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The Companies Act, 1956
Section 14 in The Companies Act, 1956
Section 13(4) in The Companies Act, 1956
Section 17 in The Companies Act, 1956
Section 13 in The Companies Act, 1956

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Gujarat High Court
Gruh vs District on 27 February, 2012
Author: A.L.Dave, Mr.Justice J.B.Pardiwala,
  
 Gujarat High Court Case Information System 
    
  
    

 
 
    	      
         
	    
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SCA/2493/2011	 9/ 9	JUDGMENT 
 
 

	

 

IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
 

 


 

SPECIAL
CIVIL APPLICATION No. 2493 of 2011
 

For
Approval and Signature:  
 
HONOURABLE
MR.JUSTICE A.L.DAVE  
HONOURABLE
MR.JUSTICE J.B.PARDIWALA
 
 
=========================================================

 
	  
	 
	  
		 
			 

1
		
		 
			 

Whether
			Reporters of Local Papers may be allowed to see the judgment ?
		
	

 
	  
	 
	  
		 
			 

2
		
		 
			 

To be
			referred to the Reporter or not ?
		
	

 
	  
	 
	  
		 
			 

3
		
		 
			 

Whether
			their Lordships wish to see the fair copy of the judgment ?
		
	

 
	  
	 
	  
		 
			 

4
		
		 
			 

Whether
			this case involves a substantial question of law as to the
			interpretation of the constitution of India, 1950 or any order
			made thereunder ?
		
	

 
	  
	 
	  
		 
			 

5
		
		 
			 

Whether
			it is to be circulated to the civil judge ?
		
	

 

 
=========================================================

 

GRUH
FINANCE LTD - Petitioner(s)
 

Versus
 

DISTRICT
MAGISTRATE AND COLLECTOR OFFICE OF DISTRICT & 4 - Respondent(s)
 

=========================================================
 
Appearance
: 
SINGHI
& CO for
Petitioner(s) : 1, 
GOVERNMENT PLEADER for Respondent(s) :
1, 
NOTICE SERVED BY DS for Respondent(s) : 2 - 4. 
NOTICE SERVED
for Respondent(s) : 4, 
DELETED for Respondent(s) :
5, 
=========================================================


 
	  
	 
	  
		 
			 

CORAM
			: 
			
		
		 
			 

HONOURABLE
			MR.JUSTICE A.L.DAVE
		
	
	 
		 
		 
			 

and
		
	
	 
		 
		 
			 

HONOURABLE
			MR.JUSTICE J.B.PARDIWALA
		
	

 

 
 


 

Date
: 24/02/2012 

 

 
 
CAV
JUDGMENT 

(Per : HONOURABLE MR.JUSTICE J.B.PARDIWALA) By way of this petition under Articles 226 and 227 of the Constitution of India, the petitioner-Company incorporated under the Companies Act, 1956, and regulated by the guidelines framed under the National Housing Act, 1986, and engaged in providing finance for the purpose of construction of dwelling units has preferred this writ petition with the following prayers:-

"(A) Your Lordships be pleased to issue a writ of prohibition and/or a writ of mandamus or a writ in the nature of prohibition or certiorari or mandamus or any other appropriate writ, order or direction, quashing and setting aside the impugned order dated October 30, 2010, passed by the Respondent No.1, which is at Annexure-P to the petition and declare that the Respondent No.1 could not return the Application filed by the Petitioner under Section 14 of the SARFESI Act.

(B) Be pleased to direct the Respondent No.1 to accept the application of the Petitioner under Section 14 of the SARFESI Act and pass fresh decision thereon.

(C) Your Lordship may grant such further and other reliefs as may be deemed fit and proper and as the facts and circumstances of the case require."

