M/S HINDON FORGE PVT. LTD. & ANR. versus THE STATE OF UTTAR PRADESH THROUGH DISTRICT MAGISTRATE GHAZIABAD & ANR.

[2018] 11 S.C.R. 1019

M/S HINDON FORGE PVT. LTD. & ANR.

THE STATE OF UTTAR PRADESH THROUGH DISTRICTMAGISTRATE GHAZIABAD & ANR.

(Civil Appeal No. 10873 of 2018)

NOVEMBER 01, 2018

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Securitisation and Reconstruction of Financial Assets andEnforcement of Securities Interest Act, 2002: s.17(1) – Whether anapplication under s.17(1) of the SARFAESI Act at the instance of aborrower, is maintainable even before physical or actual possessionof secured assets is taken by banks/financial institutions in exerciseof their powers under s.13(4) of the Act r/w r.8 of the Rules, 2002– Held: The scheme of s.13(4) r/w r.8(1) makes it clear that thedelivery of possession notice together with affixation on theproperty and publication is one mode of taking “possession” unders.13(4) – Once possession is taken under rr.8(1) and 8(2)r/w s.13(4)(a), s.17 gets attracted, as this is one of the measuresreferred to in s.13(4) that is taken by the secured creditor underChapter III – Thus, borrower/debtor can approach the DebtsRecovery Tribunal under s.17 of the Act at the stage of the possessionnotice referred to in rr. 8(1) and 8(2) of the 2002 Rules – SecurityInterest (Enforcement) Rules, 2002 – rr.8(1) and 8(2).

Allowing the appeals, the Court

HELD: 1.1 reading of section 13 would make it clearthat where default in repayment of secured debt or anyinstalment thereof is made by borrower, the secured creditormay require the borrower, by notice in writing, to discharge infull his liabilities to the secured creditor within 60 days from thedate of notice. It is only when the borrower fails to do so that thesecured creditor may have recourse to the provisions containedin section 13(4) of the Act. [Para 10] [1054-B-C]

Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC311 : [2004] 3 SCR 982 – relied on.

A1.2 Rule 8(1) makes it clear that “the authorised officershall take or cause to be taken possession”. The expression“cause to be taken” only means that the authorised officer neednot himself take possession, but may, for example, appoint anagent to do so. What is important is that such taking of possessionis effected under sub-rule (1) of rule 8 by delivering possessionBnotice prepared in accordance with Appendix IV of the 2002 Rules,and by affixing such notice on the outer door or any otherconspicuous place of the property concerned. Under sub-rule (2),such notice shall also be published within 7 days from the date ofsuch taking of possession in two leading newspapers, one in theCvernacular language having sufficient circulation in the locality.Appendix IV provides the format of possession notice whereinthe borrower in particular, and the public in general is cautionedby the said possession notice not to deal with the property aspossession of the said property has been taken. From this stage

on, the secured asset is liable to be sold to realise the debt owed,Dand title in the asset is divested from the borrower and completetitle given to the purchaser, as is mentioned in section 13(6) ofthe Act. There is, thus, radical change in the borrower dealingwith the secured asset from this stage. At the stage of section13(2) notice, section 13(13) interdicts the borrower’s fromEtransferring the secured asset (otherwise than in the ordinarycourse of his business) without the prior written consent of thesecured creditor. But once possession notice is given under rule8(1) and 8(2) by the secured creditor to the borrower, the borrowercannot deal with the secured asset at all as all further steps torealise the same are to be taken by the secured creditor underFthe 2002 Rules. [Para 11] [1054-E-H; 1055-A-B]1.3 The scheme of section 13(4) read with rule 8(1)therefore makes it clear that the delivery of possession noticetogether with affixation on the property and publication is onemode of taking “possession” under section 13(4). This beingGthe case, it is clear that section 13(6) kicks in as soon as this isdone as the expression used in section 13(6) is “after takingpossession”. Also, it is clear that rule 8(5) to 8(8) also kick in assoon as “possession” is taken under rule 8(1) and 8(2). Thestatutory scheme, therefore, in the present case is that onceHpossession is taken under rule 8(1) and 8(2) read with section

13(4)(a), section 17 gets attracted, as this is one of the measuresreferred to in section 13(4) that can be taken by the securedcreditor under Chapter III. Rule 8(3) begins with the expression“in the event of”. These words make it clear that possessionmay be taken alternatively under sub-rule (3). The furtherexpression used in sub-rule (3) is “actually taken” making it clearthat physical possession is referred to by rule 8(3). Thus, whetherpossession is taken under either rule 8(1) and 8(2), or underrule 8(3), measures are taken by the secured creditor undersection 13(4) for the purpose of attracting section 17(1). [Paras12, 13] [1055-C-G]

2.1 The argument for the respondents that section 13(4)(a)has to be read in the light of sub-clauses (b) and (c) is incorrectand must be rejected. Under sub-clause (c), person is appointedas the manager to manage the secured assets, the possession ofwhich has been taken over by the secured creditor only underrule 8(3). Further, the rule of noscitur sociis cannot apply. Sub-clause (b) speaks of taking over management of the business ofthe borrower which is completely different from taking overpossession of secured asset of the borrower. Equally, sub-clause(d) does not speak of taking over either management orpossession, but only speaks of paying the secured creditor somuch of the money as is sufficient to pay off the secured debt.These arguments must therefore be rejected. [Para 14] [1055-G; 1056-A-B]

2.2 Section 17(3) is provision which arms the DebtsRecovery Tribunal to provide certain reliefs when applicationsare made before it by the borrower. One of the reliefs that can begiven is restoration of possession. Other reliefs can also be givenunder the omnibus section 17(3)(c). Merely because one of thereliefs given is that of restoration of possession does not lead tothe sequitur that only actual physical possession is thereforecontemplated by section 13(4), since other directions that maybe considered appropriate and necessary may also be given forwrongful recourse taken by the secured creditor to section 13(4).[Para 16] [1056-F-G]

2.3 In the Statement of Objects and Reasons of the originalenactment, paragraphs 2(i) and 2(j) make it clear that the rights

Aof the secured creditor are to be exercised by officers authorisedin this behalf in accordance with the rules made by the CentralGovernment. Further, an appeal against the action of any bank orfinancial institution is provided to the concerned Debts RecoveryTribunal. It can thus be seen that though the rights of securedcreditor may be exercised by such creditor outside the courtBprocess, yet such rights must be in conformity with the Act. Ifthat is not the case, such an action is liable to be interfered withby the Debts Recovery Tribunal in an application made by thedebtor/borrower. Thus, it can be seen that the object of theoriginal enactment also includes secured creditors acting inCconformity with the provisions of the Act to realise the secureddebt which, if not done, gives recourse to the borrower to obtainrelief from the Debts Recovery Tribunal. Equally, the Statementof Objects and Reasons of the Amendment Act of 2004 also makesit clear that not only do reasons have to be given for not acceptingobjections of the borrower under section 13(3-A), but thatDapplications may be made before the Debts Recovery Tribunalwithout making the onerous pre-deposit of 75% which was struckdown by this Court in Mardia Chemicals. The object of the Act,therefore, is also to enable the borrower to approach quasi-judicial forum in case the secured creditor, while taking any ofEthe measures under section 13(4), does not follow the provisionsof the Act in so doing. Take for example case in which securedcreditor takes possession under rule 8(1) and 8(2) before the 60days’ period prescribed under section 13(2) is over. The borrowerdoes not have to wait until actual physical possession is taken(this may never happen as after possession is taken under ruleF8(1) and 8(2), the secured creditor may go ahead and sell theasset). The object of providing remedy against the wrongfulaction of secured creditor to borrower will be stultified if theborrower has to wait until sale notice is issued, or worse still,until sale actually takes place. It is clear, therefore, that one ofGthe objects of the Act, as carried out by rule 8(1) and 8(2) mustalso be subserved, namely, to provide the borrower with instantrecourse to quasi-judicial body in case of wrongful action beingtaken by the secured creditor. [Para 17] [1056-H; 1057-A-G]

3.1 Another argument for the respondents is that the takingHof possession under section 13(4)(a) must mean actual physical

possession or otherwise, no transfer by way of lease can be madeas possession of the secured asset would continue to be with theborrower when only symbolic possession is taken. This argumentalso must be rejected for the reason that what is referred to insection 13(4)(a) is the right to transfer by way of lease for realisingthe secured asset. One way of realising the secured asset is whenphysical possession is taken over and lease of the same is madeto third party. When possession is taken under rule 8(1) and8(2), the asset can be realised by way of assignment or sale. Thisbeing the case, it is clear that the right to transfer could be byway of lease, assignment or sale, depending upon which mode oftransfer the secured creditor chooses for realising the securedasset. Also, the right to transfer by way of assignment or sale canonly be exercised in accordance with rules 8 and 9 of the 2002Rules which require various pre-conditions to be met before saleor assignment can be effected. Equally, transfer by way of leasecan be done in future in cases where actual physical possessionis taken of the secured asset after possession is takenunder rule 8(1) and 8(2) at future point in time. If no suchactual physical possession is taken, the right to transfer by wayof assignment or sale for realising the secured assetcontinues. This argument must also, therefore, be rejected.[Para 18] [1057-G-H; 1058-A-D]

3.2 Banks and financial institutions can recover their debtsby selling properties outside the court process under theSARFAESI Act by adhering to the statutory conditions laid downby the said Act. It is only when such statutory conditions are notadhered to that the Debts Recovery Tribunal comes in at thebehest of the borrower. Under the Recovery of Debts Act, banks/financial institutions could not recover their debts withoutintervention of the Debts Recovery Tribunal, which theSARFAESI Act has greatly improved upon, the only caveat beingthat this must be done by the secured creditor following the drillof the SARFAESI Act and rules made thereunder. [Para 19][1058-E-G]

Transcore v. Union of India & Anr. (2008) 1 SCC125 : [2006] 9 Suppl. SCR 785; Standard CharteredBank v. V. Noble Kumar & Ors., (2013) 9 SCC 620 :[2013] 10 SCR 762 – distinguished.

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AITC Limited v. Blue Coast Hotels Ltd. and Ors. AIR 2018SC 3063 – relied on.

Canara Bank v. M. Amarender Reddy & Anr. (2017) 4SCC 735 : [2017] 3 SCR 748; Mathew Varghese v.M. Amritha Kumar and Ors. (2014) 5 SCC 610 : [2014]B2 SCR 736 – referred to.

4. Appendix IV-A recognises the fact that rule 8(1) and 8(2)refer to constructive possession whereas rule 8(3) refers tophysical possession. The borrower/debtor can approach the DebtsRecovery Tribunal under section 17 of the Act at the stage of theCpossession notice referred to in rules 8(1) and 8(2) of the 2002Rules. [Para 25] [1067-C-D]

Case Law Reference

ECIVIL APPELLATE JURISDICTION : Civil Appeal No. 10873of 2018.

From the Judgment and Order dated 06.02.2018 of the HighCourt of Judicature at Allahabad, Lucknow Bench in Misc. Bench No.28806 of 2017

WITH

Civil Appeal No. 10874 of 2018.

