MANU/SC/0874/2013

Equivalent Citation: 2013 (100) ALR 683, III(2016)BC 405(SC ), III(2016)C C R64(SC ), [2013]117C LA18(SC ), [2013]180C ompC as137(SC ),
(2013)4C ompLJ417(SC ), (2013)4C ompLJ417(SC ), 2013(6)C TC 683, 2013(4)KLT531, 2013-5-LW97, 2014(1)MhLj627, 2014(1)MPLJ396, 2013 121
RD262, 2013(10)SC ALE540, (2013)9SC C 620

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 1218 of 2013 (Arising out of Special Leave Petition (Criminal) No.
2038 of 2011) and Criminal Appeal No. 1217 of 2013 (Arising out of Special Leave
Petition (Criminal) No. 6560 of 2011)
Decided On: 22.08.2013
Appellants: Standard Chartered Bank and Ors.
Vs.
Respondent: V. Noble Kumar and Ors.
Hon'ble Judges/Coram:
H.L. Gokhale and Jasti Chelameswar, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Sidharth Luthra, ASG, Sanjay Jain, Sr. Adv., Sanjeev
Sagar, Ruchi Jain, Mohd. Irshad Hanif, Ajay Veer Singh, Sanjay Kapur, Anmol Chandan
and Shubra Kapur, Advs.
For Respondents/Defendant: P.B. Suresh, Vipin Nair, U. Banerjee for M/s. Temple Law
Firm and Venkita Subramoniam T.R., Advs.
Case Note:
Banking - Loan Transaction - Default in repayment - Notice under section
13(2)[2] of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI)demanding repayment
issued to the borrower as well as the guarantor - No repayment made even
thereafter and also no objection raised against the demand so made -
Appellant moved an application under section 14[3] of the SARFAESI Act
before the Court of Chief J udicial Magistrate (CJM) for taking over and
handing over of the possession of the secured asset - Legality of the
proceedings challenged - It was contended by Respondent No. 1 that a
secured creditor before invoking the authority of the Magistrate under section
14 must necessarily make an attempt to take possession of the secured asset
- Only when the creditor faces resistance to such an attempt the creditor
could resort to the procedure under section 14 of the Act - Permitting the
creditor to invoke Section 14 without first resorting to the procedure under
section 13(4) would deprive the owner of the secured asset an opportunity to
prefer an "appeal" to have his grievances adjudicated - Held, there are three
methods for the secured creditor to take possession of the secured assets, (i)
where the secured creditor gives the requisite notice under rule 8(1) and
where he does not meet with any resistance, the authorised officer will
proceed to take steps as stipulated under rule 8(2) onwards t o take
possession and thereafter for sale of the secured assets to realise the
amounts that are claimed by the secured creditor (ii) where the secured
creditor meets with resistance from the borrower after the notice under rule
8(1) is given he will take recourse to the mechanism provided under section

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14 of the Act viz. making application to the Magistrate who will scrutinize 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 and after the possession is taken the assets and
documents will be forwarded to the secured creditor (iii) third, where the
secured creditor approaches the Magistrate concerned directly under section
14 of the Act, where the Magistrate will thereafter scrutinize the application
as provided in section 14, and then if satisfied, authorise a subordinate officer
to take possession of the assets and documents a n d forwards them to the
secured creditor as under clause (ii) - Contention that such a construction
would deprive the borrower of a remedy under section 17 is rooted in a
misconception of the scope of section 17 - Provision of "appeal" under section
17[14] 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 t h e secured creditor - In any of the three situations,
after the possession is handed over to the secured creditor, the subsequent
specified provisions of rule 8 concerning the preservation, valuation and sale
of the secured assets, and other subsequent rules from the Security Interest
(Enforcement) rules, 2002, would apply - A notice under section 13(2) was in
the instant case was served on the Respondent to which the Respondent did
not choose to respond - Therefore there was no occasion for the Appellant to
consider the objections as there was none of the Respondent against the
demand made in the said notice - Even while making application under
section 14 the Appellant had filed an affidavit substantially providing for the
necessary information contemplated under the newly introduced proviso to
section 14 (1) - Affidavit substantially complies with the conditions stipulated
in the newly introduced proviso - On the date of the impugned order the law
did not oblige the Magistrate to undertake any such exercise hence no
illegality in the impugned order - Appeal allowed
JUDGMENT
Jasti Chelameswar, J.
1. Leave granted.
2. Since both the appeals raise a common question of law, the same are being disposed
of by this common judgment. For the sake of convenience, we shall refer to the facts in
Criminal Appeal arising out of Special Leave Petition (Criminal) No. 2038 of 2011.
3 . This appeal arises out of judgment and order of the High Court of Judicature at
Madras in Writ Petition No. 4600 of 2010 dated 23rd January, 2003.
4. The first Respondent is a guarantor of the borrower to loan transaction whereby the
second Respondent borrowed money from the Appellant herein. The undisputed facts
are that the first Respondent created a mortgage on certain property (Land and building
comprised in Re-survey No. 493/2 lying within the sub-registration district of Saidapet
hereinafter referred to as the "secured asset") owned by him to secure the
abovementioned loan.1
5 . On 15.11.2007, a notice under Section 13(2)2 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(hereinafter referred to as "the SARFAESI Act") demanding the repayment of the loan

