Whether Chief Judicial Magistrate has Jurisdiction to Grant Time for Payment of Debt Due to Secured Creditor [Case Law]

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - S. 14 - Chief Judicial Magistrate has no jurisdiction to grant time for payment of the debt due to the secured creditor in a proceedings under Section 14 of the Act.

In the instant case, there is no discretion whatsoever for the Chief Judicial Magistrate exercising power under Section 14 and the power is conferred only for the regulation of matter as distinguished from a power to decide the rights of parties. If the scope of the jurisdiction of the Chief Judicial Magistrate under Section 14 is understood in this fashion, there is no difficulty in arriving at the conclusion that the power is only administrative and not judicial. If the power is administrative, I have no doubt that the Chief Judicial Magistrate has no jurisdiction to pass orders in the nature of Ext.P3 in a proceedings under Section 14 of the Act. In the result, the writ petition is allowed and the impugned order is quashed.

IN THE HIGH COURT OF KERALA AT ERNAKULAM

P.B. SURESH KUMAR, J.

W.P.(C).No.5824 of 2018

Dated this the 12th day of June, 2018

PETITIONER(S)

CANARA BANK LTD, REPRESENTED BY ITS AUTHORISED OFFICER, SPECIALIZED SME BRANCH, EDAPPALLY, KOCHI- 682 024.

BY ADVS.SRI.K.K.CHANDRAN PILLAI (SR.) SMT.S.AMBILY SRI.SAJI THOMAS SRI.MANU SRINATH SMT.NAMITHA NAMBIAR 

RESPONDENT(S)

STEPHEN JOHN AND OTHERS

R1,R2 BY ADV. SRI.P.CHANDRASEKHARAN PILLAI (VENNELA) R1,R2 BY ADV. SMT.C.SREELAKSHMI R3 BY ADV. SRI.P.T.JOSE BY SR.GOVERNMENT PLEADER:SRI.C.P.PRADEEP 

J U D G M E N T 

The short question falls for consideration in this matter is whether the Chief Judicial Magistrate exercising power under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act) has jurisdiction to grant time for payment of the debt due to the secured creditor.

2. The short facts relevant for adjudication of the question are the following : The petitioner is a bank satisfying the definition of 'bank' under of the Act. The case of the petitioner is that respondents 1 and 2 who are husband and wife, have been enjoying credit facilities along with the third respondent from them in the name of two partnerships on the security of a property belonging to respondents 1 and 2. When respondents 1 to 3 committed default in remitting the dues to the petitioner, proceedings have been initiated by the petitioner before the Debts Recovery Tribunal, Ernakulam under the Recovery of Debts due to Banks and Financial Institutions Act for realisation of the outstanding dues. The said proceedings, namely O.A.350 of 2017 is pending. It is stated that the amount claimed by the petitioner from respondents 1 to 3 in the said proceedings charged on the property of respondents 1 and 2 is Rs.1,68,49,710/- with interest from 31/05/2017. As the security furnished by respondents 1 and 2 would satisfy the definition of 'secured asset' under the Act, simultaneous proceedings have been initiated by the petitioner under the Act as well against the security. In furtherance to the said proceedings, the petitioner preferred an application before the Chief Judicial Magistrate under Section 14 of the Act. In terms of Ext.P1 order dated 19/01/2018, the Chief Judicial Magistrate appointed an Advocate Commissioner to take possession of the secured asset and hand over the same to the petitioner with the police aid. Respondents 1 and 2, thereupon, filed Ext.P2 application before the Chief Judicial Magistrate seeking time to pay the amounts due to the petitioner. On the said application, in terms of Ext.P3 order, the Chief Judicial Magistrate granted 45 days time to respondents 1 and 2 to pay Rs.45 lakhs. Ext.P3 order is under challenge in the writ petition as one issued without jurisdiction.

3. A counter affidavit has been filed by the first respondent in the matter on his behalf as also on behalf of his wife, the second respondent, contending that respondents 1 and 2 availed only a loan of Rs.75 lakhs from the petitioner on the security of their property; that the said loan was availed by them in their individual capacity and not in the name of any partnership as alleged by the petitioner and that the Manager of the petitioner in collusion with the third respondent created false documents so as to extend the security interest over the said property for other credit facilities extended to the third respondent as well. According to respondents 1 and 2, in a case of this nature, the Chief Judicial Magistrate has jurisdiction to pass orders in the nature of Ext.P3 order.

4. Heard the Senior Counsel for the petitioner as also the learned counsel for respondents 1 and 2.

5. Referring to Section 14 of the Act as also to the various decisions rendered by this court interpreting the said provision, the learned Senior Counsel for the petitioner contended that the power of the Chief Judicial Magistrate under the said provision is only administrative and an order in the nature of Ext.P3 cannot, therefore, be issued in exercise of that power. Per contra, the learned counsel for respondents 1 and 2 contended that in terms of the provisions contained in the Act, the Chief Judicial Magistrate exercising power under Section 14 of the Act has certainly jurisdiction to consider whether the secured debt in respect of which relief is claimed over the security is genuine and issue appropriate orders in the interest of justice on that basis. According to the learned counsel, the impugned order is, therefore, one which would certainly fall within the scope of Section 14 of the Act.

