Chief Judicial Magistrate competent to process request of Secured Creditor under Section 14 of SARFAESI Act, Supreme Court

The Supreme Court has held that the Chief Judicial Magistrate is competent to process the request of the secured creditor to take possession of the secured asset under Section 14 of the Securitisation and Reconstruction of Financial Assets and  Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The judgment was delivered by a Bench of Justices AM Khanwilkar and Dinesh Maheshwari thereby settling the conflict in the views taken by various High Courts in this regard.

The question involved in the appeals before the Supreme Court was whether the Chief Judicial Magistrate (CJM) is competent to process the request of the secured creditor to take possession of the secured asset under Section 14 of the SARFAESI Act, 2002?

The High Courts of Bombay, Calcutta, Madras, Madhya Pradesh and Uttarakhand interpreted the said provision to mean that only the Chief Metropolitan Magistrate (CMM) in metropolitan areas and the District Magistrate (DM) in non­-metropolitan areas are competent to deal with such request.

On the other hand, the High Courts of Kerala, Karnataka, Allahabad and Andhra Pradesh had taken a contrary view of the same provision, to mean that it does not debar or preclude the CJM in the non­metropolitan areas to exercise power under Section 14 of the 2002 Act.

The Supreme Court after considering the submissions of the parties noted that an inquiry conducted by the stated authority under Section 14 of the 2002 Act, is a sui generis inquiry. In that, majorly it is an administrative or executive function regarding verification of the affidavit and the documents filed by the parties. That inquiry is required to be concluded within the stipulated time frame.

While undertaking such an inquiry, the authority must display judicious approach, in considering the relevant factual position asserted by the parties. That pre­supposes that it is a quasi-­judicial inquiry though, a non-­judicial process. The inquiry does not result in an adjudication of inter se rights of the parties, the Court stated.

The powers and functions of the CMM and the CJM are equivalent and similar, in relation to matters specified in the CrPC. These expressions (CMM and CJM) are interchangeable and synonymous to each other. Moreover, Section 14 of the 2002 Act does not explicitly exclude the CJM from dealing with the request of the secured creditor. The power to be exercised under Section 14 of the 2002 Act by the concerned authority is, by its very nature, non­-judicial or State’s coercive power, the Court held.

Furthermore, the Court also observed that borrower or the persons claiming through borrower or for that matter likely to be affected by the proposed action being in possession of the subject property, have statutory remedy under Section 17 of the 2002 Act and/or judicial review under Article 226 of the Constitution of India. In that sense, no prejudice is likely to be caused to the borrower/lessee nor is it possible to suggest that they are rendered remediless in law. At the same time, the secured creditor who invokes the process under Section 14 of the 2002 Act does not get any advantage.

Taking totality of all these aspects, the Court ruled that there is nothing wrong in giving expansive meaning to the expression CMM, as inclusive of CJM concerning non-­metropolitan area, who is otherwise competent to discharge administrative as well as judicial functions as delineated in the CrPC on the same terms as CMM. That interpretation would make the provision more meaningful.  Such interpretation does not militate against the legislative intent nor it would be a case of allowing an unworthy person or authority to undertake inquiry which is limited to matters specified in Section 14 of the 2002 Act.

To sum up, the Court held that the CJM is equally competent to deal with the application moved by the secured creditor under Section 14 of the SARFAESI Act.

It accordingly, upheld and approved the view taken by the High Courts of Kerala, Karnataka, Allahabad and Andhra Pradesh and reversed the decisions of the High Courts of Bombay, Calcutta, Madras, Madhya Pradesh and Uttarakhand.

[Read Judgment]