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”)

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10873 OF 2018
[ARISING OUT OF SLP(CIVIL) NO.5895 OF 2018]
M/S HINDON FORGE PVT. LTD. & ANR. …APPELLANTS
VERSUS
THE STATE OF UTTAR PRADESH
THROUGH DISTRICT MAGISTRATE
GHAZIABAD & ANR. …RESPONDENTS
WITH
CIVIL APPEAL NO. 10874 OF 2018
[ARISING OUT OF SLP(CIVIL) NO.12841 OF 2018]
J U D G M E N T
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
1
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
2
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 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.
3
(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. 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.
4
(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 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
5
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
6
accepts the 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.”
7
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.
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
8
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 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
9
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) is filed
by the borrower, it is open to DRT to deal with the
10
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
11
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
12
sub-rule (3) to argue that possession may be taken under this
sub-rule which is “actual” as opposed to “symbolic” possession
under 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
13
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,
14
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
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.
15
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
16
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
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.
17
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
18
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. 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
19
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
20
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;
(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
21
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 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
22
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 representation or objection the
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).
23
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;]
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;”
24
(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.
(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 subsection
(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).]
5
Ins. by Act 1 of 2013, S. 5(b) (w.e.f. 15-1-2013)
25
(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 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
26
(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”
Section 17 of the Act reads as follows:

8
[17. Application against measures to recover
secured debts].—(1) Any person (including
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).
8 Subs. for “Right to appeal” by Act 44 of 2016, S. 14(i) (w.e.f. 1-9-2016).
27
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.]
9 Subs. for “may prefer an appeal” by Act 30 of 2004, S. 10 (w.r.e.f. 21-6-2002).
10 Ins. by Act 30 of 2004, S. 10 (w.r.e.f. 21-6-2002).
11 Ins. by Act 30 of 2004, S. 10 (w.r.e.f. 11-11-2004).
12 Ins. by Act 44 of 2016, S. 14(ii) (w.e.f. 1-9-2016).
28
13[(2) The Debts Recovery Tribunal shall consider
whether any of the measures referred to in subsection
(4) of Section 13 taken 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
13 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 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.”
14 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.”.
29
(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.]
(4) If, the Debts Recovery Tribunal declares the
recourse taken by a secured creditor under subsection
(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 subsection
(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
15 Ins. by Act 44 of 2016, S. 14(iv) (w.e.f. 1-9-2016).
30
(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 subclause
(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 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
31
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 subrule
(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.]
16 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).
17 Ins. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
32
(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
18 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”
33
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;
(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:
19 Subs. for “between the parties in writing” by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
34
“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 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 subsection
(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.
20 Subs. for “Ordinance” by S.O. 103(E), dated 2-2-2007 (w.e.f. 2-2-2007).
21 Subs. for “Rule 9” by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
22 Subs. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
35
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:”
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
23 Ins. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).
36
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
37
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
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
38
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 subsection
(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.
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.”
39
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 nonperforming
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;
40
(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
41
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 representation
or objection the reasons for nonacceptance
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
42
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
43
under section 13(4), 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 nonacceptance.
The proviso to section 13(3-A) makes it clear that
this would not confer upon the borrower any right to prefer an
44
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
45
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 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
46
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
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.
47
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-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.
48
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
49
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 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
50
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 quasijudicial
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
51
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
52
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, 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
53
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,
54
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 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
55
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
56
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.”
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:
57
“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 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
58
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
59
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:
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.
60
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
61
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 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
62
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
63
physical possession of the secured assets under
Section 14 of the Act.
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
64
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 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
65
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:-
66
“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;
(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:
67
“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. ______________
(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:”
68
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.
…………………………..J.
(R.F. Nariman)
…………………………..J.
(Navin Sinha)
New Delhi;
November 1, 2018.
69