M/s Ablum Electrical Industries v. Authorised Officer, Cluster Head, J&K Bank, Pulwama

The writ petition involves a seminal question of law as to whether this Court in exercise of the writ jurisdiction under Article 226 of the Constitution of India can intervene in a proceeding challenging an order -2- passed by the Chief Judicial Magistrate under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, (for short SARFAESI Act). Background

An order was passed on 30.05.2023 by the Chief Judicial Magistrate, Budgam under Section 14 of the SARFAESI Act at the instance of the respondent J&K Bank, by which the Sub Divisional Magistrate, Chandoora, was authorised to take possession of the mortgaged properties of the petitioner firm.

The legal contestation embarked upon by the petitioner is primarily based on the ground that mandatory provisions under Section 13(3-A) read with Section 14 of the SARFAESI Act had not been complied with by the respondent Bank at the time of filing the application by the Bank seeking assistance of the Bank under Section 14 of the Act, on the basis of which the Chief Judicial Magistrate (CJM) passed the impugned orderunder Section 14. It has been submitted that the order passed by the CJM suffers the fatal defect of non-compliance with the mandatory statutoryprovision of the Act and as such, theorder of the CJM cannot be sustained in law, deserving interference from this Court.

Considering that the issue raised is primarily legal in nature, it may not be necessary to refer in detail to the background facts, except for the bare minimum as may be relevant. It would perhaps suffice for our purpose to mention that the petitioner firm had obtained a cash credit facility with the limit of ₹6.00 crores from the respondent Bankfor running its business at Lassipora in connection with which an amount of ₹59,821,376.66 became outstanding against the petitioner as on 13.12.2022. The said loan amount was secured by the petitioner by mortgaginglands, possession for which by the Respondent Bank, the CJM passed the aforesaid impugned order under Section 14 of the SARFAESI Act at the instance -3- of the respondent Bank, on failure of the petitioner to discharge the liability. Contentions of the petitioner:

The main contention of the petitioner before us is that the respondent Bank could not have approached the CJM seeking an order for possession under Section 14 of the SARFAESI Act without following the mandatory requirements stipulated under Section 13(3-A) and Section 14 of the SARFAESI Act. 6. It is the case of the petitioner that in the present case, while the respondent Bank submitted an application before the CJM, Budgam, the said application was not accompanied by an affidavit containing the correct facts and information as required under sub-section (1) of Section 14 of the Act, rather, the affidavit contained false information.

It has been submitted on behalf of the petitioner that in the said affidavit it was required to be mentioned that the borrower had committed default in payment of the financial assistance because of which the account of the borrower has been classified as a non- performing asset. [vide clause (v) of the first proviso to Section 14]

It was also required to be mentioned in the affidavit that a period of 60 days‟ noticeas required under sub-section (2)of Section 13 of the Act, demanding payment of the defaulted financial assistance was served on the borrower. [vide clause (vi) of the first proviso to Section 14]. Further, the affidavit was required to contain the information that the objection or representation in reply to the notice received from the borrower was considered by the secured creditor and the decision was taken rejecting the objection/representation, and reasons for non- acceptance of such objection/representation had been communicated to the borrower [vide clause (vii) of the first proviso to Section 14]

It is the specific contention of the petitioner that unfortunately, in the affidavit accompanying the application filed by the respondent Bank before the CJM, Budgam, the information about the aforesaid -4- mandatory exercise as required under Section 13(3-A) was undertaken, was not furnished. Rather, wrong information was furnished, on the basis of which the CJM passed order under Section 14 of the Act which would vitiate the order passed by the CJM, rendering the said order illegal and liable to be set aside by the Court.

The petitioner contends that the petitioner received a notice dated

27.12.2022 from the bank demanding payment of the loan amount and the petitioner submitted his representation in reply to the said notice, which was sent by registered post to the respondent bank on 23.2.2023. The petitioner has sought to prove the furnishing of reply by annexing the postal receipts. In the said reply, a copy of which is also annexed to the petition, the petitionerprotested the action of the Bank to declare the account of the petitioner a non-performing asset which according to the petitioner was in violation of the RBI guidelines and norms and other financial guidelines issued by the Government of India from time to time. Accordingly, the petitioner requested the Bank to withdraw the said demand notice by assuring the Bank that the said loan amount will be repaid in instalments.

As per the petitioner, unfortunately, the Bank did not consider the said representation nor intimated the petitioner of their decision on the reply/representation, which was required to be done as provided under Section 13(3-A) of the Act, which is a mandatory requirement, and proceeded to invoke Section 14 of the Act, to seek the assistance of the CJM, Budgam for taking possession of the secured assets/mortgaged

properties of the petitioner firm.

In this regard, Ld. counsel for the petitioner has drawn attention of this Court to paras no. 6 to 8 of the affidavit filed by the Bank respondent before the CJM, Budgam in which it was stated as follows. “7. That the applicant/bank has issued demand notices u/s 13(2) of the SARFAESI Act 2002 dated 27-12-2022 vide Ref. No. JKB/IAPMD/KS1(PUL)/22…95-95E and has been sent to the -5- non-applicant by registered post AD wherein the non-applicant was advised to pay the bank all the amount outstanding against him in the books of accounts of the bank within its branch at Lassipora Pulwama together with interest thereon, and other charges and the costs incurred by the bank from time to time and thereby demand was made for discharging all the liabilities in full to the bank within a period of 60 days from the date of notice failing which the bank shall at their costs and risk exercise powers under the Act and take the measures to recover its secured assets. Copy of the said notice is enclosed herewith as Annexure A3.

