K R Chandrasekaran Vs Union of India and ors - Citation 927126 - Court Judgment

Judgment:

PRAYER in W.P.No.950 of 2012: Petition under Article 226 of the Constitution of India praying for a writ of Declaration, declaring that Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is null and void.

PRAYER in W.P.No.30223 of 2011: Petition under Article 226 of the Constitution of India praying for a writ of Declaration, declaring that the order of the fourth respondent in Crl.M.P.No.946 of 2011, dated 16.8.2011 passed under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is null and void and consequently direct respondents 2 and 3 to follow the procedure prescribed under Section 13(2) and Section 13(4) of the Act before resorting to Section 14 of the Act.

PRAYER: Petition under Article 226 of the Constitution of India praying for a writ of Certiorarified Mandamus to call for the records in C.M.P.No.421 of 2011 on the file of the Chief Judicial Magistrate Court, Erode, dated 9.4.2011 and quash the same as illegal, incompetent, unconstitutional and further forbear the first respondent from interfering with the possession of the petitioner's premises at No.24, Madathu Palayam, Perundurai and Taluk, Erode District without due process of law.

PRAYER: Petition under Article 226 of the Constitution of India praying for a writ of Certiorarified Mandamus to call for the records in C.M.P.No.421 of 2011 on the file of the Chief Judicial Magistrate Court, Erode, dated 9.4.2011 and quash the same as illegal, incompetent, unconstitutional and further forbear the first respondent from interfering with the possession of the petitioners at the addresses stated in the affidavit without due process of law.

COMMON ORDER

P.JYOTHIMANI,J.

1. While W.P.No.950 of 2012 has been filed by the borrower against whom action has been taken as per the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity, "the SARFAESI Act") for recovery by giving demand notice under Section 13(2) of the SARFAESI Act; possession notice under Section 13(4) of the SARFAESI Act; and obtaining an order of assistance from the learned Chief Judicial Magistrate under Section 14 of the SARFAESI Act appointing an Advocate Commissioner to take possession with the help of the police, challenging the said Section 14 of the SARFAESI Act as ultra vires, the same borrower has filed W.P.No.30223 of 2011 challenging an order dated 16.8.2011 in Crl.M.P.No.946 of 2011 passed by the learned Chief Judicial Magistrate, Salem under Section 14 of the SARFAESI Act, as stated above, as one passed without application of mind and in violation of the principles of natural justice and, hence, arbitrary and illegal.

2. The petitioner in the said writ petitions (W.P.Nos.950 of 2012 and 30223 of 2011) has availed from the second respondent/bank, on 31.1.2005, a housing loan to the extent of ` 8,82,000/- and, on 23.7.2008, a cash credit loan to the extent of ` 20,00,000/-, in respect of which the outstanding as on 1.3.2011 under the cash credit loan facility was ` 21,58,531.40 and the housing loan outstanding as on 19.3.2011 was arrived at ` 7,28,644.42. As regards the recovery of the said amount, the second respondent/bank has issued a demand notice under Section 13(2) of the SARFAESI Act on 2.9.2009 and since the amount has not been paid, possession notice was issued under Section 13(4) of the SARFAESI Act on 5.4.2011 for the claim of ` 28,97,725.91. Thereafter, the second respondent/bank has approached the learned Chief Judicial Magistrate, Salem by filing Crl.M.P.No.946 of 2011 under Section 14 of the SARFAESI Act, in which the learned Chief Judicial Magistrate has passed the following order:

"The Authorized Officer Mr.N.Krishnan, of the petitioner has filed this petition under section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for taking possession of assets mentioned in the Description of Property. Perused the records. Sworn statement of the Authorized Officer of the petitioner recorded. After gleaning the entire materials made available with the court and upon hearing the petitioner, the court is fully satisfied with a need to render necessary assistance to the secured creditor in taking over the secured assets. All the legal formalities have already been complied with scrupulously and accordingly this court is inclined to confer the relief sought for by the petitioner under section 14 of the SARFAESI Act 2002. Thus, the Inspector of Police, Soora Mangalam, P.S., is required to render all necessary assistance to the secured creditor (petitioner) in taking over possession of the secured assets described in the description of property."

3. W.P.Nos.30184 of 2011, 104 and 105 of 2012 have been filed by the petitioners who are stated to be tenants of various residential portions in respect of which the respective landlords have borrowed amounts from the bank or stood as guarantor to the third party/borrowers and the bank while enforcing their rights under the SARFAESI Act, after giving demand notice under Section 13(2) of the SARFAESI Act to the borrowers (or) guarantors, who have been made as second respondent in these writ petitions, followed by possession notice under Section 13(4) of the SARFAESI Act, have obtained an order of assistance from the learned Chief Judicial Magistrate concerned under Section 14 of the SARFAESI Act appointing an Advocate Commissioner to take possession.

4. In W.P.No.30184 of 2011, the second respondent, who is the owner of the property, is stated to have let out a residential portion to the writ petitioner, and in respect of a borrowal by third parties/borrowers for which he stood as a guarantor mortgaging his impugned property, the first respondent/bank has issued a demand notice under Section 13(2) of the SARFAESI Act to the second respondent/landlord on 15.12.2010, followed by possession notice under Section 13(4) of the SARFAESI Act on 22.2.2011 and thereafter obtained the impugned order of assistance from the learned Chief Judicial Magistrate, Erode under Section 14 of the SARFAESI Act on 9.4.2011 and, admittedly, in those proceedings the petitioner, who is facing the threat of eviction, is not a party and was also not given any notice.

5. Likewise, in W.P.No.104 of 2012, the second respondent/landlord has availed Cash Credit facility to an extent of ` 8.50 Crores and Term Loan facility to an extent of ` 3,35,95,000/- on 13.10.2009 from the first respondent/bank, in respect of which the residential houses in Door Nos.127, 126 and 110/1 in T.S.No.69 of Karumandi Chellipalayam Village, Perundurai, Erode District were given as security for repayment, and since the second respondent/landlord failed to pay back the amount, the first respondent/bank, after giving demand notice under Section 13(2) of the SARFAESI Act on 15.12.2010, followed by possession notice under Section 13(4) of the SARFAESI Act on 22.2.2011, has obtained the impugned order of assistance dated 9.4.2011 from the learned Chief Judicial Magistrate, Erode under Section 14 of the SARFAESI Act appointing an Advocate Commissioner to take possession. In these proceedings also, the petitioners, who claim to be tenants, have not been given notice and are under the threat of eviction.

6. Similarly, in W.P.No.105 of 2012, the second respondent stood as a guarantor for the borrower (second respondent in W.P.No.104 of 2012) for availing from the first respondent/bank Cash Credit facility to the extent of ` 8.50 Crores and Term Loan facility to the extent of ` 3,35,95,000/- on 13.10.2009 and due to the non payment by the borrower (second respondent in W.P.No.104 of 2012), after classifying the account as a non performing asset, the first respondent/bank has issued a demand notice under Section 13(2) of the SARFAESI Act on 15.12.2010, followed by possession notice under Section 13(4) of the SARFAESI Act on 22.2.2011 and thereafter, obtained an order of assistance from the learned Chief Judicial Magistrate, Erode under Section 14 of the SARFAESI Act on 9.4.2011. As stated above, in this case also the petitioners, who are claiming themselves to be tenants, have not been given any notice at any point of time and are facing the threat of eviction.

7. Barring W.P.No.950 of 2012, wherein the petitioner has challenged the vires of Section 14 of the SARFAESI Act as null and void, in all other writ petitions the petitioners have challenged the validity and correctness of the orders passed by the Chief Judicial Magistrates under Section 14 of the SARFAESI Act. Inasmuch as W.P.No.950 of 2012 has been filed challenging the very provision of Section 14 of the SARFAESI Act, first off, it is necessary to deal with the said writ petition.

W.P.No.950 of 2012

8. The petitioner in W.P.No.950 of 2012, as stated above, has chosen to challenge Section 14 of the SARFAESI Act having known that the validity of the SARFAESI Act has been upheld by the Supreme Court, contending inter alia that Section 14 of the SARFAESI Act confers an unfettered power without proper guidance to the Chief Judicial Magistrate; that while passing an order of assistance by the Chief Judicial Magistrate under Section 14 of the SARFAESI Act, there is no necessity for him to hear the affected party who is in actual possession of the property sought to be taken physical possession and, therefore, it is an infraction of the principles of natural justice; that the occupier, who is not given any notice before any order of assistance is passed by the learned Chief Judicial Magistrate under Section 14 of the SARFAESI Act, is suddenly disturbed from his possession and especially when it is dwelling house, it causes grave injustice to the occupant; that the said Section, being penal in nature, ought to have provided opportunity of hearing to the occupant before passing the order of assistance, especially when such power has been vested with the Chief Metropolitan Magistrate and District Magistrate; that even otherwise, Section 14 of the SARFAESI Act has to be read down in the interest of justice; that the said section is arbitrary and in violation of the fundamental rights guaranteed under Articles 14, 19(1)(e), 19(1)(g) and 21 of the Constitution of India and, therefore, is liable to be struck down.

9.1. It is the contention of Mr.R.Singgaravelan, learned counsel appearing for the petitioner that even though the validity of the SARFAESI Act has been upheld in the judgment of the Supreme Court in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, the Supreme Court has only considered the SARFAESI Act as a whole and not particularly Section 14 of the SARFAESI Act and, therefore, there is no impediment for this Court to decide independently the validity of Section 14 of the SARFAESI Act.

9.2. It is his contention that the validity or otherwise of Section 14 of the SARFAESI Act was not an issue before the Supreme Court and the judgment of the Supreme Court is binding only on the points raised and argued and applying the doctrine of sub silentio, it cannot be said that even the points which were not argued or discussed before the Supreme Court have to be followed. To buttress the said contention, he has relied upon the decisions in (i) Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101; (ii) Bhuwalka Steel Industries Ltd. v. Bombay Iron and Steel Labour Board, (2010) 2 SCC 273; and (iii) Davinder Singh v. State of Punjab, (2010) 13 SCC 88.

