Dr Annasaheb Chougule Urban Co operative Bank Ltd vs Sahebrao Marutrao Patil & Ors

Ashok Menon, Chairperson

The Appellant is in appeal impugning the judgment and order dated 03.03.2018 in Securitisation Application (S.A.) No. 126 of 2013 on the files of the Debts Recovery Tribunal, Pune (D.R.T.).

The facts as required to determine in this appeal in brief are thus: The Appellant bank had sanctioned and disbursed a loan of ₹40 lakhs to Respondent No. 2 on 27.03.2010 to be repaid within 15 years. Respondents Nos. 1 & 3 stood a guarantee for the loan. Repayment of the loan was defaulted and a demand notice was issued to the Respondents demanding a sum of ₹43,13,392/- on 24.11.2012 under Sec. 13(2) of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short). The Respondents did not respond and consequently, a notice to take possession of the property was issued on 15.02.2013 under Sec.13(4) of the SARFAESI Act. Symbolic possession of the secured asset was taken on 22.02.2013. Notice was issued and published in a newspaper for the auction sale of the secured asset on 04.03.2013. The fourth Respondent was the highest bidder in the auction. A sale certificate was issued to the fourth Respondent on 12.06.2013. The Appellant approached the District Magistrate to obtain an order under Sec. 14 of the SARFAESI Act and the order was passed on 15.07.2013 to take over the possession of the property. The Circle Officer at Kolhapur issued a notice to the second Respondent on 27.08.2013 informing that physical possession of the property would be taken on 04.09.2013. The very next date Respondents Nos. 1 and 2 filed the aforesaid S.A. challenging the order under Sec. 14, and the sale. The Appellant contested the S.A. and vide judgment and order dated 28.10.2013 the S.A. was rejected. Appeal No. 283 of 2013 filed by Respondents Nos. 1 and 2 before this Tribunal was allowed and the order dated 28.10.2013 was set aside and the matter was remanded to the D.R.T. to decide the S.A. afresh. Writ Petition No. 1608 of 2014 filed by the Appellant before the Hon’ble High Court of Bombay was dismissed. The matter was considered afresh by the D.R.T. and the S.A. was allowed in part by the impugned order. The Appellant is aggrieved and hence, in appeal.

The main question that arises for consideration in this appeal is whether the secured asset can be sold on taking symbolic possession of the property under Sec. 13(4) of the SARFAESI Act without the creditor taking physical possession of the property. The Ld. Presiding Officer had framed points Nos. ii and iii thus:

“ii. Whether the secured creditor is entitled to invoke Sec. 14 of the 2002 Act after the sale of the mortgaged property over which it claims security interest?

iii. whether the auction/ sale of the mortgaged property based on symbolic possession is contrary to the scheme of the 2002 Act and the said Rules?”

On point No. ii, the Ld. Presiding Officer concluded that upon issuance of the sale certificate and registration thereof, the secured creditor ceases to have right, title or interest in the immovable property sold under the SARFAESI Act. Thus, the secured creditor does not retain the right to obtain possession of the immovable property upon issuance of the sale certificate and registration thereof. Point ii was thus found in the negative against the Appellant.

On point No. iii, the Ld. Presiding Officer relied upon the decision of the Hon’ble Bombay High Court in Blue Coast Hotels Ltd. vs. IFCI Ltd. and Ors.2015 SCC OnLine 7791 to conclude that the secured creditor is not entitled to seek physical possession of the property invoking the provisions under Sec. 14 of the SARFAESI Act after the sale and the auction sale conducted based on symbolic possession is contrary to the provisions of the SARFAESI Act and Rules as the creditor ceases to be the creditor any more.

The decision of the Hon’ble Bombay High Court was reversed by the Hon’ble Supreme Court in ITC Ltd. vs. Blue Coast Hotels Ltd. & ors.(2018) 15 SCC 99 wherein it is held thus:

“50. In this case, the creditor did not have actual possession of the secured asset but only a constructive or symbolic possession. The transfer of the secured asset by the creditor therefore cannot be constituted as a complete transfer as contemplated by Sec. 8 of the Transfer of Property Act. The creditor nevertheless had a right to take actual possession of the secured assets and must therefore be held to be a secured creditor even after the limited transfer to the auction purchaser under the agreement. Thus, the entire interest in the property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the interest on the entire interest to the auction purchaser and thus, remained a secured creditor in the Act.”

The only question that arises for consideration in this Appeal is whether the act of the creditor in auctioning the property after taking symbolic possession under Section 13(4) of the SARFAESI Act and then applying for physical possession under Section 14 before the CMM was appropriate and within the purview of the SAARFAESI Act. The Hon’ble Bombay High Court had indeed in the decision of Blue Coast Hotels Ltd. (supra) held that once the sale takes place the secured creditor ceases to have any right over the property and hence could not apply for physical possession under Section 14. However, the aforesaid decision of the Hon’ble Bombay High Court was reversed by the Hon’ble Supreme Court and the present position is that the sale without handing over physical possession is not concluded and complete in all aspects. Hence, the creditor bank does not lose the right as a creditor to enforce action under Section 14 of the SARFAESI Act. The Supreme Court decision was pronounced on 19.03.2018 and the impugned order was passed by the Ld. P.O. on 03.03.2018. Even though the overruling of the decision was brought to the notice of the Ld. P.O., he refused to alter his orders which were already pronounced though not transcribed.

Resultantly, the Appeal is allowed and the impugned order dated 03.03.2018 in S.A. No.126/2013 is set aside and quashed. The challenge to the SARFAESI action by the Applicants would not survive and hence, the S.A. is dismissed. The Appellant Bank is at liberty to complete the procedure under the SARFAESI Act..