C. BRIGHT versus THE DISTRICT COLLECTOR & ORS.

C. BRIGHT

THE DISTRICT COLLECTOR & ORS.

(Civil Appeal No. 3441 of 2020)

NOVEMBER 05, 2020

[L. NAGESWARA RAO, HEMANT GUPTAAND AJAY RASTOGI, JJ.]

Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002: s.14 – Whethermandatory or directory provision – Held: s.14 mandating the DistrictMagistrate to deliver possession of secured asset within 30 days,extendable to an aggregate of 60 days upon reasons recorded inwriting, is directory provision – The purpose of enactment of the2002 Act was to provide machinery for empowering banks andfinancial institutions, so that they may have power to take possessionof secured assets and to sell them – Keeping the objective of the Actin mind, the time limit to take action by the District Magistrate wasfixed to impress upon the authority to take possession of the securedassets – However, inability to take possession within time limit doesnot render the District Magistrate functus officio – The time limit isto instill confidence in creditors that the District Magistrate willmake an attempt to deliver possession as well as to impose dutyon the District Magistrate to make an earnest effort to comply withthe mandate of the statute to deliver the possession within 30 daysand for reasons to be recorded within 60 days – In this light, theremedy under s.14 of the Act is not rendered redundant if the DistrictMagistrate is unable to handover the possession.

Interpretation of Statutes: Word ‘shall’ – Connotation of –Held: The use of the word “shall” in statute, does not necessarilymean that in every case it is mandatory that unless the words of thestatute are literally followed, the proceeding or the outcome of theproceeding, would be invalid – It is also not always correct to saythat if the word “may” has been used, the statute is only permissiveor directory in the sense that non-compliance with those provisionswill not render the proceeding invalid and that when statute usesthe word “shall”, prima facie, it is mandatory, but the Court may

CDEF

Aascertain the real intention of the legislature by carefully attendingto the whole scope of the statute – Securitisation and Reconstructionof Financial Assets and Enforcement of Security Interest Act, 2002– s.14.

Dismissing the appeal, the CourtB

HELD: 1. well settled rule of interpretation of the statutesis that the use of the word “shall” in statute, does not necessarilymean that in every case it is mandatory that unless the words ofthe statute are literally followed, the proceeding or the outcomeof the proceeding, would be invalid. It is not always correct toCsay that if the word “may” has been used, the statute is onlypermissive or directory in the sense that non-compliance withthose provisions will not render the proceeding invalid and thatwhen statute uses the word “shall”, prima facie, it is mandatory,but the Court may ascertain the real intention of the legislatureby carefully attending to the whole scope of the statute. TheDprinciple of literal construction of the statute alone in allcircumstances without examining the context and scheme of thestatute may not serve the purpose of the statute. [Para 7][1004-B-D]2. The DRT Act was first enacted to streamline the recoveryEof public dues but the proceedings under the said Act have notgiven desirous results. Therefore, the Act in question wasenacted. Keeping the objective of the Act in mind, the time limitto take action by the District Magistrate has been fixed to impressupon the authority to take possession of the secured assets.FHowever, inability to take possession within time limit does notrender the District Magistrate Functus Officio. The securedcreditor has no control over the District Magistrate who isexercising jurisdiction under Section 14 of the Act for public goodto facilitate recovery of public dues. Therefore, Section 14 of theAct is not to be interpreted literally without considering the objectGand purpose of the Act. If any other interpretation is placed uponthe language of Section 14, it would be contrary to the purpose ofthe Act. The time limit is to instill confidence in creditors thatthe District Magistrate will make an attempt to deliver possessionas well as to impose duty on the District Magistrate to make anH

earnest effort to comply with the mandate of the statute to deliverthe possession within 30 days and for reasons to be recordedwithin 60 days. In this light, the remedy under Section 14 of theAct is not rendered redundant if the District Magistrate is unableto handover the possession. [Para 20][1008-B-F]

Montreal Street Railway Company v. Normandin AIR1917 PC 142; Dattatraya Moreshwar Pangarkar v.State of Bombay & Ors. AIR 1952 SC 181 : [1952]SCR 612; Hari Vishnu Kamath v. Ahmad Ishaque &Ors. AIR 1955 SC 233 : [1955] SCR 1104 – followed.

