# M/S HINDON FORGE PVT. LTD. & ANR v. THE STATE OF UTTAR PRADESH THROUGH DISTRICT MAGISTRATE GHAZIABAD & ANR

- **Citation:** [2018] 11 S.C.R. 1019
- **Court:** Supreme Court of India
- **Decided:** 2018-11-01
- **Case number:** Civil Appeal No. 10873 of 2018
- **Bench:** R. F. Nariman, Navin Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-hindon-forge-pvt-ltd-anr-v-the-state-of-uttar-pradesh-through-district-32220
- **Pages:** 49

## Headnote

Securitisation and Reconstruction of Financial Assets and
Enforcement of Securities Interest Act, 2002: s.17(1) - Whether an
application under s.17(1) of the SARFAESI Act at the instance of a
borrower, is maintainable even before physical or actual possession
of secured assets is taken by banks/financial institutions in exercise
of their powers under s.13(4) of the Act r/w r.8 of the Rules, 2002
- Held: The scheme of s.13(4) r/w r.8(1) makes it clear that the
delivery of a possession notice together with affixation on the
property and publication is one mode of taking "possession" under
s.13(4) - Once possession is taken under rr.8(1) and 8(2)
r/w s.13(4)(a), s.17 gets attracted, as this is one of the measures
referred to in s.13(4) that is taken by the secured creditor under
Chapter III - Thus, borrower/debtor can approach the Debts
Recovery Tribunal under s.17 of the Act at the stage of the possession
notice referred to in rr. 8(1) and 8(2) of the 2002 Rules - Security
Interest (Enforcement) Rules, 2002 - rr.8(1) and 8(2).
Allowing the appeals, the Court
HELD: 1.1 A reading of section 13 would make it clear
that where a default in repayment of a secured debt or any
instalment thereof is made by a borrower, the secured creditor
may require the borrower, by notice in writing, to discharge in
full his liabilities to the secured creditor within 60 days from the
date of notice. It is only when the borrower fails to do so that the
secured creditor may have recourse to the provisions contained
in section 13(4) of the Act. [Para 10] [1054-B-C]
Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC
311 : [2004] 3 SCR 982 - relied on.
1019
[2018] 11 S.C.R. 1019
A
B
C
D
E
F
G
H
1020
SUPREME COURT REPORTS
[2018] 11 S.C.R.
1.2 Rule 8(1) makes it clear that "the authorised officer
shall take or cause to be taken possession". The expression
"cause to be taken" only means that the authorised officer need
not himself take possession, but may, for example, appoint an
agent to do so. What is important is that such taking of possession
is effected under sub-rule (1) of rule 8 by delivering a possession
notice prepared in accordance with Appendix IV of the 2002 Rules,
and by affixing such notice on the outer door or any other
conspicuous place of the property concerned. Under sub-rule (2),
such notice shall also be published within 7 days from the date of
such taking of possession in two leading newspapers, one in the
vernacular language having sufficient circulation in the locality.
Appendix IV provides the format of possession notice wherein
the borrower in particular, and the public in general is cautioned
by the said possession notice not to deal with the property as
possession of the said property has been taken. From this stage
on, the secured asset is liable to be sold to realise the debt owed,
and title in the asset is divested from the borrower and complete
title given to the purchaser, as is mentioned in section 13(6) of
the Act. There is, thus, a radical change in the borrower dealing
with the secured asset from this stage. At the stage of a section
13(2) notice, section 13(13) interdicts the borrower's from
transferring the secured asset (otherwise than in the ordinary
course of his business) without the prior written consent of the
secured creditor. But once possession notice is given under rule
8(1) and 8(2) by the secured creditor to the borrower, the borrower
cannot deal with the secured asset at all as all further steps to
realise the same are to be taken by the secured creditor under
the 2002 Rules. [Para 11] [1054-E-H; 1055-A-B]
1.3 The scheme of section 13(4) read with rule 8(1)
therefore makes it clear that the delivery of a possession notice
together with affixation on the property and publication is one
mode of taking "possession" under section 13(4). This being
the case, it is clear that section 13(6) kicks in as soon as this is
done as the expression used in section 13(6) is "after taking
possession". Also, it is cle

## Text

_Characters 0–39,976 of 114,799. This is a partial read: ask again with offset=39976 for what follows._

A
B
C
D
E
F
G
H
1019
M/S HINDON FORGE PVT. LTD. & ANR.
v.
THE STATE OF UTTAR PRADESH THROUGH DISTRICT
MAGISTRATE GHAZIABAD & ANR.
