D.MURUGESAN, J.
The petitioner is the absolute owner of the property situate at No.114-117, Old Mahabalipuram Road, Sholinganallur Village, Chennai, admeasuring to an extent of 26154 sq. ft. and a building with ground and first floor each measuring an extent of 1274 sq.ft. and 783 sq.ft. comprised in re-survey No.493/2, lying within the Sub Registration District of Saidapet. He was formally one of the Directors of Vemasi Chemicals Private Limited at Ambattur. The said company availed a loan from the Standard Chartered Bank, Chennai, for a sum of Rs.40 lakhs on 30.12.2003. The said loan amount carried interest at the rate of 11.5% p.a. repayable in 84 equated monthly instalments ending on December, 2010. The petitioner had given his property documents as collateral security for the said loan. Thereafter, once again, the company availed loan from the very same bank for a further sum of Rs.50 lakhs on 24.9.2004 repayable in 84 equal monthly instalments ending on September, 2011.
2.The petitioner was relieved from the company on 17.7.2006 and thereafter, the other Directors were looking after the affairs of the company. According to the petitioner, the other Directors promised him that they will regularly pay the instalments to the bank. However, the bank issued a notice dated 15.11.2007 under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, in short) for repayment of an amount of Rs.62,79,835.05. The petitioner contacted the other Directors, who assured that the amount due to the bank would be settled. However, the petitioner came to know that the respondent-bank had approached the Chief Judicial Magistrate, Chengalpattu, by filing an application in Crl.M.P.No.1518 of 2009 under
section 14 of the SARFAESI Act and the learned Chief Judicial Magistrate had issued warrant dated 14.12.2009 appointing an Advocate Commissioner to take possession of the property. The said Advocate Commissioner issued a notice to the petitioner on 13.1.2010 to take possession of the property. Aggrieved by the same, the petitioner has approached this Court by this petition.
3.The learned counsel appearing for the petitioner raised two contentions, viz.,
(i) The bank cannot bypass
section 13(4) of the SARFAESI Act and invoke the provisions of
section 14. He would submit, before invoking
section 14, that notice under
section 13(4) is necessary, otherwise the provisions of appeal under
section 17 will become illusory, particularly when the proceedings under
section 14 cannot be questioned by filing appeal before the Tribunal or before a Court.
(ii)In the event the procedures contemplated under Rule 8 of the Security Interest (Enforcement) Rules, 2002, are not followed before
section 14 is invoked, the order passed by the Chief Judicial Magistrate would be contrary to the said Rules and consequently, the order passed under
section 14 is liable to be set aside.
4.The learned counsel appearing for the respondent-bank would, on the other hand, submit that the bank/financial institution is entitled to take symbolic possession under
section 13(4) of the Act and before such symbolic possession is taken, no notice is contemplated. In the event, the bank/financial institution experienced any difficulty in taking possession, it may approach the Chief Judicial Magistrate concerned under
section 14. The learned counsel would submit that the rights of the bank/financial institution to invoke
section 14 of the Act is independent of the provisions of
section 13(4) in the event the bank decides to take physical possession of secured immovable property. The powers of Chief Metropolitan Magistrate/ District Magistrate under
section 14 is only ministerial and no adjudication is required. In view of the same, the order of the Chief Metropolitan Magistrate/District Magistrate is final and the same cannot be called in question in any court or before any authority.
5.To decide the controversy, the following provisions require consideration. The provisions of
Sections 13(2),13 (3-A), 13(4), 14 and 17 of the Act read as under:-
"13.Enforcement of security interest. - (1) ..
(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).
...
(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.(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;
...
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 the sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or caused to be used, such force, as may, in his opinion, be necessary.
(3)No act of the Chied Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any Court or before any authority.
...
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 measures had been taken:
..
(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 be order, declare the recourse to any one or more measures referred to in sub-section (4) of
section 13 taken by the creditors assets as invalid and restore the possession of the secured assets to tbe 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 subs-section (4) of
section 13.... "
6.By the above provisions, the right of the banks/financial institution to resort to the provisions of the Act would arise only in the event where any borrower, who is under liability to a secured creditor under a security agreement, makes any default in payment of a secured debt or any instalment thereof and his account in respect of such debt is classified by the secured creditor as non-performing asset. Therefore, from a careful reading of the above provisions, the following evantualities can be culled out, viz.,
(i) there must be a debt by a borrower from a secured creditor under a security agreement;
(ii) there must be a default in repayment of secured debt or any instalment thereof by the borrower;
(iii)the borrower's account in respect of such debt is classified by the secured creditor as 'non-performing asset';
(iv) a notice in writing should be issued by the secured creditor to the borrower to discharge in full his liabilities within sixty days from the date of the notice;
(v) in terms of sub-section (3) of
section 13, the notice shall also give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor.
