M/S HINDON FORGE PVT. LTD. & ANR. versus THE STATE OF UTTAR PRADESH THROUGH DISTRICT MAGISTRATE GHAZIABAD & ANR.
[2018] 11 S.C.R. 1019, Supreme Court of India, 2018
Outcome: Leave Granted & Allowed (Granted)
Segment: Ratio
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1019
M/S HINDON FORGE PVT. LTD. & ANR.
v.
THE STATE OF UTTAR PRADESH THROUGH DISTRICT
MAGISTRATE GHAZIABAD & ANR.
(Civil Appeal No. 10873 of  2018)
NOVEMBER 01, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Securitisation and Reconstruction of Financial Assets and
Enforcement of Securities Interest Act, 2002: s.17(1) – Whether an
application under s.17(1) of the SARFAESI Act at the instance of a
borrower, is maintainable even before physical or actual possession
of secured assets is taken by banks/financial institutions in exercise
of their powers under s.13(4) of the Act r/w r.8 of the  Rules, 2002
– Held: The scheme of s.13(4) r/w r.8(1) makes it clear that the
delivery of a possession notice together with affixation on the
property and publication is one mode of taking “possession” under
s.13(4) – Once possession is taken under rr.8(1) and 8(2)
r/w s.13(4)(a), s.17 gets attracted, as this is one of the measures
referred to in s.13(4) that is taken by the secured creditor under
Chapter III – Thus, borrower/debtor can approach the Debts
Recovery Tribunal under s.17 of the Act at the stage of the possession
notice referred to in rr. 8(1) and 8(2) of the 2002 Rules – Security
Interest (Enforcement) Rules, 2002 – rr.8(1) and 8(2).
Allowing the appeals, the Court
HELD: 1.1 A reading of section 13 would make it clear
that where a default in repayment of a secured debt or any
instalment thereof is made by a borrower, the secured creditor
may require the borrower, by
notice in writing, to discharge in
full his liabilities to the secured creditor within 60 days from the
date of notice. It is only when the borrower fails to do so that the
secured creditor may have recourse to the provisions contained
in section 13(4) of the Act. [Para 10]  [1054-B-C]
Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC
311 : [2004] 3 SCR 982 – relied on.
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1.2 Rule 8(1) makes it clear that “the authorised officer
shall take or cause to be taken possession”.  The expression
“cause to be taken” only means that the authorised officer need
not himself take possession, but may, for example, appoint an
agent to do so. What is important is that such taking of possession
is effected under sub-rule (1) of rule 8 by delivering a possession
notice prepared in accordance with Appendix IV of the 2002 Rules,
and by affixing such notice on the outer door or any other
conspicuous place of the property concerned. Under sub-rule (2),
such notice shall also be published within 7 days from the date of
such taking of possession in two leading newspapers, one in the
vernacular language having sufficient circulation in the locality.
Appendix IV provides the format of possession notice wherein
the borrower in particular, and the public in general is cautioned
by the said possession notice not to deal with the property as
possession of the said property has been taken. From this stage
on, the secured asset is liable to be sold to realise the debt owed,
and title in the asset is divested from the borrower and complete
title given to the purchaser, as is mentioned in section 13(6) of
the Act. There is, thus, a radical change in the borrower dealing
with the secured asset from this stage. At the stage of a section
13(2) notice, section 13(13) interdicts the borrower’s from
transferring the
secured asset (otherwise than in the ordinary
course of his business) without the prior written consent of the
secured creditor. But once possession notice is given under rule
8(1) and 8(2) by the secured creditor to the borrower, the borrower
cannot deal with the secured asset at all as all further steps to
realise the same are to be taken by the secured creditor under
the 2002 Rules. [Para 11]  [1054-E-H; 1055-A-B]
1.3 The scheme of section 13(4) read with rule 8(1)
therefore makes it clear that the delivery of a possession notice
together with affixation on the property and publication is one
mode of taking “possession” under section 13(4).  This being
the case, it is clear that section 13(6) kicks in as soon as this is
done as the expression used in section 13(6) is “after taking
possession”. Also, it is clear that rule 8(5) to 8(8) also kick in as
soon as “possession” is taken under rule 8(1) and 8(2). The
statutory scheme, therefore, in the present case is that once
possession is taken under rule 8(1) and 8(2) read with section
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13(4)(a), section 17 gets attracted, as this is one of the measures
referred to in section 13(4) that can be taken by the secured
creditor under Chapter III.  Rule 8(3) begins with the expression
“in the event of”.  These words make it clear that possession
may be taken alternatively under sub-rule (3). The further
expression used in sub-rule (3) is “actually taken” making it clear
that physical possession is referred to by rule 8(3). Thus, whether
possession is taken under either rule 8(1) and 8(2), or under
rule 8(3), measures are taken by the secured creditor under
section 13(4) for the purpose of attracting section 17(1). [Paras
12, 13]  [1055-C-G]
2.1 The argument for the respondents that section 13(4)(a)
has to be read in the light of sub-clauses (b) and (c) is incorrect
and must be rejected. Under sub-clause (c), a person is appointed
as the manager to manage the secured assets, the possession of
which has been taken over by the secured creditor only under
rule 8(3). Further, the rule of noscitur a sociis cannot apply. Sub-
clause (b) speaks of taking over management of the business of
the borrower which is completely different from taking over
possession of a secured asset of the borrower. Equally, sub-clause
(d) does not speak of taking over either management or
possession, but only speaks of paying the secured creditor so
much of the money as is sufficient to pay off the secured debt.
These arguments must therefore be rejected. [Para 14]
[1055-
G; 1056-A-B]
2.2  Section 17(3) is a provision which arms the Debts
Recovery Tribunal to provide certain reliefs when applications
are made before it by the borrower. One of the reliefs that can be
given is restoration of possession. Other reliefs can also be given
under the omnibus section 17(3)(c). Merely because one of the
reliefs given is that of restoration of possession does not lead to
the sequitur that only actual physical possession is therefore
contemplated by section 13(4), since other directions that may
be considered appropriate and necessary may also be given for
wrongful recourse taken by the secured creditor to section 13(4).
[Para 16]  [1056-F-G]
2.3  In the Statement of Objects and Reasons of the original
enactment, paragraphs 2(i) and 2(j) make it clear that the rights
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD
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of the secured creditor are to be exercised by officers authorised
in this behalf in accordance with the rules made by the Central
Government. Further, an appeal against the action of any bank or
financial institution is provided to the concerned Debts Recovery
Tribunal. It can thus be seen that though the rights of a secured
creditor may be exercised by such creditor outside the court
process, yet such rights must be in conformity with the Act.  If
that is not the case, such an action is liable to be interfered with
by the Debts Recovery Tribunal in an application made by the
debtor/borrower. Thus, it can be seen that the object of the
original enactment also includes secured creditors acting in
conformity with the provisions of the Act to realise the secured
debt which, if not done, gives recourse to the borrower to obtain
relief from the Debts Recovery Tribunal. Equally, the Statement
of Objects and Reasons of the Amendment Act of 2004 also makes
it clear that not only do reasons have to be given for not accepting
objections of the borrower under section 13(3-A), but that
applications may be made before the Debts Recovery Tribunal
without making the onerous pre-deposit of 75% which was struck
down by this Court in Mardia Chemicals. The object of the Act,
therefore, is also to enable the borrower to approach a quasi-
judicial forum in case the secured creditor, while taking any of
the measures under section 13(4),
does not follow the provisions
of the Act in so doing. Take for example a case in which a secured
creditor takes possession under rule 8(1) and 8(2) before the 60
days’ period prescribed under section 13(2) is over. The borrower
does not have to wait until actual physical possession is taken
(this may never happen as after possession is taken under rule
8(1) and 8(2), the secured creditor may go ahead and sell the
asset). The object of providing a remedy against the wrongful
action of a secured creditor to a borrower will be stultified if the
borrower has to wait until a sale notice is issued, or worse still,
until a sale actually takes place. It is clear, therefore, that one of
the objects of the Act, as carried out by rule 8(1) and 8(2) must
also be subserved, namely, to provide the borrower with instant
recourse to a quasi-judicial body in case of a wrongful action being
taken by the secured creditor. [Para 17]  [1056-H; 1057-A-G]
3.1  Another argument for the respondents is that the taking
of possession under section 13(4)(a) must mean actual physical
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possession or otherwise, no transfer by way of lease can be made
as possession of the secured asset would continue to be with the
borrower when only symbolic possession is taken. This argument
also must be rejected for the reason that what is referred to in
section 13(4)(a) is the right to transfer by way of lease for realising
the secured asset. One way of realising the secured asset is when
physical possession is taken over and a lease of the same is made
to a third party. When possession is taken under rule 8(1) and
8(2), the asset can be realised by way of assignment or sale. This
being the case, it is clear that the right to transfer could be by
way of lease, assignment or sale, depending upon which mode of
transfer the secured creditor chooses for realising the secured
asset. Also, the right to transfer by way of assignment or sale can
only be exercised in accordance with rules 8 and 9 of the 2002
Rules which require various pre-conditions to be met before sale
or assignment can be effected. Equally, transfer by way of lease
can be done in future in cases where actual physical possession
is taken of the secured asset after possession is taken
under rule 8(1) and 8(2) at a future point in time. If no such
actual physical possession is taken, the right to transfer by way
of assignment or sale for realising the secured asset
continues. This argument must also, therefore, be rejected.