8. That the non-applicant has failed to replythe notice and all have also not made any representation. And, the non-applicant has failed to discharge the liabilities with the stipulated note period of 60 days.

9. That the applicant bank went to takeover the possession of the collaterally mortgaged properties belonging to the non-applicant, however, the non-applicant along with his family members, resisted on spot and did not allow the bank to take over possession of the mortgaged properties, as such the instant application.

10. That the non-applicant despite the service of notice U/s 13(2) of the Act dated 27.012.2022, ignored the requests made by the applicant bank to liquidate the balance outstanding, and not allowing the applicant Bank to take over the possession of the mortgaged properties, thereby, giving cause of action to the applicant bank to file the instant application u/s 14 of the Act, to take assistance of this Hon‟ble Court in taking possession of the above mentioned secured assets/mortgaged property situated within the territorial jurisdiction of this Hon‟ble Court, in accordance with the provisions of Section 13 (4) and Section 14 of the said Act read with Rule 8 of the Security Interest (Enforcement Rules) 2002.”

According to the Ld. learned counsel for the petitioner, it will be clearly seen from the above that the Bank respondent did not furnish the correct information in the affidavit filed along with the application under Section 14 (1) of the Act, on the basis of which, the CJM, Budgam, passed the impugned order under Section 14 of the SARFAESI Act. It has been submitted that since the order of the CJM was based on wrong and incorrect information furnished by the Bank -6- respondent, the said order passed by the CJM is vitiated and cannot be sustained in law.

The petition, however, has been stoutly resisted by the respondent Bank contending, inter alia, that first of all, it is not correct to say that the Bank had furnished wrong information in the affidavit filed along with the application before the CJM.

It has been submitted that the Bank never received any reply from the petitioner borrower to the notice issued by the Bank under Section 13 (2) of the Act. Ld. Senior Counsel for the respondent Bank also doubted the genuineness of the copy of the letter/reply annexed to the petition stated to be furnished by the petitioner to the Bankandthe genuineness of the postal receipts.

Further, it has been submitted that assuming but not admitting that the said response was furnished by the petitioner, and that there was certain defect in the affidavit, this issue cannot be examined by this Court in exercise of the writ jurisdiction under Article 226 of the Constitution. On the other hand, if the petitioner has any grievance, he can approach the appellate forum before the Debt Recovery Tribunal available under Section 17 of the SARFAESI Act. 17. The petitioner, however, has reiterated thatsub-section 3 of Section 14 specifically bars the jurisdiction of any court or authority by providing that no act of the Magistratedone in pursuance of this section shall be called in question in any court or before any authority. Thus, in view of the aforesaid provision, the petitioner has no other option but to approach this Court invoking Article 226 of the Constitution.

The petitioner contends that since the infraction by the Bank respondent is by way of violation of a mandatory provision under sub- section 3-A of Section 13, and proviso to Section 14(1) of the Act, this Court has the jurisdiction to entertain and consider this grievance involving violation of the statute. -7- Ld. Counsel for the petitioner has referred to Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd., (2014) 6 SCC 1, in support of his contention that the door of the Constitutional court cannot be shut out merely because the statute provides that the act of the CMM/DM shall not be called in question before any court or authority.

Ld. Counsel for the petitioner submits that the door of the High Court cannot be foreclosed more so when mandatory provision of the statute hasbeen violated. It has been submittedthat in the present case, the respondent Bank has violatedthe mandatory provision of the Act, namely, sub-section (3-A) of Section 13 the Act which requires the Bank to consider any representation submitted by the borrower and decide on it, and communicate the decision to the borrowerbefore it seeks to secure the mortgaged property by itself or by seeking the help of the CJM under Section 14 of the Act. 20. Ld. Counsel for the petitioner, explaining the background for incorporating sub-section (3-A) to Section 13 contended that it is a mandatory provision, violation of whichwill vitiate any proceeding for taking possession of the secured assets and hence can be interfered by the competent court, in support of which he has placed reliance on the decision in Standard Chartered Bank v. V. Noble Kumar, (2013) 9 SCC 620.

The Ld. Counsel for the petitioner submits thatconsidering the stringent provisions of the SARFAESI Act, in order to provide certain cushion to the borrowers, to explain their inability to pay and also to enable the borrower to approach the creditor to get certain relief or concession from the creditor, it has been now made mandatory for the secured creditor to consider any representation or response made by the borrower to the demand notice issued by the creditor, before the creditor proceeds to initiate the process of possession of the secured assets. -8-

Ld. Counsel for the petitioner submits that after the decision in ITC Ltd. v. Blue Coast Hotels Ltd., (2018) 15 SCC 99 no room has been left for doubting that the provision ofsub-section (3-A)to Section 13 is mandatory in nature.