(Civil Appeal No. 10873 of 2018)
NOVEMBER 01, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Securitisation and Reconstruction of Financial Assets and
Enforcement of Securities Interest Act, 2002: s.17(1) - Whether an
application under s.17(1) of the SARFAESI Act at the instance of a
borrower, is maintainable even before physical or actual possession
of secured assets is taken by banks/financial institutions in exercise
of their powers under s.13(4) of the Act r/w r.8 of the Rules, 2002
- Held: The scheme of s.13(4) r/w r.8(1) makes it clear that the
delivery of a possession notice together with affixation on the
property and publication is one mode of taking "possession" under
s.13(4) - Once possession is taken under rr.8(1) and 8(2)
r/w s.13(4)(a), s.17 gets attracted, as this is one of the measures
referred to in s.13(4) that is taken by the secured creditor under
Chapter III - Thus, borrower/debtor can approach the Debts
Recovery Tribunal under s.17 of the Act at the stage of the possession
notice referred to in rr. 8(1) and 8(2) of the 2002 Rules - Security
Interest (Enforcement) Rules, 2002 - rr.8(1) and 8(2).
Allowing the appeals, the Court
HELD: 1.1 A reading of section 13 would make it clear
that where a default in repayment of a secured debt or any
instalment thereof is made by a borrower, the secured creditor
may require the borrower, by notice in writing, to discharge in
full his liabilities to the secured creditor within 60 days from the
date of notice. It is only when the borrower fails to do so that the
secured creditor may have recourse to the provisions contained
in section 13(4) of the Act. [Para 10] [1054-B-C]
Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC
311 : [2004] 3 SCR 982 - relied on.
1019
[2018] 11 S.C.R. 1019
A
B
C
D
E
F
G
H
1020
SUPREME COURT REPORTS
[2018] 11 S.C.R.
1.2 Rule 8(1) makes it clear that "the authorised officer
shall take or cause to be taken possession". The expression
"cause to be taken" only means that the authorised officer need
not himself take possession, but may, for example, appoint an
agent to do so. What is important is that such taking of possession
is effected under sub-rule (1) of rule 8 by delivering a possession
notice prepared in accordance with Appendix IV of the 2002 Rules,
and by affixing such notice on the outer door or any other
conspicuous place of the property concerned. Under sub-rule (2),
such notice shall also be published within 7 days from the date of
such taking of possession in two leading newspapers, one in the
vernacular language having sufficient circulation in the locality.
Appendix IV provides the format of possession notice wherein
the borrower in particular, and the public in general is cautioned
by the said possession notice not to deal with the property as
possession of the said property has been taken. From this stage
on, the secured asset is liable to be sold to realise the debt owed,
and title in the asset is divested from the borrower and complete
title given to the purchaser, as is mentioned in section 13(6) of
the Act. There is, thus, a radical change in the borrower dealing
with the secured asset from this stage. At the stage of a section
13(2) notice, section 13(13) interdicts the borrower's from
transferring the secured asset (otherwise than in the ordinary
course of his business) without the prior written consent of the
secured creditor. But once possession notice is given under rule
8(1) and 8(2) by the secured creditor to the borrower, the borrower
cannot deal with the secured asset at all as all further steps to
realise the same are to be taken by the secured creditor under
the 2002 Rules. [Para 11] [1054-E-H; 1055-A-B]
1.3 The scheme of section 13(4) read with rule 8(1)
therefore makes it clear that the delivery of a possession notice
together with affixation on the property and publication is one
mode of taking "possession" under section 13(4). This being
the case, it is clear that section 13(6) kicks in as soon as this is
done as the expression used in section 13(6) is "after taking
possession". Also, it is clear that rule 8(5) to 8(8) also kick in as
soon as "possession" is taken under rule 8(1) and 8(2). The
statutory scheme, therefore, in the present case is that once
possession is taken under rule 8(1) and 8(2) read with section
A
B
C
D
E
F
G
H
1021
13(4)(a), section 17 gets attracted, as this is one of the measures
referred to in section 13(4) that can be taken by the secured
creditor under Chapter III. Rule 8(3) begins with the expression
"in the event of". These words make it clear that possession
may be taken alternatively under sub-rule (3). The further
expression used in sub-rule (3) is "actually taken" making it clear
that physical possession is referred to by rule 8(3). Thus, whether
possession is taken under either rule 8(1) and 8(2), or under
rule 8(3), measures are taken by the secured creditor under
section 13(4) for the purpose of attracting section 17(1). [Paras
12, 13] [1055-C-G]
2.1 The argument for the respondents that section 13(4)(a)
has to be read in the light of sub-clauses (b) and (c) is incorrect
and must be rejected. Under sub-clause (c), a person is appointed
as the manager to manage the secured assets, the possession of
which has been taken over by the secured creditor only under
rule 8(3). Further, the rule of noscitur a sociis cannot apply. Subclause (b) speaks of taking over management of the business of
the borrower which is completely different from taking over
possession of a secured asset of the borrower. Equally, sub-clause
(d) does not speak of taking over either management or
possession, but only speaks of paying the secured creditor so
much of the money as is sufficient to pay off the secured debt.
