learned counsel appearing for the petitioner/borrower in W.P.No.10228 of 2009, the Act assigns judicial powers to the banks and they can enforce their rights under section 13(4) of the Act to take possession of the property and bring the same for sale without intervention of the Court of law, if the dues of the borrower characterised as 'non-performing assets'. If the borrower is aggrieved by the proceedings of the bank, they can approach the Debts Recovery Tribunal under Section 17 of the Act. Under Section 13(6) of the Act, after taking possession or after taking over the management of the secured assets as per section 13(4) of the Act, the secured creditor or manager on behalf of the secured creditor shall transfer the secured asset in favour of the transferee. Section 13(8) of the Act provides that the dues of the secured creditor tendered at any time before the date fixed for sale or transfer, the secured assets shall not be sold or transferred by the secured creditor. Process of taking possession of the secured assets is governed by Rule 8 of the SARFAESI Rules. As per Rule 8 (1), the authorised officer on behalf of the secured creditor shall deliver a possession notice to the mortgagor prepared in form given in Appendix IV of the Rules. Under the SARFAESI Act, if the dues of the borrower once characterised as 'non-performing assets', the bank, as the secured creditor, can take possession of the property and bring them for sale without the intervention of the Court of law by following the various measures prescribed under Section 13 of the SARFAESI Act. Immediately after characterising the debt of the borrower as a non-performing asset, the bank, as the secured creditor, make a demand by notice under section 13(2) of the SARFAESI Act, to pay the outstanding amount within 60 days from the receipt of the notice, failing which, by issuing a possession notice, as per Rule 8(1) of the SARFAESI Rules, as prescribed in Appendix IV of the Rules, to the mortgagor, and then the secured creditor take possession of the properties and for that purpose, under Rule 8(4) he shall take steps for protection of secured assets till they are sold or disposed of. After taking possession of the properties, the secured creditor/bank can transfer the same in favour of the transferee with all rights as if the transfer had been made by the owner of such secured asset. But, in the instant case, the bank took only a symbolic possession or constructive possession by issuing a notice under section 13(4). The actual physical possession of the property was not taken by the bank and the borrower/secured debtor was not actually dispossessed but they were allowed to be in de facto possession of the property. After bringing the property in public auction and after issuing the sale certificate as per Rule 9 (6) and confirming the sale in favour of the successful bidder in the form prescribed under Appendix V of SARFAESI Rules, the respondent https://hcservices.ecourts.gov.in/hcservices/ bank initiated action to dispossess the borrower from the property and sought the assistance of police by filing an application under section 14(1)(2) of the SARFAESI Act. Aggrieved over the said action of the bank, the borrower/writ petitioner now has raised a dispute that once the sale certificate was issued in favour of the auction purchaser of the property, there is no secured debt and the bank also loses the character of secured creditor. Therefore, the question of 'actual taking physical possession' does not arise after the issuance of the sale certificate. The reason for raising such dispute is mainly based on the language employed under section 14(1) of SARFAESI Act, which 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". Thus, by referring to the words used in Section 14(1), namely, 'secured creditor' and 'secured asset', it was contended by the learned counsel for the petitioner in W.P.No.10228 of 2009 that the bank ought to have taken physical possession of the secured asset even before the issuance of the sale certificate by resorting to section 14(1). The banks, having taken only a symbolic possession or constructive possession of the secured asset and having failed to take the actual physical possession while resorting to the measures under section 13 of the SARFAESI Act, do not have a right to take physical possession of the property after issuance of the sale certificate, since it lost the character of secured asset as defined under section 2(zc). Further, it was contended by the learned counsel for the petitioner in W.P.10228 of 2009 that the object of the SARFAESI Act is only to recover the due amount payable and once the amount is recovered and the sale certificate is issued, the bank https://hcservices.ecourts.gov.in/hcservices/ goes out of the picture. Under such circumstances, the application under section 14(1)(2) seeking police assistance by the bank is not maintainable. Thus, he prays for quashing of the order. 7. It is further contended by the learned counsel that the secured creditor ought to have taken extra care to take actual physical possession at the time of issuing notice itself under section 13(4) because section 13 specifically says that the property can be transferred only after taking possession. Therefore, the practice adopted by the banks by taking symbolic possession or constructive possession, and then completing the entire proceedings by issuing a sale certificate, cannot resort to take physical possession of the property. Learned counsel for the petitioner also relied on a judgment reported in TRANSCORE ..vs.. UNION OF INDIA AND ANOTHER (2006(5) CTC 753 in support of his contention that the banks are entitled to take the actual possession of the secured assets from the borrower or from any other person in terms of section 13(4) of the SARFAESI Act and the bank 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. Any party aggrieved by such dispossession, can take recourse to approach the Debts Recovery Tribunal under section 17(4) of the SARFAESI Act. If the party is dispossessed, not in accordance with the provisions of the Act, then the Debts Recovery Tribunal is entitled to put the clock back by resorting the status quo ante. Thus, he contended that the bank in failure of taking actual possession under section 13(4) stage, cannot resort to take actual physical possession after issuance of the sale certificate. 