[Para 18] [1057-G-H; 1058-A-D]
3.2 Banks and financial institutions
can recover their debts
by selling properties outside the court process under the
SARFAESI Act by adhering to the statutory conditions laid down
by the said Act. It is only when such statutory conditions are not
adhered to that the Debts Recovery Tribunal comes in at the
behest of the borrower. Under the Recovery of Debts Act, banks/
financial institutions could not recover their debts without
intervention of the Debts Recovery Tribunal, which the
SARFAESI Act has greatly improved upon, the only caveat being
that this must be done by the secured creditor following the drill
of the SARFAESI Act and rules made thereunder. [Para 19]
[1058-E-G]
Transcore v. Union of India & Anr. (2008) 1 SCC
125 : [2006] 9 Suppl. SCR 785;  Standard Chartered
Bank v. V. Noble Kumar & Ors., (2013) 9 SCC 620 :
[2013] 10 SCR 762 – distinguished.
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD
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ITC Limited v. Blue Coast Hotels Ltd. and Ors. AIR 2018
SC 3063 – relied on.
Canara Bank v. M. Amarender Reddy & Anr. (2017) 4
SCC 735 : [2017] 3  SCR 748;  Mathew Varghese v.
M. Amritha Kumar and Ors. (2014) 5 SCC 610 : [2014]
2 SCR 736 – referred to.
4. Appendix IV-A recognises the fact that rule 8(1) and 8(2)
refer to constructive possession whereas rule 8(3) refers to
physical possession. The borrower/debtor can approach the Debts
Recovery Tribunal under section 17 of the Act at the stage of the
possession notice referred to in rules 8(1) and 8(2) of the 2002
Rules. [Para 25] [1067-C-D]
Case Law Reference
[2004] 3 SCR 982
relied on
Para 3
[2013] 10 SCR 762
distinguished
Para 6
[2006] 9 Suppl. SCR 785
distinguished
Para 20
[2017] 3 SCR 748
referred to
Para 22
[2014] 2 SCR 736
referred to
Para 22
AIR 2018 SC 3063
relied on
Para 23
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 10873
of 2018.
From the Judgment and Order dated  06.02.2018 of the  High
Court of Judicature at  Allahabad, Lucknow Bench in Misc. Bench No.
28806 of 2017
WITH
Civil Appeal No. 10874 of 2018.
Neeraj Kishan Kaul, C. U. Singh, Ranjit Kumar, Sr. Advs., Sanchit
Garga, Harsh Chopra, Ashutosh Garga, Pahlad Singh Sharma, Shashank
Pathak, Samar Kachwaha, Chanan Parwani, Ramchandra Madan, Abhay
Chauhan, Dincur Bajaj, D. K. Pathak, Vivek Gupta, Mrinmay
Bhattmewara, Pranav Kaashyap, O. P. Gaggar, Ankur Prakash, Suresh
Dobhal, Rohit Dhyani, Ms.
Sonakshi Dhiman, Saaransh Parasher, Rishi
Sharma, Das, Ms.  Kusum  Lata, Mahesh K. Chaudhary,  Sanjeev Singh,
Ms. Anandita Singh, Sudhanshu Palo, Ashok Kumar Dhandhania, Arup
Paul, Ms. Soumya Mukharjee, Ms. Jyoti Chaturvedi,  Praveen Chaturvedi,
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Ashish Dholakia, Sanjay Kapur, Ms. Megha Karnwal, Ms. Sheena Taqui,
Ms. Shubhra Kapur, Piyush Hans, Ashok Malik, Vishisht, Ms. Saloni,
Bhal Singh Malik, Muneesh Malhotra, Achin Mittal,  Advocates for the
appearing parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. Leave granted.
2. These matters come to us from a Full Bench judgment of the
Allahabad High Court dated 06.02.2018. By an order of reference dated
19.09.2017, a learned Single Judge noticed divergent opinions expressed
by two different Benches of the Allahabad High Court on the question
whether an application under section 17(1) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Securities
Interest Act, 2002 (hereinafter referred to as the “SARFAESI Act” or
the “Act”), at the instance of a borrower, is maintainable even before
physical or actual possession of secured assets is taken by banks/financial
institutions in exercise of their powers under section 13(4) of the Act
read with rule 8 of the Security Interest (Enforcement) Rules, 2002
(hereinafter referred to as the “2002 Rules”). After discussing the
various provisions of the Act, the 2002 Rules and judgments of the
Supreme Court, the Full Bench summarised the true legal position
according to it as follows:
“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
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD
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accepted, as a fulfilment 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 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.
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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 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.”
The court then went on to hold:
“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
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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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.
31.1. One 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.
31.2. The 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 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
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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.
31.3. The 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. v. 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.”
31.4. One 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, 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.
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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31.5. It 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.”
xxx xxx xxx
“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
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will have possession over the secured 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.”
xxx xxx xxx
“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 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)
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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.”
3. Shri Neeraj Kishan Kaul, learned Senior Advocate, appearing
on behalf of the appellants, has placed before us all the relevant sections
under the SARFAESI Act as well as the relevant rules under the 2002
Rules. He has referred to the Statement of Objects and Reasons of both
the original Act as well as the Amendment Act made in 2004 pursuant to
a judgment of this Court in Mardia Chemicals Ltd. v. Union of India,
(2004) 4 SCC 311 (“Mardia Chemicals”).  According to Shri Kaul, the
scheme of section 13 is that a notice of default once served under section
13(2) of the Act may call upon the borrower to discharge in full his
liability to the secured creditor within 60 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) of section 13.  He relied upon section
13(3-A) which made it clear that even though reasons are communicated
under the said sub-section, since no measures were actually taken under
section 13(4), there is no right at that stage for the borrower to prefer an
application to the Debts Recovery
Tribunal under section 17 of the Act.
