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Powers for Possession of Secured Assets

A.K Bansal
October 7, 2022

This article assesses the scope of powers of Chief Metropolitan Magistrate and District Magistrate in taking possession of secured assets under Sec 14 of SARFAESI Act 2002---- Section 14 of SARFAESI Act 2002

Recently in the matter of Balkrishna Rama Tarle (Dead) Through LRs Vs. Phoenix ARC Pvt Ltd & Others has, Hon’ble Supreme Court, while examining the scope of powers of CMM/DM in taking possession of the secured assets, has reiterated that Section 14 does not involve any adjudicatory process qua the points raised by borrowers against secured creditor taking possession of secured assets and that the CMM/DM is not required to adjudicate disputes between borrower and secured creditor and/or between any third party and the secured creditor.  

secured assets

It would be seen that the Hon’ble Court has reiterated the well-established proposition of law that the powers of CMM/DM are confined to assisting the secured creditor/s in taking possession of the secured assets and nothing beyond that. The CMM/DM is not vested with the powers to adjudicate any other dispute or point raised by the borrower/s on merits of the case. The very wording used in Section 14 says that the CMM/DM has to assist the secured creditor/s in taking possession.  

Further, the Act does not empower the CMM or the DM to give any findings in respect of any dispute relating to the secured assets. The powers vested in CMM or DM are purely procedural and he has to simply assist the secured creditor/s in obtaining possession of the secured assets and deliver the assets to secured creditor for the purpose of realization of its dues by resorting to procedure prescribed under the Act. Section 14 of the Act is procedural in nature and merely empowers the CMM or DM to assist the secured creditor in taking possession of the secured assets and it does not clothe the DM with powers to adjudicate regarding any dispute pertaining to secured assets. The CMM/ DM has not been vested with any power, jurisdiction or expertise to deal with any claim as to nature of property in question or as to the merits or demerits with regard to other aspects but for considering whether property in respect of which assistance is sought is a secured asset or not.  

secured assets assistance

Sarfaesi Act 2002 authorizes the Banks/ FIs to exercise powers provided under the Act to take possession of the secured assets without intervention of the Courts. The Banks/FIs can take possession of the secured assets through its Authorized Officer designated for the purpose. Authorized Officer of the bank can inter alia take possession of the property and sell it as per provisions of the Act. Though under Section 13(4) of the Act, bank /FIs can resort to more than one measure, but in practice the banks and FIs are resorting to only first option of taking possession of the secured assets and selling it. Other options, though available but taking over management of the secured assets or resort to other options is having inherent hurdles which the banks/FIs may not be able to tackle due to lack of expertise and other related complications.  

secured assets complications

Further, taking possession of secured assets may not be easy in several cases. Also no borrower is likely to come forward to handover possession of these assets of his own.  Rather the borrowers try their best to create as many hurdles so that the Banks/ FIs may not be able to take possession of the secured assets. In cases where banks are not able to take possession of the assets of their own, the Act has made provision foe seeking assistance of the District Magistrate (DM) or Chief Metropolitan Magistrate (CMM) as the case may be, by moving application under Section 14 of the Act. Though the Act provides that DM/CMM shall pass order of possession within 60 days, but in practice, it takes several months in obtaining an order. Even after the order is passed, the officials of DM/CMM takes several months to take actual physical possession of the secured assets which defeat the very objectives of the Act.  

Generally, the dealing officials and Authorized Officers feel that they must seek assistance of DM/CMM in obtaining possession in each and every case. This is not so. The Act provides for assistance of DM/CMM in taking possession of properties. It nowhere provides that the secured creditor must take assistance of DM/CMM in each and every case. Provision is that if the secured creditor is not able to take possession of the secured assets of himself fearing resistance of borrower or apprehend law and order situation or the like, assistance of DM/CMM may be taken under section 14 of the Act. While heading Assets Recovery Branch of the Bank at Mumbai, I came across such a case. In this case, bank had moved application before CMM for possession which was pending since several months. On enquiry, the Authorized Officer informed that order could not be passed by the CMM as bank did not file some documents before the CMM because the documents were not traceable. When I studied the file, it came to my knowledge that the property in question was an open plot. The Authorized Officer was sticking to his point that bank cannot take possession of its own and as application has already been moved before CMM, and the Bank must wait for order of CMM. I explained to him the provisions of the Act and was able to convince him that assistance of CMM or DM is required only when bank cannot take possession of the property of its own or apprehends resistance. I was able to convinced him that as it is an open plot and not a residential flat or house, there was no likelihood of any law and order situation or resistance from anyone. Hence, there is no point in waiting for order of CMM. I advised him to proceed with taking possession with the help of Enforcement Agency. The possession was taken in the next some weeks which prompted the borrower to approach us for compromise and matter was settled for handsome amount. Hence, it is desirable that the concerned officers and Authorized Officers must be pro-active and keep themselves abreast about the provisions of the Act.

About the author
A.K Bansal

A K Bansal is a former banker and law professional which background in legal matters concerning credit, recovery, insolvency and bankruptcy matters. He is a columnist for Ancoraa Resolution and writes his opinions and commentaries on recent judgements pertaining the Insolvency and Bankruptcy Code.

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