It has been submitted by the Ld. Counsel for the petitioner that in the present case, since the respondent Bank did not consider the reply and response submitted by the petitioner to the demand notice dated

27.12.2022 served by the respondent Bank on the petitioner under Section 13(2) of the Act, and as the Bank did not communicate their decision to the petitioner, there was a serious infraction of the mandatory provision of Section 13 (3-A) of the Act. 24. The Ld. Counsel for the petitioner further relying on the decision in CIT v. Chhabil Dass Agarwal, (2014) 1 SCC 603, which was reiterated in State Bank of Travancore v. Mathew K.C., (2018) 3 SCC 85, submits that even if there is alternative remedy available under the SARFAESI Act, since the respondent Bank had violated the statutory provisions, the petitioner can invoke the writ jurisdiction of this Court under Article 226 of the Constitution. 25. Ld. Counsel for the petitioner has also placed reliance on the decisions of this Court rendered on 16.09.2022 in WP (C) No. 2018 of 2022, titled, “M/s New Kashmir Fruit Centre vs. Authorised Officer, Impaired Assets Portfolio &Ors”, and on 09.05.2022 passed in CM (M) No. 30 of 2020, CM No. 1262 of 2020, titled, “Jabeena Afroz &ors. Vs. Authorised Officer, Impaired Assets, Portfolio Management Department &Ors., wherein it has been held that if the affidavit filed by the secured creditor does not contain the correct information about the reply furnished by the borrower to the notice issued by the creditor as required under Section 13(3-A) of the Act, the order passed by the CJM under Section 14 would be vitiated, as non-consideration of the reply by the creditor would defeat the purpose of the mandate of law under Section 13(3-A). In holding so, this Court placed reliance on the -9- decision in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC

Contentions of the Respondent J&K Bank

In response, Mr. Z. A. Shah, learned Senior Counsel for the respondent Bank has submitted that the order of the Chief Judicial Magistrate cannot be challenged before this Court inasmuch as no judicial review will lie against such an order passed by the learned Chief Judicial Magistrate under Section 14 of the Act, for the simple reason that the order passed by the Chief Judicial Magistrate is not a judicial or quasi-judicial order, but purely a ministerial order which is not amenable to the writ jurisdiction.

It has been submitted that the nature of the order passed by the Chief Judicial Magistrate can be ascertained from the statute itself. The second proviso to Section 14(1) of the Act provides that on receipt of the affidavit from the Authorised Officer of the secured creditor, the Chief Judicial Magistrate shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets.

It has been submitted that the satisfaction to be arrived at by the Magistrate is not judicial satisfaction but merely to verify whether the affidavit contains the contents as mentioned in the second proviso to Section 14(1) of the Act, i.e., the nine-fold information required to be mentioned in the affidavit as provided under the said Section. The Magistrate is not required to satisfy itself of the correctness or otherwise of the contents of the affidavit but merely to make a verification that such affidavit contains the information required to be provided as mentioned in Section 14.

It has been submitted that the role of the Magistrate is, accordingly, merely ministerial, and not exercising any judicial jurisdiction vested in it as has been held by the Hon‟ble Supreme Court in Bala Krishna Rama Tarle v. Phoenix ARC Pvt. Ltd. And others -10- :(2023) 1 SCC 662by referring to the earlier decision in R. D. Jain and Company v. Capital First Limited and others : (2023) 1 SCC 675.

It has been submitted that, the legal position obtaining presently is that, while exercising the power under Section 14 of the Act, the CJM is not to adjudicate, which has been reiterated in the decision in Kotak Mahindra Bank Limited v. Girnar Corrugators Private Limited &Ors : (2023) 3 SCC 210.

It has been submitted by learned senior counsel for the respondent Bank that the Act provides for an efficacious alternate remedy inbuilt in the Statute under Section 17 of the Act, under which the Debts Recovery Tribunal which is the competent forum, whereany person aggrieved of any act relating to the provisions of the Act can approach and the said Tribunal is competent to restore possession status-quo ante, as observed in Authorised Officer, Indian Overseas Bank &anr. v. Ashok Saw Mill : (2009) 8 SCC 366.

It has been further submitted by the learned senior counsel for the respondent Bank that the legal position that any person aggrieved by any action taken under Section 13 of the SARFAESI Act can approach the Debts Recovery Tribunal under Section 17 of the Act has been reiterated in Jagdish Singh v. Heeralal and others : (2014) 1 SCC 479.

The Hon‟ble Supreme Court in the said case Jagdish Singh (supra) observed that the expression “any person” used in Section 17 is of wide import and takes within its fold not only the borrower but also the guarantor or any other person who may be affected by action taken under Section 13(4) of the Securitisation Act. 34. Accordingly, it has been submitted by the learned senior counsel for the respondent Bank that the redressal forum available under Section 17 is of wide import which can pass effective orders before whom any person aggrieved by an act of the creditor taken under Section 13(4) of the Act can approach clarified by the Hon‟ble Supreme Court in ARCE Polymers Pvt. Limited v. Alphine Pharmaceuticals Pvt. Ltd. and Ors. : (2022) 2 SCC 221. -11-

It has been further submitted by the learned senior counsel for the respondent Bank that it is only when the aggrieved party is prejudiced substantially that he can be said to be aggrieved, and not by raising trivial objections. Thus, unless the grievance is of such a nature which would cause substantial prejudice and is not of a trifling nature, the action taken by the secured creditor cannot be interfered as held in L&T Housing Finance Limited v. Trishul Developers and anr. : (2020) 10 SCC 659.