Mardia Chemicals Ltd. & Ors. v. Union of India & Ors.(2004) 4 SCC 311 : [2004] 3 SCR 982; Hindon ForgePrivate Limited & Anr. v. State of Uttar Pradesh throughDistrict Magistrate, Ghaziabad & Anr. (2019) 2 SCC198 : [2018] 11 SCR 1019 – relied on

New India Assurance Company Limited v. HilliMultipurpose Cold Storage Private Limited (2020) 5SCC 757 – Distinguished.

Dipak Babaria & Anr. v. State of Gujarat & Ors. (2014)3 SCC 502 : [2014] 2 SCR 71 – held inapplicable.

Manish Makhija v. Central Bank of India & Ors. (2018)SCC OnLine MP 553 – approved.

Transcore v. Union of India and Another (2008) 1 SCC125 : [2006] 9 Suppl. SCR 785; Union of India & Ors.v. A.K. Pandey (2009) 10 SCC 552 : [2009] 14 SCR528; Harshad Govardhan Sondagar v. InternationalAssets Reconstruction Company Limited & Ors. (2014)6 SCC 1 : [2014] 11 SCR 605; Remington Rand ofIndia Ltd. v. Workmen AIR 1968 SC 224 : [1968] SCR164; T.V. Usman v. Food Inspector, TellicherryMunicipality, Tellicherry (1994) 1 SCC 754; Nasiruddin& Ors.v. Sita Ram Agarwal, (2003) 2 SCC 577 : [2003]1 SCR 634; P.T. Rajan v. T.P.M. Sahir & Ors. (2003) 8SCC 498 : [2003] 4 Suppl. SCR 84; State of U.P. v.Manbodhan Lal Srivastava AIR 1957 SC 912 : [1958]SCR 533; State of U.P. & Ors. v. Babu Ram UpadhyaAIR 1961 SC 751 : [1961] SCR 679; Reserve Bank of

AIndia v. Peerless General Finance and Investment Co.Ltd. & Ors. (1987) 1 SCC 424 : [1987] 2 SCR 1; UnitedBank of India v. Satyawati Tondon & Ors. (2010) 8SCC 110 : [2010] 9 SCR 1 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3441of 2020.G

From the Judgment and Order dated 19.07.2019 of the MaduraiBench of Madras High Court in W.P.(MD) No. 11986 of 2019.

Ajmal Khan, Sr. Adv., Mahboob Athiff, R. Vishnu Kumar,Ms. Surbhi Mehta, Ashish Wad, Sidharth Mahajan, Ms. Tamali Wad,H

Ajeyo Sharma, Ms. Sukriti Jaggi, M/s. J S Wad and Co, Advs. for theappearing parties.

The Judgment of the Court was delivered by

HEMANT GUPTA, J.

1. The challenge in the present appeal is to an order passed by theDivision Bench of the Kerala High Court of 19.7.2019, whereby it washeld that Section 14 of the Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002[1] mandating theDistrict Magistrate to deliver possession of secured asset within 30days, extendable to an aggregate of 60 days upon reasons recorded inwriting, is directory provision. The High Court held as under:

“18. The primary question in these Writ Petitions, namely, whetherthe time limits in section 14 of the SARFAESI Act are mandatoryor directory should be answered in light of the principlesenumerated above. As stated above, the object and purpose ofthe said time limit is to ensure that such applications are decidedexpeditiously so as to enable secured creditors to take physicalpossession quickly and realise their dues. Moreover, as statedearlier, the consequences of non-compliance with the time limitare not specified and the sequitur thereof would be that the districtcollector/district magistrate concerned would not be divested ofjurisdiction upon expiry of the time limit. In this connection, it isalso pertinent to bear in mind that if the “consequences of non-compliance” test is applied, the borrower, guarantor or lessee, asthe case may be, is not adversely affected or prejudiced, in anymanner, whether such applications are decided in 60, 70 or 80days. On the other hand, the secured creditor is adversely affectedif the provision is construed as mandatory and not directory in asmuch as it would delay the process of taking physical possessionof assets instead of expediting such process by entailing the filingof another application for such purpose. For all these reasons, thetime limit stipulation in the amended Section 14 of the SARFAESIAct is directory and not mandatory.”