According to the learned Senior Advocate, section 13(4)(a) makes it
clear that “possession” of the secured assets of the borrower may be
taken under this provision.  Obviously, such possession is to be taken
under the rules framed under the Act. Rule 8(1) makes it clear that
possession is taken under the 2002 Rules by delivering a possession
notice prepared in the form contained in Appendix IV to the rules, and
by affixing the notice on the outer door or at such conspicuous place of
the property. Once this is done, and the possession notice is published in
two leading newspapers under sub-rule (2), the form contained in
Appendix IV makes it clear that notice is given to the public in general
that possession has been taken in exercise of powers contained under
section 13(4) of the Act read with rule 8 of the 2002 Rules. As soon as
this takes place, according to Shri Kaul, since “symbolic possession”
has been so taken, the right of the borrower to approach the Debts
Recovery Tribunal for relief under section 17 gets crystallized.  He also
relied upon sub-rule (3) to argue that possession may be taken under this
sub-rule which is “actual” as opposed to “symbolic” possession under
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sub-rule (1). According to the learned Senior Advocate, the moment
possession is taken either under rule 8(1) or under rule 8(3), section
13(6) gets attracted thereby making it clear that a transfer of secured
asset, after taking such possession, 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. According to Shri Kaul,
after symbolic possession is taken under rule 8(1), rules 8(5) to 8(8) and
rule 9 can then be followed in order to effect sale of property of which
symbolic possession has been taken. Shri Kaul attacked the judgment of
the Full Bench, stating that the conclusion of the Full Bench that the
borrower would have to wait until actual physical possession of the
secured asset is taken would create great hardship in that a running
business of the borrower would be taken over without the borrower
being able to approach the Debts Recovery Tribunal, and would have to
wait until after the sale takes place to recover possession under section
17(3), even if he is able to show that the steps taken by the secured
creditor are in violation of the provisions of the Act. Thus, if symbolic
possession is taken contrary to section 13(2) prior to 60 days from the
date of the notice mentioned therein, all borrowers would have to wait
until physical possession is taken and/or a sale notice is issued to get
back their running business after the business
is brought to a grinding
halt. This could not possibly have been the intention of the legislature.
4. Shri C.U. Singh, learned Senior Advocate, appearing on behalf
of respondent no. 2, took us through the statutory provisions and the
2002 Rules and argued that the High Court may have gone beyond what
was argued by his predecessor before the High Court. Shri Singh
emphasised that his limited argument before this Court is that the stage
of symbolic possession is not a stage at which any prejudice is caused to
the borrower as he may continue to run his business. Section 13(6) does
not come in at this stage at all, and section 13(13), which interdicts a
borrower after receipt of a notice under section 13(2) to transfer by
way of sale, lease or otherwise, other than in the ordinary course of
business, any of his secured assets without prior written consent of the
secured creditor, is the only restraint that continues to attach after
symbolic possession is taken. According to him, as no prejudice is caused
to the borrower at this stage, it is clear that “possession” spoken of in
section 13(4) can only mean actual physical possession. This becomes
clear on a reading of section 13(4)(c) which makes it clear that a manager
can only manage the secured assets the possession of which has been
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
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taken over by the secured creditor, if actual physical possession has
been parted with. According to the learned Senior Advocate, therefore,
the object of the Act will be defeated if a debtor can approach the Debts
Recovery Tribunal at such stage when no prejudice is caused to him,
thereby rendering what is statutorily granted to a creditor futile. He relied
upon observations in various Supreme Court judgments to buttress his
stand that it is only at the stage of actual physical possession that an
application can be filed under section 17 and not before.
5. Shri Ranjit Kumar, learned Senior Advocate, appearing on behalf
of the respondents in Civil Appeal arising out of SLP(C) No.12841 of
2018, went on to argue that all the sub-clauses in section 13(4) must be
construed  together. If that is done, it is clear that under sub-clauses (b)
and (c), management and possession must physically be taken over.
Therefore, under sub-clause (a), the expression “possession” must also
mean actual physical possession. According to the learned Senior
Advocate, the measures taken under section 13 must also be read with
sections 14 and 15. It is clear that under section 14, actual physical
possession is to be handed over by the Chief Metropolitan Magistrate or
the District Magistrate to the secured creditor, and under section 15,
management of the business has actually to be taken over as two
managements cannot possibly continue at the
same time. Read in this
light, the scheme of the Act, therefore, is clear and it becomes equally
clear that only actual physical possession is referred to in section 13(4)(a)
before a section 17 application can be filed.  He also referred to section
17(3) to further argue that restoration of possession of secured assets
could only refer to restoration of actual physical possession thereby
strengthening his interpretation of sections 13 and 17 of the Act.
According to him, under section 19, compensation is also payable where
possession taken is not in accordance with the provisions of the Act and
2002 Rules, again making it clear that when the Court or Tribunal directs
the secured creditor to return such secured asset to the borrowers,
compensation may be paid. Returning secured assets obviously would
mean assets of which physical possession has been taken. When it came
to reading rules 8(1) and 8(3) of the 2002 Rules, according to Shri Ranjit
Kumar, rule 8(3) is the next step after symbolic possession is taken over
under rule 8(1), and without taking of actual physical possession under
rule 8(3), no sale can be made of any secured assets. Like Shri C.U. Singh
before him, he agreed that the High Court had perhaps gone a little too
far in its conclusion, and that the moment any real prejudice is caused to
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the borrower, the borrower can certainly approach the Tribunal. This
would also include the stage at which a sale notice is issued under rule 8.
6. Shri Ashish Dholakia, learned Advocate, appearing for the
intervenor, State Bank of India, referred to the objects of the 2002 Act
and relied upon the judgment of this Court in Standard Chartered Bank
v. V. Noble Kumar & Ors., (2013) 9 SCC 620 (“Noble Kumar”). He
argued that if we were to grant an opportunity to a debtor to approach
the Tribunal at the stage of symbolic possession,  there would be little
difference between the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (hereinafter referred to as the “Recovery of
Debts Act”) and the SARFAESI Act, and thus, we would destroy the
very object for which the SARFAESI Act was enacted, namely, so that
banks could recover their debts by selling properties outside the court
process, something that the Recovery of Debts Act did not envisage.
He also referred to and relied upon section 3 of the Transfer of Property
Act for the definition of “a person is said to have notice” and Explanation
II in particular, which referred to actual possession. According to him
therefore, the correct stage would be the stage at which actual physical
possession has been taken, upon which a debtor may then approach the
Debts Recovery Tribunal under section 17.
7.
Having heard learned counsel for the parties, we may first
set out the Statement of Objects and Reasons
for the 2002 Act. The
Statement of Objects and Reasons for the 2002 Act read as follows:
“Statement of Objects and Reasons.—The financial sector
has been one of the key drivers in India’s efforts to achieve
success in rapidly developing its economy. While the banking
industry in India is progressively complying with the international
prudential norms and accounting practices there are certain areas
in which the banking and financial sector do not have a level
playing field as compared to other participants in the financial
markets in the world. There is no legal provision for facilitating
securitisation of financial assets of banks and financial
institutions. Further, unlike international banks, the banks and
financial institutions in India do not have power to take possession
of securities and sell them. 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.
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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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 21st 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) registration and regulation of securitisation companies or
reconstruction companies by the Reserve Bank of India;
(b) facilitating securitisation of financial
assets of banks and
financial institutions with or without the benefit of underlying
securities;
(c) facilitating easy transferability of financial assets by the
securitisation company or reconstruction company to acquire
financial assets of banks and financial institutions by issue of
debentures or bonds or any other security in the nature of a
debenture;
(d) empowering securitisation companies or reconstruction
companies to raise funds by issue of security receipts to
qualified institutional buyers;
(e) facilitating reconstruction of financial assets acquired by
exercising powers of enforcement of securities or change of
management or other powers which are proposed to be
conferred on the banks and financial institutions;
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(f) declaration of any securitisation company or reconstruction
company registered with the Reserve Bank of India as a public
financial institution for the purpose of Section 4-A of the
Companies Act, 1956;
(g) defining “security interest” as any type of security including
mortgage and charge on immovable properties given for due
repayment of any financial assistance given by any bank or
financial institution;
(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) the rights of a secured creditor to be exercised by one or
more of its officers authorised in this behalf in accordance
with the rules made by the Central Government;
(j) an appeal against the action of any bank or financial
institution to the concerned Debts Recovery Tribunal and a
second appeal to the Appellate Debts Recovery Tribunal;
(k) setting-up or causing to be set-up a Central Registry by the
Central Government for the purpose of registration of
transactions relating to securitisation, asset reconstruction and
creation of security interest;
(l) application of the proposed legislation initially to banks and
financial institutions and empowerment of the Central
Government to
extend the application of the proposed legislation
to non-banking financial companies and other entities;
(m) non-application of the proposed legislation to security
interests in agricultural lands, loans not exceeding Rupees One
lakh and cases where eighty per cent of the loans are repaid
by the borrower.
