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M/S Hindon Forge Pvt. Ltd. v. The State of Uttar Pradesh

Civil Appeal · 2018 INSC 1034Decided 1 Nov 2018
Civil Appeal No. 10873 of 2018
Justice Rohinton Fali Nariman · Justice Navin Sinha

Background

These appeals arose from a Full Bench judgment of the Allahabad High Court that had resolved a conflict between its own earlier benches on a recurring question under the SARFAESI Act: can a borrower whose secured assets are being enforced by a bank approach the Debts Recovery Tribunal (DRT) under Section 17 only after the bank takes "actual/physical" possession, or also at the earlier stage of "symbolic" possession (where a possession notice is simply affixed and published)? The Full Bench had ruled that a borrower must wait until actual physical possession is taken before it can go to the DRT, which the appellant companies argued would leave them powerless to challenge an unlawful seizure of a running business until it was too late.

Decision Breakdown

The Supreme Court disagreed with the Full Bench and held that Rule 8 of the Security Interest (Enforcement) Rules, 2002 contemplates two distinct stages of possession, "constructive/symbolic" possession under Rule 8(1)-(2) and "actual/physical" possession under Rule 8(3), both of which qualify as "measures" taken under Section 13(4) of the Act. Relying on statutory language, a 2018 amendment to Rule 8 introducing Appendix IV-A (which expressly refers to "constructive/physical" possession), and prior precedent recognising symbolic possession as a valid legal device, the Court held that a borrower can approach the DRT under Section 17 as soon as the possession notice under Rule 8(1)/(2) is issued, without waiting for physical dispossession. It set aside the Full Bench's judgment as erroneous, allowed the appeals, and sent the individual cases back to the relevant courts/tribunals to be decided on their own facts applying this clarified legal position.

Lesson Learnt

A borrower does not have to wait until a bank physically seizes mortgaged property to challenge the bank's enforcement action, even the initial step of taking "symbolic" possession (affixing and publishing a possession notice) is enough to trigger the right to approach the Debts Recovery Tribunal under the SARFAESI Act.

Official source (sci.gov.in)View Judgment (PDF)

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