The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (The Act) is a very unique piece of legislation which has dual purpose- to safeguard the security interest of the financial institution in the property of the borrower and to provide a right to appeal to the borrower against the action undertaken by the financial creditor in enforcing its interest in the mortgaged security. Section 13 of the Act titled “Enforcement of Security Interest” is an active provision to enable any secured creditor to secure its credit facility given to the borrower whereas Section 17 of the Act titled “Right to appeal” is a safety provision that a borrower may invoke to protect its mortgaged property from being disposed off by the secured creditor under Section 13 of the Act. The borrower, upon receipt of notice under Section 13, take preventive recourse by filing an application under Section 17 to safeguard their mortgaged assets. However, the issue of when such an application can be made to the Debts Recovery Tribunal was clarified by a recent judgement passed by a full bench of the Allahabad High Court.
The Allahabad HC passed a judgement in the matter of M/s N.C.M.L. Industries Ltd. through Director and another Vs. Debts Recovery Tribunal, Lucknow and others clarifying the maintainability of an application under Section 17 of the Act. The Hon’ble Court stated that that mere instance of “symbolic possession” or issuance of a possession notice as against the mortgaged property does not fall under the meaning of ‘measure’ as stated under Section 13(4) of the Act and the borrower is not entitled to file an application under Section 17 of the Act.
The reasoning given by the Hon’ble High Court was supported with reference to the judgements in Aum Jewels and others v Vijaya Bank & Sushila Steels Vs. Union Bank of India conspicuously. It was held that recourse to filing an application under Section 17 of the Act would be permitted if the ‘measures’ taken by the Bank or Financial Institution are fulfilled as per Section 13(4) of the Act. The HC elaborated that unless the borrower is disposed of its assets physically i.e. until actual possession of the assets is taken by the secured creditor, the ‘measures’ undertaken as per Section 13(4) of the Act cannot be said to be completed thereby giving no right to appeal under Section 17.
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