It has been submitted by the learned senior counsel for the respondent Bank that in the present case it has not been shown how the petitioner is gravely prejudiced by the action taken by the respondent Bank and the CJM in passing the impugned order. 37. Further, it has been submitted that Section 14 of the Act is merely in aid of the action which can be taken by a secured creditor under Section 13(4) of the Act and, as such, though the jurisdiction andprocedure adopted by the CJM under Section 14 is separate, yet it isessentially part of the action taken by the secured creditor under Section 13 of the Act. It has been submitted that Section 13 of the SARFAESI Act enables a secured creditor to secure possession of the secured assets on the failure of the creditor to repay the same under the conditions mentioned in Section 13 of the Act. Section 14 can be invoked when the secured creditor is of the view that it will be more convenient to take the help of the CJM, rather than to take possession of the secured asset himself. Therefore, unless the borrower is able to show substantial prejudice caused to him, the action initiated by the secured creditor cannot be interfered with. Issues involved

Having heard learned counsel for the parties, and on perusal of the materials on record, it can be said that the issue which has arisen for consideration before this Court is about the scope of this Court to interfere with the order passed by the CJM in exercise of the power and -12- jurisdiction under Article 226 of the Constitution, with the attending issue as to whether there is efficacious alternate remedy available under the statute against an order passed by the Magistrate under Section 14 of the SARFAESI Act. Consideration by this Court

In order to decide the issue, we need to understand in proper perspective the nature of exercise to be undertaken by the secured creditor, and the nature of consideration of such act of the secured creditor by the CJM, before the CJM passes the order under Section 14of the SARFAESI Act. 40. Section 14 of the SARFAESI Act enables a secured creditor to seek the help of the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction such secured assets may be situated for the purpose of taking possession or control of any secured assets by making an application before the Magistrate accompanied by an affidavit containing relevant information regarding the loan taken by the borrower with the details of the secured properties etc., including the information about any notice given by the creditor under Section 13(2) of the Act demanding payment of the amount due and, any objection or representation in reply to the notice received from the borrower and as to whether any such representation has been considered by the secured creditors and reasons for non-acceptance by the secured creditor of such objection or representation submitted by the borrower, as provided in Section 13(3-A). In the UT of Jammu and Kashmir, it is the CJM which is the competent Magistrate to exercise the power under Section 14 of the Act. 41. When any such application is submitted before the CJM, as provided under the aforesaid section, the Chief Judicial Magistrate shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets. -13-

A finality has been attached to the order passed by the CJM under Section 14 of the Act as regards taking possession of the secured assets under sub-section 3 of Section 14 of the Act by providing that no act of the Chief Metropolitan Magistrate or District Magistrate or any officer authorised by them done in pursuance of this section shall be called in question in any court or before any authority.

When we analyse the provisions of Section 14 of the SARFAESI Act, under which the CJM passes the order, we can see that it has a close nexus and is intrinsically connected with Section 13 of the Act. Relevant provisions of Section 13 for the purpose of our consideration in this proceeding read as follows: security Enforcement interest.—(1) “13. Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (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).

It may be noted that there are three modes of enforcing the security interests as explained in Standard Chartered Bank v. V. Noble Kumar, (2013) 9 SCC 620. These are as follows: “36. Thus, there will be three methods for the secured creditor to take possession of the secured assets:

36.1. (i) The first method would be where the secured creditor gives the requisite notice under Rule 8(1) and where he does not meet with any resistance. In that case, the authorised officer will proceed to take steps as stipulated under Rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor.

36.2. (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under Rule 8(1) is given. In that case he will take recourse to the mechanism provided under Section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinise the application as provided in Section 14, and then if satisfied, appoint an officer subordinate to him as provided under Section 14(1-A) to take possession of the assets and documents. For that purpose the Magistrate may authorise the officer concerned to use such force as may be necessary. After the possession is taken the assets and documents will be forwarded to the secured creditor.

36.3. (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under Section 14 of the Act. The Magistrate will thereafter scrutinise the application as provided in Section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forward them to the secured creditor as under clause 36.2.(ii) above.

Thus, if the secured creditor rather than enforcing the security interest himself, seeks to take the help of the District Magistrate or the -16- Chief Metropolitan Magistrate, the secured creditor may make an application before the Magistrate accompanied by an affidavit containing the details of the exercise undertaken already by the secured creditor as provided under Section 13 of the Act, which has been clearly enumerated again in the first proviso to sub-section (1) of Section14, by invoking Section 14 of the Act. Relevant portions of the Section 14 for our purpose read as follows: “14. Chief Metropolitan Magistrate or District taking to assist secured creditor Magistrate possession of secured asset.—(1) Where the possession of any secured assets 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 assets, 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: 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; -17- (v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non-performing 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 representation had been of such objection or 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 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.

