Secured creditor entitled to restoration of possession of mortgaged property under SARFAESI Act

Madhya Pradesh High Court Directs Authorities to Assist AU Small Finance Bank in Reclaiming Mortgaged Property Court mandates state assistance for repossession following illegal re-entry by borrower under SARFAESI Act

In a significant ruling, the Madhya Pradesh High Court has directed state authorities to provide necessary assistance to AU Small Finance Bank Ltd for reclaiming possession of a mortgaged property. This decision comes after the borrower, who had defaulted on a loan, illegally re-entered the property after possession had been handed over to the bank.

The judgment was delivered by a division bench comprising Justice Anand Pathak and Justice Pushpendra Yadav, following a petition filed by AU Small Finance Bank under Article 226 of the Indian Constitution. The bank sought intervention from the court after local authorities refused to assist in dispossessing the borrower from the property, citing the execution of a prior order.

The case revolves around the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), particularly Section 14, which empowers secured creditors to take possession of assets. Despite the initial transfer of possession to the bank on March 1, 2023, the borrower and family members unlawfully reoccupied the property, prompting the bank to seek judicial remedy.

The court emphasized that the borrower's actions were illegal and could not be perpetuated. It underscored the importance of adherence to the SARFAESI Act, which aims to facilitate the recovery of debts by financial institutions. The judgment noted that no legal impediment exists to re-execute possession orders, countering the respondents' argument that the authorities had fulfilled their duty by handing over possession once.

Justice Pathak, writing for the bench, remarked that the borrower's tactics to defeat the ends of justice should not be rewarded, and the secured creditor's rights must be upheld. The court also suggested that the bank could initiate criminal proceedings for trespass against the borrower.

This decision aligns with precedents set by other High Courts, including the Bombay High Court, which have consistently supported the rights of secured creditors to reclaim possession in similar circumstances. The Madhya Pradesh High Court's ruling reinforces the principle that illegality cannot be allowed to persist, and judicial authorities must act to uphold the rule of law.

Bottom Line:

Secured creditor entitled to restoration of possession of mortgaged property under the provisions of SARFAESI Act when borrower illegally re-enters the property post possession being handed over to the secured creditor.

Statutory provision(s): Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 14

AU Small Finance Bank Ltd v. State of Madhya Pradesh, (Madhya Pradesh)(DB)(Gwalior) : Law Finder Doc Id # 2779482