7.At the time when
Section 13(2) of the Act was considered by the Supreme Court in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, there was no specific provision contemplating any opportunity for the borrower to make any objection or representation to the notice issued under
Section 13(2) of the Act. When the provision of
Section 13(2) was considered by the Apex Court, it was observed that it was necessary that the borrowers should have remedy to ventilate their grievance by submitting a reply explaining the reasons as to why measures may or may not be taken under sub-section (4) of
section 13, in case of non-compliance of notice within sixty days. That explanation must be considered by the secured creditor by applying its mind and an internal mechanism must be evolved to consider such objections raised in the reply notice.
8.Based on the above observation of the Apex Court, sub-section (3A) of
Section 13 was inserted by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004, with effect from 11.11.2004. By that newly inserted provision, a borrower is made entitled to make a representation or objection to the secured creditor on receipt of notice under sub-section (2) of
Section 13 and 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. By that provision, a right is conferred on the borrower to make a representation or objection to the notice under sub-section (2) of
Section 13 and a corresponding duty upon the secured creditor to communicate the conclusion if such representation or objection is not acceptable or tenable. In the event, no communication is received by the borrower within a week from the date of receipt of the representation or objection, it could be considered that the secured creditor had accepted such representation or objection and would not proceed further pursuant to the notice under sub-section (3) of
Section 13. In the event, the conclusion that the representation or objection is not acceptable or tenable is communicated, that communication is only for the purpose of bringing the same to the notice of the borrower and the borrower has no right to question such conclusion at that stage. This law has been laid down by a Division Bench of this Court in the judgment reported in AIR 2007 Madras 173 (Industrial Development Bank of India Ltd., Chennai v. M/s.Kamaldeep Synthetics Ltd.).
9.In the event of failure by the borrower to discharge in full the liabilities within sixty days from the date of the notice and the representation or the objection, if any made, was not accepted by the secured creditor and a communication of the conclusion was also made to the borrower, then the secured creditor may take recourse to one or more of the following measures in terms of
Section 13(4) of the Act:-
(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;
(c) appoint any person to manage the secured assets the possession of which has been taken over by the secured creditor; and
(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 secured creditor may also approach the Chief Metropolitan Magistrate / District Magistrate for assistance in taking possession of the secured assets as provided under
Section 14 of the Act. The powers of Chief Metropolitan Magistrate or District Magistrate are only ministerial and the orders of such judicial officers passed in exercise of the provision of
Section 14 shall not be called in question in any Court or before any authority meaning thereby that the said order is not amenable to appeal under
section 17 of the Act. The scope of powers by the Chief Metropolitan Magistrate/Judicial Magistrate under
Section 14 is very limited in the sense that the officers should satisfy as to whether secured asset falls within his territorial jurisdiction and whether notice under
Section 13(2) is given or not.
10.In the wake of the above provisions, where the borrower has only an opportunity to make representation or objection in terms of sub-section 3A of
section 13 and even such representation or objection is not accepted by the secured creditor, the borrower has no option to challenge the same and the secured creditor, in the event of failure of the borrower to comply with the notice under
section 13(2), can resort to the provision of Section
13(4) for taking possession and the right to make any appeal in exercise of the power under
Section 17 would be available to the borrower only after the proceedings under Section
13(4) and that power of appeal is also denied in the event the secured creditor straight away approaches the Chief Metropolitan Magistrate or District Magistrate under
section 14, strict compliance of provisions of
section 13(2) and
13(4) assumes importance which is mandatory.
11.As regards the rules framed under the Act, viz., Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules'), in case of immovable secured assets, Rule 8 contemplates that 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 the Rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. Appendix IV to the Rules reads as under:-
APPENDIX IV [See rule 8(1)] POSSESSION NOTICE (For Immovable Property) Whereas The undersigned being the authorised officer of the ......... (name of the Institution) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002 (Ord.3 of 2002) and in exercise of powers conferred under
section 13(12) read with rule 9 of the Security Interest (Enforcement) Rules, 2002 issued a demand notice dated ...... calling upon the borrower Shri....../ M/s...... to repay the amount mentioned in the notice being Rs...... (in words ......) within 60 days from the date of receipt of the said notice.
