Gujrath H C upholds provisions of Securitisation Act

In a significant order, the Division Bench of 

Gujarat High Court has upheld the provisions of 

Section 14 of the Securitisation and Reconstruction

of Financial Assets and Enforcement of Security

Interest Act, 2002 (Securitisation Act).

The Act prescribes the procedure for taking
possession of secured assets of a borrower by
secured creditors like banks and financial institutions.

The Division Bench consisting of
Chief Justice S J Mukhopadhaya and
Justice A S Dave pronounced the order
while acting on a petition by one Rameshwaram
Cotton Industries (Gujarat) Pvt Ltd.

The petitioner had challenged the provisions of
Section 14 of the Securitisation Act.

He had made Rajkot District Magistrate,
Rajkot Mamlatdar and the bank from which the
credit was borrowed as respondents.

Under the provision of Section 14 of the Securitisation
Act, a secure creditor has to take assistance from
the appropriate officer of the rank of either District
Magistrate (DM) or Chief Metropolitan Magistrate
(CM) to take possession of the secured asset in
case of default in repayment by the borrower.

And the DM or the CMM can order assistance
to the creditor to get the possession of the secured asset.
The petitioner's lawyer had contended that while
taking action under Section 14 of the Securitisation Act,
the District Magistrate had not issued any notice to
the petitioner and passed the order straightaway for
taking possession of the petitioner's property.

Calling the powers conferred on the District Magistrate
under Section 14 of the Act as violative of principles
of natural justice, the petitioner had challenged the provision.

While dismissing the petition, the court observed,
"Any action on the part of the secured creditor in
taking possession of secured asset, if not in accordance
with the Act or the Rules framed there under, such measures
as deemed to be taken... one can challenge such action
or measures taken by filing petition under
Section 17 of the Securitisation Act,
but such illegal action, if any, will not render Section 14 bad in law."

"We, therefore, uphold Section 14 of the Securitisation
Act being the procedure prescribed to take possession,
which is followed only after notice under sub-section (2)
to Section 13 and deciding the objections, if any, preferred
by the borrower...," the DB added.

The court suggested that any illegality in taking
possession of the secured asset can be challenged
before the Debt Recovery Tribunal.