Limitation period applicable for challenging possession under SARFAESI Act: What Gujarat High Court held

A recent ruling of the Gujarat High Court makes pertinent observations concerning the limitation period applicable in filing applications challenging possession of secured property under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI Act), 2002.

In this regard, Justice Biren Vaishnav’s judgment in the case of Manglesh Champaklal Gandhi v Aditya Birla Finance Ltd holds,

• The Debt Recovery Tribunal (DRT) has the power to condone delay under Section 5 of the Limitation Act, 1963 if an application challenging possession of the property under the SARFAESI Act has been filed beyond the 45-day limitation period prescribed under Section 17 of the SARFAESI Act.
• The 45-day limitation period under Section 17 of the SARFAESI Act to file an application challenging the possession of property under the Act can be reckoned from the last step of the process i.e. sale notice (before the date of auction sale).

The ruling was passed in an appeal filed challenging an order of the Debt Recovery Appellate Tribunal (DRAT), Mumbai passed in August this year.

Factual Background

The petitioners had mortgaged immovable property to receive a loan. Eventually, their unpaid liability stood at over Rs. 2.17 crores, in respect of which a demand notice was issued in April 2017, under Section 13(2) of the SARFAESI Act.

On July 11, 2017, notice was issued under Section 13(4) of the Act, read with Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 (Enforcement Rules) for the symbolic possession of the mortgaged property. Following a Magistrate order authorising the same on July 7, 2018, physical possession of the property was handed over on November 3, 2018. 

Thereafter, a sale notice in respect of this property was issued under Rule 8(5) of the Enforcement Rules on November 30, 2018. Aggrieved by the same, the petitioners moved an application before the DRT on January 8, 2019. The DRT, in turn, ruled in favour of the petitioners, upon finding flagrant and glaring violation of procedure in possessing the mortgaged property.

On appeal by the Bank, however, this DRT verdict was set aside by the DRAT, which held that the plea was not maintainable since it had been filed beyond the limitation period of 45 days under Section 17 of the Act.

In other words, the DRAT verdict can be said to have been founded on two grounds, i.e.

• The 45-day limitation period commenced from the date on which symbolic possession of the mortgaged property was taken by the Bank (in this case, July 11, 2017). In arriving at this conclusion, the DRAT had rejected the petitioners’ contention that the 45-day limitation period had commenced only on November 30, 2018 i.e the date of the sale notice.
• The Limitation Act does not apply as far as applications under Section 17 of the SARFAESI Act are concerned. Therefore, the DRT cannot condone any delays under Section 5 of the Limitation Act, when it comes to applications filed beyond the 45-day limitation under Section 17 of the SARFAESI Act.

Questions before the High Court

Following an extensive examination of the arguments made by the parties, the High Court framed the questions to be decided thus:

• Whether the DRAT, was right in allowing the appeal of the Respondent Bank holding that the DRT had no powers to condone delay in light of the law laid down by the Supreme Court in the case of International Asset Reconstruction Co. Of India Ltd. Vs. Official Liquidator reported in (2017) 16 SCC 137.
• When does the cause of action accrue under Section 13(4) of the SARFAESI Act, 2002 and as to whether is it incumbent upon the borrower to come as soon as the cause of action accrues as the limitation would start running from that date or there is continuous cause of action and it is open for the borrower to come till the stage of the sale of the properties attached.

What the High Court held

On the application of the Limitation Act to the SARFAESI Act and powers of the DRT to condone delays

Justice Vaishnav concurred with the law laid down in this regard in the Gujarat High Court case of Corporation Bank v. Jayshreeben and Ors and the Bombay High Court case of UCO Bank v. M/s Kanji Manji Kothari.

Relying on these case laws, the position of law was summed up by the Court thus,

“… in view with the provisions of Section 17(7) of the SARFAESI Act, 2002, the application under Section 17 has to be disposed of in accordance with the provisions of the RDDB Act, 1993 (Recovery of Debts Due to Banks and Financial Institutions Act, 1993).

