Fresh Notice to Legal Heirs of Borrower Not required to take Possession u/s 14 SARFAESI Act: J&K HC [Read Order]

Mst. Sundri vs The Jammu & Kashmir Bank LtdThe Jammu & Kashmir High Court ruled that a secured creditor may use Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, without first notifying the surviving borrower's legal heirs.

The Petitioners challenged an Order dated 22nd of February, 2024 passed by the learned Chief Judicial Magistrate, Srinagar in an application moved by the Respondent-Bank under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“the Act of 2002”).

The impugned Order has been assailed primarily, on the ground that the application which was filed by the Respondent-Bank purportedly under Section 14 of the Act of 2002 was against a dead person and, therefore, not maintainable. Counsel for the Petitioners submitted that one of the original borrowers, namely, Abdul Aziz Sofi passed away on 24th of July, 2023, whereas, the application under Section 14 of the Act of 2002 was filed on 18th of December, 2023.

Per contra, Counsel appearing for the RespondentBank submitted that there is no requirement under Section 14 of the Act of 2002 to issue notice to the borrower or the guarantor as the proceedings under Section 14 of the Act of 2002 are, in fact, directed against the secured asset(s). He submitted that notice under Section 13 (2) of the Act of 2002 was issued to the deceased borrower on 7th of March, 2023 during his lifetime and he had almost more than three months to respond to the said notice.

Having heard Counsel for the parties and perused the material on record, we are of the considered opinion that the only notice to which a borrower is entitled to is a notice under Section 13 (2) of the Act of 2002, whereby the borrower is called upon by a notice in writing to discharge in full the liability to the secured creditor within a period of sixty (60) days.

The deceased borrower-Late Abdul Aziz Sofi or, for that matter, the other co-borrower-Nazir Ahmad Sofi did not discharge their liability towards the Respondent-Bank despite having been served with a notice under Section 13 (2) of the Act of 2002. In such a situation, the Respondent-Bank was left with no option but to proceed either under sub-section (4) of Section 13 or Section 14 of the Act of 2002. The Respondent-Bank, in its wisdom, choose to proceed under Section 14 of the Act of 2002 and, accordingly, made an application before the Chief Judicial Magistrate.

From reading of Section 14 of the Act of 2002, it is crystal clear that Section 14 is invoked by the secured creditor only where the possession of the secured asset(s) is required to be taken. The application which is required to be moved by the secured creditor must be accompanied by an affidavit duly affirmed by the Authorized Officer of the secured creditor declaring, inter alia, that a notice under Section 13 (2) of the Act, 2002 demanding payment stood served on the borrower. From further reading of Section 14 of the Act of 2002, it also becomes crystal clear that Section 14 is to be invoked after the borrower has failed to discharge in full his liability to the secured creditor within a period of sixty (60) days despite having been served with a notice under Section 13 (2) of the Act of 2002.

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The notice under Section 13 (2) stood served to the borrowers and, on their failure to discharge the liability in full to the secured creditor within the stipulated period of sixty (60) days, the Respondent-Bank invoked Section 14 of the Act of 2002 and made an application seeking order from the Chief Judicial Magistrate to take over the physical possession of the secured asset(s).

A Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar disagreed with the contention that before invoking Section 14 of the Act of 2002, the secured creditor should have issued fresh notice to the legal heirs of the borrower so as to provide them an opportunity to pay the dues in full. Otherwise also, such an argument cannot be accepted for the reason that despite lapse of about two years, the Petitioners have not discharged in full the liability towards the Respondent Bank.

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The court dismissed the petition and observed that in case any One Time Settlement (OTS) Scheme is in vogue, as on date, and the Petitioners approach the Respondent-Bank with a fresh application along with the pre-requisite deposits, then the same shall be considered by the Bank strictly as per the terms of such Scheme.

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