9.3. It is his submission that even in Mardia Chemicals Ltd. case, supra, where the Supreme Court has upheld the validity of the SARFAESI Act, the Supreme Court has left it open to decide in future any problem about the working of any particular provision of the SARFAESI Act and, therefore, while deciding the validity of the SARFAESI Act as a whole, the Supreme Court has not considered the vires of Section 14 of the SARFAESI Act.

9.4. It is his further submission that even otherwise, by virtue of the subsequent amendment made to Section 13 of the SARFAESI Act, by introducing sub-section 3-A, and various other judgments in United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110; Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782, much water has flown and, therefore, it requires a fresh consideration.

9.5. It is also his submission that the concept of judicial review has so much developed that even the validity of the statutes mentioned in Schedule IX to the Constitution of India can be tested by the Courts with the power of judicial review to decide as to whether such statutes satisfy the rule of law, as held in I.R.Coelho v. State of Tamil Nadu, (2007) 2 SCC 1. Therefore, according to him, the impugned Section 14 of the SARFAESI Act does not satisfy the principle of the rule of law and hence, it is liable to be struck down.

9.6. By relying upon various judgments in (i) Siddharam Satlingappa Mhetre v. State of Maharashtra, (2011) 1 SCC 694; (ii) Dev Sharan v. State of Uttar Pradesh, (2011) 4 SCC 769; (iii) K.T. Plantation (P) Ltd. v. State of Karnataka,(2011) 9 SCC 1; (iv) State of Haryana v. Mukesh Kumar,(2011) 10 SCC 404; (v) Greater Noida Industrial Development Authority v. Devendra Kumar,(2011) 12 SCC 375; (vi) State of Orissa v. Mamata Mohanty, (2011) 3 SCC 436; (vii) S.G. Jaisinghani v. Union of India, AIR 1967 SC 1427; (viii) Nandini Sundar v. State of Chhattisgarh, (2011) 7 SCC 547; (ix) Brij Lal v. Commissioner of Income Tax, Jalandhar, (2011) 1 SCC 1, it is his submission that by virtue of the effective march of law, the impugned provision has to be set aside.

9.7. It is his submission that it is not as if by striking down Section 14 of the SARFAESI Act as ultra vires, the entire SARFAESI Act will be negated and, therefore, even if the vires of the particular provision is challenged, the same would not affect the validity of the SARFAESI Act as upheld by the Supreme Court in Mardia Chemicals Ltd. case, supra, and thus, he sought to read down the said provision.

9.8. He has also contended that due to various conflicting views expressed by various High Courts in respect of Section 14 of the SARFAESI Act and in order to save the bona fide occupants from arbitrary eviction by obtaining the order of assistance by the secured creditor by approaching the Chief Judicial Magistrate under Section 14 of the SARFAESI Act, the validity of the said provision needs a re-look.

9.9. He has also submitted that Section 14 of the SARFAESI Act apart from making the Chief Metropolitan Magistrate or District Magistrate as an agent of the secured creditor for the purpose of taking possession by using force, has, in effect, taken away the rights of the affected party granted even under the Code of Criminal Procedure.

9.10. Inasmuch as it has been held that Section 14 of the SARFAESI Act is not a judicial power exercised by the Chief Judicial Magistrate and when once such power impinges on the fundamental rights guaranteed to a citizen, according to the learned counsel, it is liable to be struck down as unconstitutional and ultra vires, by relying upon the judgments in (i) Maneka Gandhi v. Union of India, AIR 1978 SC 597; and (ii) A.P.Dairy Development Corporation Federation v. B.Narasimha Reddy, (2011) 9 SCC 286.

9.11. It is his further submission that while under Section 14(2) of the SARFAESI Act the Chief Judicial Magistrate is entitled to direct the police to use necessary force for the purpose of taking possession, there are absolutely no guidelines for the purpose of using force and such unrestrained right may tend to arbitrary exercise of the power by the Chief Judicial Magistrate at the instance of the secured creditor, for whose benefit or assistance Section 14 of the SARFAESI Act has been provided.

9.12. He submits that in cases where the occupant is a tenant or a person other than a borrower, such person has a statutory right under the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 or even under the Transfer of Property Act, 1882 not to be evicted except under certain circumstances and indeed such eviction should only be after following the procedure contemplated under the said Acts and, therefore, there is every possibility for an unscrupulous landlord, who is unable to evict a tenant, to take the aid of Section 14 of the SARFAESI Act for the purpose of taking physical possession by using force with the assistance of the Chief Judicial Magistrate.

9.13. He adds that inasmuch as the tenant is having a statutory protection under the local laws and his lawful occupation can be evicted by the landlord only under certain circumstances, the tenant, who is not a borrower and who has never entered into any contractual obligation with the bank or financial institution, cannot be thrown away even without his knowledge, which will be affecting the fundamental rights.

9.14. It is his submission that insofar as it relates to the borrower, Section 14 of the SARFAESI Act cannot be straightaway invoked, since it requires a demand notice under Section 13(2) of the SARFAESI Act, by which the borrower must be given sixty days time for payment; thereafter, by virtue of the subsequent amendment introducing sub-section 3-A to Section 13 of the SARFAESI Act, the borrower himself has got a right to give proper representation, which is considered, and of course, against rejection of the same, no application can be filed under Section 17 of the SARFAESI Act; and ultimately, it is only after giving possession notice under Section 13(4) of the SARFAESI Act, the secured creditor can approach the Chief Judicial Magistrate for taking possession under Section 14 of the SARFAESI Act, while such notice is not contemplated to an occupier other than the borrower and, therefore, according to him, the purport of the SARFAESI Act is unjust and he would submit that at least a notice is required to an occupant/tenant by relying upon a judgments of this Court in V.Noble Kumar v. Authorised Officer, Standard Chartered Bank and others, 2011 (1) CTC 513 and R.Sivasubramaniyan v. Senior Manager, SBI, 2011 (4) CTC 492.

9.15. It is also his submission that what is contemplated under the SARFAESI Act is symbolic possession and Section 14 of the SARFAESI Act, virtually enables the bank or financial institution to execute an order which is not permissible in any civil law. He submitted that even for recovery and execution of a civil decree, the Civil Court cannot direct an occupant to vacate and even for the purpose of enabling a purchaser under the Specific Relief Act to enforce his right under the agreement, the person who succeeds in the specific performance suit alone has to take action under the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 to evict the tenant, and while so, under the impugned provision, namely Section 14 of the SARFAESI Act, by using the administrative fiat of the order of the learned Chief Judicial Magistrate, a bona fide occupier is thrown out mercilessly.

9.16. His submission is that when rule of law contemplates fairness and legitimacy of any action without arbitrariness, Section 14 of the SARFAESI Act, which is totally arbitrary, cannot be held to be valid in the eye of law. To substantiate his contention, he would rely upon some of the passages of the judgments of the Supreme Court in State of Orissa v. Mamata Mohanty, (2011) 3 SCC 436; S.G. Jaisinghani v. Union of India, AIR 1967 SC 1427; and K.T. Plantation (P) Ltd. v. State of Karnataka, (2011) 9 SCC 1.

9.17. He would also submit that when the march of law is so much in respect of the principles of natural justice that even in cases where a statute is silent about affording an opportunity to the other side such opportunity, which is treated to be noble, is deemed to be inherent in any law, it is not known as to how under Section 14 of the SARFAESI Act a Chief Judicial Magistrate can pass an administrative order to assist the bank or financial institution directing the police to remove the occupant by using force, without even knowing as to whether the person in occupation is a borrower or any other person like tenant, for even a trespasser cannot be evicted without giving him an opportunity. Such forceful eviction from a residential property is totally against Article 300-A of the Constitution of India, which though is not a fundamental right, remains a constitutional right based on human rights and rule of law.

9.18. He would also rely upon the judgment in Siddharam Satlingappa Mhetre v. State of Maharashtra, (2011) 1 SCC 694 to submit that right to property which has been guaranteed under Article 300-A of the Constitution of India in respect of tenants and other occupiers must be read with Article 21 of the Constitution of India as a right to life. To bolster the said contention, he also relied on the decision in Dev Sharan v. State of Uttar Pradesh, (2011) 4 SCC 769.

9.19. The learned counsel has also elaborately taken us through various other judgments, including some of the judgments of the American Supreme Court, to insist that there is no impediment on the part of this Court in holding Section 14 of the SARFAESI Act as unconstitutional.

10.1. Per contra, it is the contention of Mr.Omprakash of M/s.Ramalingam Associates, learned counsel appearing for the second respondent/bank that the power of the Chief Metropolitan Magistrate or District Magistrate conferred under Section 14 of the SARFAESI Act is purely executive and administrative in nature and it does not relate to the rights of any parties.

10.2. It is submitted that when the SARFAESI Act has been upheld by the Supreme Court in Mardia Chemicals Ltd. case, supra, there is no scope for this Court to go into the correctitude of one of the sections. It is not as if the Supreme Court was oblivious of the provisions of Section 14 of the SARFAESI Act and, in fact, there has been a reference and the Supreme Court has consciously made an observation that there are certain sections which are monstrous, but nevertheless taking into consideration the object of the SARFAESI Act such difficulties are to be condoned.

10.3. It is his submission that Section 14 of the SARFAESI Act cannot be read independently and it is in continuation of the notices and various steps taken by the bank, namely (i) classifying the debt as a non performing asset due to the consistent failure on the part of the borrower in payment after following certain procedure in accordance with the Reserve Bank of India Guidelines; (ii) giving demand notice under Section 13(2) of the SARFAESI Act giving sixty days time so as to enable the borrower to make payment and also give representation; and (iii) finally taking possession by way of a notice under Section 13(4) of the SARFAESI Act, and it is only in cases where the bank itself is unable to take possession, it approaches the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act for assistance to take possession and, therefore, Section 14 of the SARFAESI Act hinges upon Section 13 of the SARFAESI Act and it cannot be read in isolation and moreover, Section 14 of the SARFAESI Act also forms part of Chapter III of the SARFAESI Act.