These arguments must therefore be rejected. [Para 14] [1055G; 1056-A-B]
2.2 Section 17(3) is a provision which arms the Debts
Recovery Tribunal to provide certain reliefs when applications
are made before it by the borrower. One of the reliefs that can be
given is restoration of possession. Other reliefs can also be given
under the omnibus section 17(3)(c). Merely because one of the
reliefs given is that of restoration of possession does not lead to
the sequitur that only actual physical possession is therefore
contemplated by section 13(4), since other directions that may
be considered appropriate and necessary may also be given for
wrongful recourse taken by the secured creditor to section 13(4).
[Para 16] [1056-F-G]
2.3 In the Statement of Objects and Reasons of the original
enactment, paragraphs 2(i) and 2(j) make it clear that the rights
M/S HINDON FORGE PVT. LTD. v. STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD
A
B
C
D
E
F
G
H
1022
SUPREME COURT REPORTS
[2018] 11 S.C.R.
of the secured creditor are to be exercised by officers authorised
in this behalf in accordance with the rules made by the Central
Government. Further, an appeal against the action of any bank or
financial institution is provided to the concerned Debts Recovery
Tribunal. It can thus be seen that though the rights of a secured
creditor may be exercised by such creditor outside the court
process, yet such rights must be in conformity with the Act. If
that is not the case, such an action is liable to be interfered with
by the Debts Recovery Tribunal in an application made by the
debtor/borrower. Thus, it can be seen that the object of the
original enactment also includes secured creditors acting in
conformity with the provisions of the Act to realise the secured
debt which, if not done, gives recourse to the borrower to obtain
relief from the Debts Recovery Tribunal. Equally, the Statement
of Objects and Reasons of the Amendment Act of 2004 also makes
it clear that not only do reasons have to be given for not accepting
objections of the borrower under section 13(3-A), but that
applications may be made before the Debts Recovery Tribunal
without making the onerous pre-deposit of 75% which was struck
down by this Court in Mardia Chemicals. The object of the Act,
therefore, is also to enable the borrower to approach a quasijudicial forum in case the secured creditor, while taking any of
the measures under section 13(4), does not follow the provisions
of the Act in so doing. Take for example a case in which a secured
creditor takes possession under rule 8(1) and 8(2) before the 60
days' period prescribed under section 13(2) is over. The borrower
does not have to wait until actual physical possession is taken
(this may never happen as after possession is taken under rule
8(1) and 8(2), the secured creditor may go ahead and sell the
asset). The object of providing a remedy against the wrongful
action of a secured creditor to a borrower will be stultified if the
borrower has to wait until a sale notice is issued, or worse still,
until a sale actually takes place. It is clear, therefore, that one of
the objects of the Act, as carried out by rule 8(1) and 8(2) must
also be subserved, namely, to provide the borrower with instant
recourse to a quasi-judicial body in case of a wrongful action being
taken by the secured creditor. [Para 17] [1056-H; 1057-A-G]
3.1 Another argument for the respondents is that the taking
of possession under section 13(4)(a) must mean actual physical
A
B
C
D
E
F
G
H
1023
possession or otherwise, no transfer by way of lease can be made
as possession of the secured asset would continue to be with the
borrower when only symbolic possession is taken. This argument
also must be rejected for the reason that what is referred to in
section 13(4)(a) is the right to transfer by way of lease for realising
the secured asset. One way of realising the secured asset is when
physical possession is taken over and a lease of the same is made
to a third party. When possession is taken under rule 8(1) and
8(2), the asset can be realised by way of assignment or sale. This
being the case, it is clear that the right to transfer could be by
way of lease, assignment or sale, depending upon which mode of
transfer the secured creditor chooses for realising the secured
asset. Also, the right to transfer by way of assignment or sale can
only be exercised in accordance with rules 8 and 9 of the 2002
Rules which require various pre-conditions to be met before sale
or assignment can be effected. Equally, transfer by way of lease
can be done in future in cases where actual physical possession
is taken of the secured asset after possession is taken
under rule 8(1) and 8(2) at a future point in time. If no such
actual physical possession is taken, the right to transfer by way
of assignment or sale for realising the secured asset
continues. This argument must also, therefore, be rejected.
[Para 18] [1057-G-H; 1058-A-D]
3.2 Banks and financial institutions can recover their debts
by selling properties outside the court process under the
SARFAESI Act by adhering to the statutory conditions laid down
by the said Act. It is only when such statutory conditions are not
adhered to that the Debts Recovery Tribunal comes in at the
behest of the borrower. Under the Recovery of Debts Act, banks/
financial institutions could not recover their debts without
intervention of the Debts Recovery Tribunal, which the
SARFAESI Act has greatly improved upon, the only caveat being
that this must be done by the secured creditor following the drill
of the SARFAESI Act and rules made thereunder. [Para 19]
[1058-E-G]
Transcore v. Union of India & Anr. (2008) 1 SCC
125 : [2006] 9 Suppl. SCR 785; Standard Chartered
Bank v. V. Noble Kumar & Ors., (2013) 9 SCC 620 :
[2013] 10 SCR 762 - distinguished.