Neeraj Kishan Kaul, C. U. Singh, Ranjit Kumar, Sr. Advs., SanchitGarga, Harsh Chopra, Ashutosh Garga, Pahlad Singh Sharma, ShashankGPathak, Samar Kachwaha, Chanan Parwani, Ramchandra Madan, AbhayChauhan, Dincur Bajaj, D. K. Pathak, Vivek Gupta, MrinmayBhattmewara, Pranav Kaashyap, O. P. Gaggar, Ankur Prakash, SureshDobhal, Rohit Dhyani, Ms. Sonakshi Dhiman, Saaransh Parasher, RishiSharma, Das, Ms. Kusum Lata, Mahesh K. Chaudhary, Sanjeev Singh,Ms. Anandita Singh, Sudhanshu Palo, Ashok Kumar Dhandhania, ArupHPaul, Ms. Soumya Mukharjee, Ms. Jyoti Chaturvedi, Praveen Chaturvedi,

Ashish Dholakia, Sanjay Kapur, Ms. Megha Karnwal, Ms. Sheena Taqui,Ms. Shubhra Kapur, Piyush Hans, Ashok Malik, Vishisht, Ms. Saloni,Bhal Singh Malik, Muneesh Malhotra, Achin Mittal, Advocates for theappearing parties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. Leave granted.

2. These matters come to us from Full Bench judgment of theAllahabad High Court dated 06.02.2018. By an order of reference dated19.09.2017, learned Single Judge noticed divergent opinions expressedby two different Benches of the Allahabad High Court on the questionwhether an application under section 17(1) of the Securitisation andReconstruction of Financial Assets and Enforcement of SecuritiesInterest Act, 2002 (hereinafter referred to as the “SARFAESI Act” orthe “Act”), at the instance of borrower, is maintainable even beforephysical or actual possession of secured assets is taken by banks/financialinstitutions in exercise of their powers under section 13(4) of the Actread with rule 8 of the Security Interest (Enforcement) Rules, 2002(hereinafter referred to as the “2002 Rules”). After discussing thevarious provisions of the Act, the 2002 Rules and judgments of theSupreme Court, the Full Bench summarised the true legal positionaccording to it as follows:

“29. The upshot of legal position that emerges from the judgmentsof the Supreme Court, insofar as the question referred to for ourconsideration is concerned, briefly stated, is as under:

(a) The remedy of an application under Section 17(1) is availableonly after the measures under Section 13(4) have been taken bythe Bank/FIs against the borrower.

(b) The issue of notice under Section 13(2) to the borrower andcommunication contemplated by Section 13(3-A) stating that hisrepresentation/objection is not acceptable or tenable, does notattract the application of principles of natural justice. In otherwords, no recourse to an application under Section 17(1), at thatstage, is available/maintainable.

(c) The borrower/person against whom measures under Section13(4) of the Act are likely to be taken, cannot be denied to knowthe reason why his application or objections have not been

accepted, as fulfilment of the requirement of reasonablenessand fairness in dealing with the same.

(d) One of the reasons for providing procedure under Section13(4) read with Rule 8 for taking possession is that the borrowershould have clear notice before the date and time of sale/transfer of the secured assets, in order to enable him to tenderthe dues of the secured creditor with all other charges or to takea remedy under Section 17, at appropriate stage.

(e) The time of 60 days is provided after the “measures” underSection 13(4) have been taken so as to enable the borrower toapproach DRT and in such an eventuality, the DRT shall have ajurisdiction to pass any order/interim order, may be subject toconditions, on the application under Section 17(1) of the Act.

(f) The scheme of relevant provisions of the Act and the Rulesshows that the Bank/FIs have been conferred with powers totake physical (actual) possession of the secured assets withoutinterference of the Court and the only remedy open to theborrower is to approach DRT challenging such an action/measureand seeking appropriate relief, including restoration of possession,even after transfer of the secured assets by way of sale/lease,on the ground that the procedure for taking possession ordispossessing the borrower was not in accordance with theprovisions of the Act/Rules.

(g) If the dues of the secured creditor together with all costs,charges and expenses incurred by them are tendered to them(secured creditors) before the date fixed for sale or transfer, theassets shall not be sold or transferred and in such an eventuality,possession can also be restored to the borrower.

(h) If the possession is taken before confirmation of sale, it cannotbe stated that the right of the borrower to get the disputeadjudicated upon is defeated. The borrower’s right to get backpossession even after the sale remains intact or stands recognisedunder the scheme of the provisions of the Act.

(i) The borrower is not entitled to challenge the reasonscommunicated or likely measure, to be taken by the securedcreditor under Section 13(4) of the Act, unless his right toapproach DRT, as provided for under Section 17(1), matures.

The borrower gets all the opportunities, at different stages, eitherto clear the dues or to challenge the measures under Section13(4) or even to challenge the reasons rejecting his objections/not accepting the objections, after the measures under Section13(4) have been taken.

(j) While the banks have been vested with stringent powers forrecovery of their dues, safeguards have also been provided forrectifying any error or wrongful use of such powers by vestingDRT with authority, after conducting an adjudication into thematters, to declare any such action invalid and also to restoreeven though the possession may have been made over to thetransferee.

(k) The safeguards provided under the scheme make it furtherclear that if the Bank/FIs proceeds to take actual possession ofthe assets that cannot be stalled by the interference of Court.

(l) If DRT after examining the facts and circumstances of thecase and on the basis of evidence produced by the parties, comesto the conclusion that any of the measures referred to in Section13(4), taken by the secured creditor is not in accordance withthe provisions of the Act, it may by order declare that the recoursetaken to any one or more measures is invalid and restorepossession to the borrower.

(m) Any transfer of secured asset after taking possession thereofby the secured creditor shall vest in the transferee all rights in, orin relation to the secured asset as if the transfer had been madeby the owner of such secured assets.

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

The court then went on to hold:

“31. Section 13(4) of the Act provides that if the borrower failsto discharge his liability within the period prescribed under Section13(2), the secured creditor can take recourse to one of the

measures, such as taking possession of the secured assets,including the right to transfer by way of lease, assignment orsale for realising the secured asset. From the language of thisprovision, it is further clear that taking measure under Section13(4)(a) would mean taking actual (physical) possession, and ifwe do not read it in the said provision to say so, the right andpower of the secured creditor to transfer the assets by way oflease, assignment or sale for realizing the secured assets, asprovided for therein, would render redundant. In other words,putting such an interpretation on the language of Section 13(4)of the Act would be atrocious and would defeat the very objectiveof bringing the legislation. It is, therefore, not possible to holdthat taking “measures” under Section 13(4)(a) also means takingonly “symbolic possession” and not “physical possession”. Werecord further reasons to say so in following paragraph. Fromthe scheme of Section 13(4) and Sections 14 and 17 of the Actand the relevant Rules 8 and 9 of the Rules, it appears to us thatunless physical possession is taken, the measure, contemplatedunder Section 13(4), cannot be stated to have been taken.

31.1. One of the rights conferred on secured creditor is totransfer by way of lease, the secured asset, possession ormanagement whereof has been taken under clauses (a) or (b)of sub-section (4) of Section 13. We have already held that saleor assignment of the secured assets could only be undertaken ifactual physical possession has been taken over by the bank/FI’s. If we pose question whether right to transfer the securedassets by way of lease could be exercised without taking actualphysical possession of the secured asset or management of thebusiness of the borrower, our answer would be obviously in thenegative.

31.2. The word ‘lease’ has not been defined under the Act, butit has been used in the Act in the same sense as under the Transferof Property Act, 1882. Thereunder, Section 105 defines lease as“transfer of right to enjoy such property, made for certaintime, express or implied, or in perpetuity, in consideration of aprice paid or promised, or of money, share of crops, service orany other thing of value, to be rendered periodically or on specifiedoccasions to the transferor by the transferee, who accepts the

transfer on such terms. Lease is contract between the lessorand the lessee for the possession and profits of land, etc. on oneside and the recompense by rent or other consideration on theother. The estate transferred to the lessee is called the leasehold.The estate remaining in the lessor is called the reversion.

31.3. The absolute owner, who is under no personal incapacitycan grant lease for any term he pleases. However, the limitedowner like tenant for life can grant lease but it would not endurebeyond his death. The Supreme Court in Associated Hotels ofIndia Ltd. v. R.N. Kapoor, AIR 1959 SC 1262, while making adistinction between lease and license observed thus:—

“A lease is transfer of an interest in land. The interestedtransferred is called the leasehold interest. The lessor partswith his right to enjoy the property during the term of thelease, and it follows from it that the lessee gets that right tothe exclusion of the lessor.

Under S. 52 if document gives only right to use theproperty in particular way or under certain terms while itremains in possession and control of the owner thereof, itwill be licence. The legal possession, therefore, continuesto be with the owner of the property, but the licensee ispermitted to make use of the permissive for particularpurpose. But for the permission, his occupation would beunlawful. It does not create in his favour any estate or interestin the property. There is, therefore, clear distinction betweenthe two concepts.”

31.4. One of the essential indicia of lease is parting of exclusivepossession by the lessor to the lessee with conferment ofreciprocal right in the lessee to protect his possession duringsubsistence of the lease to the exclusion of the lessor. Althoughin some cases, licensee may also be given exclusive possessionof property, but as observed above, parting of exclusivepossession to the lessee is sine qua non for creating validlease. Thus, where person is not in physical possession of aproperty nor in position to deliver physical possession in future,he is incompetent to create valid lease. The reason being thathe is not in position to confer upon the lessee the right to enjoythe property to the exclusion of the lessor and everyone else.

31.5. It thus necessarily follow that the ultimate object of takingpossession of the secured asset or management of the businessof the borrower would not be achieved unless the secured creditoris in position to further exercise his right to transfer the same,inter alia, by way of lease or sale, which could be possible only ifphysical (actual) possession has been taken over and notconstructive or symbolic possession. The language of Section13(6) also supports our view. Thus, while there is no bar in firsttaking symbolic possession of the secured assets, but it is implicitin sub-section (4) of Section 13 that the secured creditor has tothereafter proceed to take physical (actual) possession in orderto exercise its right to transfer by way of lease, assignment orsale.”

xxx xxx xxx

“34. Thus, the scheme of the provisions of Sections 13 and 17 ofthe Act, read with Rules 8 and 9 of the Rules, would show thatthe “measure” taken under Section 13(4)(a) read with Rule 8would not be complete unless actual (physical) possession of thesecured assets is taken by the Bank/Financial Institutions. In ouropinion, taking measure under Section 13(4) means either takingactual/physical possession under clause (a) of sub-section (4) ofSection 13 or any other measure under other clauses of thisSection and not taking steps to take possession or makingunsuccessful attempt to take measure under Section 13(4) ofthe Act. Similarly, following the procedure laid down under Section14 and/or Rules 8 and 9, where the Bank meets with resistance,would only mean taking steps to seek possession under Section13(4)(a) and the “measure” under sub-section (4)(a) of Section13 would stand concluded only when actual/physical possessionis taken or the borrower loses actual/physical possession. It is atthis stage alone or thereafter, the borrower can take recourse tothe provisions of Section 17(1) of the Act. The transfer ofpossession is an action. Mere declaration of possession by anotice, in itself, cannot amount to transfer of possession, moreparticularly where such notice meets with resistance. Whenthe possession is taken by one party, other party also loses it. Inthe present case, adversial possession in being claimed by thesecured creditor against the borrower. It is not possible that both

will have possession over the secured assets. The possession ofthe secured creditor would only come into place with thedispossession of the borrower. We may also observe that in asecuritisation application under Section 17(1), the borrower willhave to make categoric statement that he lost possession or hehas been dispossessed and pray for possession.

