M/S HINDON FORGE PVT. LTD. & ANR. v. THE STATE OF UTTAR PRADESH THROUGH DISTRICT MAGISTRATE GHAZIABAD & ANR.

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A 36.1. (i) The first method would be where the secured creditor gives the requisite notice under Rule 8(1) and where he does not meet with any resistance. In that case, the authorised officer will proceed to take steps as stipulated under Rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor. B 36.2. (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under Rule 8(1) is given. In that case he will take recourse to the mechanism provided under Section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinise the application as provided in Section 14, and then if satisfied, appoint an officer subordinate to him as provided under Section 14(1-A) to take possession of the assets and documents. For that purpose the Magistrate may authorise the officer concerned to use such force as may be necessary. After the possession is taken the assets and documents will be forwarded to the secured creditor. 36.3. (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under Section 14 of the Act. The Magistrate will thereafter scrutinise the application as provided in Section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forward them to the secured creditor as under clause 36.2.(ii) above. 36.4. In any of the three situations above, after the possession is handed over to the secured creditor, the subsequent specified provisions of Rule 8 concerning the preservation, valuation and sale of the secured assets, and other subsequent rules from the Security Interest (Enforcement) Rules, 2002, shall apply.” When this Court referred to the first method of taking possession of secured assets in paragraph 36.1.(i), this Court spoke of a case in which, once possession notice is given under rule 8(1), no resistance is met with. That is why, this Court states that steps as stipulated under rule 8(2) onwards to take possession, and thereafter, for sale of the secured assets to realise the amounts that are claimed by the secured creditor would have to be taken, meaning thereby that advertisement must necessarily be given in the newspaper as mentioned in rule 8(2), after which steps for sale may take place. This case again does not deal with

M/S HINDON FORGE PVT. LTD. v. STATE OF U. P. 1063 THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]

the precise problem that is before the Court in this case. The observation made in paragraph 36.1.(i), which is strongly relied upon by the Full Bench of the High Court, to arrive at the conclusion that actual physical possession must first be taken before the remedy under section 17(1) can be availed of by the borrower, does not flow from this decision at all.

22Copy pinpoint22. In Canara Bank v. M. Amarender Reddy & Anr., (2017) B 4 SCC 735, this Court after referring to Mathew Varghese v. M. Amritha Kumar and Ors., (2014) 5 SCC 610, which held that the 30- day period mentioned under rule 8(6) is mandatory, then held: “14. The secured creditor, after it decides to proceed with the sale of secured asset consequent to taking over possession C (symbolic or physical as the case may be), is no doubt required to give a notice of 30 days for sale of the immovable asset as per sub-rule (6) of Rule 8. However, there is nothing in the Rules, either express or implied, to take the view that a public notice under sub-rule (6) of Rule 8 must be issued only after the expiry of 30 days from issuance of individual notice by the authorised officer to the borrower about the intention to sell the immovable secured asset. In other words, it is permissible to simultaneously issue notice to the borrower about the intention to sell the secured assets and also to issue a public notice for sale of such secured asset by inviting tenders from the public or by holding public auction. The only restriction is to give thirty days’ time gap between such notice and the date of sale of the immovable secured asset.” Though there was no focused argument on the controversy before us, this Court did recognise that possession may be taken over under rule 8 F either symbolically or physically, making it clear that two separate modes for taking possession are provided for under rule 8.

23Copy pinpoint23. Similarly, in ITC Limited v. Blue Coast Hotels Ltd. and Ors., AIR 2018 SC 3063, this Court held: “45. As noticed earlier, the creditor took over symbolic possession G of the property on 20.06.2013. Thereupon, it transferred the property to the sole bidder ITC and issued a sale certificate for Rs. 515,44,01,000/- on 25.02.2015. On the same day, i.e., 25.02.2015, the creditor applied for taking physical possession of the secured assets under Section 14 of the Act. H

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A 46. According to the debtor, since Section 14 provides that an application for taking possession may be made by a secured creditor, and the creditor having ceased to be a secured creditor after the confirmation of sale in favour of the auction purchaser, was not entitled to maintain the application. Consequently, therefore, the order of the District Magistrate directing delivery of possession is a void order. This submission found favour with the High Court that held that the creditor having transferred the secured assets to the auction purchaser ceased to be a secured creditor and could not apply for possession. The High Court held that the Act does not contemplate taking over of symbolic possession and therefore the creditor could not have transferred the secured assets to the auction purchaser. In any case, since ITC Ltd. was the purchaser of such property, it could only take recourse to the ordinary law for recovering physical possession.

47. We find nothing in the provisions of the Act that renders taking over of symbolic possession illegal. This is a well-known device in law. In fact, this court has, although in a different context, held in M.V.S. Manikayala Rao v. M. Narasimhaswami [AIR 1966 SC 470] that the delivery of symbolic possession amounted to an interruption of adverse possession of a party and the period of limitation for the application of Article 144 of the Limitation E Act would start from such date of the delivery.”

