Safiya Malik

In a judgment concerning financial institutions' ability to recover defaulted loans, the Calcutta High Court directed the District Magistrate to take necessary steps under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Court held that the inability to act within the statutory timeframe does not render the District Magistrate functus officio, allowing the recovery process to proceed.

A borrower availed a loan facility from the petitioner bank in November 2007. As the borrower failed to repay the loan as per the agreed terms, the loan account was classified as a non-performing asset (NPA) in July 2014. The bank issued a demand notice, but no payments were made. Consequently, a notice under Section 13(4) of the SARFAESI Act was issued in November 2014 to enforce the security interest.

Seeking to take possession of the secured asset, the bank approached the District Magistrate under Section 14(1) of the Act on October 14, 2022. The application was accompanied by an affidavit affirmed by the bank’s authorized officer. The District Magistrate, upon receipt of the application, scheduled a hearing on March 22, 2024. However, despite the hearing, no final order was passed.

The bank contended that the delay in action by the District Magistrate resulted in financial loss and hindered the recovery of dues. The outstanding sum stood at Rs. 46,92,59,815.61 as of June 2014, along with accrued interest and incidental expenses.

The borrower opposed the bank’s plea, arguing that the statutory timeline prescribed under Section 14(1) is mandatory. Once the timeframe expires, the District Magistrate no longer has jurisdiction to proceed. The borrower relied on Supreme Court judgments, including Balkrishna Rama Tarle v. Phoenix Arc Private Limited (2023) 1 SCC 662 and R.D. Jain & Co. v. Capital First Limited (2023) 1 SCC 675, to support the contention that the bank’s application was time-barred. It was submitted that the application under Section 14(1) had lost validity due to the efflux of time and could not be revived.

The State, represented by counsel, raised an objection concerning the maintainability of the writ petition in the Original Side jurisdiction of the Calcutta High Court. It was argued that the records of the case were with authorities located outside the Original Side jurisdiction. The State further submitted that the timeline in Section 14(1) is directory rather than mandatory, contending that the District Magistrate still had jurisdiction to act upon the application beyond the prescribed period. Reference was made to C. Bright v. District Collector (2021) 2 SCC 392 in support of this position.

The Court considered the issue of whether the statutory time limit for the District Magistrate to act under Section 14(1) is mandatory or directory. Referring to C. Bright, the Court observed:

"Inability to take possession within the stipulated time period does not render the District Magistrate functus officio. The secured creditor has no control over the District Magistrate exercising jurisdiction under the Act. Section 14 is not to be interpreted literally without considering the object and purpose of the Act."

The Court noted that the primary objective of SARFAESI is the recovery of debts by financial institutions. Procedural delays should not prevent financial institutions from recovering dues. While the timeframe is intended to ensure efficiency, failure to meet the deadline does not invalidate the secured creditor’s application.

Addressing the borrower’s reliance on Balkrishna Rama Tarle and R.D. Jain, the Court stated:

"Time is the essence and spirit of the subject enactment. However, the statutory obligation imposed on the District Magistrate to act promptly cannot be construed as an absolute bar against delayed action."

The Court observed that interpreting the timeline as mandatory would result in financial institutions being left without recourse due to administrative delays beyond their control. Such an interpretation, it was noted, would defeat the purpose of SARFAESI.

On the question of jurisdiction, the Court cited Amala Roy Das v. State of West Bengal (AIR ONLINE 2022 CAL 1154) and observed:

"A judge of the Calcutta High Court is a judge of the High Court as a whole. Matters filed before the Court are decided on merits and cannot be rejected solely on jurisdictional classification between the Original Side and the Appellate Side."

As the cause of action arose outside the territorial jurisdiction of the Original Side, the Court directed administrative conversion of the petition to the Appellate Side.

The Court also considered the consequences of excessive delays in adjudicating applications under Section 14. It was observed that delays could encourage defaulters to evade repayment indefinitely, adversely impacting financial institutions. The judgment stated:

"There is no reason as to why a secured creditor will be made to suffer financially due to inaction or non-action or delayed action on the part of the statutory authorities. The very purpose and object of the Act will be frustrated if the recovery process fails."

The Court noted that banks and financial institutions rely on a robust recovery process. If statutory authorities fail to act within the prescribed timeframe, secured creditors should not be left without an effective remedy. The judgment further stated:

"The secured creditor will be left remediless if the District Magistrate or the Chief Metropolitan Magistrate, for any reason whatsoever, fails to act within the aforesaid time period."

After considering submissions from all parties, the Court held that the District Magistrate retains jurisdiction to decide the Section 14 application even after the prescribed timeline. The judgment directed:

"The District Magistrate is directed to dispose of the application of the bank made under Section 14 of the Act in accordance with law, at the earliest, but positively within four weeks from the date of communication of this order."

The Court also ordered the procedural conversion of the matter from the Original Side to the Appellate Side.

Case Title: State Bank of India & Anr. v. The State of West Bengal & Ors.
Case Number: WPO 14 of 2025
Bench: Justice Amrita Sinha

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