35. Issuance of possession notice, as observed earlier, givesborrower and the public in general an intimation that the securedcreditor has taken possession of the property and at that stage, itis quite possible, may be in view of resistance or if the Bankschooses to take only symbolic possession, to state that the securedcreditor has taken symbolic/constructive possession and notphysical possession, but that by itself would not entitle theborrower to raise challenge under Section 17(1) of the Act, asheld by the Supreme Court in Noble Kumar (supra). Unless theborrower loses actual (physical) possession, he cannot takerecourse to provisions of Section 17(1). Even while taking stepsunder Section 13(4) of the Act read with Rule 8 of the Rules, ina given case, the bank may not physically dispossess the borrowerand wait till it takes steps to conduct actual sale/auction of thesecured assets i.e. till he issues notice under Rule 8(6) of theRules. Even that by itself, from the scheme of the Act and theRules, in the backdrop of the objective of the Act, in our opinion,does not confer any right to take recourse to Section 17(1). Theborrower can file securitisation application under Section 17(1)only when he physically loses possession.”

xxx xxx xxx

“40. We are, therefore, of the firm and considered opinion thattaking “symbolic possession” or issuance of possession noticeunder Appendix IV of the Rules, meeting with any resistance,cannot be treated as “measure”/s taken under Section 13(4) ofthe Act and, therefore, the borrower at that stage cannot file anapplication under Section 17(1) before DRT. In other words, asecuritisation application under Section 17(1) of the Act ismaintainable only when actual/physical possession is taken bythe secured creditor or the borrower loses actual/physicalpossession of the secured assets. Once the right to approachDRT matures and securitisation application under Section 17(1)

ABC

Ais filed by the borrower, it is open to DRT to deal with the sameon merits and pass appropriate orders in accordance with law.Thus, the question referred to for our consideration standsanswered in terms of this judgment. The judgment of this Courtin Aum Jewels (supra), in our opinion, does not enunciate thecorrect law.”

3. Shri Neeraj Kishan Kaul, learned Senior Advocate, appearingon behalf of the appellants, has placed before us all the relevant sectionsunder the SARFAESI Act as well as the relevant rules under the 2002Rules. He has referred to the Statement of Objects and Reasons of boththe original Act as well as the Amendment Act made in 2004 pursuant toCa judgment of this Court in Mardia Chemicals Ltd. v. Union of India,(2004) 4 SCC 311 (“Mardia Chemicals”). According to Shri Kaul, thescheme of section 13 is that notice of default once served under section13(2) of the Act may call upon the borrower to discharge in full hisliability to the secured creditor within 60 days from the date of notice,Dfailing which the secured creditor shall be entitled to exercise all or anyof the rights under sub-section (4) of section 13. He relied upon section13(3-A) which made it clear that even though reasons are communicatedunder the said sub-section, since no measures were actually taken undersection 13(4), there is no right at that stage for the borrower to prefer anapplication to the Debts Recovery Tribunal under section 17 of the Act.EAccording to the learned Senior Advocate, section 13(4)(a) makes itclear that “possession” of the secured assets of the borrower may betaken under this provision. Obviously, such possession is to be takenunder the rules framed under the Act. Rule 8(1) makes it clear thatpossession is taken under the 2002 Rules by delivering possessionFnotice prepared in the form contained in Appendix IV to the rules, andby affixing the notice on the outer door or at such conspicuous place ofthe property. Once this is done, and the possession notice is published intwo leading newspapers under sub-rule (2), the form contained inAppendix IV makes it clear that notice is given to the public in general

that possession has been taken in exercise of powers contained underGsection 13(4) of the Act read with rule 8 of the 2002 Rules. As soon asthis takes place, according to Shri Kaul, since “symbolic possession”has been so taken, the right of the borrower to approach the DebtsRecovery Tribunal for relief under section 17 gets crystallized. He alsorelied upon sub-rule (3) to argue that possession may be taken under thisHsub-rule which is “actual” as opposed to “symbolic” possession under

sub-rule (1). According to the learned Senior Advocate, the momentpossession is taken either under rule 8(1) or under rule 8(3), section13(6) gets attracted thereby making it clear that transfer of securedasset, after taking such possession, shall vest in the transferee all rightsin, or in relation to, the secured asset transferred as if the transfer hadbeen made by the owner of such secured asset. According to Shri Kaul,after symbolic possession is taken under rule 8(1), rules 8(5) to 8(8) andrule 9 can then be followed in order to effect sale of property of whichsymbolic possession has been taken. Shri Kaul attacked the judgment ofthe Full Bench, stating that the conclusion of the Full Bench that theborrower would have to wait until actual physical possession of thesecured asset is taken would create great hardship in that runningbusiness of the borrower would be taken over without the borrowerbeing able to approach the Debts Recovery Tribunal, and would have towait until after the sale takes place to recover possession under section17(3), even if he is able to show that the steps taken by the securedcreditor are in violation of the provisions of the Act. Thus, if symbolicpossession is taken contrary to section 13(2) prior to 60 days from thedate of the notice mentioned therein, all borrowers would have to waituntil physical possession is taken and/or sale notice is issued to getback their running business after the business is brought to grindinghalt. This could not possibly have been the intention of the legislature.

4. Shri C.U. Singh, learned Senior Advocate, appearing on behalfof respondent no. 2, took us through the statutory provisions and the2002 Rules and argued that the High Court may have gone beyond whatwas argued by his predecessor before the High Court. Shri Singhemphasised that his limited argument before this Court is that the stageof symbolic possession is not stage at which any prejudice is caused tothe borrower as he may continue to run his business. Section 13(6) doesnot come in at this stage at all, and section 13(13), which interdicts aborrower after receipt of notice under section 13(2) to transfer byway of sale, lease or otherwise, other than in the ordinary course ofbusiness, any of his secured assets without prior written consent of thesecured creditor, is the only restraint that continues to attach aftersymbolic possession is taken. According to him, as no prejudice is causedto the borrower at this stage, it is clear that “possession” spoken of insection 13(4) can only mean actual physical possession. This becomesclear on reading of section 13(4)(c) which makes it clear that managercan only manage the secured assets the possession of which has been

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Ataken over by the secured creditor, if actual physical possession hasbeen parted with. According to the learned Senior Advocate, therefore,the object of the Act will be defeated if debtor can approach the DebtsRecovery Tribunal at such stage when no prejudice is caused to him,thereby rendering what is statutorily granted to creditor futile. He reliedupon observations in various Supreme Court judgments to buttress hisBstand that it is only at the stage of actual physical possession that anapplication can be filed under section 17 and not before.5. Shri Ranjit Kumar, learned Senior Advocate, appearing on behalfof the respondents in Civil Appeal arising out of SLP(C) No.12841 of2018, went on to argue that all the sub-clauses in section 13(4) must beCconstrued together. If that is done, it is clear that under sub-clauses (b)and (c), management and possession must physically be taken over.Therefore, under sub-clause (a), the expression “possession” must alsomean actual physical possession. According to the learned SeniorAdvocate, the measures taken under section 13 must also be read withDsections 14 and 15. It is clear that under section 14, actual physicalpossession is to be handed over by the Chief Metropolitan Magistrate orthe District Magistrate to the secured creditor, and under section 15,management of the business has actually to be taken over as twomanagements cannot possibly continue at the same time. Read in thislight, the scheme of the Act, therefore, is clear and it becomes equallyEclear that only actual physical possession is referred to in section 13(4)(a)before section 17 application can be filed. He also referred to section17(3) to further argue that restoration of possession of secured assetscould only refer to restoration of actual physical possession therebystrengthening his interpretation of sections 13 and 17 of the Act.FAccording to him, under section 19, compensation is also payable wherepossession taken is not in accordance with the provisions of the Act and2002 Rules, again making it clear that when the Court or Tribunal directsthe secured creditor to return such secured asset to the borrowers,compensation may be paid. Returning secured assets obviously would

mean assets of which physical possession has been taken. When it cameGto reading rules 8(1) and 8(3) of the 2002 Rules, according to Shri RanjitKumar, rule 8(3) is the next step after symbolic possession is taken overunder rule 8(1), and without taking of actual physical possession underrule 8(3), no sale can be made of any secured assets. Like Shri C.U. Singhbefore him, he agreed that the High Court had perhaps gone little tooHfar in its conclusion, and that the moment any real prejudice is caused to

the borrower, the borrower can certainly approach the Tribunal. Thiswould also include the stage at which sale notice is issued under rule 8.

6. Shri Ashish Dholakia, learned Advocate, appearing for theintervenor, State Bank of India, referred to the objects of the 2002 Actand relied upon the judgment of this Court in Standard Chartered Bankv. V. Noble Kumar & Ors., (2013) 9 SCC 620 (“Noble Kumar”). Heargued that if we were to grant an opportunity to debtor to approachthe Tribunal at the stage of symbolic possession, there would be littledifference between the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 (hereinafter referred to as the “Recovery ofDebts Act”) and the SARFAESI Act, and thus, we would destroy thevery object for which the SARFAESI Act was enacted, namely, so thatbanks could recover their debts by selling properties outside the courtprocess, something that the Recovery of Debts Act did not envisage.He also referred to and relied upon section 3 of the Transfer of PropertyAct for the definition of “a person is said to have notice” and ExplanationII in particular, which referred to actual possession. According to himtherefore, the correct stage would be the stage at which actual physicalpossession has been taken, upon which debtor may then approach theDebts Recovery Tribunal under section 17.

7.Having heard learned counsel for the parties, we may firstset out the Statement of Objects and Reasons for the 2002 Act. TheStatement of Objects and Reasons for the 2002 Act read as follows:

“Statement of Objects and Reasons.—The financial sectorhas been one of the key drivers in India’s efforts to achievesuccess in rapidly developing its economy. While the bankingindustry in India is progressively complying with the internationalprudential norms and accounting practices there are certain areasin which the banking and financial sector do not have levelplaying field as compared to other participants in the financialmarkets in the world. There is no legal provision for facilitatingsecuritisation of financial assets of banks and financialinstitutions. Further, unlike international banks, the banks andfinancial institutions in India do not have power to take possessionof securities and sell them. Our existing legal framework relatingto commercial transactions has not kept pace with the changingcommercial practices and financial sector reforms. This hasresulted in slow pace of recovery of defaulting loans and mountinglevels of non-performing assets of banks and financial institutions.

ANarasimham Committee I and II and Andhyarujina Committeeconstituted by the Central Government for the purpose ofexamining banking sector reforms have considered the need forchanges in the legal system in respect of these areas. TheseCommittees, inter alia, have suggested enactment of newlegislation for securitisation and empowering banks and financialBinstitutions to take possession of the securities and to sell themwithout the intervention of the court. Acting on these suggestions,the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Ordinance, 2002 waspromulgated on the 21st June, 2002 to regulate securitisationCand reconstruction of financial assets and enforcement of securityinterest and for matters connected therewith or incidental thereto.The provisions of the Ordinance would enable banks and financialinstitutions to realise long-term assets, manage problem of liquidity,asset liability mismatches and improve recovery by exercisingpowers to take possession of securities, sell them and reduceDnon-performing assets by adopting measures for recovery orreconstruction.

