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Interim Orders By High Courts Should Generally Not Be Passed Without Hearing Secured Creditor - SC

C. Bright v. The District Collector & Ors.

Civil Appeal No. 3441 of 2020 (Arising Out Of SLP (Civil) No. 12381 Of 2020), 5th November, 2020.

Counsel for Appellants: Mr. Khan

The Hon'ble Supreme Court Justice L. Nageswara Rao, Justice Hemant Gupta and Justice Ajay Rastogi in the present appeal to an order passed by the Division Bench of the Kerala High Court on 19.7.2019, whereby it was held that Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 mandating the District Magistrate to deliver possession of a secured asset within 30 days, extendable to an aggregate of 60 days upon reasons recorded in writing, is a directory provision held that the remedy of an aggrieved person by a secured creditor under the Act is by way of an application before the Debts Recovery Tribunal.

The counsel for appellants argues that the proviso mandating the District Magistrate to record reasons, if the order is not passed within 30 days, in order to avail an extended period of a total 60 days, shows that the provision is mandatory. If the District Magistrate is not able to take decision within 60 days, the secured creditor has to find its remedy elsewhere and not in terms of Section 14 of the Act. It is contended that the proviso mandates the District Magistrate to pass an order within 30 days as the word “shall” is used in first part of the proviso. Thus, the time limit provided is unambiguous and by corollary the provision is mandatory. Reliance is placed on the judgments of this Court in Union of India & Ors. v. A.K. Pandey (2009) 10 SCC 552, Harshad Govardhan Sondagar v. International Assets Reconstruction Company Limited & Ors. (2014) 6 SCC 1, Dipak Babaria & Anr. v. State of Gujarat & Ors. (2014) 3 SCC502, in support of his arguments that the use of expression “shall” and the language of the second proviso in fixing the time limit of 60 days after recording of reasons makes the provision mandatory. If the District Magistrate has not been able to take possession, the proceedings before him abate.

The issue raised before this court is as follows:

1. Whether the withdrawal of an application filed under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 is a condition precedent to take recourse to the Act?

This Court observed that when Civil Courts failed to expeditiously decide suits filed by the banks, the Debt Recovery Tribunal Act was enacted, however it did not provide for assignment of debts to Securitisation companies. The Act which was enacted thereafter in 2002 sought to further empower the banks and facilitate the recovery of debt. It proceeded on the basis that once the liability of a borrower to repay crystallizes; it becomes due and that on account of delay, the account of such borrower becomes substandard and non-performing.

The Constitution Bench of this Court in Dattatraya Moreshwar Pangarkar v. State of Bombay & Ors., AIR 1952 SC 181 held that when the provisions of a statute relate to the performance of a public duty and the case is such that to hold acts done in neglect of this duty as null and void, would cause serious general inconvenience or injustice to persons who have no control over those entrusted with the duty, the practice of the courts should be to hold such provisions as directory. The Court examined well-recognised rules of construction in Hari Vishnu Kamath v. Ahmad Ishaque & Ors.AIR 1955 SC 233 to observe that a statute should be construed as directory if it relates to the performance of public duties, or if the conditions prescribed therein have to be performed by persons other than those on whom the right is conferred. This Court in Nasiruddin & Ors. v. Sita Ram Agarwal, (2003) 2 SCC 577 held that it is a well-settled principle that if an act is required to be performed by a private person within a specified time, the same would ordinarily be mandatory but when a public functionary is required to perform a public function within a time-frame, the same will be held to be directory unless the consequences therefore are specified.

This court in Mardia Chemical, Transcore and Hindon Forge Private Limited held that the secured creditor has no control over the District Magistrate who is exercising jurisdiction under Section 14 of the Act for public good to facilitate recovery of public dues. If any other interpretation is placed upon the language of Section 14, it would be contrary to the purpose of the Act. The time limit is to instill a confidence in creditors that the District Magistrate will make an at-tempt to deliver possession as well as to impose a duty on the District Magistrate to make an earnest effort to comply with the man-date of the statute to deliver the possession within 30 days and for reasons to be recorded within 60 days. In this light, the remedy under Section 14 of the Act is not rendered redundant if the District Magistrate is unable to handover the possession.

This Court thus observed that

Even though, this Court in United Bank of India v. Satyawati Tondon & Ors. held that in cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which will ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Hindon Forge Private Limited has held that the remedy of an aggrieved person by a secured creditor under the Act is by way of an application before the Debts Recovery Tribunal, however, borrowers and other aggrieved persons are invoking the jurisdiction of the High Court under Articles 226 or 227 of the Constitution of India without availing the alternative statutory remedy. The Hon’ble High Courts are well aware of the limitations in exercising their jurisdiction when affective alternative remedies are available, but a word of caution would be still necessary for the High Courts that interim orders should generally not be passed without hearing the secured creditor as interim orders defeat the very purpose of expeditious recovery of public money. (Para 21)

Hence, the appeal stands dismissed.

M. Maheswari



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