Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: s.14(1A) – Power of CMM/DM to appoint and authorize an advocate to take possession of the secured assets and documents and to forward the same to the secured creditors by virtue of s.14(1A) of the 2002 Act – Held: Purpose of the 2002 Act is to empower the financial institutions to manage the non performing assets by adopting measures for recovery or reconstruction – s.13(4) states that when a default is committed by the borrower in discharging his liability in full, the secured creditor may take recourse to one or more of the measures – One of the measures is to take possession of the secured assets of the borrower – If secured creditor intends to take possession of secured assets, the application u/s.14 must be moved to CMM/DM in writing – s.14(1A) added by amendment provides that CMM/DM may authorize any officer subordinate to him for the aforesaid purpose – The statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under s.14(1) of the 2002 Act – There is de jure functional subordinate relationship between the CMM/DM and the advocate being an officer of the Court – There is no rule as such framed by the central government which expressly or impliedly prohibits CMM/DM to engage an advocate commissioner for taking possession – Hence, by applying ‘functional subordination’ test, CMM/DM may appoint advocate as a subordinate officer for the purpose of s. 14(1A) of the 2002 Act.
Allowing the Appeals filed by secured creditors and delinking the SLP (Civil) No.12011 of 2020 filed by borrowers, the Court
HELD: 1. The underlying purpose of the 2002 Act is to empower the financial institutions in India to have similar powers as enjoyed by their counterparts, namely, international banks in other countries. One such feature is to empower the financial institutions to take possession of securities and sell them. Section
13 deals with enforcement of security interest. Sub-Section (4) thereof envisages that in the event a default is committed by the borrower in discharging his liability in full within the period specified in sub-Section (2), the secured creditor may take recourse to one or more of the measures provided in Sub-Section (4). One of the measures is to 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. Section
14 of the 2002 Act predicates that if the secured creditor intends to take possession of the secured assets, must approach the CMM/DM by way of an application, in writing, and on receipt of such request, the CMM/DM must move into action in right earnest. After passing an order thereon, he/she (CMM/DM) must proceed to take possession of the secured assets and documents relating thereto for being forwarded to the secured creditor in terms of Section 14(1) read with Section 14(2) of the 2002 Act. As noted earlier, Section 14(2) is an enabling provision and permits the CMM/DM to take such steps and use force, as may, in his opinion, be necessary. This position obtained even before the amendment of 2013 i.e., insertion of sub-Section (1A) and continues to this date. Sub-Section (1A) is in the nature of an explanatory provision and it merely restates the implicit power of the CMM/DM in taking services of any officer subordinate to him. The insertion of Sub-Section (1A) is not to invest a new power for the first time in the CMM/DM as such. [Paras 22, 23, 24][1198-G-H; 1199-A-B; 1195-C-D; 1199-F-H]
2. The statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the 2002 Act from the secured creditor for that purpose. It is common knowledge that in the respective jurisdictions, there is only one CMM/DM. If he is expected to reach at every location himself for taking possession, in some jurisdictions it would be impracticable, if not impossible, for him to do so owing to large number of applications in the given jurisdiction being a commercial city. Accordingly, strict construct would defeat the legislative intent and purpose for enacting the 2002 Act. Indeed, logistical problems of the Office of the CMM/DM cannot be the basis to overlook the statutory provision. It could be taken by the CMM/DM himself/herself or through any officer subordinate to him/her, including the Advocate Commissioner who is considered as an officer of his/her court. The Advocate Commissioner is not a new concept. The advocates are appointed as Court Commissioner to perform diverse administrative and ministerial work as per the provisions of Code of Civil Procedure and Code of Criminal Procedure. An advocate is an officer of the court. [Paras 28, 29, 36][1204-G-H; 1205-C-D; 1210-C-D]
3. Whereas, applying the “functional subordination” test, this Court held that sub-Section (1A) of Section 14 of the 2002 Act is no impediment for the CMM/DM to engage services of an advocate (an officer of the court) — only for taking possession of secured assets and documents relating thereto and to forward the same to the secured creditor. It does not follow that the advocate so appointed needs to be on the rolls in the Office of the CMM/DM or in public service. There is intrinsic de jure functional subordinate relationship between the CMM/DM and the advocate being an officer of the court. The apprehension of the borrowers about improper execution of orders of the CMM/DM passed under Section 14(1) of the 2002 Act by the Advocate Commissioner, is plainly misplaced. There is no reason to assume that the advocate so appointed by the CMM/DM would misuse the task entrusted to him/her and that will not be carried out strictly as per law or it would be a case of abuse of power. Rather, going by the institutional faith or trust reposed on advocates being officers of the court, there must be a presumption that if an advocate is appointed as commissioner for execution of the orders passed by the CMM/DM under Section 14(1) of the 2002 Act, that responsibility and duty will be discharged honestly and in accordance with rules of law. [Para 42][1212-E-H; 1213-A-C] Authorised Officer, Indian Bank v. D. Visalakshi & Anr. [2019] SCR 177 – relied on.
Muhammed Ashraf & Anr. v. Union of India & Ors. AIR 2009 Kerala 14; The Federal Bank Ltd.,
Ernakulam v. A.V. Punnus AIR 2014 Kerala 7; V.S. Sunitha v. Federal Bank Ltd. 2018 SCC OnLine Ker 12866; S. Chandramohan & Anr. v. The Chief
Metropolitan Magistrate, Egmore, Chennai & Ors. 2014 SCC OnLine Mad 7869; Rahul Chaudhary v. Andhra Bank & Ors. 2020 SCC OnLine Del 284; M/s. J. Marks Exim (India) Pvt. Ltd. v. Punjab National Bank 2017 SCC OnLine Bom 2246; Sakiri Vasu v. State of Uttar Pradesh & Ors. [2007] 11 SCR 980; Dattatraya Moreshwar v. The State of Bombay & Ors. [1952] SCR 612; Mahadev Govind Gharge & Ors. v. Special Land Acquisition Officer, Upper Krishna Project, Jamkhandi, Karnataka [2011] 8 SCR 829; Sangram Singh v. Election Tribunal, Kotah & Anr. [1955] SCR 1; A. St. Arunachalam Pillai v. M/s. Southern Roadways Ltd. & Anr. 1960 SCR 764; S. Krishnaswamy Mudaliar & Anr. v. P.S. Palani Pillai & Anr. AIR 1957 Mad 599; B. Veeraswamy & Ors. v. State of Andhra Pradesh & Ors. AIR 1959 AP 413; Lalit Mohan Das v. The AdvocateGeneral, Orissa & Anr. [1957] SCR 167; O.P. Sharma & Ors. v. High Court of Punjab & Haryana [2011]
6 SCR 301; Satheedevi v. Prasanna & Anr. [2010] 6 SCR 657; M/s. Hiralal Rattanlal etc. etc. v. State of U.P. & Anr. etc. etc. [1973] 2 SCR 502; Dipak Babaria & Anr. v. State of Gujarat & Ors. [2014] 2 SCR 71 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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