2. It is now proposed to replace the Ordinance by Bill, which,inter alia, contains provisions of the Ordinance to provide for—

(a) registration and regulation of securitisation companies orreconstruction companies by the Reserve Bank of India;(b) facilitating securitisation of financial assets of banks andfinancial institutions with or without the benefit of underlyingsecurities;

(c) facilitating easy transferability of financial assets by thesecuritisation company or reconstruction company to acquirefinancial assets of banks and financial institutions by issue ofdebentures or bonds or any other security in the nature of adebenture;

(d) empowering securitisation companies or reconstructionGcompanies to raise funds by issue of security receipts toqualified institutional buyers;

(e) facilitating reconstruction of financial assets acquired byexercising powers of enforcement of securities or change ofmanagement or other powers which are proposed to beconferred on the banks and financial institutions;H

(f) declaration of any securitisation company or reconstructioncompany registered with the Reserve Bank of India as publicfinancial institution for the purpose of Section 4-A of theCompanies Act, 1956;

(g) defining “security interest” as any type of security includingmortgage and charge on immovable properties given for duerepayment of any financial assistance given by any bank orfinancial institution;

(h) empowering banks and financial institutions to takepossession of securities given for financial assistance and sellor lease the same or take over management in the event ofdefault, i.e. classification of the borrower’s account as non-performing asset in accordance with the directions given orguidelines issued by the Reserve Bank of India from time totime;

(i) the rights of secured creditor to be exercised by one ormore of its officers authorised in this behalf in accordancewith the rules made by the Central Government;

(j) an appeal against the action of any bank or financialinstitution to the concerned Debts Recovery Tribunal and asecond appeal to the Appellate Debts Recovery Tribunal;

(k) setting-up or causing to be set-up Central Registry by theCentral Government for the purpose of registration oftransactions relating to securitisation, asset reconstruction andcreation of security interest;

(l) application of the proposed legislation initially to banks andfinancial institutions and empowerment of the CentralGovernment to extend the application of the proposed legislationto non-banking financial companies and other entities;

(m) non-application of the proposed legislation to securityinterests in agricultural lands, loans not exceeding Rupees Onelakh and cases where eighty per cent of the loans are repaidby the borrower.

3. The Bill seeks to achieve the above objects.”

Section 13 with which we are concerned reads as follows:

“13. Enforcement of security interest.—(1) Notwithstandinganything contained in Section 69 or Section 69-A of the Transfer

of Property Act, 1882 (4 of 1882), any security interest createdin favour of any secured creditor may be enforced, without theintervention of the court or tribunal, by such creditor in accordancewith the provisions of this Act.

(2) Where any borrower, who is under liability to securedBcreditor under security agreement, makes any default inrepayment of secured debt or any instalment thereof, and hisaccount in respect of such debt is classified by the securedcreditor as non-performing asset, then, the secured creditor mayrequire the borrower by notice in writing to discharge in full hisliabilities to the secured creditor within sixty days from the dateCof notice failing which the secured creditor shall be entitled toexercise all or any of the rights under sub-section (4):

1[Provided that—

(i) the requirement of classification of secured debt as non-Dperforming asset under this sub-section shall not apply to aborrower who has raised funds through issue of debt securities;and

(ii) in the event of default, the debenture trustee shall be entitledto enforce security interest in the same manner as providedEunder this section with such modifications as may be necessaryand in accordance with the terms and conditions of securitydocuments executed in favour of the debenture trustee;]

(3) The notice referred to in sub-section (2) shall give details ofthe amount payable by the borrower and the secured assetsintended to be enforced by the secured creditor in the event ofFnon-payment of secured debts by the borrower.

2[(3-A) If, on receipt of the notice under sub-section (2), theborrower makes any representation or raises any objection, thesecured creditor shall consider such representation or objectionand if the secured creditor comes to the conclusion that suchGrepresentation or objection is not acceptable or tenable, he shallcommunicate [3][within fifteen days] of receipt of such

1Ins. by Act 44 of 2016, S. 11(i) (w.e.f. 1-9-2016).

2Ins. by Act 30 of 2004, S. 8 (w.r.e.f. 11-11-2004).

H3Subs. for “within one week” by Act 1 of 2013, S. 5(a) (w.e.f. 15-1-2013).

representation or objection the reasons for non-acceptance ofthe representation or objection to the borrower :

Provided that the reasons so communicated or the likely actionof the secured creditor at the stage of communication of reasonsshall not confer any right upon the borrower to prefer anapplication to the Debts Recovery Tribunal under Section 17 orthe Court of District Judge under Section 17-A.]

(4) In case the borrower fails to discharge his liability in fullwithin the period specified in sub-section (2), the secured creditormay take recourse to one or more of the following measures torecover his secured debt, namely:—

(a) take possession of the secured assets of the borrowerincluding the right to transfer by way of lease, assignment orsale for realising the secured asset;

4[(b) take over the management of the business of the borrowerincluding the right to transfer by way of lease, assignment orsale for realising the secured asset:

Provided that the right to transfer by way of lease, assignmentor sale shall be exercised only where the substantial part ofthe business of the borrower is held as security for the debt:

Provided further that where the management of whole, of thebusiness or part of the business is severable, the secured creditorshall take over the management of such business of theborrower 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 hasbeen taken over by the secured creditor;

(d) require at any time by notice in writing, any person whohas acquired any of the secured assets from the borrower andfrom whom any money is due or may become due to theborrower, to pay the secured creditor, so much of the moneyas is sufficient to pay the secured debt.

4 Subs. by Act 30 of 2004, S. 8 (w.r.e.f. 11-11-2004). Prior to substitution it read as:“(b) take over the management of the secured assets of the borrower includingthe right to transfer by way of lease, assignment or sale and realise the securedasset;”

(5) Any payment made by any person referred to in clause (d)of sub-section (4) to the secured creditor shall give such persona valid discharge as if he has made payment to the borrower.

5[(5-A) Where the sale of an immovable property, for which areserve price has been specified, has been postponed for wantBof bid of an amount not less than such reserve price, it shall belawful for any officer of the secured creditor, if so authorised bythe secured creditor in this behalf, to bid for the immovableproperty on behalf of the secured creditor at any subsequentsale.

(5-B) Where the secured creditor, referred to in sub-section (5-CA), is declared to be the purchaser of the immovable property atany subsequent sale, the amount of the purchase price shall beadjusted towards the amount of the claim of the secured creditorfor which the auction of enforcement of security interest is takenby the secured creditor, under sub-section (4) of Section 13.

(5-C) The provisions of Section 9 of the Banking RegulationAct, 1949 (10 of 1949) shall, as far as may be, apply to theimmovable property acquired by secured creditor under sub-section (5-A).]

(6) Any transfer of secured asset after taking possession thereofEor take over of management under sub-section (4), by thesecured creditor or by the manager on behalf of the securedcreditor shall vest in the transferee all rights in, or in relation to,the secured asset transferred as if the transfer had been madeby the owner of such secured asset.

xxx xxx xxxF

(13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (otherthan in the ordinary course of his business) any of his securedassets referred to in the notice, without prior written consent ofthe secured creditor.”

GSection 14(1) of the Act reads as follows:

“14. Chief Metropolitan Magistrate or District Magistrateto assist secured creditor in taking possession of secured

H5 Ins. by Act 1 of 2013, S. 5(b) (w.e.f. 15-1-2013)

asset.—(1) Where the possession of any secured assets isrequired to be taken by the secured creditor or if any of thesecured asset is required to be sold or transferred by the securedcreditor under the provisions of this Act, the secured creditormay, for the purpose of taking possession or control of any suchsecured assets, request, in writing, the Chief MetropolitanMagistrate or the District Magistrate within whose jurisdictionany such secured asset or other documents relating thereto maybe situated or found, to take possession thereof, and the ChiefMetropolitan Magistrate or, as the case may be, the DistrictMagistrate shall, on such request being made to him—

(a) take possession of such asset and documents relatingthereto; and

(b) forward such asset and documents to the secured creditor:

xxx xxx xxx”

Section 15(1) of the Act reads as follows:

“15. Manner and effect of takeover of management.—(1) [6][When the management of business of borrower is takenover by [7][asset reconstruction company] under clause (a) ofSection 9 or, as the case may be, by secured creditor underclause (b) of sub-section (4) of Section 13], the secured creditormay, by publishing notice in newspaper published in Englishlanguage and in newspaper published in an Indian language incirculation in the place where the principal office of the borroweris situated, appoint as many persons as it thinks fit—

(a) in case in which the borrower is company as defined inthe Companies Act, 1956 (1 of 1956), to be the directors ofthat borrower in accordance with the provisions of that Act; or

(b) in any other case, to be the administrator of the business ofthe borrower.

xxx xxx xxx”

6 Subs. for “When the management of business of borrower is taken over by asecured creditor” by Act 30 of 2004, S. 9 (w.r.e.f. 11-11-2004).

7Subs. for “securitisation company or reconstruction company” by Act 44 of 2016,S. 3(i) (w.e.f. 1-9-2016).

ASection 17 of the Act reads as follows:

“[8][17. Application against measures to recover secureddebts].—(1) Any person (including borrower,) aggrieved by anyof the measures referred to in sub-section (4) of Section 13 takenby the secured creditor or his authorised officer under thisBchapter, [9][may make an application along with such fee, as maybe prescribed,] to the Debts Recovery Tribunal having jurisdictionin the matter within forty-five days from the date on which suchmeasure had been taken:

10[Provided that different fees may be prescribed for makingthe application by the borrower and the person other than theCborrower.]

11[Explanation.—For the removal of doubts, it is herebydeclared that the communication of the reasons to the borrowerby the secured creditor for not having accepted his representationor objection or the likely action of the secured creditor at theDstage of communication of reasons to the borrower shall notentitle the person (including borrower) to make an application tothe Debts Recovery Tribunal under sub-section (1) of section17.]

12[(1-A) An application under sub-section (1) shall be filed beforeEthe Debts Recovery Tribunal within the local limits of whosejurisdiction—

(a) the cause of action, wholly or in part, arises;

(b) where the secured asset is located; or

(c) the branch or any other office of bank or financialFinstitution is maintaining an account in which debt claimed isoutstanding for the time being.]

13[(2) The Debts Recovery Tribunal shall consider whether anyof the measures referred to in sub-section (4) of Section 13 taken

8Subs. for “Right to appeal” by Act 44 of 2016, S. 14(i) (w.e.f. 1-9-2016).G9Subs. for “may prefer an appeal” by Act 30 of 2004, S. 10 (w.r.e.f. 21-6-2002).1 0 Ins. by Act 30 of 2004, S. 10 (w.r.e.f. 21-6-2002).

1 1 Ins. by Act 30 of 2004, S. 10 (w.r.e.f. 11-11-2004).

1 2 Ins. by Act 44 of 2016, S. 14(ii) (w.e.f. 1-9-2016).

1 3 Subs. for sub-sections (2) and (3) by Act 30 of 2004, S. 10 (w.r.e.f. 11-11-2004).Prior to substitution sub-sections (2) and (3) read as:

“(2) Where an appeal is preferred by borrower, such appeal shall not be entertainedHby the Debts Recovery Tribunal unless the borrower has deposited with the Debts

by the secured creditor for enforcement of security are inaccordance with the provisions of this Act and the rules madethereunder.

