District Magistrate to Grant Opportunity of Hearing before taking possession under S-14 SARFAESI ACT

The issue of affording an opportunity of hearing to the borrower before passing orders on an application under section 14 of SARFAESI Act, 2002 came to be discussed by the Allahabad High Court in the case of Kumkum Tentiwal v.State of U.P. and others (MANU/UP/4942/2018). Section 14 of SARFAESI Act, 2002 empowers the District Magistrate or the Chief Metropolitan Magistrate to assist the financial creditor/bank in taking actual physical possession of the property which is sought to be taken by such financial creditor/bank. Prior to passing of judgment in Kumkum Tentiwal case, it was a mechanical practise followed by DM or CMM that the borrower or guarantor, whose property was sought to be taken by the financial creditor/bank, was not given opportunity of hearing before passing orders on Section 14 application. It was however, mandatory for the secured creditor/bank to file an affidavit disclosing information inter-alia pertaining to the amount due as on date of filing of application, security interest created over various properties, account turning NPA, demand notice and possession notice have been served and communicated to the defaulter. The DM or CMM after recording satisfaction towards the contents of the affidavit passed orders for taking physical possession of secured assets with the help of police and administrative agencies. This mechanical process, which was until now undertaken behind the back of the borrower or guarantor, came under the scanner of the High Court. The High Court discussed on the legality of the procedure being followed by District Magistrates in Uttar Pradesh under the cover of some government order. The Hon’ble High Court observed,

“From the plain reading of the said provision, it is clear that these assertions are a must before any order can be passed under section 14 coupled with the fact that the said averment made in the affidavit are to be recorded while recording satisfaction with regard to contents of the affidavit. It is inconceivable as to how the District Magistratecan record a satisfaction ex parte with regard to the averments to be made in the affidavit by the secured creditor when he files an application for taking possession by use of force.” ​

Although section 14, SARFAESI Act is silent on the issue of granting an opportunity of hearing to the borrower or guarantor but the court emphasized that the principles of natural justice and rule of audi alteram partem cannot be done away with at any cost and insisted that procedural fairness has to be observed before passing any order or taking any decision. The Hon’ble High Court thus held: “ It is essential that principles of natural justice are followed even while exercising powers under section 14 which include the right to be heard. In view of law discussed hereinabove, this Court is constrained to hold that the District Magistrates or his authorized officer are bound to observe the natural justice and pass the orders only after hearing the affect parties