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The Hon’ble Supreme Court yesterday answered a crucial question as to whether it is open to the District Magistrate (DM) or the Chief Metropolitan Magistrate (CMM) to appoint an advocate and authorise him to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor within the meaning of Section 14(1A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The issue arises in the special leave petitions filed by the borrowers against the judgments of High Courts of Madras wherein it has been held that an advocate can be appointed by DM and CMM under Section 14(1A) of the SARFAESI Act since an advocate is regarded as an officer of the court and, therefore, is subordinate to the CMM or the DM. The same was challenged on the ground that an advocate is not a subordinate officer to the CMM or DM. The High Court of Kerala and Delhi have also taken the same view as Madras High Court.  The High Court of Bombay on the other hand has reasoned that such appointment is illegal because advocate is not a subordinate officer to the CMM or DM.

The Apex Court analysed various judgments of the High Courts starting from the earliest decision in Muhammed Ashraf & Anr. vs. Union of India & OrsAIR 2009 Kerala 14. In the said judgment, it was held that Section 14(2) of the SARFAESI Act enabled the CMM/DM to pass order even to take Police assistance and use all necessary powers in taking possession of the secured assets. The authority does not have an obligation to personally visit and take possession of the secured assets and documents. Similarly, in Sakiri Vasu vs. State of Uttar Pradesh & Ors. (2008) 2 SCC 409, it was held that the authority can use the statutory powers to use all reasonable means to grant an effective remedy.

The Apex Court observed that although the above stated judgments attained finality because the SLP against the orders were dismissed, however, the said decision was rendered before the amendment of Section 14 and in particular insertion of sub-Section (1A). The Court then went on to observe that Section 14(1A) of the 2002 Act was inserted vide Act 1 of 2013 with effect from 15.1.2013. Therefore, the question that needs to be examined is whether the amendment has changed the earlier position.

In the case of Rahul Chaudhary vs. Andhra Bank & Ors 2020 SCC OnLine Del 284, it was held by the Hon’ble Delhi High Court that sub-section (1A) of Section 14 does not bar the appointment of advocates as receivers.

The Court started its analysis by observing that the same expression i.e. “any officer subordinate to him” has been used in several legislations, including in Articles 53, 154 and 311 of the Constitution of India. However, setting in which the expression has been used in the concerned section of the Act, legislative intent and the purpose for which such dispensation has been envisaged shall decide the real purport of the expression in each case differently.

Coming to the SARFAESI Act, the Court held that the subordination under the said Act cannot be “statutory subordination” or “administrative subordination”. The Court however leaned in favour of “functional subordination” and in order to determine the same, the Court went on to analyse the objective behind SARFAESI Act. The Act was bought into force to equip and empower the banks in India to take possession of securities and sell them and thus to facilitate securitisation of financial assets of banks. It was further underlined by the Court that the provisions of the Act “enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce nonperforming assets by adopting measures for recovery or reconstruction”.

The banks to take possession of the secured assets are required to approach the CMM/DM by moving an application under Section 14 of the SARFAESI Act. The CMM/DM shall then take appropriate steps i.e. proceed to take possession of the secured assets and documents after passing of an order on verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act. The CMM/DM is required to forward the same to the secured creditor at earliest.  The Court confirmed that Section 14(2) is an enabling provision and permits the CMM/DM to take such steps and use force, as may, in his opinion, be necessary. This position continues to be the same till date.

In this entire process, the Court emphasised that time is of essence and that it “cannot brook delay. This is the spirit of special enactments”. The Court also acknowledged that that firstly there is only one the CMM/DM who has to look into large number of applications. He cannot be expected to visit and take action personally in each matter. Secondly, CMM/DM is provided with limited resources which makes it difficult for him to fulfil the obligations “with utmost dispatch to uphold the spirit of the special legislation”. The Court, accordingly, held that “we are persuaded to take the view that an advocate is and must be regarded as an officer of the court and subordinate to the CMM/DM for the purposes of Section 14(1A) of the 2002 Act.”

With regard to the Sub-Section (1A) the Court clarified that it is “in the nature of an explanatory provision and it merely restates the implicit power of the CMM/DM in taking services of any officer subordinate to him. The insertion of sub-Section (1A) is not to invest a new power for the first time in the CMM/DM as such.” Therefore, the situation existing before insertion of sub-Section (1A) wherein the CMM/DM could avail the services of an advocate for taking possession of the secured assets and documents relating thereto, continues to be the same after the insertion of sub Section (1A). The Court, however, added a rider that the officer so appointed by the CMM/DM ought to be the one who is capable of executing the orders passed by the authority.

The Court also analysed the meaning of the word “any”. The Court observed that it has not been defined in the SARFAESI Act. As per Black Laws Dictionary it is often synonymous with “either”, “every” or “all”. Similarly, “officer” means someone who holds an office of trust, authority, or command. As per P. Ramanatha Aiyar’s Advanced Law Lexicon “Subordinate” means belonging to an inferior rank, grade, class or order.

The Court held that under Section 14, taking possession of the secured assets and documents relating thereto is a “ministerial step” which can be taken by the CMM/DM himself or through any officer subordinate to him, including the Advocate Commissioner.

The Court further held that the Advocate Commissioner is not a new concept. The advocates are appointed as Court Commissioner to perform diverse administrative and ministerial work. It has been reiterated in various judgments that an advocate is an officer of the court.

The Court further went on to state that “it is well established that an advocate is a guardian of constitutional morality and justice equally with the Judge. He has an important duty as that of a Judge. He bears responsibility towards the society and is expected to act with utmost sincerity and commitment to the cause of justice. He has a duty to the court first. As an officer of the court, he owes allegiance to a higher cause and cannot indulge in consciously misstating the facts or for that matter conceal any material fact within his knowledge.”

The Court additionally observed that the Central Government has also framed no rules in reference to sub-Section (1A) of Section 14 of the SARFAESI Act putting any restrictions on CMM/DM to appoint Advocate Commissioner. Further on applying the “functional subordination” test, the Court was of the opinion that sub-Section (1A) of Section 14 of the 2002 Act does not impede the CMM/DM to engage services of an advocate who is an officer of the Court. The advocate so appointed needs to be on the rolls in the Office of the CMM/DM or in public service. The Court brushed the apprehensions of the borrowers as misplaced and added that the appointment of an advocate would rather ensure that “responsibility and duty will be discharged honestly and in accordance with rules of law.”

The Court, on the basis of the reasoning given, set aside the judgment of the Bombay High Court.