M/S HINDON FORGE PVT. LTD. v. STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD
A
B
C
D
E
F
G
H
1024
SUPREME COURT REPORTS
[2018] 11 S.C.R.
ITC Limited v. Blue Coast Hotels Ltd. and Ors. AIR 2018
SC 3063 - relied on.
Canara Bank v. M. Amarender Reddy & Anr. (2017) 4
SCC 735 : [2017] 3 SCR 748; Mathew Varghese v.
M. Amritha Kumar and Ors. (2014) 5 SCC 610 : [2014]
2 SCR 736 - referred to.
4. Appendix IV-A recognises the fact that rule 8(1) and 8(2)
refer to constructive possession whereas rule 8(3) refers to
physical possession. The borrower/debtor can approach the Debts
Recovery Tribunal under section 17 of the Act at the stage of the
possession notice referred to in rules 8(1) and 8(2) of the 2002
Rules. [Para 25] [1067-C-D]
Case Law Reference
[2004] 3 SCR 982
relied on
Para 3
[2013] 10 SCR 762
distinguished
Para 6
[2006] 9 Suppl. SCR 785
distinguished
Para 20
[2017] 3 SCR 748
referred to
Para 22
[2014] 2 SCR 736
referred to
Para 22
AIR 2018 SC 3063
relied on
Para 23
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 10873
of 2018.
From the Judgment and Order dated 06.02.2018 of the High
Court of Judicature at Allahabad, Lucknow Bench in Misc. Bench No.
28806 of 2017
WITH
Civil Appeal No. 10874 of 2018.
Neeraj Kishan Kaul, C. U. Singh, Ranjit Kumar, Sr. Advs., Sanchit
Garga, Harsh Chopra, Ashutosh Garga, Pahlad Singh Sharma, Shashank
Pathak, Samar Kachwaha, Chanan Parwani, Ramchandra Madan, Abhay
Chauhan, Dincur Bajaj, D. K. Pathak, Vivek Gupta, Mrinmay
Bhattmewara, Pranav Kaashyap, O. P. Gaggar, Ankur Prakash, Suresh
Dobhal, Rohit Dhyani, Ms. Sonakshi Dhiman, Saaransh Parasher, Rishi
Sharma, Das, Ms. Kusum Lata, Mahesh K. Chaudhary, Sanjeev Singh,
Ms. Anandita Singh, Sudhanshu Palo, Ashok Kumar Dhandhania, Arup
Paul, Ms. Soumya Mukharjee, Ms. Jyoti Chaturvedi, Praveen Chaturvedi,
A
B
C
D
E
F
G
H
1025
Ashish Dholakia, Sanjay Kapur, Ms. Megha Karnwal, Ms. Sheena Taqui,
Ms. Shubhra Kapur, Piyush Hans, Ashok Malik, Vishisht, Ms. Saloni,
Bhal Singh Malik, Muneesh Malhotra, Achin Mittal, Advocates for the
appearing parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. Leave granted.
2. These matters come to us from a Full Bench judgment of the
Allahabad High Court dated 06.02.2018. By an order of reference dated
19.09.2017, a learned Single Judge noticed divergent opinions expressed
by two different Benches of the Allahabad High Court on the question
whether an application under section 17(1) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Securities
Interest Act, 2002 (hereinafter referred to as the "SARFAESI Act" or
the "Act"), at the instance of a borrower, is maintainable even before
physical or actual possession of secured assets is taken by banks/financial
institutions in exercise of their powers under section 13(4) of the Act
read with rule 8 of the Security Interest (Enforcement) Rules, 2002
(hereinafter referred to as the "2002 Rules"). After discussing the
various provisions of the Act, the 2002 Rules and judgments of the
Supreme Court, the Full Bench summarised the true legal position
according to it as follows:
"29. The upshot of legal position that emerges from the judgments
of the Supreme Court, insofar as the question referred to for our
consideration is concerned, briefly stated, is as under:
(a) The remedy of an application under Section 17(1) is available
only after the measures under Section 13(4) have been taken by
the Bank/FIs against the borrower.
(b) The issue of notice under Section 13(2) to the borrower and
communication contemplated by Section 13(3-A) stating that his
representation/objection is not acceptable or tenable, does not
attract the application of principles of natural justice. In other
words, no recourse to an application under Section 17(1), at that
stage, is available/maintainable.
(c) The borrower/person against whom measures under Section
13(4) of the Act are likely to be taken, cannot be denied to know
the reason why his application or objections have not been
M/S HINDON FORGE PVT. LTD. v. STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD
A
B
C
D
E
F
G
H
1026
SUPREME COURT REPORTS
[2018] 11 S.C.R.
accepted, as a fulfilment of the requirement of reasonableness
and fairness in dealing with the same.
(d) One of the reasons for providing procedure under Section
13(4) read with Rule 8 for taking possession is that the borrower
should have a clear notice before the date and time of sale/
transfer of the secured assets, in order to enable him to tender
the dues of the secured creditor with all other charges or to take
a remedy under Section 17, at appropriate stage.