From the above, it is very clear that Section 14 can be invoked by the Magistrate only when an application is made by the secured creditor seeking the assistance of the Magistrate for possession of any secured asset. As to when a secured creditor himself can take possession of a secured asset, it is dealt under Section 13 of the SAFAESI Act. However, if the creditor does not wish to take possession of the secured assets himself, and seeks the assistance of the Magistrate, the creditor can make an application under Section 14 of the SARFAESI Act. But what are required to be done by the creditor before he decides to take possession of the secured assetsby invoking Section 14 of the Act, are mentioned under the first provisoto sub-section (1) of Section 14 of the Act, by enumerating those requirements under sub-clauses (i) to (ix) to the said proviso.

Thus, from a conjoint reading of the provisions of Sections 13 and 14 of the Act, it is clearly ascertainable that Section 13 enables a secured creditor to take possession of a secured asset from the borrower on certain circumstances as mentioned under Section 13 of the Act which acts are also required to be fulfilled even if he seeks to invoke Section 14 of the Act seeking the help of the CJM to take possession. These conditions or exercises to be undertaken by the secured creditor mentioned under Section 13 of the Act which are also required to be fulfilled before invoking Section 14, as relevant to us, are as follows: (i) Security interest on the asset of the borrower must be created in favour of the secured creditor by the borrower in respect of the credit facilities obtained by borrower [vide Section13(1)]. (ii) There must be a liability by a borrower to a secured creditor under a security arrangement [vide Section13(2)]. -19- (iii) The secured creditor must have made a demand from the borrower by a notice in writing to discharge in full his liabilities within 60 days from the date of notice, failing which the secured creditor shall be entitled to exercise any of the rights mentioned in sub-section 4 of Section 13 of the Act which include [vide Section13(4)]: (a) Taking possession of the secured assets of the borrower; (b) Take over the management of the business of the borrower; (c) Appointing any person to secure the secured assets possession of which has been taken over by the secured creditor; (d) To require by notice in writing any person who has acquired any of the secured assets from the borrower to pay the secured creditor so much of the money as is sufficient to pay the secured debt.

We may not burden ourselves with the remaining provisions of Section 13 of the Act as the same are not relevant for our consideration in this writ petition.

Thus, what Section 13 of the Act empowers and enables is that the secured creditor canby itself without the intervention of the court or the tribunal take possession or take over management as provided under sub-section 4 of Section 13. However, if the secured creditor decides to seek the assistance of the CJMto effectuate the said power to take possession of the secured asset, the creditor must invoke Section 14 of -20- the Act. In that event, the secured creditor has to submit an application containing certain information as mentioned under Section 14 of the Act. The information which are required to be given in the affidavit are specifically enumerated under sub-clauses (i) to (ix) to the proviso to sub-section(1) of Section 14 as mentioned above, and the information are reiteration of the various steps required to be taken by the creditor as mentioned in Section 13 of the Act. 50. When the CJM is satisfied about the contents of the affidavit reflecting the aforesaid acts, the CJM can pass appropriate orders for the purpose of taking possession of the secured assets.

Thus, the power exercised by the CJM under Section 14 is merely an enabling power to assist the secured creditor to take possession of the secured assets which the secured creditor can do himself under Section 13 of the Act. The only difference between Section 13 and 14 is that, Section 14 provides a prop to the secured creditor by providing support and assistance of the CJM to the creditor totake possession of the secured assets which the creditor is otherwise entitled to do on his own under Section 13 of the Act. But before seeking the help of the Magistrate, all the conditions precedent for invoking Section 13 of the Act must be complied with, without which, the secured creditor cannot approach the Magistrate under section 14 of the Act. Thus, what one can say is that the acts contemplated under Section 14 of the Act, is continuation of the process and the power of the secured creditor to take possession of the secured asset under Section 13 of the Act. The difference is that while under Section 13 the creditor himself can take possession of the secured assets without the intervention of the court or tribunal, under Section 14, he can do the same with the help of the Magistrate.

As mentioned above, under Section 13(4) of the Act, the creditor is empowered to, i) take possession of the secured assets of the borrower, ii) take over management of the assets of the borrower, -21- iii) appoint any person to manage the secured assets of the borrower, iv) require at any time by notice in writing, any person who has acquired any of the secured assets to pay to the secured creditor.

But under Section 14 of the Act, the secured creditor can seek the help of the CJM only for taking possession of the secured assets of the borrower and for sale or transfer, and not for any other purpose mentioned in sub-section (4) of Section 13.

That takes us to examine whether such conditions as stipulated under Sections 13 and 14 have been fulfilled by the creditor in the present case when he approached the CJM seeking help under Section 14 of the Act. 55. That the Borrower petitioner has not denied that he had obtained credit facilities from the respondent Bank.

That the Borrower petitioner had mortgaged certain immovable properties as securities in favour of the Bank for the credit facilities provided by the Bank to the petitioner has not been disputed.

That the petitioner owes certain liabilities to the respondent Bank is also not denied.

That the Borrower petitioner had received a demand notice dated

27.12.2022 from the Bank has not been denied.

