SARFAESI Act Does Not Mandate Secured Creditor To Approach DM For Physical Possession: Madhya Pradesh High Court Quashes DRT/DRAT Restore-And-Refund Orders In Section 13(4) Possession And Auction Dispute
Isabella Mariam
The High Court of Madhya Pradesh Division Bench of Justice Anand Pathak and Justice Pushpendra Yadav allowed a writ petition by UCO Bank, holding that a secured creditor is not mandatorily required to seek assistance under Section 14 of the SARFAESI Act, 2002 to take physical possession of secured assets, and may proceed under Section 13(4) read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 where the borrower offers no resistance. The dispute arose from recovery measures against mortgaged properties offered as security by a borrowing proprietorship concern, M/s Asha Oil Industries, following default. The Bench set aside the orders of the Debts Recovery Tribunal, Jabalpur and the Debts Recovery Appellate Tribunal, Allahabad that had directed restoration of possession to the borrower and refund of the auction amount to the auction purchaser and permitted the Bank to proceed in accordance with law.
The writ petition was filed by UCO Bank challenging orders passed by the Debts Recovery Tribunal and the Debts Recovery Appellate Tribunal which had directed restoration of physical possession of mortgaged properties to the borrower and refund of the auction purchaser’s deposit. The borrower had availed a cash credit (hypothecation) facility of ₹5 crores and created security interest over two immovable properties. Upon default, the loan account was classified as a non-performing asset, following which proceedings under the SARFAESI Act were initiated.
The borrower approached the Debts Recovery Tribunal by filing a securitisation application seeking quashment of the recovery proceedings. The Tribunal directed the bank to restore possession of the secured assets and refund the auction amount, holding that physical possession could not have been taken without resorting to proceedings under Section 14 of the SARFAESI Act. The appellate tribunal affirmed this view.
Aggrieved, the bank approached the High Court contending that the statutory framework permits a secured creditor to take physical possession directly under Section 13(4) of the SARFAESI Act, and that recourse to the District Magistrate under Section 14 is required only when assistance is sought. The borrower opposed the petition, alleging forcible possession and supporting the tribunal orders.
The Division Bench examined the scheme of the SARFAESI Act and the Rules framed thereunder. The Court observed that “the scheme of SARFAESI Act does not provide that secured creditor has to resort to proceedings under Section 14 mandatorily before taking physical possession.”
Interpreting Sections 13 and 14 together, the Bench stated that “Section 13(4) itself mandates the secured creditor to take possession of the secured assets of the borrower and Section 14 comes into play when assistance of the authority is required.”
On the role of the District Magistrate or Chief Metropolitan Magistrate, the Court recorded that “the role of these authorities is only to assist the secured creditor in taking possession and not to substitute the powers conferred under Section 13.”
Referring to Rule 8 of the Security Interest (Enforcement) Rules, 2002, the Bench observed that “there is no requirement under the SARFAESI Act or the Rules that the presence of the borrower is mandatory while taking possession of the mortgaged property.”
The Court further recorded that “in absence of resistance, it cannot be presumed that possession was taken forcibly merely because proceedings under Section 14 were not initiated.”
Relying on Supreme Court precedent, the Bench noted that “the authorised officer is empowered to take possession directly where no resistance is offered, and recourse to Section 14 is only one of the available modes.”
The Court also took note of the factual position that “the secured assets were not in occupation and no resistance was offered, which is evident from the panchnama.”
On the effect of the tribunal orders, the Court observed that “acceptance of such interpretation would defeat the very object of the SARFAESI Act and give undue advantage to a defaulting borrower.”
The Court directed that “the judgments passed by the learned Debt Recovery Tribunal dated 18th July, 2022 passed in O.A. No.223/2020 and the Debts Recovery Appellate Tribunal dated 14.05.2025 passed in Regular Appeal No.15/2022 are hereby set aside. The petitioner bank may proceed in accordance with law from the stage where they are required to proceed as per law. The writ petition stands allowed and disposed of accordingly.”
Advocates Representing the Parties
For the Petitioner: Shri Praveen Surange, Advocate
For the Respondents: Shri Santosh Agrawal, Advocate
Case Title: UCO Bank v. M/s Asha Oil Industries and Others
Case Number: Writ Petition No. 31051 of 2025
Bench: Justice Anand Pathak, Justice Pushpendra Yadav
