Secured Creditors’ Right to Seek Physical Possession Under Section 14 of the SARFAESI Act Even After Sale

The Calcutta High Court Judgment: Vijay Prakash Bohra vs. State of West Bengal and Ors.

In Vijay Prakash Bohra, the appellant (purchaser) challenged a Single Judge’s order refusing to direct the DM to assist the State Bank of India (SBI) in taking physical possession of an immovable property under Section 14. The property was sold to the appellant via auction under SARFAESI proceedings, but physical possession was not delivered due to the DM’s prior rejection of SBI’s application.

Key arguments

• Appellant’s stance: Relying on ITC vs. Blue Coast, the appellant argued that the secured creditor (SBI) could seek possession post-sale. The refusal affected the purchaser’s title and rights, making the appeal maintainable.
• Respondents’ counter: An injunction from a commercial court restrained creating third-party rights. They questioned the purchaser’s locus standi to invoke Section 14 and argued the appeal’s maintainability.

Division Bench ruling (in favour of the appellant)

• The DM under Section 14 is not an adjudicatory authority; it merely assists enforcement.
• Borrowers have remedies under Section 17 (appeal to the Debt Recovery Tribunal).
• The commercial court’s injunction did not bind SBI or halt SARFAESI proceedings.
• Setting aside the DM’s order, the court directed a fresh disposal within two weeks and possession handover within four weeks.

This judgment underscores that post-sale invocation of Section 14 protects the auction purchaser’s interests, aligning with the Act’s intent to ensure effective transfer.

Foundational Supreme Court Precedent: ITC Limited vs. Blue Coast Hotels Limited & Ors. (2018)

The Supreme Court’s decision in ITC vs. Blue Coast (supra) is pivotal. ITC, as an auction purchaser, sought physical possession of a Goa hotel property sold under SARFAESI by IFCI (secured creditor). The borrower challenged the sale, citing lack of physical possession at sale time.

Key Holdings

Under Section 13(4) and Rule 8(5) of the Security Interest (Enforcement) Rules, 2002, a sale without physical possession is a “limited transfer.” The secured creditor can invoke Section 14 post-sale to complete the transfer.

The borrower’s right to redeem under Section 13(8) extinguishes only upon full transfer, including possession. This ruling has been cited extensively, affirming that secured creditors retain enforcement powers post-sale to ensure the purchaser’s unencumbered possession.

It would be trite to reproduce para 45 – 50 of ITC vs. Blue Coast (supra) wherein the Court has discussed in detail the arguments put forth by the respondent/debtor and analysed the provisions and the law/precedents applicable thereto and observed thus:

45. As noticed earlier, the creditor took over symbolic possession of the property on 20.06.2013. Thereupon, it transferred the property to the sole bidder ITC and issued a sale certificate for Rs.515,44,01,000/- on 25.02.2015. On the same day, i.e., 25.02.2015, the creditor applied for taking physical possession of the secured assets under Section 14 of the Act.

46. According to the debtor, since Section 14 provides that an application for taking possession may be made by a secured creditor, and the creditor having ceased to be a secured creditor after the confirmation of sale in favour of the auction purchaser, was not entitled to maintain the application. Consequently, therefore, the order of the District Magistrate directing delivery of possession is a void order. This submission found favour with the High Court that held that the creditor having transferred the secured assets to the auction purchaser ceased to be a secured creditor and could not apply for possession. The High Court held that the Act does not contemplate taking over of symbolic possession and therefore the creditor could not have transferred the secured assets to the auction purchaser. In any case, since ITC Ltd. was the purchaser of such property, it could only take recourse to the ordinary law for recovering physical possession.

47. We find nothing in the provisions of the Act that renders taking over of symbolic possession illegal. This is a well-known device in law. In fact, this court has, although in a different context, held in M.V.S. Manikayala Rao v. M. Narasimhaswami AIR 1966 SC 470 that the delivery of symbolic possession amounted to an interruption of adverse possession of a party and the period of limitation for the application of Article 144 of the Limitation Act would start from such date of the delivery.

48. The question, however, whether the creditor could maintain an application of possession under Section 14 of the Act; even though it had taken over only symbolic possession before the sale of the property to the auction purchaser, depends on whether it remained a secured creditor after having done so.

Section 2(d) of the Act defines `secured creditor’ to mean a “banking company” having the meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949;

Clause 2(L)45 includes debts or receivables and any right or interest in the security whether full or part underlying such debt or receivables or any beneficial interest in property vide (L)(i)(iv) & (v).

Sub-section (6) of Section 13 posits that the transfer of the secured asset by the secured creditor shall vest in the transferee all the rights as if the transfer had been made by the owner of the secured asset.