10.4. He contends that under the SARFAESI Act there is no dichotomy between symbolic possession and physical possession.

10.5. He would compare the power of the Chief Judicial Magistrate under Section 14 of the SARFAESI Act to that of the power under Section 29 of the State Financial Corporations Act, 1951. It is his submission that it is not as if the power under Section 14 of the SARFAESI Act is revealed to the occupant for the first time when the bank or financial institution try to take possession. While it is true that notice under Section 13(2) of the SARFAESI Act need not be given to an occupier other than the borrower, because it is only a demand based on a contractual obligation between the bank and the borrower, when once the bank resorts to possession notice under Section 13(4) of the SARFAESI Act, which is mandatory before moving the Chief Judicial Magistrate under Section 14 of the SARFAESI Act, the Security Interest (Enforcement) Rules, 2002, especially Rule 8 of the Rules, contemplates affixture of such possession notice on the doors of the property and, therefore, the occupier or tenant or owner cannot plead that unbeknownst to him suddenly an order is obtained under Section 14 of the SARFAESI Act.

10.6. It is his submission that by dint of Section 35 of the SARFAESI Act which gives overriding effect based on the basic object of the SARFAESI Act, a tenant cannot claim any superior right than that of the borrower.

10.7. It is his submission that even as against the order under Section 14 of the SARFAESI Act an effective alternative remedy is available under Section 17 of the SARFAESI Act by way of an appeal to the Debts Recovery Tribunal. He would submit that the judgment of the Supreme Court in Maneka Gandhi v. Union of India, AIR 1978 SC 597 is applicable only in respect of punitive action.

10.8. He would rely upon the decisions in Forward Construction Co. v. Prabhat Mandal (Regd.), (1986) 1 SCC 100 and S. Nagaraj v. B.R. Vasudeva Murthy, (2010) 3 SCC 353 to contend that by virtue of the judgment of the Supreme Court in upholding the validity of the SARFAESI Act, the principle of constructive res judicata is applicable against the petitioner.

10.9. He would insist that the steps taken under Section 14 of the SARFAESI Act are only a measure to enable the secured creditor to enforce his right of possession under Section 13(4) of the SARFAESI Act and, therefore, it is not an order. As long as possession notice under Section 13(4) of the SARFAESI Act cannot be challenged by the petitioner, the petitioner is obviated from challenging the vires of Section 14 of the SARFAESI Act. He would also refer to some of the passages of the judgment of the Supreme Court in United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110. He would also submit that in the latest judgment of the Supreme Court in Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782, the Supreme Court has clearly held that even against the order under Section 14 of the SARFAESI Act there is an effective appeal and, therefore, it can never be said that the order passed under Section 14 of the SARFAESI Act is final.

11. Mr.M.S.Krishnan, learned Senior Counsel even though appears for the 1st respondent/bank in W.P.Nos.30184 of 2011 and 104 and 105 of 2012, which are relating to the validity of the orders passed by the Chief Judicial Magistrates under Section 14 of the SARFAESI Act, has also made submissions in support of the validity of Section 14 of the SARFAESI Act, apart from supporting the individual orders passed by the Chief Judicial Magistrates concerned under Section 14 of the SARFAESI Act. Mr.Ramesh, learned Central Government Standing Counsel appearing for the Union of India adopted the arguments advanced by Mr.Om Prakash, learned counsel for the second respondent/bank.

12. We have heard the respective counsel and given our anxious thought to the issue involved in the above said writ petition challenging the vires of Section 14 of the SARFAESI Act.

13. Before adverting to the rival contentions, since the petitioner has chosen to challenge the validity of Section 14 of the SARFAESI Act, it is necessary to extract the said provision of the SARFAESI Act which is as follows:

"Section 14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset .-

(1) Where the possession of any secured asset 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 asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him-

(a) take possession of such asset and documents relating thereto; and

(b) forward such asset and documents to the secured creditor.

(2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.

(3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority."

14. The SARFAESI Act has been enacted with an object of regulating securitisation and reconstruction of financial assets and enforcement of security interest empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. The SARFAESI Act, as it stood originally in the year 2002, enacted by replacing the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 provides for legal provisions for facilitating securitisation of financial assets of the banks and financial institutions. In fact, the Law-makers having realised that the then existing methods for recovery as provided under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act 51 of 1993) have not provided for such method of recovery without resorting to court proceedings, has enacted the SARFAESI Act in addition to the said Act 51 of 1993 stated above, even though the SARFAESI Act has been given an overriding effect.

15. While Section 35 of the SARFAESI Act, which is as follows:

"Section 35. The provisions of this Act to override other laws.- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.",

gives overriding effect to the SARFAESI Act notwithstanding anything inconsistent contained in any other law, under Section 37 of the SARFAESI Act, which is as follows:

"Section 37. Application of other laws not barred.- The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.",

among many other Acts, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act 51 of 1993) or any other law for the time being in force is made applicable in addition to the SARFAESI Act.

16. When the vires of the SARFAESI Act was challenged, the Supreme Court in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311 has upheld the validity of the SARFAESI Act, except Section 17(2) of the SARFAESI Act which required depositing of 75% of the amount claimed before entertaining an appeal under Section 17 of the SARFAESI Act, and the operative portion of the said decision is as follows:

"82. We, therefore, subject to what is provided in para 80 above, uphold the validity of the Act and its provisions except that of sub-section (2) of Section 17 of the Act, which is declared ultra vires Article 14 of the Constitution of India."

It is no doubt true that in the said case the main questions that arose for consideration before the Supreme Court, as framed by the Supreme Court, are as follows:

"(i) Whether it is open to challenge the statute on the ground that it was not necessary to enact it in the prevailing background particularly when another statute was already in operation?

(ii) Whether provisions as contained under Sections 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised by a borrower against the recovery, particularly in view of bar to approach the civil court under Section 34 of the Act?

(iii) Whether the remedy available under Section 17 of the Act is illusory for the reason it is available only after the action is taken under Section 13(4) of the Act and the appeal would be entertainable only on deposit of 75% of the claim raised in the notice of demand?

(iv) Whether the terms or existing rights under the contract entered into by two private parties could be amended by the provisions of law providing certain powers in a one-sided manner in favour of one of the parties to the contract?

(v) Whether provision for sale of the properties without intervention of the court under Section 13 of the Act is akin to the English mortgage and its effect on the scope of the bar of the jurisdiction of the civil court?

(vi) Whether the provisions under Sections 13 and 17(2) of the Act are unconstitutional on the basis of the parameters laid down in different decisions of this Court?

(vii) Whether the principle of lender's liability has been absolutely ignored while enacting the Act and its effect?"

Therefore, it is true that the validity or otherwise of Section 14 of the SARFAESI Act was not specifically the subject matter of consideration, even though the entire SARFAESI Act was challenged. The Supreme Court while holding that the SARFAESI Act is intra vires except Section 17(2), as stated above, has clarified that while deciding about classification of an account as a non performing asset, any disputes regarding the same should be resolved by internal mechanism, suggesting certain safeguards for the borrowers before making such classification. It was also held that as against the measure of taking possession by issuing notice under Section 13(4) of the SARFAESI Act, the affected person has a right of appeal under Section 17 of the SARFAESI Act to the Debts Recovery Tribunal.

17. Ergo, it is clear that while the bank or financial institution resorts to take possession and enforce the security by sale, it has to first classify the account of the borrower as a non performing asset depending upon various internal mechanism, including the resolution of dispute as contemplated under Section 11 of the SARFAESI Act either by conciliation or arbitration, as provided under the Arbitration and Conciliation Act, 1996, apart from the directions of the Reserve Bank of India which is empowered under Section 12 of the SARFAESI Act to determine policy and issue directions.

18. The SARFAESI Act also provides for assets reconstruction by constituting securitisation company and reconstruction company registered under the Companies Act. The word "securitisation", as defined under Section 2(z) of the SARFAESI Act, is as follows:

"Section 2(z) "securitisation" means acquisition of financial assets by any securitisation company or reconstruction company from any originator, whether by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets or otherwise"

and the word "originator" used in the definition of securitisation means the owner of a financial asset which is acquired by a securitisation company and Section 2(r) of the SARFAESI Act, which defines the word "originator", is as follows:

"Section 2(r) "originator" means the owner of a financial asset which is acquired by a securitisation company or reconstruction company for the purpose of securitisation or asset reconstruction"

19. The securitisation company or reconstruction company is to act as an agent for any bank or financial institution for making recovery of dues from the borrower on payment of charges or fees as mutually agreed upon to act as a manager for the purpose of effecting possession under Section 13(4)(c) of the SARFAESI Act or to act as a receiver appointed by any Court or Tribunal as contemplated under Section 10 of the SARFAESI Act.

20. Sections 13 to 19 of the SARFAESI Act, which are in Chapter III, relate to the enforcement of security interest by the bank or financial institution. Section 13(1) of the SARFAESI Act clearly shows that the power conferred under the said provision is notwithstanding the powers under Section 69 or 69-A of the Transfer of Property Act, 1882. Therefore, when the bank or financial institution resorts to proceed to enforce the security interest against the borrower, the first step taken by the bank after classifying the due as a non performing asset is requiring the borrower by a notice in writing to discharge in full his liabilities by giving sixty days time from the date of issuance of notice, stating that in case of default the bank is entitled to take recourse to Section 13(4) of the SARFAESI Act. It is relevant to note that under Section 13(2) of the SARFAESI Act, which is as follows:

"Section 13(2). Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).",

the obligation of the bank or financial institution to give such notice is to the "borrower".

21. By virtue of an amendment which was inserted to the SARFAESI Act under Act 30 of 2004 with effect from 11.11.2004, a new sub-section was introduced as sub-section 3-A to Section 13 of the Act, which is as follows:

"Section 13(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 within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:

PROVIDED that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17-A.",

which enables the borrower on receipt of notice under Section 13(2) of the SARFAESI Act to give his representation or objection, which shall be considered by the bank and the decision of the bank as to the acceptability or tenability of such representation or objection shall be communicated to the borrower within one week of receipt of such representation or objection. At the same time, the said newly introduced provision specifically states that as against such decision taken on the representation, no appeal shall be filed under Section 17 or Section 17-A of the SARFAESI Act.

22. In case the borrower after receiving the notice under Section 13(2) of the SARFAESI Act fails to make payment, or, as stated above, after the amendment if the bank or financial institution rejects the representation as not acceptable or tenable, by virtue of the power under Section 13(4) of the Act, which is as follows:

"Section 13(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;

(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:

PROVIDED that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:

PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt.