3. The Bill seeks to achieve the above objects.”
Section 13 with which we are concerned reads as follows:
“13. Enforcement of security interest.—(1) Notwithstanding
anything contained in Section 69 or Section 69-A of the Transfer
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
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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):
1[Provided that—
(i) the requirement of classification of secured debt as non-
performing asset under this sub-section shall not apply to a
borrower who has raised funds through issue of debt securities;
and
(ii) in the event of default, the debenture trustee shall be entitled
to enforce security interest in the same manner as provided
under this section with such modifications as may be necessary
and in accordance with the terms and conditions of security
documents executed in favour of the debenture trustee;]
(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.
2[(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 3[within fifteen days] of receipt of such
1
Ins. by Act 44 of 2016, S. 11(i) (w.e.f. 1-9-2016).
2
Ins. by Act 30 of 2004, S. 8 (w.r.e.f. 11-11-2004).
3
Subs. for “within one week” by Act 1 of 2013, S. 5(a) (w.e.f. 15-1-2013).
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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;
4[(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 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.
4 Subs. by Act 30 of 2004, S. 8 (w.r.e.f. 11-11-2004). Prior to substitution it read as:
“(b) take over the management of the secured assets of the borrower including
the right to transfer by way of lease, assignment or sale and realise the secured
asset;”
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(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[(5-A) Where the sale of an immovable property, for which a
reserve price has been specified, has been postponed for want
of a bid of an amount not less than such reserve price, it shall be
lawful for any officer of the secured creditor, if so authorised by
the secured creditor in this behalf, to bid for the immovable
property on behalf of the secured creditor at any subsequent
sale.
(5-B) Where the secured creditor, referred to in sub-section (5-
A), is declared to be the purchaser of the immovable property at
any subsequent sale, the amount of the purchase price shall be
adjusted towards the amount of the claim of the secured creditor
for which the auction of enforcement of security interest is taken
by the secured creditor, under sub-section (4) of Section 13.
(5-C) The provisions of Section 9 of the Banking Regulation
Act, 1949 (10 of 1949) shall, as far as may be, apply to the
immovable property acquired by secured creditor under sub-
section (5-A).]
(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.
xxx xxx xxx
(13) No borrower shall, after receipt of notice referred to in sub-
section (2), transfer by way of sale, lease or otherwise (other
than in the ordinary course of his business) any of his secured
assets referred to in the notice, without prior written consent of
the secured creditor.”
Section 14(1) of the Act reads as follows:
“14. Chief Metropolitan Magistrate or District Magistrate
to assist secured creditor in taking possession of secured
5 Ins. by Act 1 of 2013, S. 5(b) (w.e.f. 15-1-2013)
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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:
xxx xxx xxx”
Section 15(1) of the Act reads as follows:
“15. Manner and effect of takeover of management.—
(1) 6[When the management of business of a borrower is taken
over by a 7[asset reconstruction company] under clause (a) of
Section 9 or, as the case may be, by a secured creditor under
clause (b) of sub-section (4) of Section 13], the secured creditor
may, by publishing a notice in a newspaper published in English
language and in a newspaper published in an Indian language in
circulation in the place where the principal office of the borrower
is situated, appoint as many persons as it thinks fit—
(a) in a case in which the borrower is a company as
defined in
the Companies Act, 1956 (1 of 1956), to be the directors of
that borrower in accordance with the provisions of that Act; or
(b) in any other case, to be the administrator of the business of
the borrower.
xxx xxx xxx”
6 Subs. for “When the management of business of a borrower is taken over by a
secured creditor” by Act 30 of 2004, S. 9 (w.r.e.f. 11-11-2004).
7
Subs. for “securitisation company or a reconstruction company” by Act 44 of 2016,
S. 3(i) (w.e.f. 1-9-2016).
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Section 17 of the Act reads as follows:
“8[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, 9[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
measure had been taken:
10[Provided that different fees may be prescribed for making
the application by the borrower and the person other than the
borrower.]
11[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.]
12[(1-A) An application under sub-section (1) shall be filed before
the Debts Recovery Tribunal within the local limits of whose
jurisdiction—
(a) the cause of action, wholly or in part, arises;
(b) where the secured asset is located; or
(c) the branch or any other office of a bank or financial
institution is maintaining an account in which debt claimed is
outstanding for the time being.]
13[(2) The Debts Recovery Tribunal shall consider whether any
of the measures referred to in sub-section (4) of Section 13 taken
8
Subs. for “Right to appeal” by Act 44 of 2016, S. 14(i) (w.e.f. 1-9-2016).
9
Subs. for “may prefer an appeal” by Act 30 of 2004, S. 10 (w.r.e.f. 21-6-2002).
1 0 Ins. by Act 30 of 2004, S. 10 (w.r.e.f. 21-6-2002).
1 1 Ins. by Act 30 of 2004, S. 10 (w.r.e.f. 11-11-2004).
1 2 Ins. by Act 44 of 2016, S. 14(ii) (w.e.f. 1-9-2016).
1 3 Subs. for sub-sections (2) and (3) by Act 30 of 2004, S. 10 (w.r.e.f. 11-11-2004).
Prior to substitution sub-sections (2) and (3) read as:
“(2) Where an appeal is preferred by a borrower, such appeal shall not be entertained
by the Debts Recovery Tribunal unless the borrower has deposited with the Debts
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by the secured creditor for enforcement of security are in
accordance with the provisions of this Act and the rules made
thereunder.
14[(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 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.]
Recovery Tribunal seventy-five per cent of the amount claimed in the notice referred
to in sub-section (2) of Section 13:
Provided that the Debts Recovery Tribunal may, for reasons to be recorded in
writing, waive or reduce the amount to be deposited under this section.
(3) Save as otherwise provided in this Act, the
Debts Recovery Tribunal shall, as far
as may be, dispose of the appeal in accordance with the provisions of the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules
made thereunder.”
1 4 Subs. by Act 44 of 2016, S. 14(iii) (w.e.f. 1-9-2016). Prior to substitution it read as:
“(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 of the business to the borrower
or restoration of 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 creditors as invalid and restore the possession of the
secured assets to the borrower or restore the management of the business 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.”.
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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(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.
15[(4-A) Where—
(i) any person, in an application under sub-section (1), claims
any tenancy or leasehold rights upon the secured asset, the
Debt Recovery Tribunal, after examining the facts of the case
and evidence produced by the parties in relation to such claims
shall, for the purposes of enforcement of security interest, have
the jurisdiction to examine whether lease or tenancy,—
(a) has expired or stood determined; or
(b) is contrary to Section 65-A of the Transfer of Property
Act, 1882 (4 of 1882); or
(c) is contrary to terms of mortgage; or
(d) is created after the issuance of notice of default and
demand by the Bank under sub-section (2) of Section 13 of
the Act; and
(ii) the Debt Recovery Tribunal is satisfied that tenancy right
or leasehold rights claimed in secured asset falls under the
sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause
(d) of clause (i), then notwithstanding anything to the contrary
contained in any other law for the time being in
force, the Debt
Recovery Tribunal may pass such order as it deems fit in
accordance with the provisions of this Act.]
(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
1 5 Ins. by Act 44 of 2016, S. 14(iv) (w.e.f. 1-9-2016).
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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.
(7) Save as otherwise provided in this Act, the Debts Recovery
Tribunal shall, as far as may be, dispose of the application in
accordance with the provisions of the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 (51 of 1993) and
the rules made thereunder.]”
Rule 8 of the 2002 Rules reads as follows:
“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) 16[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.
17[(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.]