2. The High Court examined Section 14 of the Act as amended,which reads thus:

1 For short “the Act”

A“14. Chief Metropolitan Magistrate or District Magistrate to assistsecured creditor in taking possession of secured asset.- (1)

xxxx

Provided, further that on receipt of the affidavit from theAuthorised Officer, the District Magistrate or the ChiefBMetropolitan Magistrate, as the case may be, shall, after satisfyingthe contents of the affidavit pass suitable orders for the purposeof taking possession of the secured asset within period of thirtydays from the date of application:

Provided also that if no order is passed by the Chief MetropolitanCMagistrate or District Magistrate within the said period of thirtydays for reasons beyond his control, he may, after recording reasonsin writing for the same, pass the order within such period notexceeding in the aggregate sixty days.”

3. The Act was enacted in the year 2002 for reasons that theDlegal framework relating to commercial transactions had not kept pacewith the changing commercial practices. Further, financial sector reformsresulted in slow pace of recovery of defaulting loans and mountinglevel of non-performing assets of banking and financial institutions. Theobjectives behind the Act, recognised that unlike international banks,Ebanks and financial institutions in India, did not have power to takepossession of securities and sell them. The provisions of the Act wereupheld by this Court except that of sub-section (2) of Section 17 whichprovided that the Debt Recovery Tribunal shall not entertain an appealpreferred by borrower unless seventy-five per cent of the amountclaimed has been deposited before it[2]. Thereafter, the question as toFwhether the withdrawal of an application filed under the Recovery ofDebts due to Banks and Financial Institutions Act, 1993[3 ]is conditionprecedent to take recourse to the Act was examined by this Court[4]. ThisCourt observed that when Civil Courts failed to expeditiously decidesuits filed by the banks, the DRT Act was enacted, however it did not

Gprovide for assignment of debts to Securitisation companies. The Actwhich was enacted thereafter in 2002 sought to further empower thebanks and facilitate the recovery of debt. It proceeded on the basis thatonce the liability of borrower to repay crystallises; it becomes due and

2 Mardia Chemicals Ltd. & Ors. v. Union of India & Ors., (2004) 4 SCC 311

3 For short “DRT Act”H4 Transcore v. Union of India and Another, (2008) 1 SCC 125

that on account of delay, the account of such borrower becomessubstandard and non-performing.

4. Recently, this Court noticed the objects and reasons foramending the Act in 2014 and held that the Magistrate takes possessionof the asset and “forwards” such asset to the secured creditor underSection 14(1); the management of the business of borrower can actuallybe taken over under Section 15 of the Act and that Section 13(4) mustbe read in the light of Sections 14 and 15. These are separate and distinctmodes of exercise of powers by secured creditor under the Act[5].

5. Section 14 of the Act, as originally enacted, empowered theChief Metropolitan Magistrate or the District Magistrate to takepossession of such assets and documents relating to secured assets.Later, by the Central Act No. 1 of 2013, which came into force on15.1.2013, proviso to sub-section (1) of Section 14 of the Act wasinserted contemplating that upon filing of an affidavit, in the formatmentioned therein, by an Authorised Officer of the secured creditor, theDistrict Magistrate or the Chief Metropolitan Magistrate shall passsuitable orders for the purpose of taking possession of the secured assets.It is, thereafter, the Act was amended vide Central Act 44 of 2016,which came into force on 1.9.2016.6. The argument of Mr. Khan, learned counsel for the appellant,is that the proviso mandating the District Magistrate to record reasons,if the order is not passed within 30 days, in order to avail an extendedperiod of total 60 days, shows that the provision is mandatory. If theDistrict Magistrate is not able to take decision within 60 days, the securedcreditor has to find its remedy elsewhere and not in terms of Section 14of the Act. It is contended that the proviso mandates the DistrictMagistrate to pass an order within 30 days as the word “shall” is used infirst part of the proviso. Thus, the time limit provided is unambiguousand by corollary the provision is mandatory. Reliance is placed on thejudgments of this Court in Union of India & Ors. v. A.K. Pandey[6],Harshad Govardhan Sondagar v. International AssetsReconstruction Company Limited & Ors.[7], Dipak Babaria & Anr.v. State of Gujarat & Ors.[8], in support of his arguments that the use of