6. Section 14 of the Act, as amended by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act 2012 and the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act 2016 reads thus : 

"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 assets and documents to the secured creditor.

1[Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that— 

(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application; 

(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period; 

(iii) the borrower has created security interest over various properties giving the details of properties referred to in sub-clause (ii) above; 

(iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount; 

(v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a nonperforming asset; 

(vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower; 

(vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower; 

(viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act; 

(ix) that the provisions of this Act and the rules made thereunder had been complied with: 

Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets 2[within a period of thirty days from the date of application]: 

[Provided also that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days.] Provided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.] 

4[(1A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,— 

(i) to take possession of such assets and documents relating thereto; and 

(ii) to forward such assets 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 5[any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any court or before any authority." 

Before the amendments made to the provision as referred to above, a Division Bench of this court in Muhammed Ashraf v. Union of India [2008 (4) KLT 1], held that Section 14 is only a procedural provision intended to render assistance to secured creditors under the Act to take possession of the secured assets or documents relating to the secured assets, and the statute does not contemplate adjudication of the rights of parties in the said proceedings. Insofar as a secured creditor under the Act is entitled to take physical possession of the secured asset dehors the proceedings under Section 14 of the Act, the proposition that Section 14 is only a provision which enables the secured creditors under the Act to avail the assistance of the State to take possession of the secured assets cannot be disputed. The said power, going by the scheme of the Act, can be availed by the secured creditor in cases where they are obstructed from taking possession of the secured asset or where they contemplate obstruction in the process of taking possession.

7. Interpreting the unamended provision, in Ayishumma v. Hassan [2009 (3) KLT 399] and South Indian Bank Ltd. v. Union of India [2010 (4) KLT 657], this court held further that the only aspect to be seen by the Chief Judicial Magistrate, while exercising power under section 14 of the Act, is whether the property in respect of which assistance is sought is a secured asset. It is thereafter, the provision has been amended and the provisos to sub section (1) and sub section (1A) were introduced. The amendments have not made any change to the scheme of the provision. On the other hand, it is seen that the amendments were intended to remove the ambiguity in the unamended provision as regards the jurisdiction of the competent authority exercising power under Section 14 of the Act. In the light of the amendments, before rendering assistance to the secured creditor, it is obligatory for the Chief Judicial Magistrate exercising power under section 14 of the Act to satisfy that the secured creditor has made a declaration in the form of an affidavit as regards matters specifically mentioned in the first proviso to sub section (1) of Section 14. In other words, after the amendments, if the secured creditor does not file an affidavit declaring all the facts required to be declared in terms of the first proviso, the Chief Judicial Magistrate is not obliged to render assistance to them. The correctness or otherwise of the declaration, going by the scheme of the provision, is not a matter at all for the Chief Judicial Magistrate to adjudicate. As taking possession of the secured asset through the process under section 14 of the Act is also one of the measures contemplated under subsection (4) of section 13 of the Act, the correctness, if any, of the declaration made by the secured creditor for the purpose of availing assistance under Section 14 of the Act is a matter for the Debts Recovery Tribunal exercising power under Section 17 of the Act to adjudicate upon, if raised.

8. It is seen that confusion arose as regards the jurisdiction under Section 14 on account of the fact that the Chief Judicial Magistrate entrusted with judicial functions is exercising that jurisdiction. Merely for the reason that the power under Section 14 is exercised by the Chief Judicial Magistrate, it cannot be argued that the power is judicial as it is now settled that the fact that the power is entrusted or wielded by a person who functions as a court is not decisive of the question whether the act or decision is administrative or judicial. An administrative order would be one which is directed to the regulation or supervision of matters as distinguished from an order, which decides the rights of parties or confers or refuses to confer rights to property, which are the subjects of adjudication by the court. One of the surest tests would be whether a matter which involves the exercise of discretion is left for the decision of the authority, particularly if that authority were a court [see Shankarlal Aggarwala v. Shankarlal Poddar (AIR 1965 SC 507)]. In the instant case, there is no discretion whatsoever for the Chief Judicial Magistrate exercising power under Section 14 and the power is conferred only for the regulation of matter as distinguished from a power to decide the rights of parties. If the scope of the jurisdiction of the Chief Judicial Magistrate under Section 14 is understood in this fashion, there is no difficulty in arriving at the conclusion that the power is only administrative and not judicial. If the power is administrative, I have no doubt that the Chief Judicial Magistrate has no jurisdiction to pass orders in the nature of Ext.P3 in a proceedings under Section 14 of the Act.

In the result, the writ petition is allowed and the impugned order is quashed.