24Copy pinpoint24. This judgment also speaks of the taking over of symbolic possession under the SARFAESI Act. The judgment then goes on to discuss whether a creditor could maintain an application for possession under section 14 of the Act once it takes over symbolic possession before the sale of the property to the auction purchaser. The Court referred to various authorities and arrived at the conclusion that a secured creditor remains a secured creditor when only constructive or symbolic possession is given, as the entire interest in the property not having been passed on to the secured creditor in the first place, the secured creditor in turn could not pass on the entire interest in the property to the auction purchaser. In this behalf, it is important to refer to section 8 of the Transfer of Property Act, 1882 which states as follows: “8. Operation of transfer.— Unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is H

M/S HINDON FORGE PVT. LTD. v. STATE OF U. P. 1065 THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]

then capable of passing in the property and in the legal incidents thereof. xxx xxx xxx” Section 13(6) of the SARFAESI Act makes it clear that a different intention is so expressed by the Act, as any transfer of a secured asset after taking possession thereof, shall vest in the transferee all rights in the secured asset so transferred as if the transfer had been made by the owner of such secured asset. It is clear, therefore, that statutorily, under section 13(6), though only the lesser right of taking possession, constructive or physical, has taken place, yet the secured creditor may, by lease, sale or assignment, vest in the lessee or purchaser all rights in the secured asset as if the transfer had been made by the original owner of such secured asset. This aspect of the matter does not appear to have been noticed in the aforesaid judgment. The ultimate conclusion in the said judgment is, however, correct as a secured creditor remains a secured creditor even after possession is taken over as the fiction contained in section 13(6) does not convert the secured creditor into the owner of the asset, but merely vests complete title in the transferee of the asset once transfer takes place in accordance with rules 8 and 9 of the 2002 Rules.

25Copy pinpoint25. We may also add that by a notification dated 17.10.2018, rule 8 has since been amended adding two sub-rules as follows: E “3. In the said rules, in rule 8— (i) in sub-rule (6), for the proviso, the following proviso shall be substituted, namely:- “Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the Form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality.”; (ii) for sub-rule (7), the following sub-rule shall be substituted, namely:– “(7) every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorised officer shall upload the detailed terms and conditions of the sale, on the web- site of the secured creditor, which shall include; H

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A (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; B (c) reserve price of the immovable secured assets below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed;

C (e) deposit of earnest money as may be stipulated by the secured creditor; (f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property.”; D Appendix IV-A which is now inserted by the said notification reads as follows: “APPENDIX - IV-A [See proviso to rule 8 (6)] Sale notice for sale of immovable properties E E-Auction Sale Notice for Sale of Immovable Assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 read with proviso to Rule 8 (6) of the Security Interest (Enforcement) Rules, 2002 Notice is hereby given to the public in general and in particular to the Borrower (s) and Guarantor (s) that the below described F immovable property mortgaged/charged to the Secured Creditor, the constructive/physical ______________ (whichever is applicable) possession of which has been taken by the Authorised Officer of ______________ Secured Creditor, will be sold on “As is where is”, “As is what is”, and “Whatever there is” on G ______________ (mention date of the sale), for recovery of Rs. due to the ______________ Secured Creditor from (mention name of the Borrower (s)) and ______________ (mention name of the Guarantor (s)). The reserve price will be Rs. ______________ and the earnest money deposit will be Rs. ______________ H

M/S HINDON FORGE PVT. LTD. v. STATE OF U. P. 1067 THR.DISTRICT MAGISTRATE GHAZIABAD [R. F. NARIMAN, J.]

(Give short description of the immovable property with known A encumbrances, if any) For detailed terms and conditions of the sale, please refer to the link provided in ______________ Secured Creditor’s website i.e. www. (give details of website) Date: B Authorised Officer Place:” This appendix makes it clear that statutorily, constructive or physical possession may have been taken, pursuant to which a sale notice may then be issued under rule 8(6) of the 2002 Rules. Appendix IV-A, C therefore, throws considerable light on the controversy before us and recognises the fact that rule 8(1) and 8(2) refer to constructive possession whereas rule 8(3) refers to physical possession. We are therefore of the view that the Full Bench judgment is erroneous and is set aside. The appeals are accordingly allowed, and it is hereby declared that the D borrower/debtor can approach the Debts Recovery Tribunal under section 17 of the Act at the stage of the possession notice referred to in rule 8(1) and 8(2) of the 2002 Rules. The appeals are to be sent back to the Court/Tribunal dealing with the facts of each case to apply this judgment and thereafter decide each case in accordance with the law laid down by this judgment. E Devika Gujral Appeals allowed.