1 6 Subs. for “The possession notice as referred to in sub-rule (1) shall also be published
in two leading newspaper” by S.O. 1837(E), dated 26-10-2007 (w.e.f. 26-10-2007).
1 7 Ins. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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(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 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;
18[(c) by holding public auction including through e-auction
mode; or]
(d) by private treaty.
(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 one in vernacular language having sufficient
circulation in the locality by setting out the terms of sale, which
shall include,—
(a) the description of the immovable property to be sold,
including the details of the encumbrances known to the secured
creditor;
1 8 Subs. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016). Prior to substitution it
read as:
“(c) by holding public auction; or”
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(b) the secured debt for recovery of which the property is to
be sold;
(c) reserve price, below which the property may not be sold;
(d) time and place of public auction or the time after which
sale by any other mode shall be completed;
(e) depositing earnest money as may be stipulated by the
secured creditor;
(f) any other thing which the authorised officer considers it
material for a purchaser to know in order to judge the nature
and value of the property.
(7) Every notice of sale shall be affixed on a conspicuous part of
the immovable property and may, if the authorised officer deems
it fit, put on the website of the secured creditor on the Internet.
(8) Sale by any methods other than public auction or public tender,
shall be on such terms as may be settled 19[between the secured
creditor and the proposed purchaser in writing].”
Appendix IV to the 2002 Rules reads as follows:
“APPENDIX IV
[See rule 8(1)]
POSSESSION NOTICE
(for immovable property)
Whereas
The undersigned being the authorised officer of the
………..…………………. (name of the Institution) under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest 20[Act, 2002 (54 of 2002)] and
in exercise of powers conferred under Section 13(12) read
with 21[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
1 9 Subs. for
“between the parties in writing” by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f.
4-11-2016).
2 0 Subs. for “Ordinance” by S.O. 103(E), dated 2-2-2007 (w.e.f. 2-2-2007).
2 1 Subs. for “Rule 9” by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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notice 
being 
Rs 
…………… 
(in 
words
…………………………) within 60 days from the date of receipt
of the said notice.
22[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.
23[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/-
Authorised Officer
(Name of Institution)
Date:
Place:”
2 2 Subs. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
2 3 Ins. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
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8. This Court in Mardia Chemicals (supra) after referring in
detail to the provisions of the Act held:
“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.
xxx xxx xxx
59. We may like to observe that proceedings under Section 17
of the Act, in fact, are not appellate proceedings. It seems to be
a misnomer. In fact it is the initial action which is brought before
a forum as prescribed under the Act, raising grievance against
the action or measures taken by one of the parties to the contract.
It is the stage of initial proceeding like filing a suit in civil court.
As a matter of fact proceedings under Section 17 of the Act are
in lieu of a civil suit which remedy is ordinarily available but for
the bar under Section 34 of the Act in the present case. We may
refer to a decision of this Court in Ganga Bai v. Vijay
Kumar[(1974) 2 SCC 393] where in respect of original and
appellate proceedings a distinction has been drawn as follows:
(SCC p. 397, para 15)
“There is a basic distinction between the right of suit and the
right of appeal. There is an inherent right in every person to
bring a suit of civil nature and unless the suit is barred by statute
one may, at one’s peril, bring a suit of one’s choice. It is no
answer to a suit, howsoever frivolous to claim,
that the law
confers no such right to sue. A suit for its maintainability requires
no authority of law and it is enough that no statute bars the
suit. But the position in regard to appeals is quite the opposite.
The right of appeal inheres in no one and therefore an appeal
for its maintainability must have the clear authority of law.
That explains why the right of appeal is described as a creature
of statute.”
xxx xxx xxx
62. As indicated earlier, the position of the appeal under Section
17 of the Act is like that of a suit in the court of the first instance
under the Code of Civil Procedure. No doubt, in suits also it is
permissible, in given facts and circumstances and under the
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
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provisions of the law to attach the property before a decree is
passed or to appoint a receiver and to make a provision by way
of interim measure in respect of the property in suit. But for
obtaining such orders a case for the same is to be made out in
accordance with the relevant provisions under the law. There is
no such provision under the Act.
xxx xxx xxx
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 abovenoted
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 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 as it may deem fit and proper to impose.
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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.”
Close on the heels of this judgment, the 2002 Act was amended on
30.12.2004 with effect from 11.11.2004. The Statement of Objects and
Reasons for the Amended Act reads as under:
“Statement of Objects and Reasons.—The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 was enacted to regulate securitisation and
reconstruction of financial assets and enforcement of security
interest and for matters connected thereto. The Act enables the
banks and financial institutions 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. The Act further provides for
setting up of asset
reconstruction companies which are
empowered to take possession of secured assets of the borrower
including the right to transfer by way of lease, assignment or
sale and realise the secured assets and take over the management
of the business of the borrower.
2. The Hon’ble Supreme Court, in the case of Mardia Chemicals
Ltd. v. Union of India, A.I.R. 2004 S.C. 2371 : (2004) 4 S.C.C
311, inter alia,—
(a) upheld the validity of the provisions of the said Act except
that of sub-section (2) of Section 17 which was declared ultra
vires Article 14 of the Constitution. The said sub-section
provides for deposit of seventy-five per cent. of the amount
claimed before entertaining an appeal (petition) by the Debts
Recovery Tribunal (DRT) under Section 17;
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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(b) observed that in cases where a secured creditor has taken
action under sub-section (4) of Section 13 of the said Act, it
would be open to borrowers to file appeals under Section 17 of
the Act within the limitation as prescribed therefor. It also
observed that if the borrower, after service of notice under
sub-section (2) of Section 13 of the said Act, 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 that may be, must be communicated to the
borrower. 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.
3. In view of the above judgment of the Hon’ble Supreme Court
and also to discourage the borrowers to postpone the repayment
of their dues and also enable the secured creditor to speedily
recover their debts, if required, by enforcement of security or
other measures specified in sub-section (4) of Section 13 of the
said Act, it had become necessary to amend the provisions of
the said Act.
4. Since the Parliament was not in session and it was necessary
to take immediate action to amend the said Act for the above
reasons, the Enforcement of Security Interest and Recovery of
Debts Laws
(Amendment) Ordinance, 2004 was promulgated
on the 11th November, 2004.
5. The said Ordinance amends the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 and the Companies Act, 1956.
Chapter II of the Ordinance which amends the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002,—
(a) require the secured creditor to consider, in response to the
notice issued by the secured creditor under sub-section (2) of
Section 13 of the said Act, any representation made or objection
raised by the borrower and cast an obligation upon the secured
creditor to communicate within one week of receipt of such
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representation or objection the reasons for non-acceptance of
the representation or objection to the borrower and take
possession of the secured asset only after reasons for not
accepting the objections of the borrower have been
communicated to him in writing;
(b) enable the borrower to make an application before the Debts
Recovery Tribunal without making any deposit (instead of filing
an appeal before the Debts Recovery Tribunal after depositing
seventy-five per cent. of the amount claimed with the notice
by the secured creditor);
(c) provides that the Debts Recovery Tribunal shall dispose of
the application as expeditiously as possible and dispose of such
application within sixty days from the date of such applications
so that the total period of pendency of the application with
such Tribunal shall not exceed four months;
(d) make provision for transfer of pending applications to any
one of the Debts Recovery Tribunal in certain cases;
(e) enables any person aggrieved by any order made by the
Debts Recovery Tribunal to file an appeal to the Debts Recovery
Appellate Tribunal after depositing with the Appellate Tribunal
fifty per cent. of amount of debt due from him, as claimed by
the secured creditor or determined by the Debts Recovery
Tribunal, whichever is less;
(f) enables the borrower residing in the State of Jammu and
Kashmir to make an application to the Court of District Judge
in that State having jurisdiction over the borrower and make
provision
for filing an appeal to the High Court from the order
of the Court of District Judge;
(g) makes provision for validation of the fees levied under the
said Act before the commencement of this Ordinance.
xxx xxx xxx”
The Act was accordingly amended in accordance with the aforesaid
judgment.
