Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Ss. 14 – Nomenclature ‘Chief Metropolitan Magistrate’ used in Section 14 of Act, 2002 is inclusive of ‘Chief Judicial Magistrate’ functioning in a non-metropolitan area and shall have jurisdiction to entertain an application made by a secured creditor under Section 14 of Act, 2002.
Krishna Murari and Prashant Kumar, JJ.
8th September, 2016
Civil Misc. Writ Petition No. 17778 of 2016
Abhishek Mishra ——- Petitioner
State of U.P. & Ors. ——- Respondents
(Per Krishna Murari, J.)
Heard Shri Neeraj Kumar Pandey, learned counsel for the petitioner, learned Standing Counsel for respondent nos. 1, 2 and 5 and Shri Sandeep Arora for respondent no. 3-Bank.
Admittedly, late father of the petitioner took two loans from respondent no. 3-Bank and mortgaged the property bearing khasra no. 762, area 1128 sq. ft. situated in Rudrapur and another residential plot nos. 820 and 821, area 2128 sq. ft. as security to the said loans. The dispute in the present writ petition is in respect of the khasra no. 762. Late father of the petitioner defaulted in making repayment, as a result, proceedings under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the ‘Act, 2002’) was initiated. Notice under Section 13 (2) of the Act, 2002 was issued and subsequently after notice under Section 13 (4) of the Act, 2002, the respondent-Bank made an application under Section 14 of the Act, 2002 before the Chief Judicial Magistrate seeking assistance in taking possession of the secured asset. Chief Judicial Magistrate vide order dated 18.03.2016, impugned in this petition, allowed the application and directed the concerned police station to assist the Bank in taking over possession of the mortgaged property and Sub Divisional Magistrate was directed to make an inventory of the articles in the mortgaged property.
Learned counsel for the petitioner contends that since Section 14 of the Act, 2002 only authorises either the Chief Metropolitan Magistrate or the District Magistrate to entertain and pass orders on the application made under the said Section, as such, the impugned order passed by the Chief Judicial Magistrate is patently without jurisdiction and is not liable to be sustained. It is further submitted that since Act, 2002 is a self contained code and the language of Section 14 is clear and unambiguous, no jurisdiction can be said to vest with the Chief Judicial Magistrate to exercise the power under Section 14 of the Act. He further submits that the power is to be exercised by the Chief Metropolitan Magistrate under the provisions of the Act, the same cannot be delegated to a Chief Judicial Magistrate by giving a wider meaning to the nomenclature to the Chief Metropolitan Magistrate and if the Legislature has omitted the use of word ‘Chief Judicial Magistrate’, the Court cannot supply the omission and it can only interpret the law.
On the other hand, learned counsel for the respondent-Bank submits that the very purpose of the enactment, viz., the expeditious recovery of bad loans classified as Non Performing Asset, would fail, if the Chief Judicial Magistrate is excluded from exercising the power conferred by Section 14of the Act, 2002. He points out that only a few areas in the State of U.P. has been declared to be metropolitan areas where the Chief Metropolitan Magistrate functions and in most of the areas, there are Chief Judicial Magistrate and, in case, if he is excluded from exercising the power conferred by Section 14 of the Act, it would result in endless delay in recovery of debts of the Banks and financial institutions frustrating the very purpose of the Legislature enacting the Act, 2002 for speedy recovery of the loans.
The core issue, which arises for reconsideration is whether the Chief Judicial Magistrate exercising jurisdiction in non metropolitan area in exercise of powers conferred by Section 14 of the Act, 2002 can assist a secured creditor in taking possession of the secured asset and pass an order in favour of the secured creditor for the purpose of taking possession or control of any secured asset.
This issue has been subject matter of consideration before various High Courts, who have expressed divergent views, however, no authoritative pronouncement by the Hon’ble Apex Court or by this Court, has been placed before us.
A Full Bench of Madras High Court in K. Arockiyaraj Vs. Chief Judicial Magistrate, Srivilliputhur & Anr., 2013 (4) L.W. 485 and two Division Benches judgment of Bombay High Court in the case of Arjun Urban Co-operative Bank Limited, Solapur Vs. Chief Judicial Magistrate, Solapur & Anr., 2009 (5) MLJ 380 and Ravindrakumar Prakash Bhargodev Vs. State of Maharashtra, 2008 (110) BOMLR 2880 have taken view that in absence of any reference to Chief Judicial Magistrate, in Section 14, it is only the Chief Metropolitan Magistrate in the metropolitan area and the District Magistrate in non-metropolitan area, who can entertain an application under Section 14. Whereas a Division Bench of Kerala High Court in the case of the Mohd. Ashraf and Smt. C. Arifa Vs. Union of India, 2008 Law Suit (Ker) 477 and a Full Bench of Andhra Pradesh High Court in the case of T.R. Jewellery & Ors. Vs. State Bank of India & Ors., Laws (APH)-2015-11-17 has taken a totally contrary view.