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amount along with interest within a period of sixty days was issued inter alia to the
borrower as well as the guarantor (Respondent Nos. 2 and 1 herein). The said notice
also advised the Respondents to comply with the demand in order to avoid further
action under the Act. The first Respondent neither made the payment nor raised any
objection to the said demand.
6. Consequent upon the failure of the Respondents to make the payments the Appellant
herein made an application under Section 143 of the SARFAESI Act in the Court of Chief
Judicial Magistrate, Chengalpattu requesting him to take possession of the secured asset
and to handover the same to the Appellant.
7 . Pursuant to the abovementioned application, the Chief Judicial Magistrate,
Chengalpattu by his proceeding dated 14.12.2009 appointed an Advocate commissioner
to take possession of the secured asset and to handover the same to the Appellant
herein.
8 . Challenging the legality of the proceedings dated 14.12.2009 the first Respondent
approached the High Court. By the judgment under appeal, the first Respondent's writ
petition came to be allowed by a Division Bench setting aside the order impugned
therein.
9. The High Court recorded the submissions made before it as follows:
3 . The learned Counsel appearing for the Petitioner raised two contentions,
viz.:
(i) The bank cannot bypass Section 13(4) of the SARFAESI Act and
invoke the provisions of Section 14. He would submit, before invoking
Section 14, that notice under Section 13(4) is necessary, otherwise the
provisions of appeal under Section 17 will become illusory, particularly
when the proceedings under Section 14 cannot be questioned by filing
appeal before the Tribunal or before a Court.
(ii) In the event the procedures contemplated under Rule 8 of the
Security Interest (Enforcement) Rules, 2002, are not followed before
Section 14 is invoked, the order passed by the Chief Judicial Magistrate
would be contrary to the said Rules and consequently, the order passed
under Section 14 is liable to be set aside.
10. It is argued before the High Court as well as before us by the Respondent that a
secured creditor before invoking the authority of the Magistrate under Section 14 must
necessarily make an attempt to take possession of the secured asset. Only when the
creditor faces resistance to such an attempt the creditor could resort to the procedure
under Section 14 of the Act. According to the first Respondent, Section 174 of the Act
provides an "appeal" only against the measures taken by the creditor under Section
13(4)5 of the Act and no such appeal is available against an action taken by the Judicial
Magistrate under Section 14 of the Act. Therefore, permitting the creditor to invoke
Section 14 without first resorting to the procedure under Section 13(4) would deprive
the owner of the secured asset an opportunity to prefer an "appeal" to have his
grievances adjudicated. It is further argued that Rule 8 of the Security Interest
(Enforcement) Rules, 2002 (hereinafter referred to as "the Rules") contemplates a
procedure to be followed which includes a certain mode of publicity of taking
possession to be made, and therefore, even a Magistrate exercising power under