What is, however, disputed is that the Borrower petitioner claimed that the respondent Bank had not considered the reply stated to have been submitted by the petitioner on 23.02.2023 and it has been also claimed that Bank did not intimate the petitioner, the Bank‟s decision as required under sub-section (3-A) of Section 13, and as such, non- mentioning of these facts in the affidavit filed along with the application under Section 14 of the Act will render the affidavit ineffectual, as provisions of Section 13(3-A) is mandatory. -22-

That there cannot be any doubt that the provisions of sub-section (3-A) of Section 13 are mandatory as held in ITC Ltd. v. Blue Coast Hotels Ltd. (supra), wherein it was observed that, “26. We find the language of sub-section (3-A) to be clearly impulsive. It states that the secured creditor “shall consider such representation or objection and further, if such representation or objection is not acceptable or tenable, he shall communicate the reasons for non-acceptance” thereof. We see no reason to marginalise or dilute the impact of the use of the imperative “shall” by reading it as “may”. The word “shall” invariably raises a presumption that the particular provision is imperative24.

27. There is nothing in the legislative scheme of Section 13(3- A) which requires the Court to consider whether or not, the word “shall” is to be treated as directory in the provision. As the section stood originally, there was no provision for the abovementioned requirement of a debtor to make a representation or raise any objection to the notice issued by the creditor under Section 13(2). As it was introduced via sub- section (3-A), it could not be the intention of Parliament for the provision to be futile and for the discretion to ignore the objection/representation and proceed to take measures, be left with the creditor. There is a clear intendment to provide for a locus poenitentiae which requires an active consideration by the creditor and a reasoned order as to why the debtor‟s representation has not been accepted.

28. Moreover, this provision provides for communication of the reasons for not accepting the representation/objection and the requirement to furnish reasons for the same. A provision which requires reasons to be furnished must be considered as mandatory. Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully. We are not prepared in such circumstances to interpret the silence of Parliament in not providing for any consequence for non- compliance with a duty to furnish reasons. The provision must nonetheless “mandatory”…………………………………...” treated 24: State of U.P. v. Manbodhan Lal Shrivastava, AIR 1957 SC 912, p.917 -23-

Under the circumstances, it has been forcefully contended on behalf of the petitioner that an order passed by the CJM under Section 14 on the basis of such fatally defective affidavit can be challenged before the High Court under Article 226 of the Constitution.

The respondent Bank of course, has denied receiving any such reply from the petitioner Borrower and, adopted the stand that accordingly, consideration of any such reply or communicating the decision of the bank on such reply did not arise. The Bank respondent has accordingly, raised a dispute about receiving any reply from the petitioner, and accordingly, has submitted that since the present proceeding involves a disputed question of fact, the writ court ought not venture into examining issues involving disputed question of fact.

Without entering into this disputed question of fact as to whether the petitioner Borrower had indeed submitted any reply to the demand notice issued by the Bank on 23.02.2023, and assuming that the Bank did receive the reply but did not consider the reply furnished by the petitioner Borrower, and the Bank did not inform the petitioner of the reasons for not accepting the reply which amounts to violation of the mandatory provisions of sub-section (3-A) of Section 13 of the Act, can this Court in exercise of Article 226 intervene to interfere with the order passed by the CJMunder Section 14 of the Act ? 64. Further, if Article 226 of the Constitution cannot be invoked as contended by the respondent Bank, is there efficacious alternative remedy available under the SARFAESI Act? These are the moot points to be considered. 65. As we proceed to examine these issues, we may examine the decisions cited by both the contesting parties in support of their cases. However, before we do so, we may examine the provisions under the SARFAESI Act which deal with applications and appeals by aggrieved persons, which we find under Sections 17 and 18 of the SARFAESI Act. 66. Section 17 of the Act deals with application against measures to recover secured debtsbefore the Debt Recovery Tribunal and Section 18 -24- deals with appeal to the Appellate Tribunal against an order passed by the Debts Recovery Tribunal under Section 17.

Relevant portions of Section 17 of SARFAESI Act read as follows:

Application against measures to recover secured debts.—(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.

Relevant portions of Section 18read as follows:

18. Appeal to Appellate Tribunal.—(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under Section 17, may prefer an appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal: Provided that different fees ……….. Provided further that no appeal shall be entertained unless the borrower has depositedfifty per cent……………………… Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce ……………………………………………… Act,…….. otherwise provided Save (2) ………………………………………………………………… ………………………….

Case laws relied on by the petitioner

69.1. Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd., (2014) 6 SCC 1. (i) In the aforesaid case, the Hon‟ble Supreme Court was considering the claim of the tenants of the premises which were mortgaged to different banks as securities for loans advanced by the Banks. The secured creditors invoked Section 14 of the SARFAESI Act by making an application to the Chief Metropolitan Magistrate for taking over the possession of the premises and handing over the same to the secured creditor. Considering the threat looming of dispossession of the tenants, the tenants moved the Bombay Court for intervention, which held that the remedy lies before the Debts Recovery Tribunal, which was challenged before the Hon‟ble Supreme Court. -26- In that context, the scope of provisions of Sections 13 and 14 came to be considered by the Hon‟ble Supreme Court which observed that the decision of the Chief Metropolitan Magistrate or the District Magistrate can be challenged before the High Court under Articles 226 and 227 of the Constitution by any aggrieved party.