(e) The time of 60 days is provided after the "measures" under
Section 13(4) have been taken so as to enable the borrower to
approach DRT and in such an eventuality, the DRT shall have a
jurisdiction to pass any order/interim order, may be subject to
conditions, on the application under Section 17(1) of the Act.
(f) The scheme of relevant provisions of the Act and the Rules
shows that the Bank/FIs have been conferred with powers to
take physical (actual) possession of the secured assets without
interference of the Court and the only remedy open to the
borrower is to approach DRT challenging such an action/measure
and seeking appropriate relief, including restoration of possession,
even after transfer of the secured assets by way of sale/lease,
on the ground that the procedure for taking possession or
dispossessing the borrower was not in accordance with the
provisions of the Act/Rules.
(g) If the dues of the secured creditor together with all costs,
charges and expenses incurred by them are tendered to them
(secured creditors) before the date fixed for sale or transfer, the
assets shall not be sold or transferred and in such an eventuality,
possession can also be restored to the borrower.
(h) If the possession is taken before confirmation of sale, it cannot
be stated that the right of the borrower to get the dispute
adjudicated upon is defeated. The borrower's right to get back
possession even after the sale remains intact or stands recognised
under the scheme of the provisions of the Act.
(i) The borrower is not entitled to challenge the reasons
communicated or likely measure, to be taken by the secured
creditor under Section 13(4) of the Act, unless his right to
approach DRT, as provided for under Section 17(1), matures.
A
B
C
D
E
F
G
H
1027
The borrower gets all the opportunities, at different stages, either
to clear the dues or to challenge the measures under Section
13(4) or even to challenge the reasons rejecting his objections/
not accepting the objections, after the measures under Section
13(4) have been taken.
(j) While the banks have been vested with stringent powers for
recovery of their dues, safeguards have also been provided for
rectifying any error or wrongful use of such powers by vesting
DRT with authority, after conducting an adjudication into the
matters, to declare any such action invalid and also to restore
even though the possession may have been made over to the
transferee.
(k) The safeguards provided under the scheme make it further
clear that if the Bank/FIs proceeds to take actual possession of
the assets that cannot be stalled by the interference of a Court.
(l) If DRT after examining the facts and circumstances of the
case and on the basis of evidence produced by the parties, comes
to the conclusion that any of the measures referred to in Section
13(4), taken by the secured creditor is not in accordance with
the provisions of the Act, it may by order declare that the recourse
taken to any one or more measures is invalid and restore
possession to the borrower.
(m) Any transfer of secured asset after taking possession thereof
by the secured creditor shall vest in the transferee all rights in, or
in relation to the secured asset as if the transfer had been made
by the owner of such secured assets.
(n) No remedy under Section 17(1) can be taken by the borrower
unless he loses actual (physical) possession of the secured assets.
In other words, before losing actual possession or unless the
secured creditor obtains physical possession of the secured asset
under Section 13(4), it is not open to the borrower to take a
remedy under Section 17(1) of the Act."
The court then went on to hold:
"31. Section 13(4) of the Act provides that if the borrower fails
to discharge his liability within the period prescribed under Section
13(2), the secured creditor can take recourse to one of the
M/S HINDON FORGE PVT. LTD. v. STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
A
B
C
D
E
F
G
H
1028
SUPREME COURT REPORTS
[2018] 11 S.C.R.
measures, such as taking possession of the secured assets,
including the right to transfer by way of lease, assignment or
sale for realising the secured asset. From the language of this
provision, it is further clear that taking measure under Section
13(4)(a) would mean taking actual (physical) possession, and if
we do not read it in the said provision to say so, the right and
power of the secured creditor to transfer the assets by way of
lease, assignment or sale for realizing the secured assets, as
provided for therein, would render redundant. In other words,
putting such an interpretation on the language of Section 13(4)
of the Act would be atrocious and would defeat the very objective
of bringing the legislation. It is, therefore, not possible to hold
that taking "measures" under Section 13(4)(a) also means taking
only "symbolic possession" and not "physical possession". We
record further reasons to say so in following paragraph. From
the scheme of Section 13(4) and Sections 14 and 17 of the Act
and the relevant Rules 8 and 9 of the Rules, it appears to us that
unless physical possession is taken, the measure, contemplated
under Section 13(4), cannot be stated to have been taken.
31.1. One of the rights conferred on a secured creditor is to
transfer by way of lease, the secured asset, possession or
management whereof has been taken under clauses (a) or (b)
of sub-section (4) of Section 13. We have already held that sale
or assignment of the secured assets could only be undertaken if
actual physical possession has been taken over by the bank/
FI's. If we pose a question whether right to transfer the secured
assets by way of lease could be exercised without taking actual
physical possession of the secured asset or management of the
business of the borrower, our answer would be obviously in the
negative.