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Section 14 of the Act is also required to follow the procedure contemplated under Rule
8 though the Rule does not expressly say so. Failure to comply with the requirement of
Rule 8 in the instant case vitiated the order of the Magistrate.
11. The abovementioned submissions found favour with the High Court.
1 2 . The learned Counsel appearing for the Appellant argued before us that the Act
provided for two alternative procedures for taking possession of the secured assets
under Sections 13(4) and 14 respectively. While Section 13(4) authorises the creditor
himself to take possession of the secured assets without the aid of the State's coercive
power, Section 14 enables the secured creditor to seek the assistance of the State's
coercive power for securing the possession of the secured assets. It is submitted that it
is always open to the secured creditor to choose one of the above mentioned two
procedures in a given case to obtain possession of the secured asset depending upon
his own assessment of the situation regarding the possibility of resistance (by the
debtor or guarantor as the case may be) for taking possession of the secured assets. It
is also submitted that the fact that an "appeal" under Section 17 is available against the
measures taken under Section 13(4) and such an "appeal" is not available against the
measures taken by the Magistrate under Section 14 does not necessarily mean that the
procedure under Section 14 cannot be resorted to without first exhausting the measures
contemplated under Section 13(4). Lastly, it is submitted on behalf of the Appellant that
the High Court completely erred in recording a conclusion:
3. In the event the secured creditor bypassing the provision of Section 13(4)
and the Rule 8 and files an application under Section 14, a situation may arise
that the advocate commissioner may straight away take possession without
there being compliance of any of the provisions of Section 13(4) or Rule 8.
When both the provisions are read together, we could only come to the
conclusion that the legislature had not intended to create such a situation. The
objection of Section 14 is only to be invoked in case the secured creditor faces
obstruction and not as a routine, bypassing the provisions of Section 13(4).
1 3 . On the other hand, the learned Counsel appearing for the first Respondent
reiterated the submissions made by him before the High Court.
14. To decide the correctness of the judgment under appeal, it is essential that we
examine the purpose and the scheme of the Act. One of the professed purposes sought
to be achieved by the enactment as evidenced by the Objects and Reasons appended to
the Bill is as follows:
...Further, unlike international banks, the banks and financial institutions in
India do not have power to take possession of securities and sell them.
Our existing legal framework relating to commercial transactions has not kept
pace with the changing commercial practices and financial sector reforms. This
has resulted in slow place of recovery of defaulting loans and mounting
levels of non-performing assets of banks and financial institutions.
15. In order to achieve the said purpose, Sections 13, 14 and 15 are enacted. Only
Sections 13 and 14 are relevant for the present appeal. Section 13(1)6 enables the
secured creditor to enforce a security interest which such creditor has in a secured asset
without intervention of the Court or Tribunal. The expression "security interest" is
defined under Section 2(zf) as follows:
"security interest" means right, title and interest of any kind whatsoever upon

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 property, created in favour of any secured creditor and includes any mortgage,
charge, hypothecation, assignment other than those specified in Section 31;
16. Sub-section (2) authorises the secured creditor to exercise any of the rights under
Sub-section (4). Sub-section (2) reads as follows:
(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).
1 8 . It can be seen from the said Sub-section that for the secured creditor to take
possession of the secured assets, the following conditions must be satisfied: (i) That
there must be a security agreement7 which creates the liability of the borrower to make
repayment to the secured creditor of the secured debt, (ii) The secured creditor is
required to demand the borrower by notice in writing to discharge the full liability
within a period of 60 days from the date of the notice.
19. Sub-section (3)8 stipulate that such notice shall give the details of (i) the amount
payable by the borrower (ii) the interest in the secured asset intended to be enforced by
the secured creditor. Sub-section (4) 9 provides for various measures which can be
resorted to by the secured creditor in order to recover his debt. Such measures are (1)
taking possession of the secured asset or (2) taking over the management of the
business of the borrower.10 The secured creditor is also given the right either to make a
further assignment of his interest or lease out the secured assets or sell the same in
order to realise his debt. Such right of the secured creditor is hedged with
limitations/safeguards designed to protect interest of the borrower so that the secured
creditor may not abuse his rights i.e. except to take a possession of the property and
alienate the same only to the extent necessary to realise the actual amount due to him.
Details of which may not be necessary for the purpose of this case. We are only
concerned in this case with the method and manner in which possession of the secured
assets could be obtained and the conditions precedents that are required to be satisfied
for taking possession of the secured assets.
20. Section 13, as originally enacted, did not contain any provision for consideration of
objections (if any) the borrower may have to the demand made under Sub-section (2).
However, this Court in Mardia Chemicals Limited v. Union of India
MANU/SC/0323/2004 : (2004) 4 SCC 311, where the constitutionality of the Act fell for
the consideration of this Court, noticed that Section 13(2) is a very stringent provision
and opined:
77. It is also true that till the stage of making of the demand and notice under
Section 13(2) of the Act, no hearing can be claimed for by the borrower. But
looking to the stringent nature of measures to be taken without intervention of
court with a bar to approach the court or any other forum at that stage, it
becomes only reasonable that the secured creditor must bear in mind the say of
the borrower before such a process of recovery is initiated so as to demonstrate
that the reply of the borrower to the notice under Section 13(2) of the Act has
been considered applying mind to it. The reasons, howsoever brief they may