9. The judgment in Mardia Chemicals (supra) had made it clear
in paragraph 80 that all measures having been taken under section 13(4),
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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and before the date of sale auction, it would be open for the borrower to
file a petition under section 17 of the Act. This paragraph appears to
have been missed by the Full Bench in the impugned judgment.
10.  A reading of section 13 would make it clear that where a
default in repayment of a secured debt or any instalment thereof is made
by a borrower, the secured creditor may require the borrower, by notice
in writing, to discharge in full his liabilities to the secured creditor within
60 days from the date of notice. It is only when the borrower fails to do
so that the secured creditor may have recourse to the provisions contained
in section 13(4) of the Act. Section 13(3-A) was inserted by the 2004
Amendment Act, pursuant to Mardia Chemicals (supra), making it
clear that if on receipt of the notice under section 13(2), the borrower
makes a representation or raises an objection, the secured creditor is to
consider such representation or objection and give reasons for non-
acceptance. The proviso to section 13(3-A) makes it clear that this would
not confer upon the borrower any right to prefer an application to the
Debts Recovery Tribunal under section 17 as at this stage no action has
yet been taken under section 13(4).
11. When we come to section 13(4)(a), what is clear is that the
mode of taking possession of the secured assets of the borrower is
specified by rule 8. Under section 38 of the Act, the Central
Government
may make rules to carry out the provisions of the Act. One such rule is
rule 8. Rule 8(1) makes it clear that “the authorised officer shall take or
cause to be taken possession”.  The expression “cause to be taken”
only means that the authorised officer need not himself take possession,
but may, for example, appoint an agent to do so. What is important is
that such taking of possession is effected under sub-rule (1) of rule 8 by
delivering a possession notice prepared in accordance with Appendix
IV of the 2002 Rules, and by affixing such notice on the outer door or
other conspicuous place of the property concerned. Under sub-rule (2),
such notice shall also be published within 7 days from the date of such
taking of possession in two leading newspapers, one in the vernacular
language having sufficient circulation in the locality. This is for the reason
that when we come to Appendix IV, the borrower in particular, and the
public in general is cautioned by the said possession notice not to deal
with the property as possession of the said property has been taken.
This is for the reason that, from this stage on, the secured asset is liable
to be sold to realise the debt owed, and title in the asset divested from
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the borrower and complete title given to the purchaser, as is mentioned
in section 13(6) of the Act. There is, thus, a radical change in the borrower
dealing with the secured asset from this stage. At the stage of a section
13(2) notice, section 13(13) interdicts the borrower from transferring
the secured asset (otherwise than in the ordinary course of his business)
without prior written consent of the secured creditor. But once a
possession notice is given under rule 8(1) and 8(2) by the secured creditor
to the borrower, the borrower cannot deal with the secured asset at all
as all further steps to realise the same are to be taken by the secured
creditor under the 2002 Rules.
12. Section 19, which is strongly relied upon by Shri Ranjit Kumar,
also makes it clear that compensation is receivable under section 19
only when possession of secured assets is not in accordance with the
provision of this Act and rules made thereunder.24  The scheme of section
13(4) read with rule 8(1) therefore makes it clear that the delivery of a
possession notice together with affixation on the property and publication
is one mode of taking “possession” under section 13(4).  This being the
case, it is clear that section 13(6) kicks in as soon as this is done as the
expression used in section 13(6) is “after taking possession”. Also, it is
clear that rule 8(5) to 8(8) also kick in as soon as “possession” is taken
under rule 8(1) and 8(2). The statutory scheme, therefore, in
the present
case is that once possession is taken under rule 8(1) and 8(2) read with
section 13(4)(a), section 17 gets attracted, as this is one of the measures
referred to in section 13(4) that has been taken by the secured creditor
under Chapter III.
13. Rule 8(3) begins with the expression “in the event of”.  These
words make it clear that possession may be taken alternatively under
sub-rule (3). The further expression used in sub-rule (3) is “actually
taken” making it clear that physical possession is referred to by rule
8(3). Thus, whether possession is taken under either rule 8(1) and 8(2),
or under rule 8(3), measures are taken by the secured creditor under
section 13(4) for the purpose of attracting section 17(1).
14. The argument made by the learned counsel for the
respondents that section 13(4)(a) has to be read in the light of sub-
24  That this is the general scheme of the Act is also clear from section 17(2) which states
that the Debts Recovery Tribunal, when an application is filed before it, shall consider
whether any of the measures referred to in section 13(4) taken by the secured creditor
are in accordance with the provisions of the Act and rules made thereunder.
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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clauses (b) and (c) is therefore incorrect and must be rejected. Under
sub-clause (c), a person is appointed as manager to manage the secured
assets the possession of which has been taken over by the secured
creditor only under rule 8(3). Further, the rule of noscitur a sociis cannot
apply. Sub-clause (b) speaks of taking over management of the business
of the borrower which is completely different from taking over possession
of a secured asset of the borrower. Equally, sub-clause (d) does not
speak of taking over either management or possession, but only speaks
of paying the secured creditor so much of the money as is sufficient to
pay off the secured debt. These arguments must therefore be rejected.
15. Equally fallacious is the argument that section 13(4) must be
read in the light of sections 14 and 15. There is no doubt whatsoever that
under section 14(1), the Magistrate takes possession of the asset and
“forwards” such asset to the secured creditor. Equally, under section 15
there is no doubt that the management of the business of a borrower
must actually be taken over. These are separate and distinct modes of
exercise of powers by a secured creditor under the Act. Whereas sections
14 and 15 have to be read by themselves, section 13(4)(a), as has been
held by us, has to be read with rule 8, and this being the case, this argument
must also be rejected.
16. Yet another argument was made by the learned counsel for
the respondents that section 17(3) would require restoration of possession
of secured assets to the borrower, which can only happen if actual
physical possession is taken over. Section 17(3) is a provision which
arms the Debts Recovery Tribunal to give certain reliefs when applications
are made before it by the borrower. One of the reliefs that can be given
is restoration of possession. Other reliefs can also be given under the
omnibus section 17(3)(c). Merely because one of the reliefs given is
that of restoration of possession does not lead to the sequitur that only
actual physical possession is therefore contemplated by section 13(4),
since other directions that may be considered appropriate and necessary
may also be given for wrongful recourse taken by the secured creditor
to section 13(4).  This argument again has no legs to stand on.
17. Another argument made by learned senior counsel for the
respondents is that if we were to accept the construction of section
13(4) argued by the appellants, the object of the Act would be defeated.
As has been pointed out hereinabove in the Statement of Objects and
Reasons of the original enactment, paragraphs 2(i) and 2(j) make it clear
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that the rights of the secured creditor are to be exercised by officers
authorised in this behalf in accordance with the rules made by the Central
Government. Further, an appeal against the action of any bank or financial
institution is provided to the concerned Debts Recovery Tribunal. It can
thus be seen that though the rights of a secured creditor may be exercised
by such creditor outside the court process, yet such rights must be in
conformity with the Act.  If not in conformity with the Act, such action
is liable to be interfered with by the Debts Recovery Tribunal in an
application made by the debtor/borrower. Thus, it can be seen that the
object of the original enactment also includes secured creditors acting in
conformity with the provisions of the Act to realise the secured debt
which, if not done, gives recourse to the borrower to get relief from the
Debts Recovery Tribunal. Equally, as has been seen hereinabove, the
Statement of Objects and Reasons of the Amendment Act of 2004 also
make it clear that not only do reasons have to be given for not accepting
objections of the borrower under section 13(3-A), but that applications
may be made before the Debts Recovery Tribunal without making the
onerous pre-deposit of 75% which was struck down by this Court in
Mardia Chemicals (supra). The object of the Act, therefore, is also to
enable the borrower to approach a quasi-judicial forum in case the secured
creditor, while taking any of the measures
under section 13(4), does not
follow the provisions of the Act in so doing. Take for example a case in
which a secured creditor takes possession under rule 8(1) and 8(2) before
the 60 days’ period prescribed under section 13(2) is over. The borrower
does not have to wait until actual physical possession is taken (this may
never happen as after possession is taken under rule 8(1) and 8(2), the
secured creditor may go ahead and sell the asset). The object of providing
a remedy against the wrongful action of a secured creditor to a borrower
will be stultified if the borrower has to wait until a sale notice is issued,
or worse still, until a sale actually takes place. It is clear, therefore, that
one of the objects of the Act, as carried out by rule 8(1) and 8(2) must
also be subserved, namely, to provide the borrower with instant recourse
to a quasi-judicial body in case of wrongful action taken by the secured
creditor.
