Application under S. 17(1) SARFAESI Act is maintainable only after actual possession is taken by secured creditor

Allahabad High Court: A Full Bench comprising of Dilip B. Bhosale, CJ, and Devendra Kumar Arora and Vivek Chaudhary, JJ., sat to decide a reference by the learned Single Judge, wherein it was inter alia held that the remedy of an application under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is available only after the measures under Section 13(4) have been taken by the Bank/Financial Institutions against the borrower.

The reference arose in light of divergent opinions expressed by two Division Benches of the Court on the question whether the proceedings before the Debts Recovery Tribunal under Section 17 of the Act would be maintainable before the actual possession of the assets of the defaulting borrower is taken.

In order to settle the controversy, the High Court perused the two decisions concerned of the Division Bench and also other various decisions of the Supreme Court. After a detailed consideration of all decisions referred to and various provisions of the SARFAESI Act, the Court culled out the upshot of legal position regarding the question concerned; which inter alia stated as follows:

· A remedy of an application under Section 17(1) is available only after the measures under Section 13(4) have been taken by the Bank/FIs against the borrower.

· No recourse to an application under Section 17 (1) is available at the stage of issue of notice under Section 13(2).

· The borrower against whom measures under Section 13(4) are likely to be taken, has a right to know as to why his objections have not been accepted.

· The Bank/FIs have been conferred with powers to take physical (actual) possession of the secured assets without interference of the Court and the only remedy open to the borrower is to approach DRT challenging such an action/measure and seeking appropriate relief.

· The borrower is not entitled to challenge the reasons communicated or likely measure, to be taken by the secured creditor under Section 13(4) of the Act, unless his right to approach DRT, as provided for under Section 17(1), matures.

· If Debts Recovery Tribunal (DRT), after examining the facts and circumstances of the case and on the basis of evidence produced by the parties, comes to the conclusion that any of the measures referred to in Section 13(4), taken by the secured creditor is not in accordance with the provisions of the Act, it may by order declare that the recourse taken to any one or more measures is invalid and restore possession to the borrower.

· No remedy under Section 17(1) can be taken by the borrower unless he loses actual (physical) possession of the secured assets. In other words, before losing actual possession or unless the secured creditor obtains physical possession of the secured asset under Section 13(4), it is not open to the borrower to take a remedy under Section 17(1) of the Act.

In the instant case, the bank concerned issued a notice for taking possession of the properties of the defaulting petitioner; and in such notice it was clearly mentioned that a ‘symbolic possession’ of the immovable properties of the petitioner was taken. The High Court was of the opinion that ‘symbolic possession’ could not be equated with ‘actual possession’; it only means constructive/paper possession. Taking symbolic possession could not be treated as a measure taken under Section 13(4) of the Act, and therefore, the borrower-petitioner could not file an application under Section 17(1) at that stage. It was held that the judgment of the Division Bench in Sushila Steels v. Union Bank of India, 2014 SCC OnLine All 15639 laid down the correct law; whereas the judgment in Aum Jewels v. Vijaya Bank (Writ-C No. 13476 of 2017, decided on 30.3.2017) did not enunciate the correct law. The reference was disposed of accordingly. [NCML Industries Ltd. v. Debts Recovery Tribunal,  2018 SCC OnLine All 176, dated 06-02-2018]