31.2. The word 'lease' has not been defined under the Act, but
it has been used in the Act in the same sense as under the Transfer
of Property Act, 1882. Thereunder, Section 105 defines lease as
"transfer of a right to enjoy such property, made for a certain
time, express or implied, or in perpetuity, in consideration of a
price paid or promised, or of money, a share of crops, service or
any other thing of value, to be rendered periodically or on specified
occasions to the transferor by the transferee, who accepts the
A
B
C
D
E
F
G
H
1029
transfer on such terms. Lease is a contract between the lessor
and the lessee for the possession and profits of land, etc. on one
side and the recompense by rent or other consideration on the
other. The estate transferred to the lessee is called the leasehold.
The estate remaining in the lessor is called the reversion.
31.3. The absolute owner, who is under no personal incapacity
can grant lease for any term he pleases. However, the limited
owner like a tenant for life can grant lease but it would not endure
beyond his death. The Supreme Court in Associated Hotels of
India Ltd. v. R.N. Kapoor, AIR 1959 SC 1262, while making a
distinction between lease and license observed thus:-
"A lease is a transfer of an interest in land. The interested
transferred is called the leasehold interest. The lessor parts
with his right to enjoy the property during the term of the
lease, and it follows from it that the lessee gets that right to
the exclusion of the lessor.
Under S. 52 if a document gives only a right to use the
property in a particular way or under certain terms while it
remains in possession and control of the owner thereof, it
will be a licence. The legal possession, therefore, continues
to be with the owner of the property, but the licensee is
permitted to make use of the permissive for a particular
purpose. But for the permission, his occupation would be
unlawful. It does not create in his favour any estate or interest
in the property. There is, therefore, clear distinction between
the two concepts."
31.4. One of the essential indicia of lease is parting of exclusive
possession by the lessor to the lessee with conferment of
reciprocal right in the lessee to protect his possession during
subsistence of the lease to the exclusion of the lessor. Although
in some cases, a licensee may also be given exclusive possession
of a property, but as observed above, parting of exclusive
possession to the lessee is a sine qua non for creating a valid
lease. Thus, where a person is not in physical possession of a
property nor in a position to deliver physical possession in future,
he is incompetent to create a valid lease. The reason being that
he is not in a position to confer upon the lessee the right to enjoy
the property to the exclusion of the lessor and everyone else.
M/S HINDON FORGE PVT. LTD. v. STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
A
B
C
D
E
F
G
H
1030
SUPREME COURT REPORTS
[2018] 11 S.C.R.
31.5. It thus necessarily follow that the ultimate object of taking
possession of the secured asset or management of the business
of the borrower would not be achieved unless the secured creditor
is in a position to further exercise his right to transfer the same,
inter alia, by way of lease or sale, which could be possible only if
physical (actual) possession has been taken over and not
constructive or symbolic possession. The language of Section
13(6) also supports our view. Thus, while there is no bar in first
taking symbolic possession of the secured assets, but it is implicit
in sub-section (4) of Section 13 that the secured creditor has to
thereafter proceed to take physical (actual) possession in order
to exercise its right to transfer by way of lease, assignment or
sale."
xxx xxx xxx
"34. Thus, the scheme of the provisions of Sections 13 and 17 of
the Act, read with Rules 8 and 9 of the Rules, would show that
the "measure" taken under Section 13(4)(a) read with Rule 8
would not be complete unless actual (physical) possession of the
secured assets is taken by the Bank/Financial Institutions. In our
opinion, taking measure under Section 13(4) means either taking
actual/physical possession under clause (a) of sub-section (4) of
Section 13 or any other measure under other clauses of this
Section and not taking steps to take possession or making
unsuccessful attempt to take measure under Section 13(4) of
the Act. Similarly, following the procedure laid down under Section
14 and/or Rules 8 and 9, where the Bank meets with resistance,
would only mean taking steps to seek possession under Section
13(4)(a) and the "measure" under sub-section (4)(a) of Section
13 would stand concluded only when actual/physical possession
is taken or the borrower loses actual/physical possession. It is at
this stage alone or thereafter, the borrower can take recourse to
the provisions of Section 17(1) of the Act. The transfer of
possession is an action. Mere declaration of possession by a
notice, in itself, cannot amount to transfer of possession, more
particularly where such a notice meets with resistance. When
the possession is taken by one party, other party also loses it. In
the present case, adversial possession in being claimed by the
secured creditor against the borrower. It is not possible that both
A
B
C
D
E
F
G
H
1031
will have possession over the secured assets. The possession of
the secured creditor would only come into place with the
dispossession of the borrower. We may also observe that in a
securitisation application under Section 17(1), the borrower will
have to make a categoric statement that he lost possession or he
has been dispossessed and pray for possession.