18. Another argument that was raised by learned senior counsel
for the respondents is that the taking of possession under section 13(4)(a)
must mean actual physical possession or otherwise, no transfer by way
of lease can be made as possession of the secured asset would continue
to be with the borrower when only symbolic possession is taken. This
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
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argument also must be rejected for the reason that what is referred to in
section 13(4)(a) is the right to transfer by way of lease for realising the
secured asset. One way of realising the secured asset is when physical
possession is taken over and a lease of the same is made to a third party.
When possession is taken under rule 8(1) and 8(2), the asset can be
realised by way of assignment or sale, as has been held by us hereinabove.
This being the case, it is clear that the right to transfer could be by way
of lease, assignment or sale, depending upon which mode of transfer the
secured creditor chooses for realising the secured asset. Also, the right
to transfer by way of assignment or sale can only be exercised in
accordance with rules 8 and 9 of the 2002 Rules which require various
pre-conditions to be met before sale or assignment can be effected.
Equally, transfer by way of lease can be done in future in cases where
actual physical possession is taken of the secured asset after possession
is taken under rule 8(1) and 8(2) at a future point in time. If no such
actual physical possession is taken, the right to transfer by way of
assignment or sale for realising the secured asset continues. This
argument must also, therefore, be rejected.
19. Shri Ashish Dholakia, learned Advocate, appearing for the
intervenor, State Bank of India, argued that if we were to upset the Full
Bench judgment, there would be little
difference between the Recovery
of Debts Act and the SARFAESI Act as banks would not be able to
recover their debts by selling properties outside the court process without
constant interference by the Debts Recovery Tribunal. We are of the
view that this argument has no legs to stand on for the reason that banks
and financial institutions can recover their debts by selling properties
outside the court process under the SARFAESI Act by adhering to the
statutory conditions laid down by the said Act. It is only when such
statutory conditions are not adhered to that the Debts Recovery Tribunal
comes in at the behest of the borrower. It is needless to add that under
the Recovery of Debts Act, banks/financial institutions could not recover
their debts without intervention of the Debts Recovery Tribunal, which
the SARFAESI Act has greatly improved upon, the only caveat being
that this must be done by the secured creditor following the drill of the
SARFAESI Act and rules made thereunder. Shri Dholakia then referred
to and relied upon section 3 of the Transfer of Property Act, 1882.  Under
the said section, “a person is said to have notice” of a fact when he
actually knows that fact, or when, but for willful abstention from an
inquiry or search which he ought to have made, or gross negligence, he
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would have known it. Shri Dholakia referred to and relied upon
Explanation II to this definition, which reads as under:
“Explanation II.—Any person acquiring any immoveable
property or any share or interest in any such property shall be
deemed to have notice of the title, if any, of any person who is
for the time being in actual possession thereof.”
We fail to understand what relevance Explanation II could possibly have
for a completely different statutory setting, namely, that of the SARFAESI
Act and the 2002 Rules thereunder. For the purpose of the Transfer of
Property Act, a person acquiring immovable property shall be deemed
to have notice of the title, if any, of any person who is for the time being
in actual possession thereof. For the purpose of the SARFAESI Act
read with the 2002 Rules, the taking of possession by a secured creditor
of the secured asset of the borrower would include taking of possession
in any of the modes prescribed under rule 8, as has been held by us
hereinabove. This argument must also, therefore, be rejected.
20. We now come to some of the decisions of this Court. In
Transcore v. Union of India & Anr., (2008) 1 SCC 125, this Court
formulated the question which arose before it as follows:
“1. A short question of public importance arises for determination,
namely, 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 taking
recourse to
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (“the NPA Act”, for
short).”
To this, the answer given is in paragraph 69, which is as follows:
“69. For the above reasons, we hold that withdrawal of the OA
pending before DRT under the DRT Act is not a precondition
for taking recourse to the NPA Act. It is for the bank/FI to
exercise its discretion as to cases in which it may apply for leave
and in cases where they may not apply for leave to withdraw.
We do not wish to spell out those circumstances because the
said first proviso to Section 19(1) is an enabling provision, which
provision may deal with myriad circumstances which we do not
wish to spell out herein.”
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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Thereafter, the Court went on to discuss whether recourse to take
possession of secured assets of the borrower in terms of section 13(4)
of the Act would comprehend the power to take actual possession of
immovable property. In the discussion on this point in paragraph 71 of
the judgment, learned counsel on behalf of the borrowers made an
extreme submission which was that the borrower who is in possession
of immovable property cannot be physically dispossessed at the time of
issuing the notice under section 13(4) of the Act so as to defeat
adjudication of his claim by the Debts Recovery Tribunal under section
17 of the Act and that therefore, physical possession can only be taken
after the sale is confirmed in terms of rule 9(9) of the 2002 Rules. This
submission was rejected by stating that the word “possession” is a relative
concept and that the dichotomy between symbolic and physical possession
does not find place under the Act. Having said this, the Court went on to
examine the 2002 Rules and held:
“74. ……… 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 authorised 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
authorised 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.”
If the whole of paragraph 74 is read together with the extracted passage,
it becomes clear that what is referred to in the extracted passage is the
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procedure provided by rule 8(3). It is clear that the authorised officer’s
powers, once possession is taken under rule 8(3), include taking of steps
for preservation and protection of the secured assets which is referred
to in the extracted portion. Thus, the final conclusion by the Bench,
though general in nature, is really referable to possession that is taken
under rule 8(3) of the 2002 Rules. Whether possession taken under rule
8(1) and 8(2) is called symbolic possession or statutory possession, the
fact remains that rule 8(1) and rule 8(2) specifically provide for a
particular mode of possession taken under section 13(4)(a) of the Act.
This cannot be wished away by an observation made by this Court in a
completely different context in order to repel an extreme argument. This
Court was only of the opinion that the extreme argument made, as
reflected in paragraph 71 of the judgment, would have to be rejected.
This judgment therefore does not deal with the problem before us: namely,
whether a section 17(1) application is maintainable once possession has
been taken in the manner specified under rule 8(1) of the 2002 Rules.
21. Another case strongly relied upon by learned counsel for the
respondents is Noble Kumar (supra). This judgment decided that it is
not necessary to first resort to the procedure under section 13(4) and, on
facing resistance, then approach the Magistrate under section 14. The
secured creditor need not avail of any of the remedies
under section
13(4), and can approach the Magistrate straightaway after the 60-day
period of the notice under section 13(2) is over, under section 14 of the
Act.  This Court therefore held:
“35. Therefore, there is no justification for the conclusion that
the Receiver appointed by the Magistrate is also required to follow
Rule 8 of the Security Interest (Enforcement) Rules, 2002. The
procedure to be followed by the Receiver is otherwise regulated
by law. Rule 8 provides for the procedure to be followed by a
secured creditor taking possession of the secured asset without
the intervention of the court. Such a process was unknown prior
to the SARFAESI Act. So, specific provision is made under Rule 8
to ensure transparency in taking such possession. We do not see
any conflict between different procedures prescribed by law for
taking possession of the secured asset. The finding of the High
Court in our view is unsustainable.
36. Thus, there will be three methods for the secured creditor to
take possession of the secured assets:
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
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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 scrutinise 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 Magistrate will thereafter scrutinise
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 above, 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.”