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 be, for not accepting the objections, if raised in the reply, must be
communicated to the borrower. True, presumption is in favour of validity of an
enactment and a legislation may not be declared unconstitutional lightly more
so, in the matters relating to fiscal and economic policies resorted to in the
public interest, but while resorting to such legislation it would be necessary to
see that the persons aggrieved get a fair deal at the hands of those who have
been vested with the powers to enforce drastic steps to make recovery.
21. Consequent upon the said decision, Parliament introduced Sub-section 3A11 by Act
30 of 2004, which now provides for consideration of the objections, if any raised by the
borrower. By definition under Section 2(f) of the Act a borrower includes the guarantor
of the debt.
22. Section 3A further provides that if the secured creditor reaches a conclusion that
the objections raised by the borrower are not acceptable or tenable, the creditor shall
communicate the reasons for non-acceptance of the objections within a period of 15
days. The proviso to the said Sub-section declares that the rejection of the objections
does not confer any right on the borrower to resort to the proceedings, contemplated
either under Section 17 or 17A. We may indicate here both Sections 17 or 17A afford an
opportunity to the borrower to approach the Debts Recovery Tribunal or (in the cases of
Jammu & Kashmir) the concerned District Court against any measure taken under
Section 13(4).
2 3 . In every case where the objections raised by the borrower are rejected by the
secured creditor, the secured creditor is entitled to take possession of the secured
assets. In our opinion, such action - having regard to the object and scheme of the Act
- could be taken directly by the secured creditor. However, visualising the possibility of
resistance for such action, Parliament under Section 14 also provided for seeking the
assistance of the judicial power of the State for obtaining possession of the secured
asset, in those cases where the secured creditor seeks it.
2 4 . Under the scheme of Section 14, a secured creditor who desires to seek the
assistance of the State's coercive power for obtaining possession of the secured asset is
required to make a request in writing to the Chief Metropolitan Magistrate or District
Magistrate within whose jurisdiction, secured asset is located praying that the secured
asset and other documents relating thereto may be taken possession thereof. The
language of Section 14 originally enacted purportedly obliged the Magistrate receiving a
request under Section 14 to take possession of the secured asset and documents, if any,
related thereto in terms of the request received by him without any further scrutiny of
the matter.
2 5 . However, the Bombay High Court in the case of Trade Well v. Indian Bank
MANU/MH/0195/2007 : 2007 Cri LJ 2544 opined;
2...CMM/DM acting under Section 14 of the NPA Act is not required to give
notice either to the borrower or to the 3rd party.
3 . He has to only verify from the bank or financial institution whether notice
under Section 13(2) of the NPA Act is given or not and whether the secured
assets fall within his jurisdiction. There is no adjudication of any kind at
this stage.
4. It is only if the above conditions are not fulfilled that the CMM/DM can refuse

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 to pass an order under Section 14 of the NPA act by recording that the above
conditions are not fulfilled. If these two conditions are fulfilled, he cannot
refuse to pass an order under Section 14.
The said judgment was followed by the Madras High Court in the case of Indian
Overseas Bank v. Sri Aravindh Steels Ltd. MANU/TN/1022/2008 : AIR 2009 Mad.
10. Subsequently, Parliament inserted a proviso to Section 14(1)12 and also Sub-
section 1A13 by Act 1 of 2013.
26. We must make it clear that these provisions were not in existence on the date of
the order impugned in the instant proceedings. These amendments are made to provide
safeguards to the interest of borrower. These provisions stipulate that a secured creditor
who is seeking the intervention of the Magistrate under Section 14 is required to file an
affidavit furnishing the information contemplated under various Sub-clauses (i) to (ix)
of the proviso and obligates the Magistrate to pass suitable orders regarding taking of
the possession of the secured assets only after being satisfied with the contents of
the affidavits.
27. An analysis of the 9 sub-clauses of the proviso which deal with the information that
is required to be furnished in the affidavit filed by the secured creditor indicates in
substance that (i) there was a loan transaction under which a borrower is liable to
repay the loan amount with interest, (ii) there is a security interest created in a secured
asset belonging to the borrower, (iii) that the borrower committed default in the
repayment, (iv) that a notice contemplated under Section 13(2) was in fact issued, (v)
in spite of such a notice, the borrower did not make the repayment, (vi) the objections
of the borrower had in fact been considered and rejected, (vii) the reasons for such
rejection had been communicated to the borrower etc.
28. The satisfaction of the Magistrate contemplated under the second proviso to Section
14(1) necessarily requires the Magistrate to examine the factual correctness of the
assertions made in such an affidavit but not the legal niceties of the transaction. It is
only after recording of his satisfaction the Magistrate can pass appropriate orders
regarding taking of possession of the secured asset.
29. It is in the above-mentioned background of the legal frame of Sections 13 and 14,
we are required to examine the correctness of the conclusions recorded by the High
Court. Having regard to the scheme of Sections 13 and 14 and the object of the
enactment, we do not see any warrant to record the conclusion that it is only after
making an unsuccessful attempt to take possession of the secured asset, a secured
creditor can approach the Magistrate. No doubt that a secured creditor may initially
resort to the procedure under Section 13(4) and on facing resistance, he may still
approach the Magistrate under Section 14. But, it is not mandatory for the secured
creditor to make attempt to obtain possession on his own before approaching the
Magistrate under Section 14. The submission that such a construction would deprive the
borrower of a remedy under Section 17 is rooted in a misconception of the scope of
Section 17.
30. The "appeal" under Section 1714 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 the possession of the secured asset are possible under Section 13(4).
Alienating the asset either by lease or sale etc. and appointing a person to manage the