8. Learned counsel appearing for the respondent bank in W.P.No.10228 of 2009 contended that section 13(4) empowers the bank to take possession of the secured assets and take over the management of the business of the borrower. It does not say anything about the actual physical possession. The object of the SARFAESI Act is only to realise long term assets, manage problems of liquidity, asset liability mis-match 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. In other words, the object of the SARFAESI Act is a speedy recovery of the non- performing assets. Further, Section 13 does not say that the transfer has to be effected under section 13(6) only after taking physical possession. If the dues of the secured creditor are tendered at any time before the date fixed for sale or transfer, the secured assets shall not be sold or transferred by the secured creditor. Therefore, before the confirmation of sale, the property can be recouped by the borrower if he tenders the amount. On failure to pay the amount only, the sale is confirmed and sale certificate is issued in accordance with Rule 9(6) of SARFAESI Rules. Nowhere in section 13 of SARFAESI Act it has been stated that the right to transfer can be effected only after taking actual physical possession https://hcservices.ecourts.gov.in/hcservices/ or that the exercise of taking over possession under section 13(4) shall be of actual physical possession. After taking symbolic possession or constructive possession under section 13(4), the borrower continues to be in the property only in de facto possession. Learned counsel has further contended that the language found in 14 (1) has to be interpreted only in consonance with the objects of the SARFAESI Act. Therefore, it cannot be said that the word 'secured creditor' and 'secured debt' found in section 14(1) does not mean that the bank lost the power to take actual possession, after issuance of the sale certificate. 9. Learned counsel for respondent further contended that Section 13(10) of the SARFAESI Act states that where the dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditors may file an application in the form and manner as may be prescribed in the Debts Recovery Tribunal. Thus, by reading relevant provisions under section 13(10), one could understand that the secured creditor remains as secured creditor and he does not cease to be so by executing a sale certificate. In support of his contention, the learned counsel relied on a plethora of decisions and further contended that section 14(1) should not be read in isolation and it has to be a combined reading along with sections 13 and 14 to have a correct interpretation. 10. Learned counsel appearing for the proposed party in W.P.No.9043 of 2009 submitted that the writ petitioner, who has not repaid the loan amount, is not entitled for any discretionary remedy under Article 226 of Constitution of India. The mortgagor, who continues in possession of the property, in spite of creating a charge over the property in favour of the bank, ought not to be allowed to continue in possession and squat on the property. The sale certificate is to be satisfied only after recovery of money by sale and not concerned with possession. Section 14 of the SARFAESI Act was enacted by the Parliament only to give power to the secured creditors to take possession of the property with the assistance of the concerned Magistrate. Had it been the intention of the Legislature that the object of the Act is only for recovery of money, then they would not have enlightened Section 14. The incorporation of the provision should be purposeful and should be to effectuate with the object and the purpose of the Act. The interpretation which will defeat the object of the Act should be avoided. With regard to the contention on interpretation, the learned counsel for the proposed party has also relied on the decisions reported in 1992(1) SCC 361, 1986(2) SCC 237 and 2001(9) SCC 673. 11. The learned counsel appearing for the borrowers/writ petitioners and the respondent banks in W.P.No.9043 and 9044 of 2009 have also made the submissions similar to the submissions made in W.P.No.10228 of 2009. Heard the learned counsel appearing for all the parties. https://hcservices.ecourts.gov.in/hcservices/ 12. In view of the above submissions, now the question to be decided is whether the Respondent banks are legally entitled to take physical possession of the property after issuance of the sale certificate in favour of the auction purchasers by filing petition under section 14(1)(2) of SARFAESI Act before the concerned Magistrate. The statements and reasons for SARFAESI Act seem to be that the Act was enacted to reconstruction of financial assets and enforcement of security interest and for matters connected therein. The banks as 'secured creditor', as defined under section 2(zd) of the Act, are empowered under section 13(4) of the SARFAESI Act to take possession of the 'secured asset' as defined under section 2(zc) and also empowered to transfer the same under section 13(6) of the SARFAESI Act. It is relevant to extract Sections 13(4) and 13(6), which read as follows: "13. Enforcement of security interest: (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 management of such business of the borrower which is relatable to the security of 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". https://hcservices.ecourts.gov.in/hcservices/ Section 13(6) reads as follows: "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 creditors 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". 13. Hence, it is clear from the above proviso, after taking possession under section 13(4), the secured creditors can transfer the property or take over the management and they shall vest in the transferee all rights. Under section 13(8), if the borrower paid the due amount with all costs, charges and expenses incurred by him are tendered to the secured creditor before the date fixed for sale, then the property shall of his own. Section 13(10) defines that if the dues of the secured creditor are not full satisfied with the sale proceeds of the secured assets, he may file an application in the form and manner as may be prescribed to the Debtors Recovery Tribunal for recovery of the balance amount. 14. So far as in the present cases are concerned, the secured creditors, namely, the banks had taken only a symbolic possession under section 13(4). Thereafter, by selling the property in public auction, they issued sale certificates in favour of the auction purchasers. Subsequently, the secured creditors proceeded to take possession since the secured debtors continue to be in de facto possession, by filing an application under section 14(1) seeking the assistance before the District Magistrate as per the manner provided in the said proviso. The secured creditors are forced to go under section 14(1) only when the borrowers/secured debtors are reluctant to hand over the possession even after issuance of the sale certificate. As reported in 2008(1) SCC 125 (cited supra) the dichotomy between symbolic and physical possession does not find place in the SARFAESI Act. Only possession notice has to be issued as per Rule 8(1) of SARFAESI Rules as prepared in terms of the Appendix IV of the Rules. Thereafter, by affixing the notice under