SC: In cases of recovery of public money interim orders should generally not be passed without hearing the secured creditor

The Hon’ble Supreme Court, on 5th November 2020, in the matter of C. Bright v. The District Collector & Ors. pronounced that in cases relating to recovery of the dues of banks, financial institutions and secured creditors, 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.

The Hon’ble Supreme Court observed that:

The SARFAESI Act, 2002 enacted in the year 2002 for reasons that the legal framework relating to commercial transactions had not kept pace with the changing commercial practices. Further, financial sector reforms resulted in a slow pace of recovery of defaulting loans and mounting level of non-performing assets of banking and financial institutions. The objectives behind the Act, recognised that unlike international banks, banks and financial institutions in India, did not have power to take possession of securities and sell them. (Para 3)

A well settled rule of interpretation of the statutes is that the use of the word “shall” in a statute, does not necessarily mean that in every case it is mandatory that unless the words of the statute are literally followed, the proceeding or the outcome of the proceeding, would be invalid. It is not always correct to say that if the word “may” has been used, the statute is only permissive or directory in the sense that non-compliance with those provisions will not render the proceeding invalidand that when a statute uses the word “shall”, prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully at- tending to the whole scope of the statute. The principle of literal construction of the statute alone in all circumstances without examining the context and scheme of the statute may not serve the purpose of the statute. (Para 7)

Keeping the objective of The SARFAESI Act, 2002 in mind, the time limit to take action by the District Magistrate has been fixed to impress upon the author- ity to take possession of the secured assets. However, inability to take possession within time limit does not render the District Magistrate Functus Officio. 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. Therefore, Section 14 of the Act is not to be interpreted literally without considering the object and purpose of the Act. 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 instil 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. The District Magistrate will still be enjoined upon, the duty to facilitate delivery of possession at the earliest. (Para 20)

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. 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)

Copy of judgement: Judgement_05-Nov-2020

-Adv. Tushar Kaushik

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