Safiya Malik

The High Court of Karnataka, Single Bench of Justice Suraj Govindaraj, clarified that once a property is classified as a secured asset, it falls exclusively within the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and cannot be subjected to rights claimed by third parties. Deciding a petition under Section 14 of the Act, the Court set aside observations made by the Magistrate that delivery warrants for possession would not bind third parties. It held that the Magistrate’s role under Section 14 is limited to assisting the secured creditor in taking possession, and any person asserting rights over the secured property must seek relief under Section 17 by approaching the Debts Recovery Tribunal, not before the Magistrate

The petitioner, State Bank of India, acting as a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, advanced financial assistance to the respondents. Upon default, the petitioner initiated proceedings under Section 13 of the Act, following the statutory requirements. Subsequently, it filed an application under Section 14 before the Court of the Senior Civil Judge and Chief Judicial Magistrate (CJM), Koppal, seeking physical possession of the secured asset.

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On 29 April 2025, the Magistrate allowed the petitioner’s application and appointed an Advocate Commissioner to take possession of the property. However, the order contained an observation that “This possession delivery warrant is not binding on the 3rd parties, if they are in possession of the property in any of the capacity.” Aggrieved by this observation, the bank filed a writ petition before the Karnataka High Court, contending that such an observation was contrary to the provisions of the SARFAESI Act.

Counsel for the petitioner submitted that once an asset is declared a secured asset, the secured creditor acquires exclusive rights to enforce security interest, and no third party can claim independent rights before the Magistrate. He relied on the Supreme Court judgment in Balkrishna Rama Tarle v. Phoenix ARC Pvt. Ltd. (AIR 2022 SC 4756) to argue that the Magistrate acts in a ministerial capacity under Section 14 and has no power to adjudicate third-party claims. It was further contended that any aggrieved party can seek remedy only under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal.

The dispute, therefore, centered on whether the Magistrate could limit the enforceability of possession warrants against third parties. The statutory provisions primarily discussed were Sections 13, 14, and 17 of the SARFAESI Act, which respectively deal with measures for enforcement of security interest, the Magistrate’s role in assisting possession, and the appellate remedy available to aggrieved parties.

The Court framed key issues, including whether the Magistrate exercises adjudicatory or ministerial powers under Section 14, whether disputes can be adjudicated by the Magistrate, whether notice to the debtor is required, and whether third parties can raise claims before the Magistrate.

On the first issue, the Court recorded: “The powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial steps and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets.” It noted that once statutory requirements are fulfilled, the Magistrate must assist the secured creditor in taking possession, without adjudicating disputes.

On whether the Magistrate can adjudicate disputes, the Court stated: “Section 14 of the SARFAESI Act being a completely ministerial power exercised, there is no adjudicatory power which would be exercised by the CMM/magistrate.”

Regarding the need for notice to the debtor, the Court observed: “The second proviso to Subsection (1) of Section 14 of the SARFAESI Act does not indicate the requirement of any notice to be issued to the secured debtor and or for the debtor to be heard in the matter.” It further added: “Hence, I answer point No.3 by holding that magistrate is not required to issue any notice to the debtor while exercising power under Section 14.”

On third-party claims, the Court recorded: “Any person having any interest in the secured interest cannot agitate that claim before the magistrate exercising powers under Section 14 of the SARFAESI Act, but could do so under Section 17 of the SARFAESI Act.”

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Finally, the Court concluded: “Once the property is said to be a secured property, the said property being a secured asset would be subject to SARFAESI Act and cannot be made subject to any rights of any of the third parties.”

The Court allowed the writ petition filed by the bank. It expressly held that the Magistrate had exceeded his authority in making observations limiting the effect of possession warrants. The Court directed: “The observation made in the order dated 29.04.2025 by the Senior Civil Judge and CJM, Koppal in Crl.Misc.No.16/2025 ‘This possession delivery warrant is not binding on the 3rd parties, if they are in possession of the property in any of the capacity’ is set aside.”

“The said order dated 29.04.2025 shall be implemented without reference to the aforesaid observation which has been set aside.”

Advocates Representing the Parties

For the Petitioners: Sri. Nandish Patil, Advocate

Case Title: State Bank of India vs. M/s Swathi Agencies & Others
Neutral Citation: 2025: KHC-D:11496
Case Number: WP No. 105775 of 2025
Bench: Justice Suraj Govindaraj