14[(3) If, the Debts Recovery Tribunal, after examining the factsand circumstances of the case and evidence produced by theparties, comes to the conclusion that any of the measures referredto in sub-section (4) of section 13, taken by the secured creditorare not in accordance with the provisions of this Act and therules made thereunder, and require restoration of the managementor restoration of possession, of the secured assets to the borroweror other aggrieved person, it may, by order,—

(a) declare the recourse to any one or more measures referredto in sub-section (4) of section 13 taken by the secured creditoras invalid; and

(b) restore the possession of secured assets or managementof secured assets to the borrower or such other aggrievedperson, who has made an application under sub-section (1), asthe case may be; and

(c) pass such other direction as it may consider appropriateand necessary in relation to any of the recourse taken by the

secured creditor under sub-section (4) of section 13.]

Recovery Tribunal seventy-five per cent of the amount claimed in the notice referredto in sub-section (2) of Section 13:

Provided that the Debts Recovery Tribunal may, for reasons to be recorded inwriting, waive or reduce the amount to be deposited under this section.(3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as faras may be, dispose of the appeal in accordance with the provisions of the Recoveryof Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rulesmade thereunder.”

1 4 Subs. by Act 44 of 2016, S. 14(iii) (w.e.f. 1-9-2016). Prior to substitution it read as:

“(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances ofthe case and evidence produced by the parties, comes to the conclusion that any ofthe measures referred to in sub-section (4) of Section 13, taken by the securedcreditor are not in accordance with the provisions of this Act and the rules madethereunder, and require restoration of the management of the business to the borroweror restoration of possession of the secured assets to the borrower, it may by order,declare the recourse to any one or more measures referred to in sub-section (4) ofSection 13 taken by the secured creditors as invalid and restore the possession of thesecured assets to the borrower or restore the management of the business to theborrower, as the case may be, and pass such order as it may consider appropriate andnecessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of Section 13.”.

A(4) If, the Debts Recovery Tribunal declares the recourse takenby secured creditor under sub-section (4) of Section 13, is inaccordance with the provisions of this Act and the rules madethereunder, then, notwithstanding anything contained in any otherlaw for the time being in force, the secured creditor shall beentitled to take recourse to one or more of the measures specifiedBunder sub-section (4) of Section 13 to recover his secured debt.

15[(4-A) Where—

(i) any person, in an application under sub-section (1), claimsany tenancy or leasehold rights upon the secured asset, theCDebt Recovery Tribunal, after examining the facts of the caseand evidence produced by the parties in relation to such claimsshall, for the purposes of enforcement of security interest, havethe jurisdiction to examine whether lease or tenancy,—

(a) has expired or stood determined; orD(b) is contrary to Section 65-A of the Transfer of PropertyAct, 1882 (4 of 1882); or

(c) is contrary to terms of mortgage; or

(d) is created after the issuance of notice of default anddemand by the Bank under sub-section (2) of Section 13 ofEthe Act; and

(ii) the Debt Recovery Tribunal is satisfied that tenancy rightor leasehold rights claimed in secured asset falls under thesub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause(d) of clause (i), then notwithstanding anything to the contraryFcontained in any other law for the time being in force, the DebtRecovery Tribunal may pass such order as it deems fit inaccordance with the provisions of this Act.]

(5) Any application made under sub-section (1) shall be dealtwith by the Debts Recovery Tribunal as expeditiously as possibleGand disposed of within sixty days from the date of such application:

Provided that the Debts Recovery Tribunal may, from timeto time, extend the said period for reasons to be recorded inwriting, so, however, that the total period of pendency of the

H1 5 Ins. by Act 44 of 2016, S. 14(iv) (w.e.f. 1-9-2016).

application with the Debts Recovery Tribunal, shall not exceedfour months from the date of making of such application madeunder sub-section (1).

(6) If the application is not disposed of by the Debts RecoveryTribunal within the period of four months as specified in sub-section (5), any party to the application may make an application,in such form as may be prescribed, to the Appellate Tribunal fordirecting the Debts Recovery Tribunal for expeditious disposalof the application pending before the Debts Recovery Tribunaland the Appellate Tribunal may, on such application, make anorder for expeditious disposal of the pending application by theDebts Recovery Tribunal.

(7) Save as otherwise provided in this Act, the Debts RecoveryTribunal shall, as far as may be, dispose of the application inaccordance with the provisions of the Recovery of Debts Dueto Banks and Financial Institutions Act, 1993 (51 of 1993) andthe rules made thereunder.]”

Rule 8 of the 2002 Rules reads as follows:

“8. Sale of immovable secured assets.—(1) Where thesecured asset is an immovable property, the authorised officershall take or cause to be taken possession, by delivering apossession notice prepared as nearly as possible in Appendix IVto these rules, to the borrower and by affixing the possessionnotice on the outer door or at such conspicuous place of theproperty.

(2) [16][The possession notice as referred to in sub-rule (1) shallalso be published, as soon as possible but in any case not laterthan seven days from the date of taking possession, in two leadingnewspapers], one in vernacular language having sufficientcirculation in that locality, by the authorised officer.

17[(2-A) All notices under these rules may also be served uponthe borrower through electronic mode of service, in addition tothe modes prescribed under sub-rule (1) and sub-rule (2) of rule 8.]

1 6 Subs. for “The possession notice as referred to in sub-rule (1) shall also be publishedin two leading newspaper” by S.O. 1837(E), dated 26-10-2007 (w.e.f. 26-10-2007).

1 7 Ins. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).

A(3) In the event of possession of immovable property is actuallytaken by the authorised officer, such property shall be kept in hisown custody or in the custody of any person authorised orappointed by him, who shall take as much care of the property inhis custody as owner of ordinary prudence would, under thesimilar circumstances, take of such property.B(4) The authorised officer shall take steps for preservation andprotection of secured assets and insure them, if necessary, tillthey are sold or otherwise disposed of.

(5) Before effecting sale of the immovable property referred toCin sub-rule (1) of rule 9, the authorised officer shall obtain valuationof the property from an approved valuer and in consultation withthe secured creditor, fix the reserve price of the property andmay sell the whole or any part of such immovable secured assetby any of the following methods:—

D(a) by obtaining quotations from the persons dealing with similarsecured assets or otherwise interested in buying the suchassets; or

(b) by inviting tenders from the public;18[(c) by holding public auction including through e-auctionmode; or]E

(d) by private treaty.

(6) the authorised officer shall serve to the borrower notice ofthirty days for sale of the immovable secured assets, under sub-rule (5):

FProvided that if the sale of such secured asset is being effectedby either inviting tenders from the public or by holding publicauction, the secured creditor shall cause public notice in twoleading newspapers one in vernacular language having sufficientcirculation in the locality by setting out the terms of sale, whichshall include,—G

(a) the description of the immovable property to be sold,including the details of the encumbrances known to the securedcreditor;

1 8 Subs. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016). Prior to substitution it

read as:H“(c) by holding public auction; or”

(b) the secured debt for recovery of which the property is tobe sold;

(c) reserve price, below which the property may not be sold;

(d) time and place of public auction or the time after whichsale by any other mode shall be completed;

(e) depositing earnest money as may be stipulated by thesecured creditor;

(f) any other thing which the authorised officer considers itmaterial for purchaser to know in order to judge the natureand value of the property.

(7) Every notice of sale shall be affixed on conspicuous part ofthe immovable property and may, if the authorised officer deemsit fit, put on the website of the secured creditor on the Internet.

(8) Sale by any methods other than public auction or public tender,shall be on such terms as may be settled [19][between the securedcreditor and the proposed purchaser in writing].”

Appendix IV to the 2002 Rules reads as follows:

“APPENDIX IV[See rule 8(1)]POSSESSION NOTICE

(for immovable property)

Whereas

The undersigned being the authorised officer of the………..…………………. (name of the Institution) under theSecuritisation and Reconstruction of Financial Assets andEnforcement of Security Interest [20][Act, 2002 (54 of 2002)] andin exercise of powers conferred under Section 13(12) readwith [21][Rule 3] of the Security Interest (Enforcement) Rules,2002 issued demand notice dated ………………. calling uponthe borrower Shri ………………..………. /M/s………………………… to repay the amount mentioned in the

1 9 Subs. for “between the parties in writing” by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f.4-11-2016).

2 0 Subs. for “Ordinance” by S.O. 103(E), dated 2-2-2007 (w.e.f. 2-2-2007).

2 1 Subs. for “Rule 9” by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).

[2018] 11 S.C.R.

Anotice being Rs …………… (in words…………………………) within 60 days from the date of receiptof the said notice.

22[The borrower having failed to repay the amount, notice ishereby given to the borrower and the public in general that theBundersigned has taken possession of the property described hereinbelow in exercise of powers conferred on him under sub-section(4) of Section 13 of Act read with Rule 8 of the Security InterestEnforcement) Rules, 2002 on this the …….day of ….. of theyear……]

The borrower in particular and the public in general is herebyCcautioned not to deal with the property and any dealings with theproperty will be subject to the charge of the …………..…………………………. (name of the Institution) for anamount Rs. ……………….. and interest thereon.

23[The borrower’s attention is invited to provisions of sub-sectionD(8) of Section 13 of the Act, in respect of time available, to redeemthe secured assets.]

_____________________________________________

Description of the Immovable Property

_____________________________________________EAll that part and parcel of the property consisting of Flat No.…… /Plot No. ……… In Survey No. …………/City or TownSurvey No. ………… /Khasara No. …….…………… withinthe registration sub-district ……………………. and District

…………………..

FBounded:On the North by On the South by On the East by On the West by

sd/-Authorised Officer

G(Name of Institution)Date:Place:”

2 2 Subs. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).H2 3 Ins. by G.S.R. 1046(E), dt. 3-11-2016 (w.e.f. 4-11-2016).

8. This Court in Mardia Chemicals (supra) after referring indetail to the provisions of the Act held:

“48. The next safeguard available to secured borrower withinthe framework of the Act is to approach the Debts RecoveryTribunal under Section 17 of the Act. Such right accrues onlyafter measures are taken under sub-section (4) of Section 13 ofthe Act.

xxx xxx xxx

59. We may like to observe that proceedings under Section 17of the Act, in fact, are not appellate proceedings. It seems to bea misnomer. In fact it is the initial action which is brought beforea forum as prescribed under the Act, raising grievance againstthe action or measures taken by one of the parties to the contract.It is the stage of initial proceeding like filing suit in civil court.As matter of fact proceedings under Section 17 of the Act arein lieu of civil suit which remedy is ordinarily available but forthe bar under Section 34 of the Act in the present case. We mayrefer to decision of this Court in Ganga Bai v. VijayKumar[(1974) 2 SCC 393] where in respect of original andappellate proceedings distinction has been drawn as follows:(SCC p. 397, para 15)

“There is basic distinction between the right of suit and theright of appeal. There is an inherent right in every person tobring suit of civil nature and unless the suit is barred by statuteone may, at one’s peril, bring suit of one’s choice. It is noanswer to suit, howsoever frivolous to claim, that the lawconfers no such right to sue. suit for its maintainability requiresno authority of law and it is enough that no statute bars thesuit. But the position in regard to appeals is quite the opposite.The right of appeal inheres in no one and therefore an appealfor its maintainability must have the clear authority of law.That explains why the right of appeal is described as creatureof statute.”

