Case: C. BRIGHT Vs. THE DISTRICT COLLECTOR &amp; ORS

1. The challenge in the present appeal is to an order passed by the Division Bench of the Kerala High Court of 19.7.2019, whereby it was held that Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002( For short the Act) mandating the District Magistrate to deliver possession of a secured asset within 30 days, extendable to an aggregate of 60 days upon reasons recorded in writing, is a directory provision.The High Court held as under:18. The primary question in these Writ Petitions, namely, whether the time limits in section 14 of the SARFAESI Act are mandatory or directory should be answered in light of the principles enumerated above. As stated above, the object and purpose of the said time limit is to ensure that such applications are decided expeditiously so as to enable secured creditors to take physical possession quickly and realise their dues. Moreover, as stated earlier, the consequences of non-compliance with the time limit are not specified and the sequitur thereof would be that the district collector/district magistrate concerned would not be divested of jurisdiction upon expiry of the time limit. In this connection, it is also pertinent to bear in mind that if the consequences of non-compliance test is applied, the borrower, guarantor or lessee, as the case may be, is not adversely affected or prejudiced, in any manner, whether such applications are decided in 60, 70 or 80 days. On the other hand, the secured creditor is adversely affected if the provision is construed as mandatory and not directory in as much as it would delay the process of taking physical possession of assets instead of expediting such process by entailing the filing of another application for such purpose. For all these reasons, the time limit stipulation in the amended Section 14 of the SARFAESI Act is directory and not mandatory.2. The High Court examined Section 14 of the Act as amended, which reads thus:14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.- (1)xx xx xxProvided, 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 secured asset within a period of thirty days from the date of application:Provided also 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 period not exceeding in the aggregate sixty days.3. The Act was enacted in the year 2002 for reasons that the legal framework relating to commercial transactions had not kept pace with the changing commercial practices. Further, financial sector reforms resulted in a slow pace of recovery of defaulting loans and mounting level of non-performing assets of banking and financial institutions. The objectives behind the Act, recognised that unlike international banks, banks and financial institutions in India, did not have power to take possession of securities and sell them. The provisions of the Act were upheld by this Court except that of sub- section (2) of Section 17 which provided that the Debt Recovery Tribunal shall not entertain an appeal preferred by a borrower unless seventy-five per cent of the amount claimed has been deposited before it (Mardia Chemicals Ltd. & Ors. v. Union of India & Ors., (2004) 4 SCC 311 ). Thereafter, the question as to whether the withdrawal of an application filed under the Recovery of Debts due to Banks and Financial Institutions Act, 1993(For short DRT Act) is a condition precedent to take recourse to the Act was examined by this Court (Transcore v. Union of India and Another, (2008) 1 SCC 125 ). This Court observed that when Civil Courts failed to expeditiously decide suits filed by the banks, the DRT Act was enacted, however it did not provide for assignment of debts to Securitisation compa- nies. The Act which was enacted thereafter in 2002 sought to fur- ther empower the banks and facilitate the recovery of debt. It pro- ceeded on the basis that once the liability of a borrower to repay crystallises; it becomes due and that on account of delay, the ac- count of such borrower becomes substandard and non-performing.4. Recently, this Court noticed the objects and reasons for amending the Act in 2014 and held that the Magistrate takes possession of the asset and forwards such asset to the secured creditor under Section 14(1); the management of the business of a borrower can actually be taken over under Section 15 of the Act and that Section 13(4) must be read in the light of Sections 14 and 15. These are separate and distinct modes of exercise of powers by a secured creditor under the Act (Hindon Forge Private Limited & Anr. v. State of Uttar Pradesh through District Magistrate, Ghaziabad & Anr. (2019) 2 SCC 198 ).5. Section 14 of the Act, as originally enacted, empowered the Chief Metropolitan Magistrate or the District Magistrate to take posses- sion of such assets and documents relating to secured assets. Later, by the Central Act No. 1 of 2013, which came into force on 15.1.2013, a proviso to sub-section (1) of Section 14 of the Act was inserted contemplating that upon filing of an affidavit, in the format mentioned therein, by an Authorised Officer of the secured creditor, the District Magistrate or the Chief Metropolitan Magis- trate shall pass suitable orders for the purpose of taking posses- sion of the secured assets. It is, thereafter, the Act was amended vide Central Act 44 of 2016, which came into force on 1.9.2016.