When this Court referred to the first method of taking possession of
secured assets in paragraph 36.1.(i), this Court spoke of a case in which,
once possession notice is given under rule 8(1), no resistance is met
with. That is why, this Court states that 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
would have to be taken, meaning thereby that advertisement must
necessarily be given in the newspaper as mentioned in rule 8(2), after
which steps for sale may take place.  This case again does not deal with
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the precise problem that is before the Court in this case. The observation
made in paragraph 36.1.(i), which is strongly relied upon by the Full
Bench of the High Court, to arrive at the conclusion that actual physical
possession must first be taken before the remedy under section 17(1)
can be availed of by the borrower, does not flow from this decision at all.
22. In Canara Bank v. M. Amarender Reddy & Anr., (2017)
4 SCC 735, this Court after referring to Mathew Varghese v. M.
Amritha Kumar and Ors., (2014) 5 SCC 610, which held that the 30-
day period mentioned under rule 8(6) is mandatory, then held:
“14. 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 authorised
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 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.”
Though there was no focused argument on the controversy before us,
this Court did recognise that possession may be taken over under rule 8
either symbolically or physically, making it clear that two separate modes
for taking possession are provided for under rule 8.
23. Similarly, in ITC Limited v. Blue Coast Hotels Ltd. and
Ors., AIR 2018 SC 3063, this Court held:
“45. As noticed earlier, the creditor took over symbolic possession
of the property on 20.06.2013. Thereupon, it transferred the
property to the sole bidder ITC and issued a sale certificate for
Rs. 515,44,01,000/- on 25.02.2015. On the same day, i.e.,
25.02.2015, the creditor applied for taking physical possession
of the secured assets under Section 14 of the Act.
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
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46. According to the debtor, since Section 14 provides that an
application for taking possession may be made by a secured
creditor, and the creditor having ceased to be a secured creditor
after the confirmation of sale in favour of the auction purchaser,
was not entitled to maintain the application. Consequently,
therefore, the order of the District Magistrate directing delivery
of possession is a void order. This submission found favour with
the High Court that held that the creditor having transferred the
secured assets to the auction purchaser ceased to be a secured
creditor and could not apply for possession. The High Court held
that the Act does not contemplate taking over of symbolic
possession and therefore the creditor could not have transferred
the secured assets to the auction purchaser. In any case, since
ITC Ltd. was the purchaser of such property, it could only take
recourse to the ordinary law for recovering physical possession.
47. We find nothing in the provisions of the Act that renders
taking over of symbolic possession illegal. This is a well-known
device in law. In fact, this court has, although in a different context,
held in M.V.S. Manikayala Rao v. M. Narasimhaswami [AIR
1966 SC 470] that the delivery of symbolic possession amounted
to an interruption of adverse possession of a party and the period
of limitation for the application of Article 144 of the Limitation
Act would start from such
date of the delivery.”
24. This judgment also speaks of the taking over of symbolic
possession under the SARFAESI Act. The judgment then goes on to
discuss whether a creditor could maintain an application for possession
under section 14 of the Act once it takes over symbolic possession before
the sale of the property to the auction purchaser. The Court referred to
various authorities and arrived at the conclusion that a secured creditor
remains a secured creditor when only constructive or symbolic possession
is given, as the entire interest in the property not having been passed on
to the secured creditor in the first place, the secured creditor in turn
could not pass on the entire interest in the property to the auction
purchaser. In this behalf, it is important to refer to section 8 of the Transfer
of Property Act, 1882 which states as follows:
“8. Operation of transfer.— Unless a different intention is
expressed or necessarily implied, a transfer of property passes
forthwith to the transferee all the interest which the transferor is
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then capable of passing in the property and in the legal incidents
thereof.
xxx xxx xxx”
Section 13(6) of the SARFAESI Act makes it clear that a different
intention is so expressed by the Act, as any transfer of a secured asset
after taking possession thereof, shall vest in the transferee all rights in
the secured asset so transferred as if the transfer had been made by the
owner of such secured asset.  It is clear, therefore, that statutorily, under
section 13(6), though only the lesser right of taking possession,
constructive or physical, has taken place, yet the secured creditor may,
by lease, sale or assignment, vest in the lessee or purchaser all rights in
the secured asset as if the transfer had been made by the original owner
of such secured asset. This aspect of the matter does not appear to
have been noticed in the aforesaid judgment. The ultimate conclusion in
the said judgment is, however, correct as a secured creditor remains a
secured creditor even after possession is taken over as the fiction
contained in section 13(6) does not convert the secured creditor into the
owner of the asset, but merely vests complete title in the transferee of
the asset once transfer takes place in accordance with rules 8 and 9 of
the 2002 Rules.
25. We may also add that by a notification dated 17.10.2018, rule
8 has since been amended adding two sub-rules as follows:
“3. In the said rules, in rule 8—
(i) in sub-rule (6), for the proviso, the following proviso
shall be
substituted, namely:-
“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 the
Form given in Appendix IV-A to be published in two leading
newspapers including one in vernacular language having wide
circulation in the locality.”;
(ii) for sub-rule (7), the following sub-rule shall be substituted,
namely:–
“(7) every notice of sale shall be affixed on the conspicuous part
of the immovable property and the authorised officer shall upload
the detailed terms and conditions of the sale, on the web- site of
the secured creditor, which shall include;
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
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(a) the description of the immovable property to be sold,
including the details of the encumbrances known to the secured
creditor;
(b) the secured debt for recovery of which the property is to
be sold;
(c) reserve price of the immovable secured assets below which
the property may not be sold;
(d) time and place of public auction or the time after which
sale by any other mode shall be completed;
(e) deposit of earnest money as may be stipulated by the secured
creditor;
(f) any other terms and conditions, which the authorized officer
considers it necessary for a purchaser to know the nature and
value of the property.”;
Appendix IV-A which is now inserted by the said notification reads as
follows:
“APPENDIX - IV-A
[See proviso to rule 8 (6)]
Sale notice for sale of immovable properties
E-Auction Sale Notice for Sale of Immovable Assets under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 read with proviso to
Rule 8 (6) of the Security Interest (Enforcement) Rules, 2002
Notice is hereby given to the public in general and in particular
to the Borrower (s) and Guarantor (s) that the below described
immovable property mortgaged/charged to the Secured Creditor,
the constructive/physical ______________ (whichever is
applicable) possession of which has been taken by the Authorised
Officer of ______________ Secured Creditor, will be sold on
“As is where is”, “As is what
is”, and “Whatever there is” on
______________ (mention date of the sale), for recovery of
Rs. due to the ______________ Secured Creditor from
(mention name of the Borrower (s)) and ______________
(mention name of the Guarantor (s)). The reserve price will be
Rs. ______________ and the earnest money deposit will be
Rs. ______________
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(Give short description of the immovable property with known
encumbrances, if any)
For detailed terms and conditions of the sale, please refer to the
link provided in ______________ Secured Creditor’s website
i.e. www. (give details of website)
Date:
Authorised Officer
Place:”
This appendix makes it clear that statutorily, constructive or physical
possession may have been taken, pursuant to which a sale notice may
then be issued under rule 8(6) of the 2002 Rules. Appendix IV-A,
therefore, throws considerable light on the controversy before us and
recognises the fact that rule 8(1) and 8(2) refer to constructive possession
whereas rule 8(3) refers to physical possession. We are therefore of the
view that the Full Bench judgment is erroneous and is set aside. The
appeals are accordingly allowed, and it is hereby declared that the
borrower/debtor can approach the Debts Recovery Tribunal under section
17 of the Act at the stage of the possession notice referred to in rule 8(1)
and 8(2) of the 2002 Rules. The appeals are to be sent back to the
Court/Tribunal dealing with the facts of each case to apply this judgment
and thereafter decide each case in accordance with the law laid down
by this judgment.
Devika Gujral                                                                                         Appeals allowed.
M/S HINDON FORGE PVT. LTD. v.  STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]