The Allahabad High Court stressed collaboration among stakeholders to tackle Non-Performing Assets (NPAs) and ensure banking system security. Justices Varma and Saraf, in a case involving M/S Trilokchand Fabrication, rejected the suspension of SARFAESI Act proceedings based on an injunction without a registered lease deed.
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The Allahabad High Court underscored the importance of collaboration among all stakeholders, including the judiciary, to enhance the security and efficiency of the banking system. The court’s remarks came during a hearing on a petition filed by M/S Trilokchand Fabrication Pvt. Ltd, addressing concerns related to the Non-Performing Assets (NPA) issue.
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Justices Siddhartha Varma and Shekhar B Saraf, presiding over the bench, acknowledged the challenges faced by financial institutions in dealing with NPAs. They emphasized the pivotal role of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in addressing these challenges and stressed the need to curb unnecessary litigation aimed at delaying the resolution of NPAs.
Highlighting the proactive measures authorized by the SARFAESI Act for lenders in recovering their investments, the court emphasized its role as a safeguard, preserving the financial well-being of institutions.
The court stated-
“It is incumbent upon all stakeholders, including borrowers and the judiciary, to ensure that frivolous petitions do not impede the seamless progress of recovery proceedings initiated pursuant to the SARFAESI Act.”
The case before the court involved a company challenging an additional district magistrate’s decision to suspend SARFAESI Act proceedings related to a property due to an injunction order from a civil court. The petitioner argued that an injunction order obtained by a tenant, without a registered lease deed, should not hinder SARFAESI Act proceedings.
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The court, considering the submissions, held that an unregistered lease could not be considered due to the bar under the Registration Act. It emphasized that a tenancy without a fixed period or deemed to be a month-to-month tenancy does not entitle a tenant to seek possession of a secured asset beyond one year under Section 14 of the SARFAESI Act.
Section 14 of the SARFAESI Act–
- Secured creditors seeking possession or transfer of assets can formally request the Chief Metropolitan Magistrate or District Magistrate.
- Upon request, the Magistrate must:
- Take possession of specified assets and related documents.
- Forward the assets and documents to the secured creditor.
- The creditor’s application must be accompanied by an affidavit from the authorized officer, detailing financial assistance, borrower’s default, security interest, notice served, non-performing asset status, objection consideration, and legal compliance.
- The District Magistrate or Chief Metropolitan Magistrate must issue possession orders within thirty days of the application, extendable up to sixty days with valid reasons.
- Affidavit requirements do not apply to ongoing proceedings initiated before the Act’s commencement.
- Subordinate officers may be authorized by the Magistrate to take possession of assets and forward them to the secured creditor.
- To ensure compliance, Magistrates can use necessary steps and force.
- Actions taken by Magistrates or their authorized officers under this section cannot be challenged in any court or before any authority.
Furthermore, the court clarified that if a tenant intends to claim possession of a secured asset facing SARFAESI Act proceedings, it must be done through a registered instrument. The court advised tenants to approach the concerned officer to determine the validity of the lease entitling them to possession.
The court categorically stated that even the Debts Recovery Tribunal lacks the authority to restore possession of the secured asset to the tenant. Importantly, the court ruled that no civil court can entertain suits or proceedings against measures taken under the SARFAESI Act, emphasizing the need for a streamlined legal process.
Subsequently, the court determined that the magistrate in this particular case did not appropriately exercise jurisdiction and, as a result, nullified the order issued on April 18, 2023, which sought to suspend the SARFAESI Act proceedings.