Reasoning: 7. A well settled rule of interpretation of the statutes is that the use of the word shall in a statute, does not necessarily mean that in every case it is mandatory that unless the words of the statute are literally followed, the proceeding or the outcome of the proceeding, would be invalid. It is not always correct to say that if the word may has been used, the statute is only permissive or directory in the sense that non-compliance with those provisions will not render the proceeding invalid(State of U.P. v. Manbodhan Lal Srivastava, AIR 1957 SC 912 ) and that when a statute uses the word shall, prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully at- tending to the whole scope of the statute (State of U.P. & Ors. v. Babu Ram Upadhya, AIR 1961 SC 751 ). The principle of literal construction of the statute alone in all circumstances without ex- amining the context and scheme of the statute may not serve the purpose of the statute (Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. & Ors. , (1987) 1 SCC 424 ).8. The question as to whether, a time limit fixed for a public officer to perform a public duty is directory or mandatory has been examined earlier by the Courts as well. A question arose before the Privy Council in respect of irregularities in the preliminary proceedings for constituting a jury panel. The Municipality was expected to revise the list of qualified persons but the jury was drawn from the old list as the Sheriff neglected to revise the same. It was in these circumstances, the decision of the jury drawn from the old list became the subject matter of consideration by the Privy Council. It was thus held that it would cause greater public inconvenience if it were held that neglecting to observe the provisions of the statute made the verdicts of all juries taken from the list ipso facto null and void so that no jury trials could be held until a duly revised list had been prepared(Montreal Street Railway Company v. Normandin, AIR 1917 PC 142).11. In T.V. Usman v. Food Inspector, Tellicherry Municipality, Tellicherry (1994) 1 SCC 754 , the time period during which report of the analysis of a sample under Rule 7(3) of the Prevention of Food Adulteration Rules, 1955 was to be given, was held to be directory as there was no time-limit prescribed within which the prosecution had to be instituted. When there was no such limit prescribed then there was no valid reason for holding the period of 45 days as mandatory. Of course, that does not mean that the Public Analyst can ignore the time-limit prescribed under the rules. He must in all cases try to comply with the time-limit. But if there is some delay, in a given case, there is no reason to hold that the very report is void and, on that basis, to hold that even prosecution cannot be launched.12. This Court distinguished between failure of an individual to act in a given time frame and the time frame provided to a public authority, for the purposes of determining whether a provision was mandatory or directory, when this Court held that it is a well- settled principle that if an act is required to be performed by a private person within a specified time, the same would ordinarily be mandatory but when a public functionary is required to perform a public function within a time-frame, the same will be held to be directory unless the consequences therefor are specified (Nasiruddin & Ors. v. Sita Ram Agarwal, (2003) 2 SCC 577 ).17. Now, coming to the Judgments referred to by Mr. Khan. In A.K. Pandey, the respondent was not provided 96 hours of interval time as contemplated by the relevant rules, before commencing a trial by the Court Martial. This Court held that such proceedings were vitiated as the purpose of the time limit was that before the accused is called upon for trial, he must be given adequate time to give a cool thought to the charge or charges for which he is to be tried, decide about his defence and ask the authorities, if necessary, to take reasonable steps in procuring the attendance of his witnesses. He may even decide not to defend the charge(s) but before he decides his line of action, he must be given clear ninety- six hours.20. The Act was enacted to provide a machinery for empowering banks and financial institutions, so that they may have the power to take possession of secured assets and to sell them. The DRT Act was first enacted to streamline the recovery of public dues but the proceedings under the said Act have not given desirous re- sults. Therefore, the Act in question was enacted. This Court in Mardia Chemical, Transcore and Hindon Forge Private Lim- ited has held that the purpose of the Act pertains to the speedy recovery of dues, by banks and financial institutions. The true in- tention of the Legislature is a determining factor herein. Keeping the objective of the Act in mind, the time limit to take action by the District Magistrate has been fixed to impress upon the author- ity to take possession of the secured assets. However, inability to take possession within time limit does not render the District Mag- istrate Functus Officio. The secured creditor has no control over the District Magistrate who is exercising jurisdiction under Section 14 of the Act for public good to facilitate recovery of public dues. Therefore, Section 14 of the Act is not to be interpreted literally without considering the object and purpose of the Act. If any other interpretation is placed upon the language of Section 14, it would be contrary to the purpose of the Act. The time limit is to instill a confidence in creditors that the District Magistrate will make an at- tempt to deliver possession as well as to impose a duty on the Dis- trict Magistrate to make an earnest effort to comply with the man- date of the statute to deliver the possession within 30 days and for reasons to be recorded within 60 days. In this light, the remedy under Section 14 of the Act is not rendered redundant if the Dis- trict Magistrate is unable to handover the possession. The District Magistrate will still be enjoined upon, the duty to facilitate delivery of possession at the earliest.21. Even though, this Court in United Bank of India v. Satyawati Tondon & Ors. (2010) 8 SCC 110  held that 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 will ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Hindon Forge Private Limited has held that the rem- edy of an aggrieved person by a secured creditor under the Act is by way of an application before the Debts Recovery Tribunal, how- ever, borrowers and other aggrieved persons are invoking the ju- risdiction of the High Court under Articles 226 or 227 of the Consti- tution of India without availing the alternative statutory remedy. The Honble High Courts are well aware of the limitations in exer- cising their jurisdiction when affective alternative remedies are available, but a word of caution would be still necessary for the High Courts that interim orders should generally not be passed without hearing the secured creditor as interim orders defeat the very purpose of expeditious recovery of public money.