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62. As indicated earlier, the position of the appeal under Section17 of the Act is like that of suit in the court of the first instanceunder the Code of Civil Procedure. No doubt, in suits also it ispermissible, in given facts and circumstances and under the

provisions of the law to attach the property before decree ispassed or to appoint receiver and to make provision by wayof interim measure in respect of the property in suit. But forobtaining such orders case for the same is to be made out inaccordance with the relevant provisions under the law. There isno such provision under the Act.

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80. Under the Act in consideration, we find that before takingaction notice of 60 days is required to be given and after themeasures under Section 13(4) of the Act have been taken, amechanism has been provided under Section 17 of the Act toapproach the Debts Recovery Tribunal. The abovenotedprovisions are for the purpose of giving some reasonableprotection to the borrower. Viewing the matter in the aboveperspective, we find what emerges from different provisions ofthe Act, is as follows:

1. Under sub-section (2) of Section 13 it is incumbent upon thesecured creditor to serve 60 days’ notice before proceeding totake any of the measures as provided under sub-section (4) ofSection 13 of the Act. After service of notice, if the borrowerraises any objection or places facts for consideration of thesecured creditor, such reply to the notice must be consideredwith due application of mind and the reasons for not acceptingthe objections, howsoever brief they may be, must becommunicated to the borrower. In connection with thisconclusion we have already held discussion in the earlierpart of the judgment. The reasons so communicated shall onlybe for the purposes of the information/knowledge of theborrower without giving rise to any right to approach the DebtsRecovery Tribunal under Section 17 of the Act, at that stage.

2. As already discussed earlier, on measures having been takenunder sub-section (4) of Section 13 and before the date ofsale/auction of the property it would be open for the borrowerto file an appeal (petition) under Section 17 of the Act beforethe Debts Recovery Tribunal.

3. That the Tribunal in exercise of its ancillary powers shallhave jurisdiction to pass any stay/interim order subject to thecondition as it may deem fit and proper to impose.

4. In view of the discussion already held in this behalf, we findthat the requirement of deposit of 75% of the amount claimedbefore entertaining an appeal (petition) under Section 17 ofthe Act is an oppressive, onerous and arbitrary condition againstall the canons of reasonableness. Such condition is invalidand it is liable to be struck down.

5. As discussed earlier in this judgment, we find that it will beopen to maintain civil suit in civil court, within the narrowscope and on the limited grounds on which they are permissible,in the matters relating to an English mortgage enforceablewithout intervention of the court.”

Close on the heels of this judgment, the 2002 Act was amended on30.12.2004 with effect from 11.11.2004. The Statement of Objects andReasons for the Amended Act reads as under:

“Statement of Objects and Reasons.—The Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 was enacted to regulate securitisation andreconstruction of financial assets and enforcement of securityinterest and for matters connected thereto. The Act enables thebanks and financial institutions to realise long-term assets, manageproblems of liquidity, asset liability mis-match and improverecovery by exercising powers to take possession of securities,sell them and reduce non-performing assets by adopting measuresfor recovery or reconstruction. The Act further provides forsetting up of asset reconstruction companies which areempowered to take possession of secured assets of the borrowerincluding the right to transfer by way of lease, assignment orsale and realise the secured assets and take over the managementof the business of the borrower.

2. The Hon’ble Supreme Court, in the case of Mardia ChemicalsLtd. v. Union of India, A.I.R. 2004 S.C. 2371 : (2004) 4 S.C.C311, inter alia,—

(a) upheld the validity of the provisions of the said Act exceptthat of sub-section (2) of Section 17 which was declared ultravires Article 14 of the Constitution. The said sub-sectionprovides for deposit of seventy-five per cent. of the amountclaimed before entertaining an appeal (petition) by the DebtsRecovery Tribunal (DRT) under Section 17;

(b) observed that in cases where secured creditor has takenaction under sub-section (4) of Section 13 of the said Act, itwould be open to borrowers to file appeals under Section 17 ofthe Act within the limitation as prescribed therefor. It alsoobserved that if the borrower, after service of notice undersub-section (2) of Section 13 of the said Act, raises any objectionor places facts for consideration of the secured creditor, suchreply to the notice must be considered with due application ofmind and the reasons for not accepting the objections,howsoever brief that may be, must be communicated to theborrower. The reasons so communicated shall only be for thepurposes of the information/knowledge of the borrower withoutgiving rise to any right to approach the Debts Recovery Tribunalunder Section 17 of the Act, at that stage.

3. In view of the above judgment of the Hon’ble Supreme Courtand also to discourage the borrowers to postpone the repaymentof their dues and also enable the secured creditor to speedilyrecover their debts, if required, by enforcement of security orother measures specified in sub-section (4) of Section 13 of thesaid Act, it had become necessary to amend the provisions ofthe said Act.

4. Since the Parliament was not in session and it was necessaryto take immediate action to amend the said Act for the abovereasons, the Enforcement of Security Interest and Recovery ofDebts Laws (Amendment) Ordinance, 2004 was promulgatedon the 11[th] November, 2004.

5. The said Ordinance amends the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002, the Recovery of Debts Due to Banks andFinancial Institutions Act, 1993 and the Companies Act, 1956.Chapter II of the Ordinance which amends the Securitisationand Reconstruction of Financial Assets and Enforcement ofSecurity Interest Act, 2002,—

(a) require the secured creditor to consider, in response to thenotice issued by the secured creditor under sub-section (2) ofSection 13 of the said Act, any representation made or objectionraised by the borrower and cast an obligation upon the securedcreditor to communicate within one week of receipt of such

representation or objection the reasons for non-acceptance ofthe representation or objection to the borrower and takepossession of the secured asset only after reasons for notaccepting the objections of the borrower have beencommunicated to him in writing;

(b) enable the borrower to make an application before the DebtsRecovery Tribunal without making any deposit (instead of filingan appeal before the Debts Recovery Tribunal after depositingseventy-five per cent. of the amount claimed with the noticeby the secured creditor);

(c) provides that the Debts Recovery Tribunal shall dispose ofthe application as expeditiously as possible and dispose of suchapplication within sixty days from the date of such applicationsso that the total period of pendency of the application withsuch Tribunal shall not exceed four months;

(d) make provision for transfer of pending applications to anyone of the Debts Recovery Tribunal in certain cases;

(e) enables any person aggrieved by any order made by theDebts Recovery Tribunal to file an appeal to the Debts RecoveryAppellate Tribunal after depositing with the Appellate Tribunalfifty per cent. of amount of debt due from him, as claimed bythe secured creditor or determined by the Debts RecoveryTribunal, whichever is less;

(f) enables the borrower residing in the State of Jammu andKashmir to make an application to the Court of District Judgein that State having jurisdiction over the borrower and makeprovision for filing an appeal to the High Court from the orderof the Court of District Judge;

(g) makes provision for validation of the fees levied under thesaid Act before the commencement of this Ordinance.

xxx xxx xxx”

The Act was accordingly amended in accordance with the aforesaidjudgment.

9. The judgment in Mardia Chemicals (supra) had made it clearin paragraph 80 that all measures having been taken under section 13(4),

DEF

Aand beforethe date of sale auction, it would be open for the borrower tofile petition under section 17 of the Act. This paragraph appears tohave been missed by the Full Bench in the impugned judgment.

10. reading of section 13 would make it clear that where adefault in repayment of secured debt or any instalment thereof is madeBby borrower, the secured creditor may require the borrower, by noticein writing, to discharge in full his liabilities to the secured creditor within60 days from the date of notice. It is only when the borrower fails to doso that the secured creditor may have recourse to the provisions containedin section 13(4) of the Act. Section 13(3-A) was inserted by the 2004Amendment Act, pursuant to Mardia Chemicals (supra), making itCclear that if on receipt of the notice under section 13(2), the borrowermakes representation or raises an objection, the secured creditor is toconsider such representation or objection and give reasons for non-acceptance. The proviso to section 13(3-A) makes it clear that this wouldnot confer upon the borrower any right to prefer an application to theDDebts Recovery Tribunal under section 17 as at this stage no action has

yet been taken under section 13(4).

11. When we come to section 13(4)(a), what is clear is that themode of taking possession of the secured assets of the borrower isspecified by rule 8. Under section 38 of the Act, the Central GovernmentEmay make rules to carry out the provisions of the Act. One such rule isrule 8. Rule 8(1) makes it clear that “the authorised officer shall take orcause to be taken possession”. The expression “cause to be taken”only means that the authorised officer need not himself take possession,but may, for example, appoint an agent to do so. What is important isthat such taking of possession is effected under sub-rule (1) of rule 8 byFdelivering possession notice prepared in accordance with AppendixIV of the 2002 Rules, and by affixing such notice on the outer door orother conspicuous place of the property concerned. Under sub-rule (2),such notice shall also be published within 7 days from the date of suchtaking of possession in two leading newspapers, one in the vernacularGlanguage having sufficient circulation in the locality. This is for the reasonthat when we come to Appendix IV, the borrower in particular, and thepublic in general is cautioned by the said possession notice not to dealwith the property as possession of the said property has been taken.This is for the reason that, from this stage on, the secured asset is liableto be sold to realise the debt owed, and title in the asset divested from

the borrower and complete title given to the purchaser, as is mentionedin section 13(6) of the Act. There is, thus, radical change in the borrowerdealing with the secured asset from this stage. At the stage of section13(2) notice, section 13(13) interdicts the borrower from transferringthe secured asset (otherwise than in the ordinary course of his business)without prior written consent of the secured creditor. But once apossession notice is given under rule 8(1) and 8(2) by the secured creditorto the borrower, the borrower cannot deal with the secured asset at allas all further steps to realise the same are to be taken by the securedcreditor under the 2002 Rules.

12. Section 19, which is strongly relied upon by Shri Ranjit Kumar,also makes it clear that compensation is receivable under section 19only when possession of secured assets is not in accordance with theprovision of this Act and rules made thereunder.[24] The scheme of section13(4) read with rule 8(1) therefore makes it clear that the delivery of apossession notice together with affixation on the property and publicationis one mode of taking “possession” under section 13(4). This being thecase, it is clear that section 13(6) kicks in as soon as this is done as theexpression used in section 13(6) is “after taking possession”. Also, it isclear that rule 8(5) to 8(8) also kick in as soon as “possession” is takenunder rule 8(1) and 8(2). The statutory scheme, therefore, in the presentcase is that once possession is taken under rule 8(1) and 8(2) read withsection 13(4)(a), section 17 gets attracted, as this is one of the measuresreferred to in section 13(4) that has been taken by the secured creditorunder Chapter III.

13. Rule 8(3) begins with the expression “in the event of”. Thesewords make it clear that possession may be taken alternatively undersub-rule (3). The further expression used in sub-rule (3) is “actuallytaken” making it clear that physical possession is referred to by rule8(3). Thus, whether possession is taken under either rule 8(1) and 8(2),or under rule 8(3), measures are taken by the secured creditor undersection 13(4) for the purpose of attracting section 17(1).

14. The argument made by the learned counsel for therespondents that section 13(4)(a) has to be read in the light of sub-

24 That this is the general scheme of the Act is also clear from section 17(2) which statesthat the Debts Recovery Tribunal, when an application is filed before it, shall considerwhether any of the measures referred to in section 13(4) taken by the secured creditorare in accordance with the provisions of the Act and rules made thereunder.