(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.",

the bank or financial institution can resort to the measures to recover the secured debt either by taking possession of the secured assets of the borrower or by taking over the management of the business of the borrower, in which case the bank is entitled to appoint a manager, as stated therein, and in cases where the secured asset is an immovable property, the possession notice has to be affixed on the outer door or at a conspicuous place of the property as per Rule 8(1) of the Security Interest (Enforcement) Rules, 2002, which is as follows:

"Rule 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."

23. There are various other sub-sections under Section 13 of the SARFAESI Act from Section 13(5) to Section 13(13) which are in effect to facilitate the taking of possession under Section 13(4) of the Act, which includes that when a transfer is made by virtue of the power under Section 13(4) of the SARFAESI Act by the secured creditor, the entire right shall vest with the transferee in respect of the secured asset. It also states under Section 13(13) of the SARFAESI Act that after the borrower receives a notice under Section 13(2) of the SARFAESI Act, no transfer or sale, etc. shall be effected without the prior written consent of the secured creditor. It is as against the measure taken under Section 13(4) of the SARFAESI Act, as stated above, the Supreme Court has held in Mardia Chemicals Ltd. case, supra, that an appeal lies to the Debts Recovery Tribunal under Section 17 of the Act.

24. Section 31 of the SARFAESI Act specifically excludes certain cases from the application of the SARFAESI Act, which are in effect restrictions imposed on the powers of the bank or financial institution in enforcing the security interest.

25. After taking possession under Section 13(4) of the SARFAESI Act, as stated above, if the bank is able to successfully take possession itself without any hindrance or obstruction, it is not necessary for the bank or financial institution to invoke Section 14 of the SARFAESI Act and straightaway it can proceed with the sale of the secured assets. But in cases where taking possession of the secured assets by the secured creditor requires certain assistance, the secured creditor is entitled to apply by way of a request in writing to the Chief Metropolitan Magistrate or District Magistrate, who, by passing an order, is entitled to assist the secured creditor in taking possession of the secured assets. Therefore, while reading Section 14(1) of the Act, extracted above, there is no difficulty to conclude that the power of the bank or financial institution to resort to the said provision is only in continuation and after taking possession as per the process enumerated under Section 13(4) of the SARFAESI Act. Ergo, it cannot be said that straightaway the secured creditor can approach the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act.

26. A reading of Section 14 of the SARFAESI Act also makes it very clear that even though such assistance can be rendered by the Chief Metropolitan Magistrate or District Magistrate, such assistance is only by way of an order. Therefore, it is clear that before passing any order of assistance, the Chief Metropolitan Magistrate or District Magistrate has to be satisfied as to whether the bank has followed the provisions of the SARFAESI Act, namely the sequence of classifying the asset as non performing asset; issuing notice under Section 13(2) of the SARFAESI Act giving the required time to the borrower; and thereafter issuing a notice of possession under Section 13(4) of the SARFAESI Act. If the Chief Metropolitan Magistrate or District Magistrate is not satisfied as to the following of the procedure, certainly the Chief Metropolitan Magistrate or District Magistrate can reject such request, in which event, it will be for the secured creditor to follow the procedure as contemplated under the SARFAESI Act. In cases where the Chief Metropolitan Magistrate or District Magistrate is satisfied about the procedure having been followed by the secured creditor, but is of the view that certain more steps are to be taken for the purpose of taking possession by using force, the Chief Metropolitan Magistrate or District Magistrate passes further order directing the police authorities to use necessary force. As Section 14 of the SARFAESI Act, on the face of it, does not contemplate notice to any person before passing such order of assistance, it is naturally left to the discretion of the Chief Metropolitan Magistrate or District Magistrate to decide the nature of force to be used. Moreover, it is also clear that Section 14 of the SARFAESI Act is not independent and it hinges upon the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act. It is true that no guidelines are contemplated to the Chief Metropolitan Magistrate or District Magistrate as to the nature of force to be used in his opinion.

27. In the judgment in Mardia Chemicals Ltd. case, supra, the Supreme Court has taken note of the fact that the measures contemplated under the SARFAESI Act are no doubt stringent and held that it is the duty of the secured creditor to consider the representation of the borrower. The Supreme Court was also cognizant of the fact that regarding the workable nature of some of the provisions of the SARFAESI Act there may be doubts, but nevertheless held that such difficulties are insufficient to hold the statute invalid or unconstitutional and observed that in any particular factual situation, if any difficulty arises, the same may be considered. It is relevant to extract paragraphs 77 to 82 of the said judgment, which are as follows:

"77. It is also true that till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed for by the borrower. But looking to the stringent nature of measures to be taken without intervention of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated so as to demonstrate that the reply of the borrower to the notice under Section 13(2) of the Act has been considered applying mind to it. The reasons, howsoever brief they may be, for not accepting the objections, if raised in the reply, must be communicated to the borrower. True, presumption is in favour of validity of an enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary to see that the persons aggrieved get a fair deal at the hands of those who have been vested with the powers to enforce drastic steps to make recovery.

78. It was sought to be argued that fairness cannot be a one-way street. The plea of absence of natural justice lies ill in the mouth of chronic defaulters who have not paid the principal amounts admittedly due to the banks. The said argument presupposes admission of the liability by the borrowers and all of them to be chronic defaulters. It would only be prejudging an issue. We hope it was not meant to be said that all those who defaulted according to the banks and financial institutions must be condemned unheard who might not deserve any hearing to place their side of the case, unless they must go through the crushing preconditions of deposit of 75% of the amount demanded over and above their secured assets already having been taken possession of. We feel this can well be one example of hitting below the belt.

79. Some submissions have been made pointing out that in certain circumstances it would not be clear as to in what manner the provisions of the Act would be workable. We feel the objections pointed out are not such which render the statute invalid or unconstitutional. Such problems about working of any particular provision of the Act in any particular factual situation, may be considered as and when they may arise. We, therefore, do not think it necessary to go into those questions.

80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debts Recovery Tribunal. The abovenoted provisions are for the purpose of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows:

1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days' notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under Section 17 of the Act, at that stage.

2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debts Recovery Tribunal.

3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose.

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.

81. In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debts Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of the economy of the country and welfare of the people in general which would subserve the public interest.

82. We, therefore, subject to what is provided in para 80 above, uphold the validity of the Act and its provisions except that of sub-section (2) of Section 17 of the Act, which is declared ultra vires Article 14 of the Constitution of India."

In such circumstances, the contention made by Mr.R.Singgaravelan, learned counsel for the petitioner that the Supreme Court has not specifically considered the validity of Section 14 of the SARFAESI Act and, therefore, there is no bar for this Court to consider the same, in our considered opinion, is not tenable.

28. By authorizing a judicial authority in the rank of the Chief Metropolitan Magistrate or District Magistrate to do the administrative work of providing assistance to the secured creditor, it appears to be not necessary to consider the claim or case of a party likely to be affected by applying the principles of natural justice, which certainly is monstrous, especially in the light of the judgment of the Supreme Court in Maneka Gandhi v. Union of India, AIR 1978 SC 597, wherein the Supreme Court has held that even in cases where the statute does not explicitly provide for the following of the principles of natural justice, following the same is implied, in the following terms:

"32. It is well established that even where there is no specific provision in a statute or rules made thereunder for showing cause against action proposed to be taken against an individual, which affects the rights of that individual, the duty to give reasonable opportunity to be heard will be implied from the nature of the function to be performed by the authority which has the power to take punitive or damaging action. This principle was laid down by this Court in the State of Orissa v. Dr (Miss) Binapani Dei (AIR 1967 SC 1269) in the following words:

The rule that a party to whose prejudice an order is intended to be passed is entitled to a hearing applies alike to judicial tribunals and bodies of persons invested with authority to adjudicate upon matters involving civil consequences. It is one of the fundamental rules of our constitutional set-up that every citizen is protected against exercise of arbitrary authority by the State or its officers. Duty to act judicially would, therefore arise from the very nature of the function intended to be performed: it need not be shown to be super-added. If there is power to decide and determine to the prejudice of a person, duty to act judicially is implicit in the exercise of such power. If the essentials of justice be ignored and an order to the prejudice of a person is made, the order is a nullity. That is a basic concept of the rule of law and importance thereof transcends the significance of a decision in any particular case.

In the said judgment, the principle of arbitrariness was held to be sworn enemy to the concept of equality enshrined under Article 14 of the Constitution of India, apart from the principles of natural justice, in the following paragraphs:

"56. Now, the question immediately arises as to what is the requirement of Article 14 : what is the content and reach of the great equalising principle enunciated in this article? There can be no doubt that it is a founding faith of the Constitution. It is indeed the pillar on which rests securely the foundation of our democratic republic. And, therefore, it must not be subjected to a narrow, pedantic or lexicographic approach. No attempt should be made to truncate its all-embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be imprisoned within traditional and doctrinaire limits. We must reiterate here what was pointed out by the majority in E.P. Royappa v. State of Tamil Nadu (AIR 1974 SC 555) namely, that from a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic, while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14 . Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. The principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non-arbitrariness pervades Article 14 like a brooding omnipresence and the procedure contemplated by Article 21 must answer the test of reasonableness in order to be in conformity with Article 14. It must be right and just and fair and not arbitrary, fanciful or oppressive; otherwise, it would be no procedure at all and the requirement of Article 21 would not be satisfied.

How far natural justice is an essential element of procedure established by law..

58. We may commence the discussion of this question with a few general observations to emphasise the increasing importance of natural justice in the field of administrative law. Natural justice is a great humanising principle intended to invest law with fairness and to secure justice and over the years it has grown into a widely pervasive rule affecting large areas of administrative action. Lord Morris of Borth-y-Gest spoke of this rule in eloquent terms in his address before the Bentham Club:

We can, I think, take pride in what has been done in recent periods and particularly in the field of administrative law by invoking and by applying these principles which we broadly classify under the designation of natural justice. Many testing problems as to their application yet re-remain to be solved. But I affirm that the area of administrative action is but one area in which the principles are to be deployed. Nor are they to be invoked only when procedural failures are shown. Does natural justice qualify to be described as a majestic conception? I believe it does. Is it just a rhetorical but vague phrase which can be employed, when needed, to give a gloss of assurance? I believe that it is very much more. If it can be summarised as being fair-play in action who could wish that it would ever be out of action? It denotes that the law is not only to be guided by reason and by logic but that its purpose will not be fulfilled; it lacks more exalted inspiration. (Current Legal Problems, 1973 Vol.26 p.16).

