We have examined the ambiguities and conflicting views over the appointment of advocates as commissioners in order to assist the District Magistrate (“DM”)/ Chief Metropolitan Magistrate (“CMM”) to secure the possession of the secured assets for executing an order passed under Section 14(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) within different high courts with the Bombay High Court (“Bombay HC”) on one side and the High Courts of Kerala, Madras and Delhi on the other; and the final verdict passed by Supreme Court of India providing much required clarity on this important matter.

Bombay HC views

The Bombay HC in Subir Chakravarty v. Kotak Mahindra Bank Limited [1] strictly construed the provision and held that under Section 14(1A) of the SARFAESI Act, the DM/CMM cannot authorise an advocate to secure the possession of the secured assets for executing an order passed under Section 14(1) of the SARFAESI Act as the language used in the provision clearly states that such delegation must be done only to an officer subordinate to the DM/CMM and an advocate is not an officer subordinate to the DM/CMM. The Bombay HC also rejected the argument put forward relating to the overburdened offices of the DM /CMM leading to shortage of manpower.

Kerala HC & Madras HC views

On the other hand, the division bench of Kerala High Court in the case of Muhammed Ashraf & Anr. vs. Union of India & Ors ^[2] ruling on the same issue held that power lies with the magistrate under Section 14 of the SARFAESI Act to take the aid of the police including an advocate commissioner for securing the assets of a secured creditor. Further, post the insertion of Section 1A to Section 14 via amendment of 2013, the Madras High Court took a similar view in the case of S. Chandramohan & Anr. vs. The Chief Metropolitan Magistrate, Egmore, Chennai & Ors [3] and observed as follows:

“The amendment inserted by Act 1 of 2013 viz., Section 14(1-A) is permitting the Subordinate Officers to take possession of the assets and documents relating to the secured assets of the secured creditor and to forward such documents to the secured creditors and nowhere prohibits the CMM from authorising an Advocate Commissioner to go on his behalf for taking possession of assets and documents and forwarding the same to the secured creditor.” [4]

Delhi HC views

The Delhi High court dealing with a similar issue in Rahul Chaudhary vs. Andhra Bank & Ors.[5] interpreted the provision in two ways, first, to mean that the expression ‘may’ related to the choice of the subordinate officer that can be appointed by the DM/ CMM and second, that the CM/DMM is vested with the discretion to appoint officers subordinate to him to take possession of the secured asset. Hence, the Delhi High Court held that the only change that has come into force with the insertion of sub-section (1A) is that CM/DMM have the discretion to even appoint their subordinate officers as receivers in terms of the SARAESI Act. The court further held that sub-section (1A) of Section 14 does not bar the appointment of advocates as receivers by DM/CMM as long as the discretion is exercised with due care and caution.

An advocate commissioner has been considered an officer subordinate in discharging his duties to the court and not subordinate in service [6] for the longest time as has been established by several interpretations in different jurisdictions to keep the legislative intent of the SARFAESI Act intact. The scheme of Code of Civil Procedure and Code of Criminal Procedure have also provided for the appointment of court commissioner in order to carry out myriad of ministerial and administrative duties thereby making it a customary concept.

Finality by SC

In order to address the ambiguities arising from the conflicting views expressed by the Indian courts on the above mentioned question, the Supreme Court (“SC”), vide its judgment in the matter of NKGSB Cooperative Bank Limited vs. Subir Chakravarty and Ors. [7] dated 25 February, 2022 held that an advocate is an officer of the court and, thus, subordinate to the CMM/DM and it would be open to the CMM/DM to appoint an advocate commissioner to assist him/ her in the execution of the order passed under Section 14(1) of the SARFAESI Act.

This judgement was given by the bench of Justice AM Khanwilkar and Justice CT Ravikumar who heard appeals arising out of the impugned Bombay HC judgement in which it was held that the appointment of an advocate would be illegal under Section 14(1A) of the SARFESI Act, 2002 as an advocate does not qualify as being an officer subordinate to the office of DM/CMM.

The SC while interpreting the language mentioned in Section 14 of the SARFAESI Act stated that Section 14 of the SARFAESI Act essentially vests power with the DM/CMM to take possession or control of any secured assets or any other document that may be within his jurisdiction on application in writing by a secured creditor. Subsection 1A was added by way of amendment to Section 14 in 2013 which further allows the DM/CMM to authorise any officer subordinate to him to take such possession of secured assets or documents as well as forward such assets and documents to the secured creditor.