The facts relevant for the purpose of deciding this petition can be summarized as under:-

2.1 The petitioner is a Company incorporated under the Companies Act, 1956. The petitioner is regulated by the guidelines framed under the National Housing Bank Act, 1986, and is engaged in providing finance for the purpose of construction of dwelling units and in development thereof. Housing being a fundamental need, the petitioner is actively pursuing financing of housing construction, which is a priority sector. The petitioner's source of funds involves refinances from National Housing Bank and Term Loans from National Banks. The petitioner also invites funds from the public by way of deposits. The petitioner uses public funds for promotion and development of priority sector and aims at serving the social need of housing. The petitioner extended financial assistance to respondent Nos. 2 and 3 on the terms and conditions contained in the Loan Agreement as well other documents executed in this context. The respondent Nos.4 and 5 executed deeds of guarantee, thereby guaranteeing the payment of the financial assistance extended by the petitioner to the respondent Nos. 2 and 3. The borrowers had, with a view to secure the aforesaid financial assistance, created an equitable portage in favour of the petitioner by way of oral deposit of title deeds with respect to their immovable property being Residential House in Block No.4, Yash Tenaments in Mangaldham-3 of Timbavadi situated in Sr.No.103/1, Plot No.58 paiki & 59 paiki, Village:Timbavadi, Dist:Junagadh.

2.2 According to the petitioner, the said mortgaged property is a "secured asset" in terms of the provision of Section 2 (zc) of the SARFAESI Act. In view of the defaults committed by the borrowers, the petitioner had classified their amount as a Non Performing Asset and issued notice dated 06.06.2009 under Section 13(2) of the SARFAESI Act to the borrowers, calling upon the borrowers and the guarantors to pay to the petitioner the amount stated in the said notice within 60 days from the date of the said notice. Though more than 60 days passed since the date of receipt of the said notice, neither the borrowers nor the guarantors paid the amount stated in the notice. Therefore, the petitioner was entitled to take recourse to one or more measures referred to in Section 13(4) of the SARFAESI Act. The petitioner in exercise of the powers conferred under Section 13(4) of the SARFAESI Act, decided to take possession of the mortgaged property.

2.3 As the possession of the mortgaged property was required to be taken by the petitioner, the petitioner filed an application before respondent No.1 i.e. District Magistrate and Collector, Junagadh under Section 14 of the SARFAESI Act, seeking assistance of respondent No.1 in taking possession of the mortgaged property and handing over the same to the petitioner.

2.4 It appears that respondent No.1 instead of discharging his duty as envisaged under Section 14 of the SARFAESI Act raised certain objections without going into merits as to whether petitioner is entitled to take over the possession of the mortgaged property or not Accordingly, respondent No.1 vide order dated 30.10.2010 held that petitioner has not filed the supporting documents which would show the steps taken by the petitioner to recover the amount from guarantors and that the petitioner should take steps against the guarantors to recover remaining amount and returned the application which was filed by the petitioner under Section 14 of the SARFAESI Act. Thus, the respondent No.1 rejected the application of the petitioner on erroneous understanding of Section 14 of the SARFAESI Act.

This action on the part of respondent No.1 is subject matter of challenge in the petition. The petitioner has prayed to quash and set-aside the order dated 30.10.2010 passed by respondent no.1 rejecting the application under Section 14 of the SARFAESI Act.

We heard learned Counsel Mr.Bijal Chhatrapati for Singhi & Company for the petitioner, Mr.Pranav Dave, learned Assistant Government Pleader for the respondent no.1-State. None appears on behalf of respondent nos. 2 to 4 though the notice has been served.

The only question which falls for our consideration in this petition is as to whether respondent no.1 is justified in rejecting the application preferred by the petitioner under Section 14 of the SARFAESI Act seeking assistance for the purpose of taking over the possession of the mortgaged property on the ground that the petitioner is not entitled to take over the possession as the petitioner has failed to proceed against the guarantors for the purpose of recovery of the amount.

This issue is no longer res-integra and has been set at rest by a Division Bench judgment of this High Court in the case of I.D.B.I. Bank Ltd. Versus Hytaisun Magnetics Ltd & Ors., reported in 2011 (2) GLH 1438 and in the case of I.D.B.I. Bank Ltd. Vs. District Magistrate, reported in 2011(2) GLH 12.