35. Issuance of possession notice, as observed earlier, gives
borrower and the public in general an intimation that the secured
creditor has taken possession of the property and at that stage, it
is quite possible, may be in view of resistance or if the Banks
chooses to take only symbolic possession, to state that the secured
creditor has taken symbolic/constructive possession and not
physical possession, but that by itself would not entitle the
borrower to raise challenge under Section 17(1) of the Act, as
held by the Supreme Court in Noble Kumar (supra). Unless the
borrower loses actual (physical) possession, he cannot take
recourse to provisions of Section 17(1). Even while taking steps
under Section 13(4) of the Act read with Rule 8 of the Rules, in
a given case, the bank may not physically dispossess the borrower
and wait till it takes steps to conduct actual sale/auction of the
secured assets i.e. till he issues notice under Rule 8(6) of the
Rules. Even that by itself, from the scheme of the Act and the
Rules, in the backdrop of the objective of the Act, in our opinion,
does not confer any right to take recourse to Section 17(1). The
borrower can file securitisation application under Section 17(1)
only when he physically loses possession."
xxx xxx xxx
"40. We are, therefore, of the firm and considered opinion that
taking "symbolic possession" or issuance of possession notice
under Appendix IV of the Rules, meeting with any resistance,
cannot be treated as "measure"/s taken under Section 13(4) of
the Act and, therefore, the borrower at that stage cannot file an
application under Section 17(1) before DRT. In other words, a
securitisation application under Section 17(1) of the Act is
maintainable only when actual/physical possession is taken by
the secured creditor or the borrower loses actual/physical
possession of the secured assets. Once the right to approach
DRT matures and securitisation application under Section 17(1)
M/S HINDON FORGE PVT. LTD. v. STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
A
B
C
D
E
F
G
H
1032
SUPREME COURT REPORTS
[2018] 11 S.C.R.
is filed by the borrower, it is open to DRT to deal with the same
on merits and pass appropriate orders in accordance with law.
Thus, the question referred to for our consideration stands
answered in terms of this judgment. The judgment of this Court
in Aum Jewels (supra), in our opinion, does not enunciate the
correct law."
3. Shri Neeraj Kishan Kaul, learned Senior Advocate, appearing
on behalf of the appellants, has placed before us all the relevant sections
under the SARFAESI Act as well as the relevant rules under the 2002
Rules. He has referred to the Statement of Objects and Reasons of both
the original Act as well as the Amendment Act made in 2004 pursuant to
a judgment of this Court in Mardia Chemicals Ltd. v. Union of India,
(2004) 4 SCC 311 ("Mardia Chemicals"). According to Shri Kaul, the
scheme of section 13 is that a notice of default once served under section
13(2) of the Act may call upon the borrower to discharge in full his
liability to the secured creditor within 60 days from the date of notice,
failing which the secured creditor shall be entitled to exercise all or any
of the rights under sub-section (4) of section 13. He relied upon section
13(3-A) which made it clear that even though reasons are communicated
under the said sub-section, since no measures were actually taken under
section 13(4), there is no right at that stage for the borrower to prefer an
application to the Debts Recovery Tribunal under section 17 of the Act.
According to the learned Senior Advocate, section 13(4)(a) makes it
clear that "possession" of the secured assets of the borrower may be
taken under this provision. Obviously, such possession is to be taken
under the rules framed under the Act. Rule 8(1) makes it clear that
possession is taken under the 2002 Rules by delivering a possession
notice prepared in the form contained in Appendix IV to the rules, and
by affixing the notice on the outer door or at such conspicuous place of
the property. Once this is done, and the possession notice is published in
two leading newspapers under sub-rule (2), the form contained in
Appendix IV makes it clear that notice is given to the public in general
that possession has been taken in exercise of powers contained under
section 13(4) of the Act read with rule 8 of the 2002 Rules. As soon as
this takes place, according to Shri Kaul, since "symbolic possession"
has been so taken, the right of the borrower to approach the Debts
Recovery Tribunal for relief under section 17 gets crystallized. He also
relied upon sub-rule (3) to argue that possession may be taken under this
sub-rule which is "actual" as opposed to "symbolic" possession under
A
B
C
D
E
F
G
H
1033
sub-rule (1). According to the learned Senior Advocate, the moment
possession is taken either under rule 8(1) or under rule 8(3), section
13(6) gets attracted thereby making it clear that a transfer of secured
asset, after taking such possession, 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. According to Shri Kaul,
after symbolic possession is taken under rule 8(1), rules 8(5) to 8(8) and
rule 9 can then be followed in order to effect sale of property of which
symbolic possession has been taken. Shri Kaul attacked the judgment of
the Full Bench, stating that the conclusion of the Full Bench that the
borrower would have to wait until actual physical possession of the
secured asset is taken would create great hardship in that a running
business of the borrower would be taken over without the borrower
being able to approach the Debts Recovery Tribunal, and would have to
wait until after the sale takes place to recover possession under section
17(3), even if he is able to show that the steps taken by the secured
creditor are in violation of the provisions of the Act. Thus, if symbolic
possession is taken contrary to section 13(2) prior to 60 days from the
date of the notice mentioned therein, all borrowers would have to wait
until physical possession is taken and/or a sale notice is issued to get
back their running business after the business is brought to a grinding
halt. This could not possibly have been the intention of the legislature.
