The Madhya Pradesh High Court (Gwalior Bench) has upheld the rights of banks and financial institutions by directing state authorities to re-execute a possession order and dispossess defaulting borrowers who had unlawfully re-entered the secured asset. The Court held that where possession of a secured asset has been lawfully taken by a secured creditor under Section 14 of the SARFAESI Act, and the borrower subsequently re-enters the property through illegal means, the District Magistrate is not rendered functus officio and possesses the authority to re-execute the possession order.
The Court clarified that the state authorities are legally bound to assist the secured creditor in restoring possession, as such illegal re-entry cannot be permitted to defeat the statutory remedies provided to financial institutions for the recovery of defaulted loans. Accordingly, the Court directed the respondent authorities to immediately provide necessary aid and assistance to the bank for dispossessing the borrower from the mortgaged property and restoring physical possession to the secured creditor.
A Single Judge Bench of Justice Milind Ramesh Phadke observed that the statutory authorities are under a bounden duty to provide continuous assistance to secured creditors for recovering defaulted loans. Referring to the established legal precedents, the Court noted that there is absolutely no legal impediment or bar that prevents the re-execution of an order of possession or providing re-assistance to a secured creditor under the SARFAESI Act.
The Court strongly emphasized that allowing borrowers to retain possession after employing illegal tricks to re-enter a secured asset would amount to perpetuating an illegality and making a mockery of the rule of law. Furthermore, the Court highlighted that the powers exercised by the District Magistrate under Section 14 are merely ministerial and not adjudicatory, meaning the authorities must act on behalf of the secured creditor to ensure the asset remains secured.
Briefly, the petitioner, a banking institution, had lawfully taken physical possession of a mortgaged property pursuant to an order passed by the District Magistrate under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. However, under the guise of removing their household belongings, the borrower and their family members illegally re-entered the premises and unlawfully regained possession of the secured asset. Despite the bank submitting an application seeking the restoration of possession, the state authorities failed to take any action, contending that since the initial order under Section 14 had already been executed, it could not be enforced again to secure possession.