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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 borrower. Therefore, the borrower is always
entitled to prefer an "appeal" 15 under Section 17 after the possession of the secured
asset is handed over to the secured creditor. Section 13(4)(a) declares that the secured
creditor may take possession of the secured assets. It does not specify whether such a
possession is to be obtained directly by the secured creditor or by resorting to the
procedure under Section 14. We are of the opinion 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 the possession of a secured asset is
always a measure against which a remedy under Section 17 is available.
3 1 . It can be noticed from the language of the proviso to Section 13(3A) and the
language of Section 17 that an "appeal" under Section 17 is available to the borrower
only after losing possession of the secured asset. The employment of the words
"aggrieved by...taken by the secured creditor" in Section 17(1) clearly indicates the
appeal under Section 17 is available to the borrower only after losing possession of the
property. To set at naught any doubt regarding the interpretation of Section 17, the
proviso 16 to Sub-section (3A) of Section 13 makes it explicitly clear that either the
reasons indicated for rejection of the objections of the borrower or the likely action of
the secured creditor shall not confer any right under Section 17.
32. The same principle is re-emphasised with the newly added explanation in Section
17(1) which came to be inserted by Act No. 30 of 2004:
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 Sub-section 1 of Section 17.
33. The High Court opined that Rule 817 of the Security Interest (Enforcement) Rules,
2002 provides for certain (i) procedure to be followed by the secured creditor taking
possession of the secured asset. The High Court opined that even in a case where
procedure contemplated under Section 14 is resorted to for obtaining possession of the
secured assets, compliance with Rule 8 is mandatory. Such a requirement according to
the High Court arises because in view of the High Court:
The object of Section 14 is only to be invoked in case the secured creditor faces
obstruction and not as a routine bypassing the provisions of Section 13(4).
Under Rule 8, the secured creditor is required to deliver to the borrower a notice
prepared as nearly as possible in Appendix IV to the Rules and by affixing such notice
to the property. Further Sub-rule (2) which came to be substituted in 2007 in original
provides that the notice contemplated under Sub-rule (1) is required to be published in
two leading newspapers having sufficient circulation in the locality of which at least one
should be in vernacular language. Prior to 2007 the requirement of publication in
vernacular newspaper was not there.
34. The High Court recognized that the language of Rule 8 does not expressly warrant
the compliance with the procedure contemplated therein when Section 14 is resorted to
for obtaining possession of the secured asset:

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 In the absence of the rule, the strict compliance of the provisions of Section
13(4) and Rule 8, even in case of possession taken by virtue of an order under
Section 14, assumes importance.
3 5 . We are of the opinion that the High Court clearly erred in recording such a
conclusion. The language of Rule 8 does not demand such a construction. On the other
hand, a Magistrate whose functioning is structured by the Code of Criminal Procedure is
required to act in accordance with the provisions of the said code unless expressly
ordained otherwise by any other law. It is not a case that Code of Criminal Procedure
never prescribed for the procedure to be followed by the Magistrate in a case where the
Magistrate is required to take possession of property. For example, under Section 83 of
the Code, a criminal Court is authorized to attach the movable or immovable property or
both belonging to a proclaimed offender. Sub-sections (3) and (4) to Section 83 18
specifically provide that once an order of attachment under Sub-section (1) is made by
the criminal Court, the property which is the subject matter of such attachment shall
either be seized or taken possession of as the case may be depending upon the fact
whether the property is movable or immovable. Both the Sub-sections contemplate the
appointment of receiver. It is declared under sub-Section (6) that the powers, duties
and liabilities of a receiver appointed under Section 83 are the same as those of a
receiver appointed under the Code of Civil Procedure, 1908. Order XL of the Code of
Civil Procedure deals with the appointment of the receiver. Rule 1 authorizes the Court
to appoint a receiver:
1. Appointment of Receivers.-(1) Where it appears to the Court to be just and
convenient, the Court may by order-
(a) appoint a receiver of any property, whether before or after decree;
(b) remove any person from the possession or custody of the property;
(c) commit the same to the possession, custody or management of the
receiver, and
(d) confer upon the receiver all such powers, as to bringing and
defending suits and for the realisation, management, protection,
preservation and improvement of the property, the collection of the
rents and profits thereof, the application and disposal of such rents and
profits, and the execution of documents as the owner himself has, or
such of those powers as the Court thinks fit.
(2) Nothing in this rule shall authorise the Court to remove from the possession
or custody of property any person whom any party to the suit has not a present
right so to remove.
It can also be noticed from Rule (1) that the power of the Civil Court to appoint a
receiver could be exercised either before or after passing of the decree.
36. Therefore, there is no justification for the conclusion that the receiver appointed by
the Magistrate is also required to follow Rule 8 of the Security Interest (Enforcement)
Rules, 2002. The procedure to be followed by the receiver is otherwise regulated by
law. Rule 8 provides for the procedure to be followed by secured creditor taking
possession of the secured asset without the intervention of Court. Such a process was
unknown prior to the SARFAESI Act. So, specific provision is made under Rule 8 to
ensure transparency in taking such possession. We do not see any conflict between

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different procedures prescribed by law for taking possession of the secured asset. The
finding of the High Court in our view is unsustainable.
37. Thus, there will be three methods for the secured creditor to take possession of the
secured assets:
(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.
(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 scrutinize 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.
(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 scrutinize the application as provided in Section 14, and then if
satisfied, authorise a subordinate officer to take possession of the assets and
documents and forwards them to the secured creditor as under Clause (ii)
above.
38. In any of the three situations, after the possession is handed over to the secured
creditor, the subsequent specified provisions of Rule 8 concerning the preservation,
valuation and sale of the secured assets,, and other subsequent rules from the Security
Interest (Enforcement) rules, 2002, shall apply.
39. In this connection, it is material to refer to the judgment in Mardia Chemicals
(supra) wherein the Court was concerned with the legality and validity of the SARFAESI
Act. The Court held the Act to be valid except Section 17(2) thereof as it then stood. In
paragraphs 59, 62 and 76 of the judgment the Court in terms held that in remedy under
Section 17 of the Act was essentially like filing a suit in a Civil Court though it was
called an Appeal. It is also relevant to note that in the ultimate conclusions in paragraph
80 of the judgment this Court held in sub-para 2 thereof as follows:
2. As already discussed earlier, on measures having been taken under Sub-
section (4) of Section 13 and before the date of sale/auction of the property it
would be open for the borrower to file an appeal (petition) under Section 17 of
the Act before the Debts Recovery Tribunal.
The grievance of the Respondent that it will be left with no remedy is, therefore,
misplaced. As held by a bench of three Judges in Mardia Chemicals (supra), 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.

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40. Coming to the facts of this case, a notice under Section 13(2) was in fact served on
the Respondent for which the Respondent did not choose to respond. Therefore, there
was no occasion for the Appellant to consider the objections as there was none of the
Respondent against the demand made in the said notice. It is brought to our notice that
even while making application under Section 14 the Appellant filed an affidavit
substantially providing for the necessary information contemplated under the newly
introduced proviso to Section 14(1). We have already noticed that there was no
statutory requirement as on the date when the application under Section 14 was made
in the instant case either to give such an affidavit or regarding the content of the
affidavit. Nonetheless the Appellant chose to give such an affidavit. A copy of which is
placed before us. We have perused the affidavit and it substantially complies with the
conditions stipulated in the newly introduced proviso. May be the Appellant did it by
way of abundant caution to avoid any litigation.
41. However, the Respondent submitted before us that there is nothing in the impugned
order of the Magistrate which indicates that the Magistrate applied his mind to such an
affidavit and satisfied that it is necessary to deliver possession of the secured asset to
the Appellant. No doubt that there is no material on record to show that the Magistrate
applied his mind to the facts stated in the affidavit filed by the Appellant. On the date of
the impugned order the law did not oblige the Magistrate to undertake any such
exercise. Apart from that we are satisfied on examination of the content of the affidavit
that all the basic requirements necessary for granting the request of the Appellant of
delivery of the possession of the secured asset are asserted to have existed on the date
of application. Therefore, we do not see any illegality in the impugned order. The
appeal is allowed. The order of the High Court is set aside.
42. 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. But in view of the fact that the
Respondent chose to challenge the decision of the magistrate by invoking the
jurisdiction of the High Court under Article 226 of the Constitution and in view of the
fact that the Respondent does not have any substantive objection as can be discerned
from the record, we make it clear that the Respondent in the instant case would not be
entitled to avail the remedy under Section 17 as the Respondent stalled the proceedings
for a period of almost 4 years. It is worthwhile remembering that the Respondent did
not even choose to raise any objections to the demand issued under Section 13(2) of
the Act. However, we make it clear that it is always open to the Respondent to seek
restoration of his property by complying with Sub-section 8 of Section 13 of the Act.
Criminal Appeal arising out of SLP (Crl) No. 6560 of 2011
43. The first Respondent in this appeal is the borrower in a transaction to which V.
Noble Kumar, the first Respondent in Criminal Appeal arising out of SLP (Crl) No. 2038
of 2011 was the surety. The issue in the appeal is identical. Therefore, for the reasons
stated above, this appeal is also allowed.