The ratio of the two judgments which we have referred to is that the District Magistrate has no powers under Sections 14 (2) of SARFAESI Act to go into the merits of the case. The illegality of the action taken by the secured creditor can be gone into when it is assailed under Section 17 of the SARFAESI Act. The District Magistrate is duty bound to assist the secured creditor in taking possession of the secured assets and to take the possession of the documents relating thereto and forward such asset and documents to the secured creditors. In I.D.B.I. Bank Ltd. (Supra) the Division Bench to which one of us (Mr.Justice J.B.Pardiwala) is a party held in Paragraph-5, 6 and 9 as under:-

"5. So far as the first principal contention of the petitioner is concerned, the same merits consideration because the Chief Metropolitan Magistrate and the District Magistrate, under Section 14 of the Securitisation Act are not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under Section 13(4), which can be assailed under Section 17 of the Securitisation Act by the aggrieved person. Under sub-section (3) of Section 14, the act of the Chief Metropolitan Magistrate or District Magistrate done in pursuance of the said section cannot be called in question in any Court or before any authority. From the aforesaid provisions of law, it is evident that Chief Metropolitan Magistrate or District Magistrate is bound to assist the secured creditor in taking possession of the secured assets.

6. The Authority who is called upon to act under Section 14 of the Securitisation Act can only assist, nay, is bound to assist the secured creditor in taking possession of the secured asset. AS the Chief Metropolitan Magistrate and District Magistrate under Section 14 is not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under Section 13(4), which may be assailed under Section 17 of the Act by the aggrieved person, under sub-Section (3) of Section 14 of Securitisation Act, the act of the Chief Metropolitan Magistrate or District Magistrate done in pursuance of said Section cannot be called in question in any Court or before any authority. It is evident from the provisions of law that the District Magistrate while bound to assist the secured creditor in taking possession of the secured assets and to take the possession of the documents relating thereto and forward such assets and documents to the secured creditor, he is not empowered to decide the question of genuinity or propriety such documents, including the document signed or agreed between the borrower and the secured creditor.

9. In view of the settled position of law, under Section 14(2) of the Securitisation Act, for the purpose of securing compliance with the provisions of sub-Section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary."

In view of the settled position of law, we are of the view that District Magistrate has failed to discharge his statutory duties as enumerated under Section 14(2) of the SARFAESI Act and was not right in rejecting application preferred by the petitioner under Section 14 of the SARFAESI Act.

For the reasons stated above, we quash and set aside the communication dated 30th October, 2010, passed by respondent no.1 and we direct respondent no.1 to fully comply with the provision of Section 14(2) of the SARFAESI Act and to provide necessary assistance and protection to the petitioner for taking over possession of the secured assets of the principal borrower.

At this stage, we deem fit to clarify that the order which we have passed shall not come in the way of respondent Nos. 2 and 3 (principal borrowers) if they are ready and wiling to make the payment to the bank as per their liability.

Under Section 13(8) of the SARFAESI Act, if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor and no further steps shall be taken by him for transfer or sale of the secured asset. If respondent nos. 2 and 3 wants to avail of benefit of Section 13(8), it shall be open for them to make the necessary payment to the bank as per Section 13(8) of the SARFAESI Act.

We also like to clarify that we have not expressed any opinion so far as the measures taken by the petitioner under Section 13(4) of the SARFAESI Act are concerned. If the respondent Nos. 2 and 3 are aggrieved in any manner for non-compliance of Act or Rule thereunder, it will be open for them to proceed under Section 17 of the SARFAESI Act, which provides for an appeal before the Debt Recovery Tribunal.

With this observation, the petition is allowed and is disposed of accordingly. Rule is made absolute with no order as to costs.

(A.L.Dave,J.) (J.B.PARDIWALA,J.) Girish     Top