Author : Anjali Bansal, LNCT University, Indore
Abstract
The Allahabad High Court strongly said in Shipra Hotels Ltd v. State of Uttar Pradesh that the CMM/DM’s responsibility is administrative and execution-focused rather than adjudicatory in its final interpretation of Section 14 of the SARFAESI Act. Therefore, at this point, the borrower is not entitled to any prior notice or hearing. The judgment underscores statutory clarity that notice and hearing are not implied where the statute omits them, especially in execution actions.
To the Point
A division bench of the Allahabad High Court ruled that the proceedings before a CMM/DM under Section 14 of the SARFAESI Act are of a ministerial or execution nature. As a result, even when possession of secured assets is sought, the borrower is not required to provide notice or attend a hearing.
Court: High Court of Allahabad
Date of Judgement: 25th November 2022
Case Type: Writ Petition
Bench: Sunita Agarwal, Vipin Chandra Dixit
Use of Legal Jargon/Provisions
The district or chief metropolitan magistrate shall help the secured creditor seize the secured asset, according to Section 14 of the SARFAESI Act of 2002. The secured creditor may request in writing that the Chief Metropolitan Magistrate or the District Magistrate whose jurisdiction any such secured asset or other documents related thereto are located take possession or control of any such secured assets when the secured creditor is required to do so or if any of the secured assets must be sold or transferred in accordance with the provisions of this Act.
Brief Facts
According to Section 14 of the SARFAESI Act, 2002, the authorized officers who had issued the aforementioned order were the Additional District Magistrate (Finance & Revenue), Varanasi, and the Additional District Magistrate (Finance & Revenue), Ghaziabad, Meerut Commissionerate.
On the basis that the petitioners, who are the borrowers, were not given any notice or an opportunity to be heard, the orders issued under Section 14 were contested on the grounds that they were in violation of natural justice principles.
The Proof
Section 14 empowers the CMM/DM to assist secured creditors in taking possession of secured assets upon written request, but contains no requirement for notice or hearing to the borrower
The Court reasoned that since the powers under Section 14 are execution-based, they fall outside the scope of judicial or quasi-judicial action, thereby obviating the necessity of natural justice compliance
Issue Raised
Whether the contested orders issued by the Additional District Magistrate (Finance & Revenue), Varanasi, and the Additional District Magistrate (Finance & Revenue), Ghaziabad, Meerut Commissionerate, as the authorized officers, under Section 14 of the SARFAESI Act, 2002, are valid or in violation of natural justice principles because no notice or opportunity to be heard was given.
The authority of the Additional District Magistrate (F.&R.), Ghaziabad, to make such an order after the sixty-day time specified in the third proviso to sub-section (1) of Section 14 of the SARFAESI Act, 2002, has also been questioned.
It is maintained that natural justice principles must be adhered to whenever administrative or quasi-judicial authorities use coercive means under any statute.
Petitioner’s Argument
The petitioners’ main argument is for this Court to rule that natural justice ought to be included as an implied requirement in Section 14 of the SARFAESI Act.
Counsel contended that it is a well-known legal principle that a statute must be understood to include compliance with natural justice principles if it does not specifically or implicitly preclude such compliance. Courts have emphasized that procedural fairness be included in decisions through the fundamental principles of natural justice, such as audi altrum paltrum, and violations of these standards have resulted in the revocation of such decisions.
The learned Senior Counsels for the petitioners argued forcefully, based on the aforementioned grounds, that the order of the Chief Metropolitan Magistrate (CMM), District Magistrate (DM), or Automated Officer has been given finality by virtue of sub-section (3) of Section 14. The only way to contest the order under Section 14 is to go to the Writ Court, as no other venue has been established under the SARFAESI Act, 2002.
Case Laws (Relevant Precedents)
Dharampal Satyapal Ltd. v. Deputy Commissioner of Central Excise (Gauhati) – Where interference with property rights under a silent statute triggered an implied requirement of hearing, but it was distinguished by the HC as not applicable here.
Kumkum Tentiwal v. State of U.P. – Held that natural justice must be read into Section 14, but in Shipra Hotels the bench overruled its force, emphasizing the execution nature.
Later references in the Madhya Pradesh High Court, citing Shipra Hotels, uphold that no hearing is required under Section 14 due to its ministerial character.
Court’s Analysis
As soon as the Court heard all of the petitions at once, it cited several Supreme Court and other high court rulings to emphasize that the CMM/DM’s actions to seize or control any secured asset are part of execution proceedings. It also cited the secured creditor’s actions to recover his secured debt under Section 13(4) of the Act.
The Court added that the secured creditor may request in writing that the CMM/DM of the jurisdiction where the secured asset is located take possession of the asset and deliver it to the secured creditor (under Section 14) if they are unable to obtain actual physical possession of the immovable property through other means.
Citing the Apex Court’s ruling in the case of R.D. Jain and Co. vs. Capital First Ltd. 2022 [LiveLaw (SC) 634] and previous HC rulings, the Court determined that the borrower does not require a hearing at this stage given the procedure outlined in the 2002 Act to seize the secured asset.
However, the Court made it plain that before any action is taken to forcibly evict the borrower, the order issued by the competent magistrate must be properly served to him. In order to give the borrower ample time to remove his things or make other preparations, he must also be adequately notified in advance of the date of the coercive action.
In response to the argument that the borrower loses all recourse if he is not given a hearing, the Court said that the borrower has the right to contest the secured creditor’s actions, including the order issued under Section 14 of the SARFAESI Act, 2002, before the Debt Recovery Tribunal post-possession under Section 17.
Conclusion
According to the court’s affirmative ruling in Shipra Hotels Ltd v. State of U.P., the borrower is not legally obligated to receive notice or a hearing under Section 14 SARFAESI. The proceedings are purely ministerial and execution-driven, and thus do not invoke natural justice. This clarity aids in preventing procedural delays in asset recovery by secured creditors.
FAQs
Q1. Is the borrower entitled to notice when a CMM/DM passes an order under Section 14 SARFAESI?
Answer: No. The Allahabad High Court confirmed that Section 14 proceedings are ministerial and do not require notice or hearing to the borrower.
Q2. Does Section 14 grant judicial power to the CMM/DM?
Answer: No. The court held these powers are administrative and merely facilitative, not adjudicatory, thereby excluding judicial obligations like natural justice
Q3. Are there precedents that impose a hearing requirement under Section 14?
Answer: Earlier decisions like Kumkum Tentiwal suggested a hearing was required, but Shipra Hotels overruled that by emphasizing Section 14’s execution nature. Subsequent decisions have followed Shipra Hotels in declining any hearing requirement.