1 Section 2(zc) - "secured asset" means the property on which security interest is
created;
2 Section13(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

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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).
3 14.Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in
taking possession of secured asset.-(1) Where the possession of any secured asset 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 asset, 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 assets and documents to the secured creditor;
4 17.Right to Appeal.- (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:
...
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 Sub-section 1 of Section 17.
5 13(4) In case the borrower fails to discharge his liability in full within the period
specified in Sub-section (2), the secured creditor may take recourse to one or more of
the following measures to recover his secured debt, namely:
(a) take possession of the secured assets of the borrower including the right to
transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the
right to transfer by way of lease, assignment or sale for realising the secured
asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised
only where the substantial part of the business of the borrower is held as security for
the debt:
Provided further that where the management of whole of the business or part of the
business is severable, the secured creditor shall take over the management of such
business of the borrower which is relatable to the security for the debt.

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 (c) appoint any person (hereafter referred to as the manager), to manage the
secured assets the possession of which has been taken over by the secured
creditor;
(d) require at any time by notice in writing, any person who has acquired any
of the secured assets from the borrower and from whom any money is due or
may become due to the borrower, to pay the secured creditor, so much of the
money as is sufficient to pay the secured debt.
6 Section 13(1) Notwithstanding anything contained in Section 69 or Section 69A 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 court or tribunal, by such
creditor in accordance with the provisions of this Act.
7 Section2(zb) "security agreement" means an agreement, instrument or any other
document or arrangement under which security interest is created in favour of the
secured creditor including the creation of mortgage by deposit of title deeds with the
secured creditor;
8 Sub-section (3) The notice referred to in Sub-section (2) shall give details of the
amount payable by the borrower and the secured assets intended to be enforced by the
secured creditor in the event of nonpayment of secured debts by the borrower.
9 Section13(4) - In case the borrower fails to discharge his liability in full within the
period specified in Sub-section (2), the secured creditor may take recourse to one or
more of the following measures to recover his secured debt, namely:
(a) take possession of the secured assets of the borrower including the right to
transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the
right to transfer by way of lease, assignment or sale for realising the secured
asset:
PROVIDED that the right to transfer by way of lease, assignment or sale shall
be exercised only where the substantial part of the business of the borrower is
held as security for the debt:
PROVIDED FURTHER that where the management of whole of the business or
part of the business is severable, the secured creditor shall take over the
management of such business of the borrower which is relatable to the security
for the debt.
(c) appoint any person (hereafter referred to as the manager), to manage the
secured assets the possession of which has been taken over by the secured
creditor;
(d) require at any time by notice in writing, any person who has acquired any
of the secured assets from the borrower and from whom any money is due or
may become due to the borrower, to pay the secured creditor, so much of the
money as is sufficient to pay the secured debt.
10 Section 2(f) - "borrower" means any person who has been granted financial

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assistance by any bank or financial institution or who has given any guarantee or
created any mortgage or pledge as security for the financial assistance granted by any
bank or financial institution and includes a person who becomes borrower of a
securitisation company or reconstruction company consequent upon acquisition by it of
any rights or interest of any bank or financial institution in relation to such financial
assistance;
11 Section 3A - (3A) If, on receipt of the notice under Sub-section (2), the borrower
makes any representation or raises any objection, the secured creditor shall consider
such representation or objection and if the secured creditor conies to the conclusion
that such representation or objection is not acceptable or tenable, he shall communicate
within one week of receipt of such representation or objection the reasons for non-
acceptance of the representation or objection to the borrower:
12 14(1)... xxx
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;
(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 of such objection or representation had been 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 red with Section 14 of the principal Act;
(ix) That the provisions of this Act and the rules made there under had been
complied with:
Provided further on receipt of the affidavit from the Authorised Officer, the District