49. In Mulla’s the Transfer of Property Act48:- 2(L) SARFAESI Act 46 2 (l) “financial asset” means debt or receivables and includes—

(i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or

(iv) any right or interest in the security, whether full or part underlying such debt or receivables; or

(v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent;

or (vi) x x x 47 13 (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. 48 Page 104, 105 31 “The section (s.8) does not apply to court sales, for such sales effect a transfer by the operation of law. The principle of the section was, however, applied in a case decided by Madras High Court where a debt for unpaid purchase money on a sale of land was attached and sold, and the auction purchaser was held entitled to the charge which the vendor had under s 55(4) (b) on the property in the hands of the buyer. The court, after observing that the present section did not apply to court sales, said: The effect of applying s 8 is to strengthen the sale certificate by transferring the lien along with it.” This Court observed in Abdul Aziz49 that a sale through court is different from a sale inter parties:-

“What is sold at a court sale is the right, title and interest of the judgment debtor, and the extent of that interest is a mixed question of fact and law to be decided according to the circumstances of each particular case, and depends upon what the court intended to sell, and the purchaser intended to buy.” We note that even though the entire right, title and interest were purported to have been transferred, all the rights, transfer and interest could not be said to have been transferred since the possession of the property was not transferred to creditor. The possession was retained by the debtor who continued to do business and receive rent from the rooms on the property and has in fact continued to do so till date. There is no doubt that after taking over the property from debtor, the creditor also acquired the right to receive the usufruct of the property i.e. the rent in this case. However, this was an interest in the property which was not at any point of time transferred to the auction purchaser.

50. In this case, the creditor did not have actual possession of the secured asset but only a constructive or symbolic possession. The transfer of the secured asset by the creditor therefore cannot be construed to be a complete transfer as contemplated by Section 8 of the Transfer of Property Act. The creditor nevertheless had a right to take actual possession of the secured assets and must therefore be held to be a secured creditor even after the limited transfer to the auction purchaser under the agreement. Thus, the entire interest in the property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the entire interest to the auction purchaser and thus remained a secured creditor in the Act.

Other caselaws that propound & reinforce the said dictum

• M/S Hindon Forge Pvt. Ltd. vs. The State of Uttar Pradesh (2019) 2 SCC 198: Dealt with Section 14’s scope. Citing ITC, it held that DMs must act expeditiously without adjudicating disputes, leaving borrowers to Section 17 remedies. Emphasized non-interference by writ courts in SARFAESI unless grave illegality is shown.
• Celir LLP vs. Bafna Motors (Mumbai) Pvt. Ltd. (2023) SCC OnLine SC 1209: Post the 2016 amendment to Section 13(8), the borrower’s redemption right ends at the auction sale date, not registration. Citing ITC, the court noted that pre-amendment, possession was key for full transfer. Affirmed Section 14’s post-sale applicability to complete possession handover.
• Celir LLP vs. Mr. Sumati Prasad Bafna (2024) SCC OnLine SC 2983: In contempt proceedings, the court reiterated ITC’s principle: Banks can pursue Section 14 for possession post-sale. Parties cannot bypass this in collateral petitions.
• Transcore vs. Union of India (2008) 1 SCC 125: Upheld SARFAESI’s constitutionality. Held that symbolic possession under Section 13(4) can precede physical possession via Section 14, enabling sales.
• United Bank of India vs. Satyawati Tondon (2010) 8 SCC 110: Limited high court interference under Article 226. Section 14 proceedings should not be stalled unless exceptional circumstances exist.
• Standard Chartered Bank vs. Noble Kumar (2013) 9 SCC 620: DM under Section 14 must verify affidavits but not adjudicate title disputes. Possession can be sought post-notice, aligning with post-sale scenarios.
• Harshad Govardhan Sondagar vs. International Assets Reconstruction Co. Ltd. (2014) 6 SCC 1: Protected tenants’ rights but affirmed secured creditors’ priority for possession under Section 14.
• Phoenix ARC Pvt. Ltd. vs. Vishwa Bharati Vidya Mandir (2022) 8 SCC 86: Educational institutions are not exempt; Section 14 applies. Reiterated non-adjudicatory DM role.
• Balkrishna Rama Tarle vs. Phoenix ARC Pvt. Ltd. (2022) SCC OnLine SC 1505: Post-sale, purchasers can join proceedings to enforce possession, echoing ITC’s purchaser protection.

Conclusion

The Vijay Prakash Bohra judgment exemplifies the judiciary’s commitment to SARFAESI’s efficiency, allowing secured creditors to invoke Section 14 post-sale for physical possession. Anchored in ITC vs. Blue Coast, this principle ensures complete transfers, protecting purchasers while providing borrowers appellate remedies. Supreme Court jurisprudence, from Transcore to recent cases like Celir LLP (2024), consistently upholds expeditious enforcement, mandatory procedural compliance, and factual scrutiny over exemptions.

However, challenges persist, such as balancing injunctions from civil courts. Future rulings may further refine these, but the overarching goal remains: swift NPA recovery to bolster financial stability. Stakeholders must navigate these with due diligence, ensuring adherence to the Act’s safeguards.