The borrower having failed to repay the amount, notice is hereby given to the borrower and the public in general that the undersigned has taken possession of the property described herein below in exercise of powers conferred on him/her under
section 13(4) of the said Ordinance read with rule 9 of the said Rules on this ....... day of ....... of the year .......
The borrower in particular and the public in general is hereby cautioned not to deal with the property and any dealings with the property will be subject to the charge of the ..... (name of the Institution) for an amount Rs....... and interest thereon.
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DESCRIPTION OF THE IMMOVABLE PROPERTY
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All that part and parcel of the property consisting of Flat No........../Plot No.......... in Survey No............/City or Town Survey No........./Khasara No............ within the registration Sub-District ......... and District ............
Bounded:
On the North by On the South by On the East by On the West by
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Sd/-
Authorised Officer (Name of the Institution) Date:
Place:
12.The provisions of sub-section (4) of
section 13 entitles the secured creditor to take possession of the secured assets of the borrower in the event of non-compliance of notice under
section 13(2). A set of procedures is prescribed under the Rules. In terms of Rule 8(1), before the authorised officer shall take or cause to be taken, possession of the property, he should deliver a possession notice prepared as nearly as possible in Appendix IV. Though a discretion is vested in the authorised officer insofar as the details contained in Appendix IV, no such discretion is conferred on the authorised officer in dispensation of a notice for having taken possession. In such event, at the time when
section 13(4) is invoked, a notice is mandatory. The provisions of Rule 8 read with Appendix IV have its own significance inasmuch as Appendix IV contemplates that the possession notice should indicate that the borrower having failed to repay the amount, notice is given to the borrower and the public in general that the authorised officer has taken possession of the property. Likewise, sub-rule (2) of rule 8 contemplates that the authorised officer shall publish the possession notice referred to in sub-rule (1) in two leading newspapers, one in vernacular language having sufficient circulation in that locality. These are all certain provisions whereby the borrower and the general public are put on notice by the authorised officer for having taken possession.
13.The provisions of the Rules contemplate the procedure for issuance of demand notice, procedure to be followed after issue of notice, valuation of movable secured assets, sale of movable assets and issue of certificate of sale. Similarly, it also provides the procedure for sale of immovable secured assets under rule 8. Though the secured creditor is entitled to invoke the provisions of
section 13(4) in case of non-compliance of notice under
section 13(2) by the borrower, the secured creditors may also invoke the provisions of
section 14. The provisions of
section 13(4) is available for the secured creditors to take possession of the immovable secured assets of the borrower and for that purpose, rule 8 must be followed and this rule is mandatory.
14.The above discussion on both the provisions of the Act and the corresponding Rules relating to taking over possession of immovable property would undoubtedly show that the secured creditor cannot bypass the above procedures without any justifiable cause. A reading of the provisions would show that only in the event when the secured creditor faces any obstruction to take possession of the property, he could approach the Chief Metropolitan Magistrate/District Magistrate under
section 14. It cannot be the intention of the legislature to allow a secured creditor to invoke the provisions of
section 14 in all cases irrespective of the provisions of
section 13(4), as such power may result in drastic consequences on the borrower over his property.
15.In that event, a duty is cast upon the secured creditor to satisfy Chief Metropolitan Magistrate/District Magistrate, as the case may be, as to the strict compliance of the provisions of
sections 13(2) onwards till steps taken under
section 13(4) and the Rule 8. Though the Chief Metropolitan Magistrate/District Magistrate discharges only a ministerial function when an order is passed under
section 14, nevertheless he must be satisfied with, among other things, the compliance of the other provisions and in the event the learned Magistrate is not satisfied as to the compliance of the provisions, he may refuse to exercise the power under
section 14. In this context, we may point out that though the borrower or the guarantor would be entitled to approach the Tribunal after the proceedings of
section 13(4), such a right is not available to the borrower or the guarantor in the event the secured creditor approaches the Magistrate under
section 14, in the wake of specific prohibition under
section 14(3) of the Act, wherein the order passed under the said provision is final and the same cannot be questioned in any court or any authority of law. Therefore, as a necessary corollary, legality of such an order under
section 14 could only be tested before the High Court in exercise of power under Article 226
/227 of the Constitution of India. When such an order is amenable to the judicial review of this Court, the order should be sustainable by strict compliance of the provisions of the Act and Rules, as otherwise, it is liable to be set aside. In this context, we may refer to the judgment of a Division Bench of Andhra Pradesh High Court in Sravan Dall Mill (P) Ltd. vs. Central Bank of India and another [II (2010) Banking Cases 96 (DB)].