And then again, in his speech in the House of Lords in Wiseman v. Borneman, 1971 AC 297 the learned Law Lord said in words of inspired felicity:

... that the conception of natural justice should at all stages guide those who discharge judicial functions is not merely an acceptable but is an essential part of the philosophy of the law. We often speak of the rules of natural justice. But there is nothing rigid or mechanical about them. What they comprehend has been analysed and described in many authorities. But any analysis must bring into relief rather their spirit and their inspiration than any precision of definition or precision as to application. We do not search for prescriptions which will lay down exactly what must, in various divergent situations, be done. The principles and procedures are to be applied which, in any particular situation or set of circumstances, are right and just and fair. Natural justice, it has been said, is only fair play in action . Nor do we wait for directions from Parliament. The common law has abundant riches : there may we find what Byles, J., called the justice of the common law .

Thus, the soul of natural justice is fair-play in action and that is why it has received the widest recognition throughout the democratic world. In the United States, the right to an administrative hearing is regarded as essential requirement of fundamental fairness. And in England too it has been held that fair-play in action demands that before any prejudicial or adverse action is taken against a person, he must be given an opportunity to be heard. The rule was stated by Lord Denning, MR in these terms in Schmidt v. Secretary of State or Home Affairs (1969) 2 Ch.D. 149 where a public officer has power to deprive a person of his liberty or his property, the general principle is that it has not to be done without his being given an opportunity of being heard and of making representations on his own behalf . The same rule also prevails in other Commonwealth countries like Canada, Australia and New Zealand. It has even gained access to the United Nations (vide American Journal of International Law, Vol. 67, p. 479). Magarry, J., describes natural justice as a distillate of due process of law (vide Fontaine v. Chastarton (1968) 112 Sol Gen 690. It is the quintessence of the process of justice inspired and guided by fair-play in action . If we look at the speeches of the various Law Lords in Wiseman case it will be seen that each one of them asked the question whether in the particular circumstances of the case, the Tribunal acted unfairly so that it could be said that their procedure did not match with what justice demanded , or, was the procedure adopted by the Tribunal in all the circumstances unfair? The test adopted by every Law Lord was whether the procedure followed was fair in all the circumstances and fair-play in action required that an opportunity should be given to the taxpayer to see and reply to the counter-statement of the Commissioners before reaching the conclusion that there is a prima facie case against him . The inquiry must, therefore, always be: does fairness in action demand that an opportunity to be heard should be given to the person affected?"

The Supreme Court has also held that in applying the principles of natural justice there is no distinction between a quasi judicial function and administrative function in the following words:

"59. Now, if this be the test of applicability of the doctrine of natural justice, there can be no distinction between a quasi-judicial function and an administrative function for this purpose. The aim of both administrative inquiry as well as quasi-judicial inquiry is to arrive at a just decision and if a rule of natural justice is calculated to secure justice, or to put it negatively, to prevent miscarriage of justice, it is difficult to see why it should be applicable to quasi-judicial inquiry and not to administrative inquiry."

29. The said view has been reiterated by the Supreme Court in its latest judgment in A.P.Dairy Development Corporation Federation v. B.Narasimha Reddy, (2011) 9 SCC 286, wherein it was held as under:

"29. It is a settled legal proposition that Article 14 of the Constitution strikes at arbitrariness because an action that is arbitrary, must necessarily involve negation of equality. This doctrine of arbitrariness is not restricted only to executive actions, but also applies to the legislature. Thus, a party has to satisfy that the action was reasonable, not done in unreasonable manner or capriciously or at pleasure without adequate determining principle, rational, and has been done according to reason or judgment, and certainly does not depend on the will alone. However, the action of the legislature, violative of Article 14 of the Constitution, should ordinarily be manifestly arbitrary. There must be a case of substantive unreasonableness in the statute itself for declaring the act ultra vires Article 14 of the Constitution. [Vide Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722, Reliance Airport Developers (P) Ltd. v. Airports Authority of India, (2006) 10 SCC 1, Bidhannagar (Salt Lake) Welfare Assn. v. Central Valuation Board, (2007) 6 SCC 668, Grand Kakatiya Sheraton Hotel and Towers Employees and Workers Union v. Srinivasa Resorts Ltd., (2009) 5 SCC 342 and State of T.N. v. K. Shyam Sunder, (2011) 8 SCC 737.]

30. In State of A.P. v. P.Sagar, AIR 1968 SC 1379, this Court examined the case as to whether the list of backward classes, for the purpose of Article 15(4) of the Constitution has been prepared properly, and after examining the material on record came to the conclusion that there was nothing on record to show that the Government had followed the criteria laid down by this Court while preparing the list of Other Backward Classes. The Court observed as under: (AIR p.1384-85, para 9)

9. Honesty of purpose of those who prepared and published the list was not and is not challenged, but the validity of a law which apparently infringes the fundamental rights of citizens cannot be upheld merely because the lawmaker was satisfied that what he did was right or that he believes that he acted in manner consistent with the constitutional guarantees of the citizen. The test of the validity of a law alleged to infringe the fundamental rights of a citizen or any act done in execution of that law lies not in the belief of the maker of the law or of the person executing the law, but in the demonstration by evidence and argument before the courts that the guaranteed right is not infringed.

31. In Indra Sawhney (2) v. Union of India, (2000) 1 SCC 168, while considering a similar issue regarding preparing a list of creamy layer OBCs, this Court held that legislative declarations on facts are not beyond judicial scrutiny in the constitutional context of Articles 14 and 16 of the Constitution, for the reason that a conclusive declaration could not be permissible so as to defeat a fundamental right."

30. A Constitution Bench of the Supreme Court presided over by the Hon'ble Chief Justice of India in K.T. Plantation (P) Ltd. v. State of Karnataka, (2011) 9 SCC 1 has analyzed the entire concept of Rule of Law in the context of the constitutional provisions, especially with reference to Articles 14 and 19(1)(g) of the Constitution of India. While holding that the principle of rule of law is the basic structure, it was asserted that violation of principles of natural justice may debilitate the rule of law, in the following words:

"217. The rule of law as a principle contains no explicit substantive component like eminent domain but has many shades and colours. Violation of principle of natural justice may undermine the rule of law resulting in arbitrariness, unreasonableness, etc., but such violations may not undermine the rule of law so as to invalidate a statute. Violation must be of such a serious nature which undermines the very basic structure of our Constitution and our democratic principles. But once the court finds, a statute undermines the rule of law which has the status of a constitutional principle like the basic structure, the above grounds are also available and not vice versa. Any law which, in the opinion of the court, is not just, fair and reasonable, is not a ground to strike down a statute because such an approach would always be subjective, not the will of the people, because there is always a presumption of constitutionality for a statute."

In fact, in the said judgment, the Supreme Court declared loudly to the world about the existence of rule of law in this country as follows:

"219. One of the fundamental principles of a democratic society inherent in all the provisions of the Constitution is that any interference with the peaceful enjoyment of possession should be lawful. Let the message, therefore, be loud and clear, that the rule of law exists in this country even when we interpret a statute, which has the blessings of Article 300-A."

31. It is no doubt true that by applying the above said celebrated concept, which has been throughout well established by judicial precedents in this country, the consequences of an order passed by the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act, especially relating to the force to be used for the purpose of taking possession under Section 14(2) of the SARFAESI Act without giving opportunity to the person who is in occupation, is ostensibly draconian. But, in the light of the decision of the Supreme Court in Mardia Chemicals Ltd. case, supra, upholding the validity of the SARFAESI Act, in our view, it is not for this Court to reexamine one of the provisions of the SARFAESI Act. Needless to state that it is for the Supreme Court in appropriate case to decide about the said situation or for the law-makers to take appropriate action.

32. The above said observation had to be made in the context of some of the events like cases where the possession of the secured asset is in the hands of a bona fide tenant, who was inducted by the borrower long before either the borrowal of the amount by the landlord or any action taken by the bank under the provisions of the SARFAESI Act. In such unfortunate event, since the tenant in occupation is not entitled to know about the classification of the dues as non performing asset, or a notice under Section 13(2) of the Act, apart from possession notice under Section 13(4) of the Act, certainly he may be in the dark about the entire event, except for the first time when the secured creditor approaches the tenant in occupation with the help of an order passed by Chief Metropolitan Magistrate or District Magistrate under Section 14(2) of the SARFAESI Act to use force to throw him away.

33. Even if an appeal can be filed by such a tenant to the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, which uses the words "any person", the jurisdiction of the Debts Recovery Tribunal is restricted to find out as to whether the provisions of the SARFAESI Act have been followed scrupulously or not and there is no provision for the Debts Recovery Tribunal to decide as to whether the occupant, being a bona fide tenant, is liable to be removed from the place for the purpose of securing the secured asset by the secured creditor. Even assuming such power is available to the Debts Recovery Tribunal to put such tenant back to possession, the fact remains that damage has been done to an innocent person with the aid of law unbeknownst to him. It is equally true that there may be unscrupulous landlords/borrowers who have inducted any person as a tenant by creating unregistered lease deeds. There is also possibility for certain unscrupulous landlords to take advantage of the draconian provision of Section 14 of the SARFAESI Act in order to take possession from a tenant, who is entitled to protection under the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, by borrowing an amount from a bank of financial institution; wantonly committing default; and thereby obtaining an order through the secured creditor under Section 14 of the SARFAESI Act to throw away the bona fide tenant.

34. In this regard, it is relevant to refer to another latest judgment of the Supreme Court in United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110, wherein the Supreme Court has held that it is not only against the possession notice under Section 13(4) of the SARFAESI Act but also against the order passed under Section 14 of the SARFAESI Act an application can be filed under 17(1) of the SARFAESI Act. Strongly denouncing the conduct of the High Court in interfering under Article 226 of the Constitution of India with an order passed under Sections 13(4) and 14 of the SARFAESI Act, the Supreme Court has observed as follows:

"42. There is another reason why the impugned order should be set aside. If Respondent 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression any person used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.

43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute."

