Illegal Re Entry of Borrower to Dispossessed Property u/s 14 of SARFAESI Act: MP HC Directs DM to Re Execute Dispossession [Read Order]

The Madhya Pradesh High Court directed the District Magistrate (DM) to re execute the dispossession of the mortgaged property on finding illegal reentry of the borrower to the dispossessed property under section 14 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(SARFAESI).

The petitioner, Capri Global Housing Finance Ltd sought to issue a Writ of Mandamus or other other Writ of the like nature thereby directing the respondent authorities to forthwith and or within such time as the Court may deem fit and proper to render necessary assistance with the aid and assistance of police authorities for restoration of their secured assets in the hands of their Authorised Officer of the petitioner.

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The petitioner is a financial institution as defined under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( “the Securitization Act”). The petitioner company extended the loan facility to the borrower in lieu of property mortgaged by the borrower. Thereafter, since the borrower failed to pay the loan amount, therefore, petitioner issued a notice under Section 13(2) of the Securitization Act but the borrower did not choose to repay the loan amount.

The petitioner moved an application under Section 14 of the Securitization Act before the District Magistrate, Guna for taking possession of the property from the borrower. That application was allowed on 04-09-2023 directing the concerned Tahsildar to take possession of the property under mortgage.

Despite the order of District Magistrate, Guna, since possession of the property was not handed over to the petitioner, therefore, petitioner preferred writ petition No.2643/2024 before this Court and ultimately possession was handed over to the petitioner on 29-072024. However, the borrower and his family members again re-entered into the possession of the mortgaged property and thereafter, were not ready to vacate the mortgaged premises. Petitioner again approached the respondents authorities but they refused to help the petitioner on the pretext that the order of District Magistrate, Guna dated 04-092023 has already been executed and now they cannot re-execute the said order.

Counsel for the petitioner submitted that respondents are not adhering to the provisions of the Securitization Act as they are under bounden duty to provide assistance to the secured creditor to recover loan in case of default. The reason assigned by the respondents authorities for not executing the order of handing over of possession to the petitioner again, is unsustainable and amounts to mockery of rule of law. Petitioner is a financial institution having the money of the public at large, therefore, as a secured creditor, respondents authorities are required to extend assistance to recover the loan from the borrower.

The counsel for the respondents/State opposed the submission and prayed that petitioner has been handed over the possession of the mortgaged property but it failed to maintain it and borrower again entered into the mortgaged property, therefore, once possession of the mortgaged property is handed over to the petitioner, provisions of the Securitization Act have been followed by the respondents. The plea for an alternative remedy has also been raised.

Section 14 of the Securitization Act deals in respect of providing assistance to the secured creditor to recover its loan. It is clear that there is no legal bar on re-executing the order of possession or providing re-assistance to the secured creditor as tried to be projected by the respondents through their return. As such there is no legal impediment to dispossess the borrower from the mortgaged property once he has illegally entered into it.

Illegality cannot be permitted to be perpetuated. The borrower with their family members, reentered into the mortgaged property and thereafter if they are not vacating the mortgaged property, then the petitioner being secured creditor has remedy to again approach the respondents authorities to provide assistance and aid to take possession back from the borrower by dispossessing him from the property in question.

The tricks adopted by the borrower in entering into the mortgaged property after taking over possession by the petitioner, cannot be permitted to be rewarded. Once the borrower fails to repay the loan amount then the property which is under mortgage should be taken over by the petitioner as petitioner falls under the category of secured creditor.

A division bench comprising Justice Anand Pathak and Justice Hirdesh observed that since the Securitization Act itself provides mechanism for recovery of loan amount, therefore, in the attending facts and circumstances of the case, no effective legal remedy is available to the petitioner.

The court disagreed with the submission made by the AGP that the District Magistrate does not have the power to re-execute his own order or that he has become functus officio.

“If one can see powers of the revenue Authorities/ Executive Magistrate while keeping Section 14 of the SARFAESI Act in juxtaposition to Section 248 of the MPLRC then it appears that authorities deserve to execute the work again in case of such event as referred above.”, the bench viewed.

The court directed the respondent authorities to provide assistance and aid to the petitioner in dispossessing the borrower from the mortgaged property.

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