5 Hindon Forge Private Limited & Anr. v. State of Uttar Pradesh through DistrictMagistrate, Ghaziabad & Anr. (2019) 2 SCC 198

6 (2009) 10 SCC 552

7 (2014) 6 SCC 1

8 (2014) 3 SCC 502

Aexpression “shall” and the language of the second proviso in fixing thetime limit of 60 days after recording of reasons makes the provisionmandatory. If the District Magistrate has not been able to take possession,the proceedings before him abates.

7. well settled rule of interpretation of the statutes isthatthe useBof the word “shall” in statute, does not necessarily mean that in everycase it is mandatory that unless the words of the statute are literallyfollowed, the proceeding or the outcome of the proceeding, would beinvalid. It is not always correct to say that if the word “may” has beenused, the statute is only permissive or directory in the sense that non-compliance with those provisions will not render the proceeding invalid[9]Cand that when statute uses the word “shall”, prima facie, it is mandatory,but the Court may ascertain the real intention of the legislature by carefullyattending to the whole scope of the statute[10].The principle of literalconstruction of the statute alone in all circumstances without examiningthe context and scheme of the statute may not serve the purpose of theDstatute[11].

8. The question as to whether, time limit fixed for public officerto perform public duty is directory or mandatory has been examinedearlier by the Courts as well. question arose before the Privy Councilin respect of irregularities in the preliminary proceedings for constitutingEa jury panel. The Municipality was expected to revise the list of qualifiedpersons but the jury was drawn from the old list as the Sheriff neglectedto revise the same. It was in these circumstances, the decision of thejury drawn from the old list became the subject matter of considerationby the Privy Council. It was thus held that it would cause greater publicinconvenience if it were held that neglecting to observe the provisions ofFthe statute made the verdicts of all juries taken from the list ipso factonull and void so that no jury trials could be held until duly revised listhad been prepared[12].

9. The Constitution Bench of this Court held that when theprovisions of statute relate to the performance of public duty and theGcase is such that to hold acts done in neglect of this duty as null and void,

9 State of U.P. v. Manbodhan Lal Srivastava, AIR 1957 SC 912

10 State of U.P. & Ors. v. Babu Ram Upadhya, AIR 1961 SC 751

11 Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. & Ors.,(1987) 1 SCC 424H12 Montreal Street Railway Company v. Normandin, AIR 1917 PC 142

would cause serious general inconvenience or injustice to persons whohave no control over those entrusted with the duty, the practice of thecourts should be to hold such provisions as directory[13]. In seven Benchjudgment, this Court was considering as to whether the power of theReturning Officer to reject ballot papers is mandatory or directory. TheCourt examined well-recognised rules of construction to observe that astatute should be construed as directory if it relates to the performanceof public duties, or if the conditions prescribed therein have to beperformed by persons other than those on whom the right is conferred[14].

10. In judgment reported as Remington Rand of India Ltd. v.Workmen[15], Section 17 of the Industrial Disputes Act, 1947 came upfor consideration. The argument raised was that the time limit of 30days of publication of award by the labour court is mandatory. ThisCourt held that though Section 17 is mandatory, the time limit to publishthe award within 30 days is directory inter-alia for the reason that thenon-publication of the award within the period of thirty days does notentail any penalty.

11. In T.V. Usman v. Food Inspector, TellicherryMunicipality, Tellicherry[16], the time period during which report of theanalysis of sample under Rule 7(3) of the Prevention of FoodAdulteration Rules, 1955 was to be given, was held to be directory asthere was no time-limit prescribed within which the prosecution had tobe instituted. When there was no such limit prescribed then there wasno valid reason for holding the period of 45 days as mandatory. Of course,that does not mean that the Public Analyst can ignore the time-limitprescribed under the rules. He must in all cases try to comply with thetime-limit. But if there is some delay, in given case, there is no reasonto hold that the very report is void and, on that basis, to hold that evenprosecution cannot be launched.