Therefore, it is clear that even against an order of possession taken through the administrative fiat from the Chief Metropolitan Magistrate or District Magistrate an application under Section 17 of the SARFAESI Act can be filed by any person affected, which includes a tenant in lawful occupation, to the Debts Recovery Tribunal.

35. It is no doubt true, as contended by the learned counsel for the petitioner, that a judgment, as is well known, is the authority for the proposition which it decides and not what can logically be deduced therefrom, as it was held by the Supreme Court in Union of India v. Major Bahadur Singh, (2006) 1 SCC 368, from which paragraph (9) was quoted with approval in the latest judgment of the Supreme Court in Davinder Singh v. State of Punjab, (2010) 13 SCC 88 as follows:

"18. A judgment, as is well known, is the authority for the proposition which it decides and not what can logically be deduced therefrom. This Court in Union of India v. Major Bahadur Singh, (2006) 1 SCC 368 has observed:

'9. The courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of the courts are neither to be read as Euclid's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of the courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for Judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes.'"

36. It was in Delhi Airtech Services (P) Ltd. v. State of U.P., (2011) 9 SCC 354, by referring to an earlier judgment in Municipal Corporation of Delhi v. Gurunam Kaur, (1989) 1 SC 101, the Supreme Court has held that when a point does not fall for decision but incidentally arises for consideration, it does not form part of the ratio of the case and the same is to be treated as a decision passed in sub silentio. The Supreme Court by referring to Gurunam Kaur case, supra, also considered the text from Salmond on Jurisprudence explaining the concept of sub silentio as follows:

"42. It has been held in the decision of this Court in MCD v. Gurnam Kaur, (1989) 1 SCC 101 that when a point does not fall for decision of a court but incidentally arises for its consideration and is not necessary to be decided for the ultimate decision of the case, such a decision does not form a part of the ratio of the case but the same is treated as a decision passed sub silentio.

43. The concept of sub silentio has been explained by Salmond on Jurisprudence, 12th Edn. as follows: (Gurnam Kaur case, SCC pp. 110-11, para 11)

11. A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the Court or present to its mind. The Court may consciously decide in favour of one party because of Point A, which it considers and pronounces upon. It may be shown, however, that logically the court should not have decided in favour of the particular party unless it also decided Point B in his favour; but Point B was not argued or considered by the Court. In such circumstances, although Point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on Point B. Point B is said to pass sub silentio.

44. The aforesaid passage has been quoted with approval by the three-Judge Bench in Gurnam Kaur. This Court in Gurnam Kaur, in order to illustrate the aforesaid proposition further relied on the decision of the English Court in Gerard v. Worth of Paris Ltd., (1936) 2 All ER 905 (CA). In Gerard, the only point argued was on the question of priority of the claimant s debt. The Court found that no consideration was given to the question whether a garnishee order could be passed. Therefore, a point in respect of which no argument was advanced and no citation of authority was made is not binding and would not be followed. This Court held that such decisions, which are treated having been passed sub silentio and without argument, are of no moment. The Court further explained the position by saying that one of the chief reasons behind the doctrine of precedent is that once a matter is fully argued and decided the same should not be reopened and mere casual expressions carry no weight."

37. But when the Supreme Court has considered the validity of the SARFAESI Act as a whole, even though no express opinion has been made by the Supreme Court about Section 14 of the SARFAESI Act, and the vires of the SARFAESI Act has been upheld, in the guise of applying the principle of sub silentio it is not possible for this Court to go into the validity of Section 14 of the SARFAESI Act. As stated by Salmond on Jurisprudence, elicited above, may be in cases where a point of law involved in the decision is not perceived by the Court and the Court while deciding a particular point has made a reference about another point, the principle of sub silentio may be made applicable in respect of another point relating to which a reference has been made. But in the case on hand, when the SARFAESI Act as a whole has been upheld, in our view, the principle of sub silentio may not be of much use to the petitioner while challenging the provision of the SARFAESI Act. But at the same time, we are of the view that when once greater power has been conferred on the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the Act, the same has to be exercised by the Chief Metropolitan Magistrate or District Magistrate with greater care and onerous responsibility.

38. Even though it is true that it is only after exercise of its power under Section 13(4) of the SARFAESI Act by giving notice of possession by the bank or financial institution, such secured creditor can proceed under Section 14 of the SARFAESI Act only in cases where it is necessary to obtain such assistance from the Chief Metropolitan Magistrate or District Magistrate, in our view, before exercising such power under Section 14 of the SARFAESI Act, which obviously does not require any notice to anyone, the authority must cogitate on and analyze the following aspects:

(i)that even after giving notice under Section 13(4) of the SARFAESI Act, the secured creditor requires assistance from the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act;

(ii)that while classifying the due as non performing asset, the bank or financial institution has followed the procedure contemplated under the SARFAESI Act;

(iii)that notice under Section 13(2) of the SARFAESI Act was, in fact, given to the borrower in accordance with the Rules, including paper publication, affixture, etc., by giving him sixty days time as contemplated therein and such notice has been received by the borrower and it contains the details of the amount payable by the borrower, etc.;

(iv)that in case any representation has been made by the borrower under Section 13(3-A) of the SARFAESI Act, the secured creditor bank or financial institution has replied within one week;

(v)that notice of possession under Section 13(4) of the SARFAESI Act has been given; and

(vi)that in cases where the borrower or guarantor is not in possession of the secured asset, whether the bank or financial institution has scrupulously followed Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 in affixing the possession notice and if necessary, direct the bank or financial institution to inform about the affixture of possession notice under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 to the tenant in occupation and also in that event direct the bank or financial institution to give such tenant sufficient time to file appeal under Section 17 of the SARFAESI Act to the Debts Recovery Tribunal, and thereafter the Chief Metropolitan Magistrate or District Magistrate should pass appropriate orders and such order shall contain laconically the above said considerations to evince that there has been an application of mind by the authority. This is necessary as the Supreme Court has held that even against the possession notice under Section 13(4) and order under Section 14 of the SARFAESI Act, a person aggrieved can approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act. A consideration of the above said aspects will be helpful to prevent a bona fide tenant, who has been in occupation for a long time, from being thrown out arbitrarily without his knowledge due to the default committed by the borrower, who happens to be a landlord. It behooves us to lay down the above said exhaustive guidelines as an extraordinary power has been conferred on the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act, of course in order to achieve the main goal of the SARFAESI Act itself, as stated above.

39. By referring to the real power of the Court, the Supreme Court has held that the responsibility of the Court in passing orders must be more when greater powers are given. That was in State of U.P. v. Jasvir Singh and Others, (2011) 4 SCC 288. In paragraph (15) of the said judgment, it was held as follows:

"15. This Court has repeatedly noticed that the real power of courts is not in passing decrees and orders, nor in punishing offenders and contemnors, nor in summoning the presence of senior officers, but in the trust, faith and confidence of the common man in the judiciary. Such trust and confidence should not be frittered away by unnecessary and unwarranted show or exercise of power. Greater the power, greater should be the responsibility in exercising such power."

40. The nature of care to be taken as suggested by us, in our view, is in consonance with the concept of a Welfare State, apart from the principle of rule of law enunciated above. In addition to the enforcement of the object of the SARFAESI Act, the Chief Metropolitan Magistrate or District Magistrate has to necessarily be guided by the consideration of doing justice, even though it is said that while passing order under Section 14 of the SARFAESI Act the Chief Metropolitan Magistrate or District Magistrate is only assisting the bank or financial institution for enforcing the security of the secured asset.

41. While rejecting the contention that there is a dichotomy between symbolic possession and physical possession under the SARFAESI Act, the Supreme Court has held that there is no distinction under the SARFAESI Act and has taken note of the fact that the third party interest are created overnight in order to scuttle the enforcement of the provisions of the SARFAESI Act. It was in Transcore v. Union of India and another, 2006 (5) CTC 753, the Supreme Court has made the following observations which are reproduced here-under:

"54. The word possession is a relative concept. It is not an absolute concept. The dichotomy between symbolic and physical possession does not find place in the Act. As stated above, there is a conceptual distinction between securities by which the creditor obtains ownership of or interest in the property concerned (mortgages) and securities where the creditor obtains neither an interest in nor possession of the property but the property is appropriated to the satisfaction of the debt (charges). Basically, the NPA Act deals with the former type of securities under which the secured creditor, namely, the bank/FI obtains interest in the property concerned. It is for this reason that the NPA Act ousts the intervention of the courts/tribunals.

55. Keeping the above conceptual aspect in mind, we find that Section 13(4) of the NPA Act proceeds on the basis that the borrower, who is under a liability, has failed to discharge his liability within the period prescribed under Section 13(2), which enables the secured creditor to take recourse to one of the measures, namely, taking possession of the secured assets including the right to transfer by way of lease, assignment or sale for realising the secured assets. Section 13(4-A) refers to the word possession simpliciter. There is no dichotomy in sub-section (4-A) as pleaded on behalf of the borrowers. Under Rule 8 of the 2002 Rules, the authorised officer is empowered to take possession by delivering the possession notice prepared as nearly as possible in Appendix IV to the 2002 Rules. That notice is required to be affixed on the property. Rule 8 deals with sale of immovable secured assets. Appendix IV prescribes the form of possession notice. It inter alia states that notice is given to the borrower who has failed to repay the amount informing him and the public that the bank/FI has taken possession of the property under Section 13(4) read with Rule 9 of the 2002 Rules. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. Rule 9(6) states that on confirmation of sale, if the terms of payment are complied with, the authorised officer shall issue a sale certificate in favour of the purchaser in the form given in Appendix V to the 2002 Rules. Rule 9(9) states that the authorised officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor. (emphasis supplied) Section 14 of the NPA Act states that where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred, the secured creditor may, for the purpose of taking possession, request in writing to the District Magistrate to take possession thereof. Section 17(1) of the NPA Act refers to the right of appeal. Section 17(3) states that if DRT as an appellate authority after examining the facts and circumstances of the case comes to the conclusion that any of the measures under Section 13(4) taken by the secured creditor are 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 consequently, restore possession to the borrower and can also restore management of the business of the borrower. Therefore, the scheme of Section 13(4) read with Section 17(3) shows that if the borrower is dispossessed, not in accordance with the provisions of the Act, then DRT is entitled to put the clock back by restoring the status quo ante. Therefore, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession. As stated above, the NPA Act provides for recovery of possession by non-adjudicatory process; therefore, to say that the rights of the borrower would be defeated without adjudication would be erroneous. Rule 8, undoubtedly, refers to sale of immovable secured asset. However, Rule 8(4) indicates that where possession is taken by the authorised officer before issuance of sale certificate under Rule 9, the authorised officer shall take steps for preservation and protection of secured assets till they are sold or otherwise disposed of. Under Section 13(8), if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the creditor before the date fixed for sale or transfer, the asset shall not be sold or transferred. The costs, charges and expenses referred to in Section 13(8) will include costs, charges and expenses which the authorised officer incurs for preserving and protecting the secured assets till they are sold or disposed of in terms of Rule 8(4). 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."