(ii) The Hon‟ble Supreme Court considering the finality attached to the order passed by the Chief Metropolitan Magistrate under sub- section (3) of Section 14 was of the view that merely because statutory provisions provide for attaching finality to the decision of an authority excluding the power of any other authority or court to examine such a decision will not bar the High Court or the Supreme Court to exercise jurisdiction vested by the Constitution as because the statutory provision cannot take away a power vested by the Constitution and, accordingly, it was held that the decision of the Chief Metropolitan Magistrate or the District Magistrate can be challenged under Articles 226 and 227 of the Constitution by any aggrieved party. (iii) It was, thus, observed as follows: “29. Sub-section (3) of Section 14 of the SARFAESI Act provides that no act of the Chief Metropolitan Magistrate or the District Magistrate or any officer authorised by the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of Section 14 shall be called in question in any court or before any authority.

The SARFAESI Act, therefore, attaches finality to the decision of the Chief Metropolitan Magistrate or the District Magistrate and this decision cannot be challenged before any court or any authority. But this Court has repeatedly held that statutory provisions attaching finality to the decision of an authority excluding the power of any other authority or court to examine such a decision will not be a bar for the High Court or this Court to exercise jurisdiction vested by the Constitution because a statutory provision cannot take away a power vested Constitution……………………………………… ………………………….…………………………………….. In our view, the Chief Metropolitan Magistrate or the District Magistrate can be challenged before the High Court under Articles 226 and 227 of the decision of therefore, -27- the Constitution by any aggrieved party and if such a challenge is made, the High Court can examine the decision of the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, in accordance with the settled principles of law.” (iv) The Hon‟ble Supreme Court proceeded further to examine as to whether any such lessee has any remedy by way of an appeal under Section 17 of the SARFAESI Act when the secured creditor attempts to take over possession of the secured asset which is in possession of the lessee.

The Hon‟ble Supreme Court held that since the Debts Recovery Tribunal has power to restore possession of the secured asset to the borrower only, and not to any other person such as a lessee, even if the Debts Recovery Tribunal 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 the Act, it cannot restore possession of the secured asset to the lessee. It was thus observed by the Hon‟ble Supreme Court that there is no remedy available under Section 17 of the Act to the lessee to protect his possession under a valid lease. (v) Thus, from the above, what we are able to understand is that if a lessee who is not privy to the contract between the borrower and the creditor seeks to enforce any claim as a lessee in respect of the secured asset in a proceeding under Section 14 of the Act, he cannot invoke Section 17, but he can invoke the writ jurisdiction under Articles 226 and 227 of the Constitution of India.

The Hon‟ble Supreme Court in taking such a view appears to have kept in mind the fact that the Debts Recovery Tribunal under sub- section (3) of Section 17 has the power to restore possession of the secured asset to the borrower, but not the power to restore possession to the lessee as observed in paragraph 32 as follows:

32……..Where, therefore, the Debts Recovery Tribunal considers the application of the lessee and comes to the conclusion that the lease in favour of the lessee was made -28- prior to the creation of mortgage or the lease though made after the creation of mortgage is in accordance with the requirements of Section 65A of the Transfer of Property Act and the lease was valid and binding on the mortgagee and the lease is yet to be determined, the Debts Recovery Tribunal will not have the power to restore possession of the secured asset to the lessee. In our considered opinion, therefore, there is no remedy available under Section 17 of the SARFAESI Act to the lessee to protect his lawful possession under a valid lease.

(vi) Even though it was held by the Hon‟ble Supreme Court in the aforesaid case thatthe decision of the Chief Metropolitan Magistrate or the District Magistrate under Section 14 can be challenged before the High Court, yet it may be noted that the said observation was made in the context ofa challenge made by a lessee against the secured creditor on the ground that, even if the lessee is successful in challenging the order of delivery of possession to a borrower, such delivery cannot be made to a lessee.

(v) Therefore, we are doubtful, whether the aforesaid observation which was made in respect of a challenge made by tenant against a secured creditor in respect of proceeding under Section 14 of the Act will be also applicable in respect of a borrower who wishes to challenge such proceeding before the High Court under Article 226 of the Constitution.

69.2. Standard Chartered Bank v. V. Noble Kumar, (2013) 9 SCC 620. (i) In this case, the Hon‟ble Supreme Court held that it is not necessary that the secured creditor, before invoking the authority of the Magistrateunder the Section 14 must necessarilytryto take possession of the secured asset under section 13(4)of the SARFAESI Act (ii) The Hon‟ble Supreme Court also while considering the scope of Section 17 of the Actheld that it provides an appellate forumagainst the measures taken by the creditor under Section 13(4)of the Act, but no appeal is available against an action taken by the Magistrate under Section 14 of the Act. -29- (ii) The Hon‟ble Supreme Court held that the“appeal” under Section 17 is available to the borrower against any measure taken under Section 13(4). Taking possession of the secured asset is only one of the measures that can be taken by the secured creditor. Depending upon the nature of the secured asset and the terms and conditions of the security agreement measures other than taking possession of the secured assets are possible under Section 13 (4) alienating the asset either by lease or sale etc. and appointing a person to manage the secured asset are some of those possible measures. On the other hand, Section 14 authorises the Magistrate only to take possession of the property and forward the asset along with the connected documents to the secured creditor. Therefore, the borrower is always entitled to prefer an appeal under Section 17 after the possession of the secured asset is handed over to the secured creditor. The Supreme Court accordingly, was at the view that by whatever manner the secured creditor obtains possession either through the process contemplated under Section 14 or without resorting to such a process, obtaining of possession of a secured asset is always a measure against which a remedy under section 17 is available. (iii) In the said case it was also held that the provision of sub- section (3-A) of Section 13 is mandatory in nature. (iv) The view of the Hon‟ble Supreme Court appears to be that since Section 14 pertains to giving possession, and since an appeal under Section 17 is available to the borrower after losingpossession of the secured asset under Section 13, an order under section 14 is appealable under Section 17.