12. This Court distinguished between failure of an individual toact in given time frame and the time frame provided to public authority,for the purposes of determining whether provision was mandatory ordirectory, when this Court held that it is well-settled principle that if anact is required to be performed by private person within specified

13 Dattatraya Moreshwar Pangarkar v. State of Bombay & Ors., AIR 1952 SC 181

14 Hari Vishnu Kamath v. Ahmad Ishaque & Ors. AIR 1955 SC 233

15 AIR 1968 SC 224

16 (1994) 1 SCC 754

Atime, the same would ordinarily be mandatory but when publicfunctionary is required to perform public function within time-frame,the same will be held to be directory unless the consequences thereforare specified[17].

13. In P.T. Rajan v. T.P.M. Sahir & Ors.[18], this Court examinedBthe affect of non-publication of final electoral rolls before the time ofacceptance of nomination papers. The Court held as under:

“48. Furthermore, even if the statute specifies time for publicationof the electoral roll, the same by itself could not have been held tobe mandatory. Such provision would be directory in nature. It isCa well-settled principle of law that where statutory functionaryis asked to perform statutory duty within the time prescribedtherefor, the same would be directory and not mandatory. (SeeShiveshwar Prasad Sinha v. District Magistrate of Monghyr[AIR 1966 Pat 144 : ILR 45 Pat 436 (FB)], Nomita Chowdhuryv. State of W.B. [(1999) 2 Cal LJ 21] and Garbari Union Coop.DAgricultural Credit Society Ltd. v. Swapan Kumar Jana [(1997)1 CHN 189] .)”14. recent Constitution Bench held that the provisions of theConsumer Protection Act granting 30 days’ time to file response by theopposite party or such extended period not exceeding 15 days isEmandatory as the object of the statute is for the benefit and protection ofthe consumer. It observed that such act had been enacted to provideexpeditious disposal of consumer disputes. In this case, an individualwas called upon to file his written statement in contradiction for pubicauthority to decide the issue before it[19].FShiveshwar Prasad

15. The Full Bench of Patna High Court in Shiveshwar PrasadSinha was examining the provisions of the Bihar Buildings (Lease, Rentand Eviction) Control Act, 1947 which permitted Government servantin occupation of building as tenant to serve notice of 15 days on thelandlord and the District Magistrate of his intention to vacate the premises.GThe High Court held that the Government servant to whom the housewas allotted had no control over the District Magistrate, therefore, thetime limit required by the provision was not mandatory.

17 Nasiruddin & Ors. v. Sita Ram Agarwal, (2003) 2 SCC 57718 (2003) 8 SCC 49819 New India Assurance Company Limited v. Hilli Multipurpose Cold Storage PrivateHLimited, (2020) 5 SCC 757

16. Single Bench of Madhya Pradesh High Court[20] examinedthe provisions of Section 14 of the Act as amended. The Court held thatthe second proviso to sub-section (1) of Section 14 was inserted in orderto ensure that Chief Metropolitan Magistrate or District Magistrate passthe order within stipulated time. The Bank/secured creditor has nocontrol over the District Magistrate. After filing an application undersub-section (1) of Section 14, the Bank had no authority to compel theChief Metropolitan Magistrate or District Magistrate to pass orders withinreasonable time. The legislature, in order to bind the said authorities,inserted the said proviso. Thus, the basic object and purpose was to fixa time limit for the concerned Magistrate to pass an order and not togive clean chit to an unscrupulous borrower/guarantor, who had notrepaid the debts.

