SARFAESI Act: Mandatory Invocation of Section 14 Before Taking Possession Is Not Required — Madhya Pradesh High Court Rules in Favour of UCO Bank
Background and Context
The Madhya Pradesh High Court recently delivered a significant ruling clarifying the interplay between Section 13(4) and Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act) in the matter of UCO Bank Vs Asha Oil Industries & Ors. The central legal question before the Court was whether a secured creditor is invariably obligated to invoke Section 14 of the SARFAESI Act before taking physical possession of a mortgaged secured asset — or whether direct possession, in the absence of resistance, is legally permissible under the existing statutory framework.
The judgment arose out of a challenge filed by UCO Bank against two adverse orders — one passed by the Debts Recovery Tribunal (DRT), Jabalpur, and the other by the Debts Recovery Appellate Tribunal (DRAT), Allahabad — both of which had directed the bank to restore physical possession of the secured properties to the borrowers and refund the deposit paid by the auction purchaser.
Facts of the Case
Respondent No. 1, a proprietorship concern acting through its proprietor Shri Pradeep Shivhare, along with Respondent No. 2, Smt. Poonam Shivhare, had availed a Cash Credit (Hypothecation) Limit of ₹5 crores from UCO Bank. Against this credit facility, the respondents mortgaged two immovable properties:
- Mortgaged Property No. 1: Plot No. 63, Malanpur Industrial Area, Bhind Road, District Bhind, M.P.
- Mortgaged Property No. 2: Plot No. 58, Laxmibai Colony, Gwalior, M.P.
The respondents defaulted on repayment, and the loan account was classified as a Non-Performing Asset (NPA) with effect from 31/10/2018, in accordance with the Reserve Bank of India's prevailing guidelines.
Chronology of Key Events
| Date | Event |
|---|---|
| 01/04/2019 | Respondents filed an application under Section 17(1) of the SARFAESI Act seeking quashment of bank's proceedings |
| 15/05/2019 | UCO Bank filed a detailed reply denying all allegations |
| 17/08/2020 | Respondents filed an application for impleadment of auction purchaser M/s Shruti Corporation |
| 02/09/2021 | Application for impleadment allowed |
| 28/09/2021 | DRT passed order directing UCO Bank to restore physical possession within one month and refund the auction purchaser's deposit within 15 days |
| 15/2022 | UCO Bank appealed before DRAT, Allahabad (Regular Appeal No. 15/2022) |
| 14/05/2025 | DRAT dismissed UCO Bank's appeal |
| Subsequently | UCO Bank filed Writ Petition before Madhya Pradesh High Court |
Reliefs Sought by UCO Bank Before the High Court
UCO Bank's writ petition sought the following reliefs:
- Quashing of the impugned order dated 14.05.2025 passed by DRAT, Allahabad in Regular Appeal No. 15/2022 titled as Uco Bank-V-M/s. Asha Oil Mills & Ors.
- Quashing of the impugned order dated 28.09.2021 passed by DRT, Jabalpur in S.A. No. 217/2019 titled as M/s. Asha Oil Mills & Ors. V. UCO Bank
- Setting aside the direction to return the auction purchaser's deposit
- Setting aside the direction to restore physical possession of the properties, including movable stock and machineries, to the respondents
- Recovery of costs of proceedings from the respondents
Submissions by UCO Bank
The learned counsel for UCO Bank argued that both the DRT and DRAT fell into legal error by concluding that:
Once a notice under
Rule 8(1)of the Security Interest (Enforcement) Rules, 2002 is issued, affixed, and delivered, the bank must either invokeSection 14proceedings before taking physical possession, or the borrower/mortgagor/guarantor must be physically present to hand over "peaceful" possession.
The bank's counsel submitted that this approach is legally untenable. Section 13(4) of the SARFAESI Act clearly empowers a secured creditor to take possession of secured assets upon the borrower's failure to discharge liabilities within the time specified under Section 13(2). The invocation of Section 14 — which enables the secured creditor to seek the assistance of the Chief Metropolitan Magistrate (CMM) or the District Magistrate (DM) — is an optional remedy, not a mandatory prerequisite.