Background:

The present case dispute arose from a loan of ₹18 lakhs granted by DCB Bank to a borrower, secured through an equitable mortgage on a property. When the borrower defaulted, the Bank initiated recovery proceedings under the SARFAESI Act, 2002. With the District Magistrate’s approval under Section 14, the Bank took possession of the mortgaged property and auctioned it, issuing a sale certificate to the buyer. However, the borrower later forcibly re-entered the property, disrupting the Bank’s lawful possession and that of the auction purchaser. In response, the Bank filed a second Section 14 application to regain possession, which the District Magistrate rejected on the ground that multiple applications were not permitted under the Act. The Bank challenged this rejection before the Allahabad High Court, which ruled in favor of the Bank, holding that a second application under Section 14 is legally valid when possession has been unlawfully disturbed.

Issues

1. Whether a secured creditor (like DCB Bank) can file a second application under Section 14 of the SARFAESI Act to regain possession of a secured asset, after the borrower has illegally re-entered the property that had already been taken over and sold by the bank under lawful process.

Observations:

The following observations were made by the court:

• • The Court clarified that there is no statutory restriction under the SARFAESI Act that prohibits a secured creditor from filing a second application under Section 14 if the original possession of the secured asset is unlawfully disturbed or reversed by the borrower.
• • The Court observed that if the borrower illegally re-enters the property after possession has already been granted and transferred, this act creates a new cause of action, justifying fresh proceedings under Sectio
• • It was noted that the District Magistrate (or delegated authority) has a statutory obligation under Section 14 to assist the secured creditor in obtaining and maintaining lawful possession
• • The Court emphasized that allowing a borrower to regain possession by force after a lawful auction would defeat the purpose of the SARFAESI Act, which is designed to ensure speedy recovery of secured assets.

Decision:

The Allahabad High Court ruled in favor of DCB Bank Ltd. The Court set aside the District Magistrate’s order which had rejected the Bank’s second application under Section 14 of the SARFAESI Act. The Court held that the second application under Section 14 was legally maintainable, especially since the possession earlier granted to the Bank was unlawfully disturbed by the borrower’s illegal re-entry.

The High Court directed the Additional District Magistrate to:

• • Reconsider the second application filed by DCB Bank,
• • Provide the Bank with a proper hearing, and
• • Pass a fresh, reasoned order within two months from the date of the judgment.

Why this case matters:

• • This case confirms that a second application under Section 14 of the SARFAESI Act is maintainable if possession is later disturbed.
• • Strengthens the rights of banks and financial institutions to recover secured assets without interference.
• • Reinforces that borrowers cannot regain property through unlawful means like trespass or forced entry.
• • Aligns Allahabad High Court with rulings from Bombay, Andhra Pradesh, Kerala, and Madhya Pradesh—building strong national precedent.
• • Ensures that the SARFAESI Act remains a practical and enforceable remedy for speedy asset recovery.
• • Provides a clear pathway for banks to regain possession in cases of interference, avoiding prolonged litigation.

Laws related thereto:

Under the Constitution:

Article 226: Grants High Courts the power to issue writs for enforcement of legal and fundamental rights. DCB Bank invoked Article 226 to challenge the DM's refusal to entertain its second application under Section 14.

Under SARFAESI Act, 2002:

• • Section 13(2): Allows a secured creditor (like a bank) to issue a demand notice to a defaulting borrower to repay dues within 60 days.
• • Section 13(4): If the borrower fails to comply, the secured creditor may take possession of the secured asset and enforce the security interest.
• • Section 14: This is the central provision in the case. It empowers the District Magistrate (DM) or Chief Metropolitan Magistrate (CMM) to assist the bank in taking physical possession of the secured asset. If the borrower resists or forcibly reoccupies the property, the bank may approach the DM again for assistance.
• • Section 17: Provides the borrower the right to file an appeal before the Debt Recovery Tribunal (DRT) if aggrieved by actions taken under Section 13(4).

Judicial Precedents:

• Nashik Merchant Co-operative Bank Ltd. v. District Collector, Jalna (2011): The Court held that a secured creditor is entitled to file a second or subsequent application under Section 14 if possession of the secured asset has been disturbed or lost due to unlawful actions by the borrower.

• Sri Sai Annadhatha Polymers v. Authorized Officer, Andhra Bank (2014): Affirmed the power of the District Magistrate to act on subsequent Section 14 applications when the borrower unlawfully re-enters the property after earlier possession was granted to the secured creditor.

• Vimaleshwar Charitable Society v. State of Kerala (2015): The Court observed that the secured creditor can approach the District Magistrate multiple times under Section 14 to protect possession of the secured asset, as long as the borrower’s unlawful actions cause disturbance.