Aclauses (b) and (c) is therefore incorrect and must be rejected. Undersub-clause (c), person is appointed as manager to manage the securedassets the possession of which has been taken over by the securedcreditor only under rule 8(3). Further, the rule of noscitur sociis cannotapply. Sub-clause (b) speaks of taking over management of the businessof the borrower which is completely different from taking over possessionBof secured asset of the borrower. Equally, sub-clause (d) does notspeak of taking over either management or possession, but only speaksof paying the secured creditor so much of the money as is sufficient topay off the secured debt. These arguments must therefore be rejected.

15. Equally fallacious is the argument that section 13(4) must beCread in the light of sections 14 and 15. There is no doubt whatsoever thatunder section 14(1), the Magistrate takes possession of the asset and“forwards” such asset to the secured creditor. Equally, under section 15there is no doubt that the management of the business of borrowermust actually be taken over. These are separate and distinct modes of

Dexercise of powers by secured creditor under the Act. Whereas sections14 and 15 have to be read by themselves, section 13(4)(a), as has beenheld by us, has to be read with rule 8, and this being the case, this argumentmust also be rejected.

16. Yet another argument was made by the learned counsel forEthe respondents that section 17(3) would require restoration of possessionof secured assets to the borrower, which can only happen if actualphysical possession is taken over. Section 17(3) is provision whicharms the Debts Recovery Tribunal to give certain reliefs when applicationsare made before it by the borrower. One of the reliefs that can be givenis restoration of possession. Other reliefs can also be given under theFomnibus section 17(3)(c). Merely because one of the reliefs given isthat of restoration of possession does not lead to the sequitur that onlyactual physical possession is therefore contemplated by section 13(4),since other directions that may be considered appropriate and necessarymay also be given for wrongful recourse taken by the secured creditorGto section 13(4). This argument again has no legs to stand on.

17. Another argument made by learned senior counsel for therespondents is that if we were to accept the construction of section13(4) argued by the appellants, the object of the Act would be defeated.As has been pointed out hereinabove in the Statement of Objects andHReasons of the original enactment, paragraphs 2(i) and 2(j) make it clear

that the rights of the secured creditor are to be exercised by officersauthorised in this behalf in accordance with the rules made by the CentralGovernment. Further, an appeal against the action of any bank or financialinstitution is provided to the concerned Debts Recovery Tribunal. It canthus be seen that though the rights of secured creditor may be exercisedby such creditor outside the court process, yet such rights must be inconformity with the Act. If not in conformity with the Act, such actionis liable to be interfered with by the Debts Recovery Tribunal in anapplication made by the debtor/borrower. Thus, it can be seen that theobject of the original enactment also includes secured creditors acting inconformity with the provisions of the Act to realise the secured debtwhich, if not done, gives recourse to the borrower to get relief from theDebts Recovery Tribunal. Equally, as has been seen hereinabove, theStatement of Objects and Reasons of the Amendment Act of 2004 alsomake it clear that not only do reasons have to be given for not acceptingobjections of the borrower under section 13(3-A), but that applicationsmay be made before the Debts Recovery Tribunal without making theonerous pre-deposit of 75% which was struck down by this Court inMardia Chemicals (supra). The object of the Act, therefore, is also toenable the borrower to approach quasi-judicial forum in case the securedcreditor, while taking any of the measures under section 13(4), does notfollow the provisions of the Act in so doing. Take for example case inwhich secured creditor takes possession under rule 8(1) and 8(2) beforethe 60 days’ period prescribed under section 13(2) is over. The borrowerdoes not have to wait until actual physical possession is taken (this maynever happen as after possession is taken under rule 8(1) and 8(2), thesecured creditor may go ahead and sell the asset). The object of providinga remedy against the wrongful action of secured creditor to borrowerwill be stultified if the borrower has to wait until sale notice is issued,or worse still, until sale actually takes place. It is clear, therefore, thatone of the objects of the Act, as carried out by rule 8(1) and 8(2) mustalso be subserved, namely, to provide the borrower with instant recourseto quasi-judicial body in case of wrongful action taken by the securedcreditor.

18. Another argument that was raised by learned senior counselfor the respondents is that the taking of possession under section 13(4)(a)must mean actual physical possession or otherwise, no transfer by wayof lease can be made as possession of the secured asset would continueto be with the borrower when only symbolic possession is taken. This

ABC

DEF

Aargument also must be rejected for the reason that what is referred to insection 13(4)(a) is the right to transfer by way of lease for realising thesecured asset. One way of realising the secured asset is when physicalpossession is taken over and lease of the same is made to third party.When possession is taken under rule 8(1) and 8(2), the asset can berealised by way of assignment or sale, as has been held by us hereinabove.BThis being the case, it is clear that the right to transfer could be by wayof lease, assignment or sale, depending upon which mode of transfer thesecured creditor chooses for realising the secured asset. Also, the rightto transfer by way of assignment or sale can only be exercised inaccordance with rules 8 and 9 of the 2002 Rules which require variousCpre-conditions to be met before sale or assignment can be effected.Equally, transfer by way of lease can be done in future in cases whereactual physical possession is taken of the secured asset after possessionis taken under rule 8(1) and 8(2) at future point in time. If no suchactual physical possession is taken, the right to transfer by way of

assignment or sale for realising the secured asset continues. ThisDargument must also, therefore, be rejected.

19. Shri Ashish Dholakia, learned Advocate, appearing for theintervenor, State Bank of India, argued that if we were to upset the FullBench judgment, there would be little difference between the Recoveryof Debts Act and the SARFAESI Act as banks would not be able toErecover their debts by selling properties outside the court process withoutconstant interference by the Debts Recovery Tribunal. We are of theview that this argument has no legs to stand on for the reason that banksand financial institutions can recover their debts by selling propertiesoutside the court process under the SARFAESI Act by adhering to theFstatutory conditions laid down by the said Act. It is only when suchstatutory conditions are not adhered to that the Debts Recovery Tribunalcomes in at the behest of the borrower. It is needless to add that underthe Recovery of Debts Act, banks/financial institutions could not recovertheir debts without intervention of the Debts Recovery Tribunal, which

the SARFAESI Act has greatly improved upon, the only caveat beingGthat this must be done by the secured creditor following the drill of theSARFAESI Act and rules made thereunder. Shri Dholakia then referredto and relied upon section 3 of the Transfer of Property Act, 1882. Underthe said section, “a person is said to have notice” of fact when heactually knows that fact, or when, but for willful abstention from anHinquiry or search which he ought to have made, or gross negligence, he

would have known it. Shri Dholakia referred to and relied uponExplanation II to this definition, which reads as under:

“Explanation II.—Any person acquiring any immoveableproperty or any share or interest in any such property shall bedeemed to have notice of the title, if any, of any person who isfor the time being in actual possession thereof.”

We fail to understand what relevance Explanation II could possibly havefor completely different statutory setting, namely, that of the SARFAESIAct and the 2002 Rules thereunder. For the purpose of the Transfer ofProperty Act, person acquiring immovable property shall be deemedto have notice of the title, if any, of any person who is for the time beingin actual possession thereof. For the purpose of the SARFAESI Actread with the 2002 Rules, the taking of possession by secured creditorof the secured asset of the borrower would include taking of possessionin any of the modes prescribed under rule 8, as has been held by ushereinabove. This argument must also, therefore, be rejected.

20. We now come to some of the decisions of this Court. InTranscore v. Union of India & Anr., (2008) 1 SCC 125, this Courtformulated the question which arose before it as follows:

“1. short question of public importance arises for determination,namely, whether withdrawal of OA in terms of the first provisoto Section 19(1) of the DRT Act, 1993 (inserted by amendingAct 30 of 2004) is condition precedent to taking recourse tothe Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 (“the NPA Act”, forshort).”

To this, the answer given is in paragraph 69, which is as follows:

“69. For the above reasons, we hold that withdrawal of the OApending before DRT under the DRT Act is not preconditionfor taking recourse to the NPA Act. It is for the bank/FI toexercise its discretion as to cases in which it may apply for leaveand in cases where they may not apply for leave to withdraw.We do not wish to spell out those circumstances because thesaid first proviso to Section 19(1) is an enabling provision, whichprovision may deal with myriad circumstances which we do notwish to spell out herein.”

AThereafter, the Court went on to discuss whether recourse to takepossession of secured assets of the borrower in terms of section 13(4)of the Act would comprehend the power to take actual possession ofimmovable property. In the discussion on this point in paragraph 71 ofthe judgment, learned counsel on behalf of the borrowers made anextreme submission which was that the borrower who is in possessionBof immovable property cannot be physically dispossessed at the time ofissuing the notice under section 13(4) of the Act so as to defeatadjudication of his claim by the Debts Recovery Tribunal under section17 of the Act and that therefore, physical possession can only be takenafterthe sale is confirmed in terms of rule 9(9) of the 2002 Rules. ThisCsubmission was rejected by stating that the word “possession” is relativeconcept and that the dichotomy between symbolic and physical possessiondoes not find place under the Act. Having said this, the Court went on toexamine the 2002 Rules and held:“74. ……… Thus, Rule 8 deals with the stage anterior to theDissuance of sale certificate and delivery of possession under Rule9. Till the time of issuance of sale certificate, the authorisedofficer is like Court Receiver under Order 40 Rule 1 CPC.The Court Receiver can take symbolic possession and inappropriate cases where the Court Receiver finds that third-party interest is likely to be created overnight, he can take actualEpossession even prior to the decree. The authorised officer underRule 8 has greater powers than even Court Receiver as securityinterest in the property is already created in favour of the banks/FIs. That interest needs to be protected. Therefore, Rule 8provides that till issuance of the sale certificate under Rule 9, theFauthorised officer shall take such steps as he deems fit to preservethe secured asset. It is well settled that third-party interests arecreated overnight and in very many cases those third partiestake up the defence of being bona fide purchaser for valuewithout notice. It is these types of disputes which are sought tobe avoided by Rule 8 read with Rule 9 of the 2002 Rules. In theGcircumstances, the drawing of dichotomy between symbolic andactual possession does not find place in the scheme of the NPAAct read with the 2002 Rules.”

If the whole of paragraph 74 is read together with the extracted passage,it becomes clear that what is referred to in the extracted passage is theH

procedure provided by rule 8(3). It is clear that the authorised officer’spowers, once possession is taken under rule 8(3), include taking of stepsfor preservation and protection of the secured assets which is referredto in the extracted portion. Thus, the final conclusion by the Bench,though general in nature, is really referable to possession that is takenunder rule 8(3) of the 2002 Rules. Whether possession taken under rule8(1) and 8(2) is called symbolic possession or statutory possession, thefact remains that rule 8(1) and rule 8(2) specifically provide for aparticular mode of possession taken under section 13(4)(a) of the Act.This cannot be wished away by an observation made by this Court in acompletely different context in order to repel an extreme argument. ThisCourt was only of the opinion that the extreme argument made, asreflected in paragraph 71 of the judgment, would have to be rejected.This judgment therefore does not deal with the problem before us: namely,whether section 17(1) application is maintainable once possession hasbeen taken in the manner specified under rule 8(1) of the 2002 Rules.