42. On analyzing the judgment of the Supreme Court in Transcore case, supra, a Division Bench of the Bombay High Court in Trade Well v. Indian Bank, 2007 Cri LJ 2544 has given a gist of the said judgment of the Supreme Court as follows:

"64. Following is the gist of the relevant portion of the Supreme Court judgment.

(a) The DRT Act did not provide for assignment of debts to securitisation companies. The secured assets could not be liquidated in time. The NPA Act was enacted to reduce mounting non-performing assets by empowering banks to liquidate the assets and secured interest.

(b) The NPA Act deals with crystallized liabilities.

(c) The NPA Act proceeds on the basis that the asset is created in favour of bank which could be assigned to the assets management company which steps into the shoes of the secured creditors.

(d) Section 13(2) proceeds on the basis that the borrower is under a liability and his account in the books of account of the bank is classified as sub-standard or doubtful or loss. The NPA Act comes into force only if these two conditions are satisfied.

(e) Since Section 13(2) deals with liquidation of liability on the basis that the account of the borrower has become non-performing, there is no scope of any dispute regarding liability.

(f) The NPA Act does not deal with disputes between the secured creditors and the borrowers but it deals with the rights of the secured creditors inter se.

(g) Section 13(1) and Section 13(2) of the NPA Act proceed on the basis that the security interest in the bank and financial institution needs to be enforced expeditiously without the intervention of the Court and that enforcement could take place by non- adjudicatory process. The NPA Act provides for recovery of possession by non-adjudicatory process.

(h) The NPA Act removes all fetters on the right of the secured creditor.

(i) Under Section 17(2), the DRT is required to consider whether any of the measures referred to in Section 13(4) are in accordance with the provisions of the NPA Act and the Rules made thereunder.

(j) If while examining the application under Section 17, the DRT comes to the conclusion that any of the measures taken under Section 13(4) are not in accordance with NPA Act, it shall direct the secured creditor to restore the possession to the borrower or restore management to the borrower.

(k) If the DRT declares that the recourse taken under Section 13(4) is in accordance with the provisions of the NPA Act then notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to anyone or more of the measures as specified under Section 13(4) to recover his secured debt.

(l) Section 17(4) shows that the secured creditor is free to take recourse to any one of the measures under Section 13(4) notwithstanding anything contained in any other law for the time being in force, e.g. for the sake of argument if in a given case, the measures undertaken by the secured creditor under Section 13(4) come in conflict with the State land revenue law, then notwithstanding such conflict, the provision of Section 13(4) shall override the local law.

(m) This position stands clarified by Section 35 of the NPA Act which states that the provisions of the NPA Act shall override all other laws which are inconsistent with the NPA Act. Section 35 gives an overriding effect to the NPA Act over all other laws, if they are in consistent with it.

(n) The dichotomy between symbolic and physical possession does not find place in the NPA Act.

(o) Rule 8 of the said Rules deals with the sale of immovable secured assets. Rule 8 deals with the stage anterior to the issuance of sale certificate and delivery of possession under Rule 9. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. Till the time of issuance of sale certificate, the authorised officer is like a court receiver under Order XL, Rule 1 of the CPC. The court receiver can take symbolic possession and in appropriate cases, he can take actual possession even prior to the decree. The authorised officer's powers are greater as security interest is already created in the bank. Hence, under Rule 8, he can take steps to preserve the secured asset till issuance of the sale certificate under Rule 9. Rule 9(6) states that on confirmation of sale, if the terms of payment are complied with, the authorised officer shall issue a sale certificate in favour of the purchaser. Rule 9(9) states that the authorised officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor. This scheme of the NPA Act therefore does not disclose any dichotomy between symbolic possession and physical possession.

(p) Since scheme of Section 13(4) read with Section 17(3) shows that if the borrower is dispossessed not in accordance with the provisions of the NPA Act, the DRT is entitled to restore status quo ante, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession.

(q) The disputes which are sought to be avoided by Rule 8 read with Rule 9 of the said Rules are those where third party interests are created overnight and in very many cases those third parties take up the defence of being a bonafide purchaser for value without notice."

In fact, in the said judgment, the Bombay High Court while holding that the process under Section 14 of the SARFAESI Act is a non adjudicatory process, has held that the remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal is available to the third parties also.

43. While holding that the secured creditor to enforce his right under Section 13(4) of the SARFAESI Act, in particular Section 13(4)(a) of the SARFAESI Act, may take recourse to Section 14 of the SARFAESI Act, it was held in the latest judgment of the Supreme Court in Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782 that it is after resorting to Section 13(4) of the SARFAESI Act, the assistance under Section 14 of the SARFAESI Act arises and against any measure taken under Section 14 of the SARFAESI Act, any person can approach the Debts Recovery Tribunal under Section 17(1) of the SARFAESI Act. It is useful to extract the following paragraphs of the said judgment:

"18. Section 14 of the Act provides that the secured creditor can file an application before the Chief Metropolitan Magistrate or the District Magistrate, within whose jurisdiction, the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. (See United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110.) Therefore, it follows that a secured creditor may, in order to enforce his rights under Section 13(4), in particular Section 13(4)(a), may take recourse to Section 14 of the Act...

22. We are in respectful agreement with the above enunciation of law on the point. It is manifest that an action under Section 14 of the Act constitutes an action taken after the stage of Section 13(4), and therefore, the same would fall within the ambit of Section 17(1) of the Act. Thus, the Act itself contemplates an efficacious remedy for the borrower or any person affected by an action under Section 13(4) of the Act, by providing for an appeal before the DRT."

44. In view of the judgments of the Supreme Court commencing from Mardia Chemicals case to Kanaiyalal Lalchand Sachdev case, supra, wherein the Supreme Court has analyzed threadbare the various provisions of the SARFAESI Act, we are unable to accept the contention of Mr.R.Singgaravelan, learned counsel appearing for the petitioner in W.P.No.950 of 2012 for a declaration that Section 14 of the SARFAESI Act is null and void, except issuing certain guidelines as stated above.

45. Accordingly, W.P.No.950 of 2012 stands dismissed and Section 14 of the SARFAESI Act is held valid. However, while exercising the power by way of measure to assist the bank or financial institution to secure the secured assets, the Chief Metropolitan Magistrate or District Magistrate shall follow the following guidelines:

(ii)that while classifying the due as non performing asset, the bank or financial institution has followed the procedure contemplated under the SARFAESI Act;

(iii)that a notice under Section 13(2) of the SARFAESI Act was, in fact, given to the borrower in accordance with the Rules, including paper publication, affixture, etc., by giving him sixty days time as contemplated therein and such notice has been received by the borrower and it contains the details of the amount payable by the borrower, etc.;

(iv)that in case any representation has been made by the borrower under Section 13(3-A) of the SARFAESI Act, the secured creditor bank or financial institution has replied within one week;

(v)that a notice of possession under Section 13(4) of the SARFAESI Act has been given;

(vii)thereafter pass appropriate orders, which shall contain laconically the above said considerations to evince that there has been an application of mind by the authority.

W.P.Nos.30223 and 30184 of 2011,

104 and 105 of 2012

46. Now coming to the individual cases wherein the orders of the Chief Judicial Magistrates are challenged, it is true that as against the measure taken under Section 14 of the SARFAESI Act any person affected can approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, which states "any person (including the borrower)", as it seen in Section 17(1) of the SARFAESI Act, which is as follows:

"Section 17. Right to appeal.-

(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, 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:

PROVIDED that different fees may be prescribed for making the application by the borrower and the person other than the borrower.

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 this sub-section."

47. It is relevant to point out that under Section 14(3) of the SARFAESI Act, an order of the Chief Metropolitan Magistrate or District Magistrate as a measure under Sections 14(1) and 14(2) of the SARFAESI Act has become final and cannot be questioned in any court of law or before any authority. Of course, it is because of that provision the Supreme Court has clarified that an appeal lies to the Debts Recovery Tribunal against the order passed under Section 14 of the SARFAESI Act. But at the same time, when the Chief Metropolitan Magistrate or District Magistrate while considering such request from the secured creditor, failed to follow the provisions of the SARFAESI Act and exercised his discretion in an improper manner, or in cases where the Chief Metropolitan Magistrate or District Magistrate simply as an administrative authority without application of mind merely on the request of the secured creditor passes an order appointing an Advocate Commissioner to take possession with the help of police without considering anything about the fulfillment of the requirements under the SARFAESI Act, it cannot be said that this Court cannot entertain a writ petition under Article 226 of the Constitution of India, especially when gross injustice is sought to be done by such measure taken by the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act. This is because it can be construed that under Section 17 of the SARFAESI Act, the Debts Recovery Tribunal even while considering the appeal of any person other than the borrower has to only examine as to whether notice under Section 13(2) of the SARFAESI Act has been given, followed by the possession notice under Section 13(4) of the Act. By referring to Section 17 of the Act, which is as follows:

"Section 17. Right to appeal

(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application alongwith 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:

PROVIDED that different fees may be prescribed for making the application by the borrower and the person other than the borrower.

(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (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.

(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.

(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.

(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 part to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal.

(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the rules made thereunder.",

one can certainly come to a conclusion that the power of the Debts Recovery Tribunal under Section 17 of the SARFAESI Act even though it enables any person affected by an order under Section 13(4) or consequently under Section 14 of the SARFAESI Act to approach it, is restricted to the confirmation to the provisions of the SARFAESI Act alone.

