After sale of Secured Asset, Section 14 of SARFAESI Act cannot be invoked

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Secured Creditor cannot invoke Section 14 of SARFAESI Act. As per the recent ruling by Calcutta High Court under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, the Court ruled that a secured creditor cannot maintain an application under Section 14 of SARFAESI Act 2002 after issuance of a sale certificate, in order to obtain physical possession of the property.

Explanation of Section 14:

Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured assets is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured assets, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or as the case may be, the District Magistrate shall, on such request being made to him-

(a) take possession of such asset and documents relating thereto; and
(b) forward such asset and documents to the secured creditor.

Thus, Section 14 requires the Chief Metropolitan Magistrate or DM to assist secured creditor in taking possession of the secured creditor in taking possession of the secured asset.

Case Facts:

The Court was hearing an Appeal filed by the United Bank of India, which had sought a direction to the District Magistrate to consider and dispose of an application filed by it under Section 14 of the Act. It had submitted that despite the fact that it had sold the immovable property in respect of which the application under Section 14 was filed, it was still entitled to maintain the writ petition for the relief prayed for.

The Bank had further contended that since the word ‘transfer’, as used in Section 14, would include an act of taking over of possession, the petitioner as the secured creditor can legitimately invoke the provision even after a conveyance in respect of an immovable property sold, has been executed and registered.

The State, on the other hand, had submitted that once a secured creditor sells an immovable property, it ceases to have any security interest in such secured asset. Consequently, it contended that such secured creditor should not be permitted to invoke the provisions of the Act of 2002.

Judgement:

“The contention that, the secured creditor still retains the right to obtain possession of the immovable property, after execution and registration of the deed of conveyance in favour of the purchaser, to be transferred to the purchaser, is misplaced. The transfer of immovable property by way of a sale can be done by a deed of conveyance duly executed, stamped and registered under the Registration Act, 1860. In absence of registration of such deed of conveyance with appropriate stamp, no right, title or interest in an immovable property can be said to be transferred to or vested with the purchaser. A document of title which is not registered, would fall short of the requirements of Sections 54 and 55 of the Transfer of Property Act, 1882. It may give a limited right under Section 53A of the Transfer of Property Act, 1882 at best,” Justice Debangsu Basak, thereafter, observed.