SARFAESI Act: Delivery of the SARFAESI Act, which allows DMs to attach secured assets to the borrower list: SC

New Delhi: In a relief for banks and financial institutions (FIs), the The Supreme Court Thursday ruled that a provision in SARFAESI law empowering district judges to take over secured assets of defaulted borrowers within a 60-day period to transfer them to the lending FIs was “catalog” and not “mandatory” as banks do not like the delay from officials.

Section 14 i Securitization and Reconstruction of Financial Assets and Enforcement of Collateral Interest (SARFAESI) Act requires district judges to provide possession of a secured asset within 30 days that can be extended to a total of 60 days for reasons recorded in writing to banks.

The Supreme Court faced the question of whether the provision was catalog or mandatory and whether the banks or FIs could suffer if the DMs did not act within 60 days to take over the secured assets for defaulted borrowers and deliver them back to the banks or FIs.

A bench of judges L Nageswara Rao, Hemant Gupta and Ajay Rastogi upheld the Kerala High Court ruling, which said the secured creditor would be “negatively affected if the provision is perceived as mandatory and not catalog” as it would also delay the process with taking physical possession of assets.

Justice Gupta, who wrote the verdict, said the SARFAESI law was enacted to provide a machinery for empowering banks and financial institutions so that they can have the power to take over secured assets and sell them.

The Debt Rights Recovery Act was first enacted to streamline the recovery of public taxes, but the procedures under this Act have not yielded desirable results and therefore the SARFAESI Act was enacted, it said.

Referring to judgments, the Supreme Court said, “The purpose of the law relates to the speedy recovery of fees from banks and financial institutions. The true intention of the legislature is a crucial factor in this. Taking into account the objectives of the law, the time limit for district judges to set is to give an impression on the authority to take over the secured assets. ”

However, inability to seize possession within a time limit does not make the county judge “Functus Officio”, it said, adding that the secured creditor has no control over the district judge exercising jurisdiction under section 14 of the Public Use Act to facilitate the recovery of public charges.

“Therefore, section 14 of the Act should not be construed literally without taking into account the purpose and purpose of the Act. If any other interpretation is placed on the language of Section 14, it would be contrary to the purpose of the Act,” Bench said.

The deadline is to instill confidence in creditors that the district court judge will make an attempt to hand over possession as well as impose on the district court judge a duty to make a serious effort to comply with the mandate in the bylaws to deliver the possession within 30 days and for reasons to be registered within 60 days, held it.

“In light of this, the remedy under section 14 of the Act is not made superfluous if the county judge is unable to transfer possession. The district judge will still be required to facilitate the delivery of possession at the earliest, ”the verdict said.

The judgment referred to a Constitutional Bench judgment which had held that when the provisions of a law relate to the exercise of a public duty and if the case is such that if acts held in breach of that duty are held invalid, it would cause injustice to persons who do not have control over those entrusted with the duty, the case law of the court should be to have such provisions as catalog.

“This court distinguishes between a person’s failure to act in a given time frame and the time frame given to a public authority in order to determine whether a provision was mandatory or catalog when the Court ruled that it is a well-established principle that if an action must be performed by a private person within a specified time period, it will normally be mandatory, but when a public official is required to perform a public function within a time frame, the same will be considered to be a library .., “it said.