17. Now, coming to the Judgments referred to by Mr. Khan. InA.K. Pandey, the respondent was not provided 96 hours of interval timeas contemplated by the relevant rules, before commencing trial by theCourt Martial. This Court held that such proceedings were vitiated asthe purpose of the time limit was that before the accused is called uponfor trial, he must be given adequate time to give cool thought to thecharge or charges for which he is to be tried, decide about his defenceand ask the authorities, if necessary, to take reasonable steps in procuringthe attendance of his witnesses. He may even decide not to defend thecharge(s) but before he decides his line of action, he must be given clearninety-six hours.

18. Harshad Govardhan Sondagar was case where the personin possession claimed tenancy rights in the premises as well as protectedtenancy, being tenant prior to creation of mortgage. It was held thatthe remedy of an aggrieved person against decision of Chief MetropolitanMagistrate or District Magistrate lay only before the High Court.However, after the aforesaid judgment was rendered on 3.4.2014, theAct had been amended and sub-section 4A was inserted in Section 17with effect from 1.9.2016. This provided right to move an applicationto the Debts Recovery Tribunal by person who claimed tenancy orleasehold rights.

19. Dipak Babaria was case wherein agricultural land wassold by an agriculturist to another person for industrial purposes.Permission was to be granted by the Collector for the same. In these

20 In Manish Makhija v. Central Bank of India & Ors., 2018 SCC OnLine MP 553

Acircumstances, it was held that when statute provides for thing to bedone in particular manner then it should be done in that manner itself.Such proposition does not arise for consideration in the present case.

20. The Act was enacted to provide machinery for empoweringbanks and financial institutions, so that they may have the power to takeBpossession of secured assets and to sell them. The DRT Act was firstenacted to streamline the recovery of public dues but the proceedingsunder the said Act have not given desirous results. Therefore, the Act inquestion was enacted. This Court in Mardia Chemical, Transcore andHindon Forge Private Limited has held that the purpose of the Actpertains to the speedy recovery of dues, by banks and financial institutions.CThe true intention of the Legislature is determining factor herein.Keeping the objective of the Act in mind, the time limit to take action bythe District Magistrate has been fixed to impress upon the authority totake possession of the secured assets. However, inability to takepossession within time limit does not render the District MagistrateDFunctus Officio. The secured creditor has no control over the DistrictMagistrate who is exercising jurisdiction under Section 14 of the Act forpublic good to facilitate recovery of public dues. Therefore, Section 14of the Act is not to be interpreted literally without considering the objectand purpose of the Act. If any other interpretation is placed upon thelanguage of Section 14, it would be contrary to the purpose of the Act.EThe time limit is to instill confidence in creditors that the DistrictMagistrate will make an attempt to deliver possession as well as to imposea duty on the District Magistrate to make an earnest effort to complywith the mandate of the statute to deliver the possession within 30 daysand for reasons to be recorded within 60 days. In this light, the remedy

Funder Section 14 of the Act is not rendered redundant if the DistrictMagistrate is unable to handover the possession. The District Magistratewill still be enjoined upon, the duty to facilitate delivery of possession atthe earliest.

21. Even though, this Court in United Bank of India v. SatyawatiGTondon & Ors.[21]held that in cases relating to recovery of the dues ofbanks, financial institutions and secured creditors, stay granted by theHigh Court would have serious adverse impact on the financial health ofsuch bodies/institutions, which will ultimately prove detrimental to theeconomy of the nation. Therefore, the High Court should be extremely

H21 (2010) 8 SCC 110

careful and circumspect in exercising its discretion to grant stay in suchmatters. Hindon Forge Private Limited has held that the remedy of anaggrieved person by secured creditor under the Act is by way of anapplication before the Debts Recovery Tribunal, however, borrowersand other aggrieved persons are invoking the jurisdiction of the HighCourt under Articles 226 or 227 of the Constitution of India withoutavailing the alternative statutory remedy. The Hon’ble High Courts arewell aware of the limitations in exercising their jurisdiction when affectivealternative remedies are available, but word of caution would be stillnecessary for the High Courts that interim orders should generally notbe passed without hearing the secured creditor as interim orders defeatthe very purpose of expeditious recovery of public money.

22. Thus, we do not find any error in the order passed by the HighCourt. Consequently, the appeal is dismissed.

Devika Gujral

Appeal dismissed.