Before answering the question posed before us for adjudication, we find it expedient to notice the statement of object and reasons of Act, 2002 in order to explore the purpose and intention of the Legislature for enacting the said Act. Finding that several hundred crores of public money was blocked in unproductive ventures, the Government of India constituted a committee under Shri P. Tiwari to examine the legal and other difficulties faced by the Banks and financial institutions in the recovery of their dues and suggest remedial measures. The Tiwari Committee noticing that the existing procedure for recovery was very cumbersome, suggested setting up special Tribunals for recovery of the dues of Banks and financial institutions by following a procedure, which was summary in nature. The issue was further considered by the committee on the financial system headed by M. Narsimham. In its first report, the Narsimham committee suggested setting up special Tribunals with special powers for adjudication of cases involving the dues of Banks and financial institutions. On a consideration of the report of the two committees, namely, Tiwari committee and Narsimham committee, the parliament enacted the Recovery of Debts due to Banks and Financial Institutions Act, 1993. By the new enactment, a specialised forum by the name of Debts Recovery Tribunal and Debts Recovery Appellate Tribunals were constituted for expeditious disposal of cases relating to recovery of debts due to Banks and financial institutions. The principles applicable in a civil proceeding before civil court in such matters was barred and all pending matters above a certain valuation were transferred to such newly created Tribunals. For a certain period, the new system worked well and the Tribunals ensured that cases involving recovery of dues of Banks and financial institutions are decided expeditiously. However, with the passage of time, the proceedings before the Tribunal also became sluggish like those before regular civil courts and on account of the various procedural technicalities, there was great impediment in the expeditious adjudication of cases by the Debt Recovery Tribunal. A survey conducted by the Ministry of Finance, Government of India in 2001 revealed that a huge sum of more than Rs.1,20,000 crores of the Banks and financial institutions was blocked in bad loans, which was adversely affecting the economy of the country. The Government again referred the matter to Narsimham committee to suggest ways and means for expediting the recovery of debts of Banks and financial institutions. Narsimham committee submitted its 2nd report. Andhyarujina committee was also constituted by the Central Government for the purpose of examining banking sector reforms and to consider the need for changes in the legal system in respect of these dues. Both the committees, inter alia, suggested enactment of a new Legislation for securitization and empowering the banks and financial institutions to take possession as security and to sell them without the intervention of the Court. Accepting the recommendations made by the two committees, the Parliament proceeded to enact Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which was promulgated on 21st August, 2002, which was later on converted into Act, which came into force w.e.f. 17th December, 2002.
Act, 2002 provides a detail procedure for constitution of Securitisation company or Reconstruction company for regulation of securitisation and reconstruction of financial assets of Banks and financial institutions. The provisions of the Act also provide a procedure for enforcement of the security interest. Under Section 13 of the Act, any security interest created in favour of any secured creditor, is liable to be enforced without the intervention of the Court or Tribunal by the said creditor in accordance with the provisions contained in the Act. This power has been vested notwithstanding anything contained in Section 69 or Section 69 A of the Transfer of Property Act, 1882.
While upholding the constitutional validity of Act, 2002, the Hon’ble Apex Court in the case of Mardia Chemicals Ltd. Vs. Union of India, (2004) 4 SCC 311 has observed that though the effect of some of the provisions of the enactment could be a bit harsh for some of the borrowers, but the impugned provisions of the Act cannot be said to be unconsitutonal on that ground because the object of the Act is to achieve speedy recovery of dues declared as NPAs and better availability of capital liquidity and resources to help in growth of the economy of the country and welfare of the people in general which would sub serve the public interest.
From the above observations made by the Hon’ble Apex Court and also the statement of object and reasons, it becomes abundantly clear that the purpose of the Act is to achieve speedier recovery of the bad debts of the Bank and financial institutions declared as NPAs without the intervention of the Tribunal or the Courts and quick resolution of disputes arising out of the action taken for recovery of such dues, which would go a long way in making better availability of capital liquidity and resources to help growth of the economy of the country and welfare of the public at large in order to further sub serve the purpose and object of the Act. The Legislature after enacting Section 13 providing a procedure for enforcement of security interest by the secured creditor enacted Section 14 conferring power upon the Chief Metropolitan Magistrate or the District Magistrate to assist secured creditor in taking the possession of the secured asset. The said Section reads as under.