The object of the amendment which inserted subsection 1A, was to essentially aid the DM/CMM in carrying out the duties of the court in a more timely and efficient manner. Further, it has been a customary practice as well as settled law that advocates are officers of the court and thus, can perform their duty more effectively than the officers subordinate to the DM/CMM in taking possession of assets and documents and in delivering the same to the secured creditor.[8]

The SC further analysed that in the absence of an express provision such as sub-section (1A) under the unamended act, the DM/CMM could take possession of the secured assets on a written application made by the secured creditor under Section 14(1) and while doing so, in terms of Section 14(2) of the SARFAESI Act, it was open to the DM/CMM to take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion be necessary which would include taking assistance of the local police to obviate any untoward situation or law and order problem at the site while taking over possession.

In a similar case of A. St. Arunachalam Pillai vs. M/s. Southern Roadways Ltd. & Anr., [9] full bench of the SC while resolving similar contention regarding whether the Regional Transport Officer is subordinate to the Transport Commissioner, with different interpretations between the High Court of Madras and Andhra Pradesh, held that the expansive nature of the provision must be kept in mind while interpreting and concluded that the statutory provisions and government orders issued by the respective department provided that the Regional Transport Officer was subordinate to the Transport Commissioner.

The Apex Court further held that the context of the legislation, construct of the provision and intent shall all be construed harmoniously in order to ascertain the significance of Section 14(1A) of the SARFAESI Act in question. Further, the construct of the provision must depend on the context of the legislative intent and the purpose for which such dispensation has been envisaged and the setting in which the expression has been used should be analysed and would assume significance.

The Kerala High Court liberally viewed the said provision and allowed for the appointment of advocate commissioners for securing possession of secured assets and documents and further passing the possession to the secured creditor in light of the inherent power so vested with the state authority as well as advocates being no less than officers of the court of the CMM/DM. This view has been consistently followed by The High Courts of Delhi, Madras and Kerala with the only exception of the High Court of Bombay.

In order to have the physical possession of secured assets, the secured creditor necessarily needs to approach the DM/CMM through a written application requesting possession of the said assets/documents. Immediately, the DM/ CMM is supposed to pass an order post verification and necessary compliance as mentioned under section 14(1). Since this is a ministerial act and it is no secret that the offices of the judiciary are overburdened and understaffed, the timely securing of such assets is of essence and given the impracticality of expecting the DM/CMM to reach every location himself would defeat the legislative intent. Thus, the SC opined that an advocate must be regarded as an officer of the court and subordinate to the DM/CMM under section 14(1A) of the Act, given that due caution is exercised while appointing.

The SC further opined that an advocate is considered as the “Guardian of constitutional morality and justice equally with the Judge” [10] and has an important duty to dispense towards the society with all his sincerity along with his superior duty as an officer of the court.

In light of the above, the SC while applying the “functional subordination” test took a view that:

“sub-section (1A) of Section 14 of the SARFAESI Act is no impediment for the DM/CMM to engage services of an advocate (an officer of the court) only for taking possession of secured assets and documents relating thereto and to forward the same to the secured creditor in furtherance to the orders passed by the DM/CMM under Section 14(1) of the SARFAESI Act. There is intrinsic de jure functional subordinate relationship between the DM/CMM and the advocate being an officer of the court.”

This is certainly a landmark decision and well received by the financial institutions, who are struggling with foreclosures of their secured assets. This will enable a more time efficient implementation of securing possession of foreclosed secured assets, which is essential to seek better valuation realization by lenders. Watch this space for more as we keep tracking updates on loan foreclosures.

Footnotes:

[1] Subir Chakravarty v. Kotak Mahindra Bank Limited, 2019 SCC Online Bom 9499.

[2] Muhammed Ashraf & Anr. vs. Union of India & Ors, AIR 2009 Kerala 14.

[3] S. Chandramohan & Anr. vs. The Chief Metropolitan Magistrate, Egmore, Chennai & Ors,2014 SCC Online Mad 7869

[4] Id.

[5] Rahul Chaudhary vs. Andhra Bank & Ors., 2020 SCC Online Del 284.

[6] Muhammed Ashraf & Anr. vs. Union of India & Ors. AIR 2009 Kerala 14.

[7] NKGSB Cooperative Bank Limited vs. Subir Chakravarty and Ors.,2022 SCC Online SC 239.

[8] S. Chandramohan & Anr. vs. The Chief Metropolitan Magistrate, Egmore, Chennai & Ors, 2014 SCC Online Mad 7869

[9] A. St. Arunachalam Pillai vs. M/s. Southern Roadways Ltd. & Anr, AIR 1960 SC 1191.

[10] NKGSB Cooperative Bank Limited vs. Subir Chakravarty and Ors.,2022 SCC Online SC 239.