37.……………………………………. As held by a Bench of three Judges in Mardia Chemicals12, it would be open to the borrower to file an appeal under Section 17 any time after the measures are taken under Section 13(4) and before the date of sale/auction of the property. The same would apply if the secured creditor resorts to Section 14 and takes possession of the property with the help of the officer appointed by the Magistrate. -30-

38. ..………………………………….

39. …………………………………….

In view of our conclusion on the scope of Section 17 recorded earlier it would normally have been open to the respondent to prefer an appeal under Section 17 raising objections regarding legality of the decision of the Magistrate to deprive the respondent of the possession of the secured asset……………………………………………” 12:Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311. (v) At the same time it was held that while it would be open to the borrower to file an appeal under Section 17 any time after the measures are taken under Section 13(4) and before the date of sale/auction of the property and the same would apply if the secured creditor resorts to Section 14 and takes possession of the property with the help of the officer appointed by the Magistrate. Thus, the Hon‟ble Supreme Court was of the view that a borrower aggrieved by the process initiated by the secured creditor under Section 14 of the Act file an appeal under Section 17 of the Act.

69.3 ITC Ltd. v. Blue Coast Hotels Ltd., (2018) 15 SCC 99. (i) In Blue Coast Hotels Ltd. (supra), the sale of a five star luxury hotel property purchased by the purchaser after a public auction, was set aside by an order of the Bombay High Court, in an appeal preferred by the borrower. The borrower by filing an appeal under Section 17 of the SARFAESI Act had successfully challenged before the Debts Recovery Tribunal that the auction held by the secured creditor without considering the proposal sent by the borrower for extension of time for payment of outstanding dues amounted to violation of the Section 13(3- A) of the Act. (ii) In the aforesaid case, the Hon‟ble Supreme Court reiterated the position that provision of Section 13(3-A) is mandatory in nature and held that, -31- “26. We find the language of sub-section (3-A) to be clearly impulsive. It states that the secured creditor “shall consider such representation or objection and further, if such representation or objection is not acceptable or tenable, he shall communicate the reasons for non- acceptance” thereof.

We see no reason to marginalise or dilute the impact of the use of the imperative “shall” by reading it as “may”. The word “shall” invariably raises a presumption that the particular provision is imperative24. 27.……………………………. There is a clear intendment to provide for a locus poenitentiae which requires an active consideration by the creditor and a reasoned order as to why the debtor‟s representation has not been accepted. 28. Moreover, this provision provides for communication of the reasons for not accepting the representation/objection and the requirement to furnish reasons for the same. A provision which requires reasons to be furnished must be considered as mandatory. Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully. We are not prepared in such circumstances to interpret the silence of Parliament in not providing for any consequence for non-compliance with a duty to furnish reasons.

The provision must nonetheless be treated as “mandatory”……………………………………...” 24: State of U.P. v. Manbodhan Lal Shrivastava, AIR 1957 SC 912, p.917 (iii) The Hon‟ble Supreme Court, however, considering the facts and circumstances obtaining therein, held that the debtor is not entitled to discretionary relief under Articles 226 and 136 of the Constitution by observing as follows. In the aforesaid case, it was held that, “52. We have anxiously considered the entire matter and find that the undisputed facts of the case are that a loan was taken by the debtor which was not paid, the debtor did not respond to a notice of demand and made a representation which was not replied to in writing by the creditor. The creditor, however, considered the proposals for repayment of the loan as contained in the representation in the course of negotiations which continued for a considerable amount of time. Several opportunities were in fact availed of by the debtor for the -32- repayment of the loan after the proceedings were initiated by the secured creditor. The debtor failed to discharge its liabilities and eventually undertook that if the debtor fails to discharge the debt, take/realise the secured assets. the creditor would be entitled

53. As held, we are of the view that non-compliance with sub- section (3-A) of Section 13 cannot be of any avail to the debtor whose conduct has been merely to seek time and not repay the loan as promised on several occasions.

54. This Court in State of Maharashtra v. Digambar50 observed as follows: (SCC p. 692, para 19)

19. Power of the High Court to be exercised under Article 226 of the Constitution, if is discretionary, its exercise must be judicious and reasonable, admits of no controversy. It is for that reason, a person‟s entitlement for relief from a High Court under Article 226 of the Constitution, be it against the State or anybody else, even if is founded on the allegation of infringement of his legal right, has to necessarily depend upon unblameworthy conduct of the person seeking relief, and the court refuses to grant the discretionary relief to such person in exercise of such power, when he approaches it with unclean hands or blameworthy conduct.

It relied on the judgment of the Privy Council in Lindsay Petroleum Co. v. Hurd51, where the Privy Council observed: (PC p. 240)

… Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as it relates to the remedy.

Therefore, the debtor is not entitled for the discretionary equitable relief under Articles 226 and 136 of the Constitution of India in the present case.”