48. Ergo, in cases where a bona fide tenant is sought to be evicted either by the steps taken under Section 13(4) of the SARFAESI Act by the secured creditor or by the order of assistance passed by the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act at the instance of the secured creditor, it is highly doubtful as to whether the Debts Recovery Tribunal can go into the question as to whether the third party tenant is a bona fide tenant or not, since the Debts Recovery Tribunal is not expected to follow the elaborate procedure of a Civil Court and is expected to proceed on summary basis taking into consideration the object of the SARFAESI Act. Therefore, in such cases, in order to render substantial justice, we are of the view that there is no bar for this Court to entertain a writ petition under Article 226 of the Constitution of India. But insofar as it relates to the borrower or guarantor, as against the steps taken by the secured creditor under Sections 13(4) and 14 of the SARFAESI Act, Section 17 of the SARFAESI Act provides an effective alternative remedy and in such cases, it is not possible for this Court to entertain a writ petition.

49. While construing about the right of a bona fide tenant in occupation under a borrower and taking note of the fact that such tenant has got a statutory protection under the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 and also in other cases under Section 106 of the Transfer of Property Act, 1882, in the light of the summary powers provided to the secured creditor under the SARFAESI Act, a Division Bench of this Court in Indian Bank v. Nippon Enterprises South and others, 2011 (2) CTC 474, after analyzing the constitutional provisions regarding the source of power under both the Acts and finding that the SARFAESI Act has been enacted by the Parliament by virtue of the power under List I of Schedule VII, while the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 was enacted by the State Legislature under Entry 6 of List III (Concurrent List) of Schedule VII, and that the tenant can be evicted only on specific grounds enumerated under Section 10 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 and also considering the judgment of the Supreme Court in Central Bank of India v. State of Kerala, 2009 (6) CTC 656, wherein the Supreme Court has considered as to whether there is any repugnancy between Kerala Sales Tax Act, 1962 and Bombay Sales Tax Act, 1959 on the one hand and the SARFAESI Act on the other hand, held that the SARFAESI Act and Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 are acting in different fields and the intention of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 is to protect the possession of the bona fide tenants and, therefore, while there is no repugnancy between the two Acts, it was held that the bank cannot take physical possession from a bona fide tenant by invoking the provisions of Sections 13(4) and 14 of the SARFAESI Act in the following paragraph:

"38. In the above case, the Supreme Court found that since there was no specific provision creating first charge in respect of the amount due to the bank in the SARFAESI Act, such provision contained in the State enactment creating first charge in respect of the dues to the Government shall not indicate any conflict or inconsistency or overlapping between the same. In the case on hand, as we have already stated, there is no specific provision in the SARFAESI Act in respect of taking possession from the hands of the tenant. But the right of the tenant to continue to be in possession is protected by the TN Rent Control Act. The SARFAESI Act is an Act for the expeditious recovery of dues to the banks, financial institutions and secured creditors, whereas the purpose of the State legislation i.e., the TN Rent Control Act is to protect the possession of the tenants. Thus, they are traceable to two different entries in their respective fields and there is neither any conflict nor repugnancy or overlapping. In such view of the matter, there is no difficulty in holding that the bank cannot take physical possession from the tenant protected under Tamil Nadu Rent Control Act by invoking the provisions of Sections 13(4) and 14 of the SARFAESI Act, in the event the tenant is in bona fide occupation. The point is answered accordingly."

It is in the above backdrop, we take up the individual cases.

W.P.No.30223 of 2011

50. In this writ petition, the petitioner is a borrower from the second respondent/bank in respect of a housing loan to the extent of ` 8,82,000/- and a cash credit loan to the extent of ` 20 Lakhs. The bank has issued a notice under Section 13(2) of the SARFAESI Act claiming an outstanding of ` 21,58,531.40 under cash credit loan and ` 7,28,644.42 under housing loan and thereafter issued a notice under Section 13(4) of the SARFAESI Act as per Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 on 5.4.2011 claiming a total amount of ` 28,97,725.91 and on the bank approaching the Chief Judicial Magistrate, Salem under Section 14 of the SARFAESI Act, the Chief Judicial Magistrate after recording the evidence of the Manager of the Bank, who has produced in his evidence notice issued under Section 13(2) of the SARFAESI Act, apart from the possession notice issued under Section 13(4) of the SARFAESI Act, as it is affixed and published in two newspapers, has passed an order after perusing the records and sworn statement of the authorised officer directing the Inspector of Police to render necessary assistance to the secured creditor in respect of the secured property. The order passed by the Chief Judicial Magistrate, Salem is as follows:

51. Inasmuch as the petitioner is a borrower and there is nothing to conclude that the Chief Judicial Magistrate has not applied his mind and inasmuch the petitioner has got an effective alternative remedy of filing an appeal under Section 17 of the SARFAESI Act, W.P.No.30223 of 2011 stands dismissed with liberty to the petitioner to approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, making it clear that if such appeal is filed within a period of four weeks from the date of receipt of a copy of this order, the Debts Recovery Tribunal shall receive the said appeal and decide the same on merits and in accordance with law, independent of any observation made above.

W.P.No.30184 of 2011

52. In this writ petition, the petitioner claims to be a tenant under the second respondent, who stood as a guarantor in respect of the borrowal made by third parties creating a mortgage in respect of his property. Even though the petitioner is a tenant, he has not stated in the affidavit filed in support of the writ petition as to the period of his tenancy, except producing an unregistered rental agreement dated 7.8.2008. However, it appears, as it is seen in the application filed by the first respondent/bank under Section 14(1) of the SARFAESI Act before the Chief Judicial Magistrate, Erode, that the second respondent has created a mortgage in the year 2009.

53. In such circumstances, this Court cannot decide the bona fide nature of the petitioner as a tenant under the second respondent and, therefore, giving liberty to the petitioner to approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act or to approach the appropriate forum in any other manner known to law, the writ petition stands dismissed. It is made clear that if the petitioner resorts to such legal recourse within four weeks from the date of receipt of a copy of this order, the authority concerned shall decide the issue on merits and in accordance with law. Till such time, if physical possession of the property was not taken over from the petitioner, status-quo shall be maintained. It is further made clear that after the said period of four weeks if the petitioner is unable to get any legal protection from the competent authority, it shall be open to the bank to proceed in accordance with law.

W.P.No.104 of 2012

54. The petitioners in this writ petition are claiming to be the tenants under the second respondent, who is stated to have borrowed from the first respondent/bank by way of cash credit facility an amount of ` 8.50 Crores and by way of term loan facility an amount of ` 3,35,95,000/- on 13.10.2009. A claim was made to the extent of ` 11,78,74,402/- on 15.12.2010 and possession notice under Section 13(4) of the SARFAESI Act was served on 22.2.2011. Under Section 14 of the SARFAESI Act, at the instance of the first respondent/bank, the Chief Judicial Magistrate, Erode has passed a considered order by perusing the detailed affidavit filed by the bank.

55. On the side of the petitioners, three unregistered rental agreements dated 22.5.2009, 1.6.2009 and 6.7.2009 have been filed. Inasmuch as the said unregistered rental agreements are dated immediately before the date of borrowal, this Court cannot decide while exercising the power under Article 226 of the Constitution of India, about the bona fide nature of the petitioners/tenants and, therefore, giving liberty to the petitioners to approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act or to approach the appropriate forum in any other manner known to law, the writ petition stands dismissed. It is made clear that if the petitioners resort to such legal recourse within four weeks from the date of receipt of a copy of this order, the authority concerned shall decide the issue on merits and in accordance with law. Till such time if physical possession of the properties was not taken over from the petitioners, status-quo shall be maintained. It is further made clear that after the said period of four weeks if the petitioners are unable to get any legal protection from the competent authority, it shall be open to the bank to proceed in accordance with law.

W.P.No.105 of 2012

56. The petitioners claim to be the tenants under the second respondent, who is the guarantor in respect of the availing of loan by the second respondent in W.P.No.104 of 2012, as stated above, and the learned Chief Judicial Magistrate, Erode has passed the order after considering the documents and perusing the detailed affidavit filed by the first respondent/ bank.

57. In this case also, the unregistered rental agreements 30.1.2009, 31.3.2009, 3.12.2009 and 19.11.2007 are all dated immediately before the date of borrowal, and therefore, this Court while exercising the power under Article 226 of the Constitution of India, cannot decide about the bona fide nature of the petitioners/tenants and, therefore, giving liberty to the petitioners to approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act or to approach the appropriate forum in any other manner known to law, the writ petition stands dismissed. It is made clear that if the petitioners resort to such legal recourse within four weeks from the date of receipt of a copy of this order, the authority concerned shall decide the issue on merits and in accordance with law. Till such time if physical possession of the properties was not taken over from the petitioners, status-quo shall be maintained. It is further made clear that after the said period of four weeks if the petitioners are unable to get any legal protection from the competent authority, it shall be open to the bank to proceed in accordance with law.

In the result, all the writ petitions are dismissed with the above observations. No costs. Consequently, M.P.No.1 of 2012 in W.P.No.950 of 2012, M.P.No.1 of 2011 in W.P.No.30223 of 2011, M.P.Nos.1 and 2 of 2011 in W.P.No.30184 of 2011, M.P.Nos.1 and 2 of 2012 in W.P.No.104 of 2012 and M.P.Nos.1 and 2 of 2012 in W.P.No.105 of 2012 are closed.

Subject	Constitution
Court	Chennai High Court
Decided On	Apr-17-2012
Case Number	W.P.Nos.950 of 2012, 30223 and 30184 of 2011, 104 and 105 of 2012
Judge	P.JYOTHIMANI; M.DURAISWAMY, JJ.
Acts	Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest(SARFAESI) Act, 2002 - Section 13(4)(2), 14, 13(3A), 14(2), 17, 17(3), 13(8); Constitution of India - Articles 226, 14, 19(1)(e), 19(1)(g), 21, Schedule 9; State Financial Corporations Act, 1951 - Section 29
Appellant	K.R.Chandrasekaran
Respondent	Union of India and ors.
Appellant Advocate	Mr.R.Singgaravelan; Mr.R.Veeramani, Advs.
Respondent Advocate	Mr.N.Ramesh; Mr.Om Prakash, Advs

K.R.Chandrasekaran Vs. Union of India and ors. - Court Judgment