21. Another case strongly relied upon by learned counsel for therespondents is Noble Kumar (supra). This judgment decided that it isnot necessary to first resort to the procedure under section 13(4) and, onfacing resistance, then approach the Magistrate under section 14. Thesecured creditor need not avail of any of the remedies under section13(4), and can approach the Magistrate straightaway after the 60-dayperiod of the notice under section 13(2) is over, under section 14 of theAct. This Court therefore held:

“35. Therefore, there is no justification for the conclusion thatthe Receiver appointed by the Magistrate is also required to followRule 8 of the Security Interest (Enforcement) Rules, 2002. Theprocedure to be followed by the Receiver is otherwise regulatedby law. Rule 8 provides for the procedure to be followed by asecured creditor taking possession of the secured asset withoutthe intervention of the court. Such process was unknown priorto the SARFAESI Act. So, specific provision is made under Rule 8to ensure transparency in taking such possession. We do not seeany conflict between different procedures prescribed by law fortaking possession of the secured asset. The finding of the HighCourt in our view is unsustainable.

36. Thus, there will be three methods for the secured creditor totake possession of the secured assets:

ABC

36.1. (i) The first method would be where the secured creditorgives the requisite notice under Rule 8(1) and where he does notmeet with any resistance. In that case, the authorised officerwill proceed to take steps as stipulated under Rule 8(2) onwardsto take possession and thereafter for sale of the secured assetsto realise the amounts that are claimed by the secured creditor.

36.2. (ii) The second situation will arise where the securedcreditor meets with resistance from the borrower after the noticeunder Rule 8(1) is given. In that case he will take recourse to themechanism provided under Section 14 of the Act viz. makingapplication to the Magistrate. The Magistrate will scrutinise theapplication as provided in Section 14, and then if satisfied, appointan officer subordinate to him as provided under Section 14(1-A)to take possession of the assets and documents. For that purposethe Magistrate may authorise the officer concerned to use suchforce as may be necessary. After the possession is taken theassets and documents will be forwarded to the secured creditor.

36.3. (iii) The third situation will be one where the securedcreditor approaches the Magistrate concerned directly underSection 14 of the Act. The Magistrate will thereafter scrutinisethe application as provided in Section 14, and then if satisfied,authorise subordinate officer to take possession of the assetsand documents and forward them to the secured creditor asunder clause 36.2.(ii) above.

36.4. In any of the three situations above, after the possessionis handed over to the secured creditor, the subsequent specifiedprovisions of Rule 8 concerning the preservation, valuation andsale of the secured assets, and other subsequent rules from theSecurity Interest (Enforcement) Rules, 2002, shall apply.”

When this Court referred to the first method of taking possession ofsecured assets in paragraph 36.1.(i), this Court spoke of case in which,Gonce possession notice is given under rule 8(1), no resistance is metwith. That is why, this Court states that steps as stipulated under rule8(2) onwards to take possession, and thereafter, for sale of the securedassets to realise the amounts that are claimed by the secured creditorwould have to be taken, meaning thereby that advertisement mustnecessarily be given in the newspaper as mentioned in rule 8(2), afterHwhich steps for sale may take place. This case again does not deal with

the precise problem that is before the Court in this case. The observationmade in paragraph 36.1.(i), which is strongly relied upon by the FullBench of the High Court, to arrive at the conclusion that actual physicalpossession must first be taken before the remedy under section 17(1)can be availed of by the borrower, does not flow from this decision at all.

22. In Canara Bank v. M. Amarender Reddy & Anr., (2017)4 SCC 735, this Court after referring to Mathew Varghese v. M.Amritha Kumar and Ors., (2014) 5 SCC 610, which held that the 30-day period mentioned under rule 8(6) is mandatory, then held:

“14. The secured creditor, after it decides to proceed with thesale of secured asset consequent to taking over possession(symbolic or physical as the case may be), is no doubt requiredto give notice of 30 days for sale of the immovable asset as persub-rule (6) of Rule 8. However, there is nothing in the Rules,either express or implied, to take the view that public noticeunder sub-rule (6) of Rule 8 must be issued only after the expiryof 30 days from issuance of individual notice by the authorisedofficer to the borrower about the intention to sell the immovablesecured asset. In other words, it is permissible to simultaneouslyissue notice to the borrower about the intention to sell the securedassets and also to issue public notice for sale of such securedasset by inviting tenders from the public or by holding publicauction. The only restriction is to give thirty days’ time gapbetween such notice and the date of sale of the immovablesecured asset.”

Though there was no focused argument on the controversy before us,this Court did recognise that possession may be taken over under rule 8either symbolically or physically, making it clear that two separate modesfor taking possession are provided for under rule 8.

23. Similarly, in ITC Limited v. Blue Coast Hotels Ltd. andOrs., AIR 2018 SC 3063, this Court held:

“45. As noticed earlier, the creditor took over symbolic possessionof the property on 20.06.2013. Thereupon, it transferred theproperty to the sole bidder ITC and issued sale certificate forRs. 515,44,01,000/- on 25.02.2015. On the same day, i.e.,25.02.2015, the creditor applied for taking physical possessionof the secured assets under Section 14 of the Act.

46. According to the debtor, since Section 14 provides that anapplication for taking possession may be made by securedcreditor, and the creditor having ceased to be secured creditorafter the confirmation of sale in favour of the auction purchaser,was not entitled to maintain the application. Consequently,therefore, the order of the District Magistrate directing deliveryof possession is void order. This submission found favour withthe High Court that held that the creditor having transferred thesecured assets to the auction purchaser ceased to be securedcreditor and could not apply for possession. The High Court heldthat the Act does not contemplate taking over of symbolicpossession and therefore the creditor could not have transferredthe secured assets to the auction purchaser. In any case, sinceITC Ltd. was the purchaser of such property, it could only takerecourse to the ordinary law for recovering physical possession.

47. We find nothing in the provisions of the Act that rendersDtaking over of symbolic possession illegal. This is well-knowndevice in law. In fact, this court has, although in different context,held in M.V.S. Manikayala Rao v. M. Narasimhaswami [AIR1966 SC 470] that the delivery of symbolic possession amountedto an interruption of adverse possession of party and the periodof limitation for the application of Article 144 of the LimitationEAct would start from such date of the delivery.”

24. This judgment also speaks of the taking over of symbolicpossession under the SARFAESI Act. The judgment then goes on todiscuss whether creditor could maintain an application for possessionunder section 14 of the Act once it takes over symbolic possession beforeFthe sale of the property to the auction purchaser. The Court referred tovarious authorities and arrived at the conclusion that secured creditorremains secured creditor when only constructive or symbolic possessionis given, as the entire interest in the property not having been passed onto the secured creditor in the first place, the secured creditor in turnGcould not pass on the entire interest in the property to the auctionpurchaser. In this behalf, it is important to refer to section 8 of the Transferof Property Act, 1882 which states as follows:

“8. Operation of transfer.— Unless different intention isexpressed or necessarily implied, transfer of property passesforthwith to the transferee all the interest which the transferor is

then capable of passing in the property and in the legal incidentsthereof.

xxx xxx xxx”

Section 13(6) of the SARFAESI Act makes it clear that differentintention is so expressed by the Act, as any transfer of secured assetafter taking possession thereof, shall vest in the transferee all rightsinthe secured asset so transferred as if the transfer had been made by theowner of such secured asset. It is clear, therefore, that statutorily, undersection 13(6), though only the lesser right of taking possession,constructive or physical, has taken place, yet the secured creditor may,by lease, sale or assignment, vest in the lessee or purchaser all rights inthe secured asset as if the transfer had been made by the original ownerof such secured asset. This aspect of the matter does not appear tohave been noticed in the aforesaid judgment. The ultimate conclusion inthe said judgment is, however, correct as secured creditor remains asecured creditor even after possession is taken over as the fictioncontained in section 13(6) does not convert the secured creditor into theowner of the asset, but merely vests complete title in the transferee ofthe asset once transfer takes place in accordance with rules 8 and 9 ofthe 2002 Rules.

25. We may also add that by notification dated 17.10.2018, rule8 has since been amended adding two sub-rules as follows:

“3. In the said rules, in rule 8—

(i) in sub-rule (6), for the proviso, the following proviso shall besubstituted, namely:-

“Provided that if the sale of such secured asset is being effectedby either inviting tenders from the public or by holding publicauction, the secured creditor shall cause public notice in theForm given in Appendix IV-A to be published in two leadingnewspapers including one in vernacular language having widecirculation in the locality.”;

(ii) for sub-rule (7), the following sub-rule shall be substituted,namely:–

“(7) every notice of sale shall be affixed on the conspicuous partof the immovable property and the authorised officer shall uploadthe detailed terms and conditions of the sale, on the web- site ofthe secured creditor, which shall include;

ABC

1066SUPREME COURT REPORTS

[2018] 11 S.C.R.

A(a) the description of the immovable property to be sold,including the details of the encumbrances known to the securedcreditor;

(b) the secured debt for recovery of which the property is tobe sold;

B(c) reserve price of the immovable secured assets below whichthe property may not be sold;

(d) time and place of public auction or the time after whichsale by any other mode shall be completed;

C(e) deposit of earnest money as may be stipulated by the securedcreditor;

(f) any other terms and conditions, which the authorized officerconsiders it necessary for purchaser to know the nature andvalue of the property.”;

DAppendix IV-A which is now inserted by the said notification reads asfollows:

“APPENDIX - IV-A

[See proviso to rule 8 (6)]

Sale notice for sale of immovable properties

E-Auction Sale Notice for Sale of Immovable Assets under theSecuritisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 read with proviso toRule 8 (6) of the Security Interest (Enforcement) Rules, 2002

Notice is hereby given to the public in general and in particularto the Borrower (s) and Guarantor (s) that the below describedFimmovable property mortgaged/charged to the Secured Creditor,the constructive/physical______________ (whichever isapplicable) possession of which has been taken by the AuthorisedOfficer of ______________ Secured Creditor, will be sold on“As is where is”, “As is what is”, and “Whatever there is” onG______________ (mention date of the sale), for recovery ofRs. due to the ______________ Secured Creditor from(mention name of the Borrower (s)) and ______________(mention name of the Guarantor (s)). The reserve price will be

Rs. ______________ and the earnest money deposit will beRs. ______________

(Give short description of the immovable property with knownencumbrances, if any)

For detailed terms and conditions of the sale, please refer to thelink provided in ______________ Secured Creditor’s websitei.e. www. (give details of website)

Date:

Authorised Officer

Place:”

This appendix makes it clear that statutorily, constructive or physicalpossession may have been taken, pursuant to which sale notice maythen be issued under rule 8(6) of the 2002 Rules. Appendix IV-A,therefore, throws considerable light on the controversy before us andrecognises the fact that rule 8(1) and 8(2) refer to constructive possessionwhereas rule 8(3) refers to physical possession. We are therefore of theview that the Full Bench judgment is erroneous and is set aside. Theappeals are accordingly allowed, and it is hereby declared that theborrower/debtor can approach the Debts Recovery Tribunal under section17 of the Act at the stage of the possession notice referred to in rule 8(1)and 8(2) of the 2002 Rules. The appeals are to be sent back to theCourt/Tribunal dealing with the facts of each case to apply this judgmentand thereafter decide each case in accordance with the law laid downby this judgment.

Devika Gujral Appeals allowed.