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Magistrate not Required to Request Permission from Company Court While Handing Over Possession u/s 14 of the SARFAESI Act, 2002: SC

Magistrate not Required to Request Permission from Company CourtWhile Handing Over Possession u/s 14 of the SARFAESI Act, 2002: SC
The Supreme Court held that a magistrate exercising jurisdiction under Section 14 of the SARFAESI Act, 2002 is not necessary to obtain permission from the Judge of the Company Court before ordering the transfer of possession of the properties.

The bench consisting of Justice L. Nageswara Rao, Hemant Gupta, and Ajay Rastogi stated that under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, a company court exercising jurisdiction under the Companies Act has no control over the sale of a secured asset by a secured creditor in the exercise of powers available to that creditor.

In this case, the borrower company was issued a notice under Section 13(2) SARFAESI Act 2002, demanding an amount of Rs. 309.91 crores. Meanwhile, another creditor initiated winding up proceedings against this company before the High Court for the State of Telangana at Hyderabad. The company judge passed an order of winding up and an Official Liquidator was appointed.

In the meantime, the bank filed an application with the Chief Judicial Magistrate under the SARFEASI Act, 2002 based on section 14 for the appointment of a receiver to take over physical custody of the land. The property was taken into custody by the Advocate Commissioner, appointed by the Chief Judicial Magistrate.

In an interim order, in the written petition lodged by the creditor corporation, the High Court directed the property to be restored on the ground that the Chief Judicial Magistrate was unable to order the delivery of the property without receiving permission from the Company Court (High Court).

The Apex court bench thus noted, while setting aside the interim order:

"The interim order passed by the High Court is on the basis that the Magistrate could not have directed the possession to be taken without seeking permission from the Company Court. This Court in Pegasus Assets Reconstruction Private Limited v. Haryana Concast Limited and Another (2016) 4 SCC 47, concluded that a Company Court exercising jurisdiction under the Companies Act has no control in respect of the sale of a secured asset by a secured creditor in the exercise of powers available to such creditor under SARFAESI Act, 2002. Therefore, there is no requirement for the Magistrate exercising power under Section 14 SARFAESI Act to seek permission from the Company Judge before directing handing over of possession of a property."

In Pegasus Assets Reconstruction Private Limited, the Court held that, according to the provisions of the SARFAESI Act, the company judge should not intervene in a proceeding by a secured creditor to realize its secured interests.


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