16.Even after the order under
section 14 is passed, for the purpose of taking possession, the authorised officer should comply with Rule 8 through the Advocate Commissioner appointed under
section 14, as otherwise there will be a dichotomy resulting in a peculiar situation when a secured creditor exercises power under
section 13(4) and when such a power is exercised under
section 14. To elaborate, we may add that in the event
section 13(4) is invoked, the procedure contemplated under that provision read with rule 8 must necessarily be followed by the secured creditor while taking possession of immovable property. In the event the secured creditor bypassing the provisions of
section 13(4) and the rule 8 and files an application under
section 14, a situation may arise that the advocate commissioner may straight away take possession without there being compliance of any of the provisions of
section 13(4) or rule 8. When both the provisions are read together, we could only come to the conclusion that the legislature had not intended to create such a situation. The object of
section 14 is only to be invoked in case the secured creditor faces obstruction and not as a routine, bypassing the provisions of
section 13(4). We may also add that it is the decision of the authorised officer to invoke either
section 13(4) or
section 14 depending upon the situation, but nevertheless, when
section 14 is invoked, the power cannot be exercised arbitrarily as appointment of an advocate commissioner to take possession of the property will lead to deprivation of a property of an individual bypassing the safeguards made under rule 8. In this context, we may also refer that the Appendix IV to rule 8 obligates the authorised officer to give a notice to the borrower as to possession having been taken and the public in general are also made to know of such action taken by the authorised officer. We may also point out that though rules have been framed to give effect to the provisions of
section 13(2) and 13(4) of the Act, no rule has been framed as to how the advocate commissioner appointed by the Chief Metropolitan Magistrate/District Magistrate should take possession of the property, whether by again following the procedure contemplated under Rule 8 or not. In the absence of the rule, the strict compliance of the provisions of
section 13(4) and rule 8, even in case of possession taken by virtue of an order under
section 14, assumes importance.
17.The learned counsel appearing for the respondent had relied upon a judgment of a Division Bench of this Court in Sundaram Home Finance Ltd. v. The Thasildar, Hosur, (2007 (2) CTC 1). That was a case where the issue was as to whether a notice is necessary before
section 13(4) is invoked and all that the borrower would be entitled to is to file an objection to
section 13 notice and that objection will be considered and will be responded by the secured creditor in case it is not accepted. The Division Bench was not called upon to consider the question as to when
section 14 could be invoked.
18.Coming to the impugned proceedings of the learned Chief Judicial Magistrate dated 14.12.2009, the said proceedings reads as under:-
" WHEREAS it is deemed requisite, for the purpose of this Crl.M.P., that a commission for should be issued, you are hereby appointed as commissioner for the purpose to take possession of the schedule mentioned properties and to hand over the same to the petitioner.
Process to compel the attendance before you of any witnesses, or for the production of any documents whom or which you may desire to examine or inspect will be issued by any court having jurisdiction on your application.
You shall execute the warrant and file the report at the earliest. If any abnormal delay in executing the warrant is occurred on the part of the Advocate Commissioner, the warrant will be recalled and the remuneration is to be refunded to the petitioner/Bank.
19.A perusal of the said order shows that the Chief Judicial Magistrate had merely directed the appointment of a Commissioner for the purpose of taking possession of the schedule mentioned property and to hand over the same to the secured creditor. There is nothing to indicate as to the compliance of the provisions of
section 13(2),13(4) and Rule 8. As there is no reference to the compliance of the provisions by the secured creditor, it must be presumed that no materials were placed before the Chief Judicial Magistrate by the secured creditor in respect of the compliance. Further, the affidavit filed by the bank in support of the petition seeking for vacating interim order, nothing has been stated as to the compliance of the provisions of section1 3(2),
13(4) and particularly Rule 8. It does not also state that even after the advocate commissioner was directed to take possession, the above procedures have been followed. In that view of the matter, the impugned proceedings are unsustainable in the eye of law, as it would amount to arbitrary exercise of the powers conferred under
section 14.20.Accordingly, the impugned order of the learned Chief Judicial Magistrate, Chengalpattu, dated 14.12.2009 is set aside. The writ petition is allowed. No costs. Consequently, connected M.Ps. are closed.
sra