The RRDB Act  has Section 24 which provides that the Limitation Act, 1963 shall apply to the applications before the Tribunal. Also Section 36 of the SARFAESI Act provides for the applicability of the Limitation Act, 1963 and therefore there is no express exclusion of the Limitation Act, 1963. The DRT therefore has the power to condone the delay in applications filed before the DRT under Section 17 of the SARFAESI Act.“

Therefore, the High Court concluded that the DRAT ruling, which was only on the premise that the DRT does not have the power to condone delays, was liable to be set aside. As re-emphasised, elsewhere in the judgment,

“... in view of the provisions of Section 17(7) of the SARFAESI Act, the provisions of the RDDB Act can be read into the Act, and since the provisions of the Limitation Act, 1963 apply to the RDDB Act as per Section 24 thereof the provisions of the Limitation Act apply to SARAESI Act, 2002 also.

In addition thereto, drawing recourse to provisions of Sections 36 and 37 of the SARFAESI Act, the Court held that when there is no express exclusion of the Limitation Act,1963 in view of Section 36 and the Application of any other laws is not barred as per Section 37, the DRT was not in error in entertaining an application under Section 17 of the SARFAESI Act.”

On whether taking of possession  under the SARFAESI Act is a continuous cause of action i.e. whether the 45-day limitation under Section 17 would run from the date of the last stage of the process/ issuance sale notice

Appearing for the respondent, Senior Counsel Mihir Thakore had contended that each step taken for the possession of the mortgaged property was a separate measure. In view of the same, the 45-day limitation period under Section 17 of the SARFAESI Act would commence from the date on which the first measure was taken i.e. when symbolic/physical possession was taken under Section 13(4). The Court summed up the view forward on behalf of the creditor thus,

“The language of the Section 13(4) was clear that one or more measures (for taking possession) were available. Every measure was a separate measure. Every action taken must be challenged and in absence of challenge to the first measure of taking symbolic possession, subsequent measures and recourse to the plea of extension of time under the pretext of continuous cause of action cannot hold good to get over the delay prescribed of 45 days. The Tribunal (DRT) was wrong in quashing the sale notice in absence of the challenge to the past notices of possession.”

Applying this proposition, Thakore submitted that the limitation period, in this case, commenced on July 11, 2017 when notice was issued for the symbolic possession of the property. Therefore, Thakore argued, the 45-day limit had been exhausted by the time the petitioners challenged the possession before the DRT in January 2019.

The Court, however, concurred with the view forwarded by petitioners’ counsel, Advocate Aditya Pandya. Pandya submitted that the process of taking over possession and selling secured assets under Section 13(4) of the SARFAESI Act is a continuous process and that the sale is an onward step which results in ultimate culmination of proceedings. Therefore, Pandya argued that the borrower can challenge the action of the Bank within 45 days from the last step of the process i.e. upto culmination of sale.

Inter alia, the Court found that this position had been endorsed by the Supreme Court in the cases of Mardia Chemicals Limited and another v. Union of India and others and (more recently) in Hindon Forge Private Limited and Another v. State Of Uttar Pradesh and Another. In view of the same, Justice Vaishnav opined as follows,

“In my opinion therefore the submission of Mr Pandya that the borrower can challenge the action of the Bank within 45 days from the last step of the process i.e. sale notice which is obviously before the date of auction sale is a proposition that deserves to be accepted...

In light of the decisions of the Supreme Court in the case of Mardia Chemicals (supra) and Hindon Forge (supra) which have held that the cause of action to the borrower accrues from the time the notice under Rule 8(1) and 8(2) is issued and the borrower can approach the Tribunal before the date of auction sale, I agree with the submission of Mr. Pandya that the right accrues till such date and negate the submission of Mr. Mihir Thakore, learned Senior Advocate that each measure is a separate cause of action and once the first measure is not challenged the petitioner cannot subsequently do so. Such submission of Mr. Thakore is not in consonance with the law…”

With these observations, the Court quashed the DRAT order and remanded the matter back to the DRAT to be heard afresh on merits.

[Read Judgment]

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