4. Shri C.U. Singh, learned Senior Advocate, appearing on behalf
of respondent no. 2, took us through the statutory provisions and the
2002 Rules and argued that the High Court may have gone beyond what
was argued by his predecessor before the High Court. Shri Singh
emphasised that his limited argument before this Court is that the stage
of symbolic possession is not a stage at which any prejudice is caused to
the borrower as he may continue to run his business. Section 13(6) does
not come in at this stage at all, and section 13(13), which interdicts a
borrower after receipt of a notice under section 13(2) to transfer by
way of sale, lease or otherwise, other than in the ordinary course of
business, any of his secured assets without prior written consent of the
secured creditor, is the only restraint that continues to attach after
symbolic possession is taken. According to him, as no prejudice is caused
to the borrower at this stage, it is clear that "possession" spoken of in
section 13(4) can only mean actual physical possession. This becomes
clear on a reading of section 13(4)(c) which makes it clear that a manager
can only manage the secured assets the possession of which has been
M/S HINDON FORGE PVT. LTD. v. STATE OF U. P.
THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]
A
B
C
D
E
F
G
H
1034
SUPREME COURT REPORTS
[2018] 11 S.C.R.
taken over by the secured creditor, if actual physical possession has
been parted with. According to the learned Senior Advocate, therefore,
the object of the Act will be defeated if a debtor can approach the Debts
Recovery Tribunal at such stage when no prejudice is caused to him,
thereby rendering what is statutorily granted to a creditor futile. He relied
upon observations in various Supreme Court judgments to buttress his
stand that it is only at the stage of actual physical possession that an
application can be filed under section 17 and not before.
5. Shri Ranjit Kumar, learned Senior Advocate, appearing on behalf
of the respondents in Civil Appeal arising out of SLP(C) No.12841 of
2018, went on to argue that all the sub-clauses in section 13(4) must be
construed together. If that is done, it is clear that under sub-clauses (b)
and (c), management and possession must physically be taken over.
Therefore, under sub-clause (a), the expression "possession" must also
mean actual physical possession. According to the learned Senior
Advocate, the measures taken under section 13 must also be read with
sections 14 and 15. It is clear that under section 14, actual physical
possession is to be handed over by the Chief Metropolitan Magistrate or
the District Magistrate to the secured creditor, and under section 15,
management of the business has actually to be taken over as two
managements cannot possibly continue at the same time. Read in this
light, the scheme of the Act, therefore, is clear and it becomes equally
clear that only actual physical possession is referred to in section 13(4)(a)
before a section 17 application can be filed. He also referred to section
17(3) to further argue that restoration of possession of secured assets
could only refer to restoration of actual physical possession thereby
strengthening his interpretation of sections 13 and 17 of the Act.
According to him, under section 19, compensation is also payable where
possession taken is not in accordance with the provisions of the Act and
2002 Rules, again making it clear that when the Court or Tribunal directs
the secured creditor to return such secured asset to the borrowers,
compensation may be paid. Returning secured assets obviously would
mean assets of which physical possession has been taken. When it came
to reading rules 8(1) and 8(3) of the 2002 Rules, according to Shri Ranjit
Kumar, rule 8(3) is the next step after symbolic possession is taken over
under rule 8(1), and without taking of actual physical possession under
rule 8(3), no sale can be made of any secured assets. Like Shri C.U. Singh
before him, he agreed that the High Court had perhaps gone a little too
far in its conclusion, and that the moment any real prejudice is caused to
A
B
C
D
E
F
G
H
1035
the borrower, the borrower can certainly approach the Tribunal. This
would also include the stage at which a sale notice is issued under rule 8.
6. Shri Ashish Dholakia, learned Advocate, appearing for the
intervenor, State Bank of India, referred to the objects of the 2002 Act
and relied upon the judgment of this Court in Standard Chartered Bank
v. V. Noble Kumar & Ors., (2013) 9 SCC 620 ("Noble Kumar"). He
argued that if we were to grant an opportunity to a debtor to approach
the Tribunal at the stage of symbolic possession, there would be little
difference between the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (hereinafter referred to as the "Recovery of
Debts Act") and the SARFAESI Act, and thus, we would destroy the
very object for which the SARFAESI Act was enacted, namely, so that
banks could recover their debts by selling properties outside the court
process, something that the Recovery of Debts Act did not envisage.
He also referred to and relied upon section 3 of the Transfer of Property
Act for the definition of "a person is said to have notice" and Explanation
II in particular, which referred to actual possession. According to him
therefore, the correct stage would be the stage at which actual physical
possession has been taken, upon which a debtor may then approach the
Debts Recovery Tribunal under section 17.
7.
Having heard learned counsel for the parties, we may first
set out the Statement of Objects and Reasons for the 2002 Act.