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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:
Provided also that the requirement of filing affidavit stated in the first proviso
shall not apply to proceeding pending before any District Magistrate or the
Chief Metropolitan Magistrate, as the case may be, on the date of
commencement of this Act.
13 14(1A). The District Magistrate or the Chief Metropolitan magistrate may authorise
any officer subordinate to him,-
(i) to take possession of such assets and documents relating thereof; and
(ii) to forward such assets and documents to the secured creditor.
(2) For the purpose of securing compliance with the provisions of Sub-section (1), the
Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken
such steps and use, or cause to be used, such force, as may, in his opinion, be
necessary.
(3) No act of the Chief Metropolitan Magistrate or the District Magistrate any officer
authorised by the Chief Metropolitan Magistrate or District Magistrate done in pursuance
of this Section shall be called in question in any court or before any authority.
14 17.Right to Appeal.- (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.
15 MardiaChemicals Limited v. Union of India MANU/SC/0323/2004 : (2004) 4 SCC 311,
The expression appeal as originally existed in Section 17 is substituted by the word
representation in view of the judgment of this Court in Mardia Chemicals Case.
We may like to observe that proceedings under Section 17 of the Act, in fact, are not
appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is
brought before a forum as prescribed under the Act, raising grievance against the action
or measures taken by one of the parties to the contract. It is the stage of initial
proceeding like filing a suit in civil court. As a matter of fact proceedings under Section
17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the
bar under Section 34 of the Act in the present case.
16 Provided that the reasons so communicated or the likely action of the secured creditor
at the stage of communication of reasons shall not confer any right upon the borrower
to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of
District Judge under Section 17A.
17 Rule 8. Sale of immovable secured assets.-(1) Where the secured asset is an

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immovable property, the authorised officer shall take or cause to be taken possession,
by delivering a possession notice prepared as nearly as possible in Appendix IV to these
rules, to the borrower and by affixing the possession notice on the outer door or at such
conspicuous place of the property.
(2) The possession notice as referred to in Sub-rule (1) shall also be published, as soon
as possible but in any case not later than seven days from the date of taking
possession, in two leading newspapers, one in vernacular language having sufficient
circulation in that locality, by the authorised officer.
18 83. Attachment of property of person absconding.- (1) The Court issuing a
proclamation under Section 82 may, for reasons to be recorded in writing, at any time
after the issue of the proclamation, order the attachment of any property, movable or
immovable, or both, belonging to the proclaimed person:
Provided that where at the time of the issue of the proclamation the Court is
satisfied, by affidavit or otherwise that the person in relation to whom the
proclamation is to be issued,-
(a) is about to dispose of the whole or any part of his property, or
(b) is about to remove the whole or any part of his property from the
local jurisdiction of the Court,
it may order the attachment simultaneously with the issue of the proclamation.
(2) Such order shall authorize the attachment of any property belonging to such
person within the district in which it is made; and it shall authorize the
attachment of any property belonging to such person without such district when
endorsed by the District Magistrate within whose district such property is
situate.
(3) If the property ordered to be attached is a debt or other movable property,
the attachment under this Section shall be made-
(a) by seizure; or
(b) by the appointment of a receiver; or
(c) by an order in writing prohibiting the delivery of such property to
the proclaimed person or to any one on his behalf; on
(d) by all or any two of such methods, as the Court thinks fit.
(4) If the property ordered to be attached is immovable, the attachment under
this Section shall, in the case of land paying revenue to the State Government,
be made through the Collector of the district in which the land is situate, and in
all other cases-
(a) by taking possession; or
(b) by the appointment of a receiver; or
(c) by an order in writing prohibiting the payment of rent on delivery of
property to the proclaimed person or to any one on his behalf; or

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 (d) by all or any two of such methods, as the Court thinks fit.
(5) If the property ordered to be attached consists of live-stock or is of a
perishable nature, the Court may, if it thinks it expedient, order immediate sale
thereof, and in such case the proceeds of the sale shall abide the order of the
Court.
(6) The powers, duties and liabilities of a receiver appointed under this Section
shall be the same as those of a receiver appointed under the Code of Civil
Procedure, 1908 (5 of 1908).
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