The Madhya Pradesh High Court has affirmed that state authorities have a mandatory duty to assist financial institutions in enforcing security interests under the SARFAESI Act, clarifying that administrative inaction cannot obstruct lawful repossession. This ruling reinforces the statutory framework designed to expedite recovery of non-performing assets without judicial delay.
Background & Facts
The Dispute
The petitioner, AU Small Finance Bank Limited, initiated proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against defaulting borrowers who had mortgaged property as security for a loan. Despite issuance of notices under Section 13 and a possession notice under Section 14, the borrowers refused to vacate the secured asset, and the respondent authorities declined to provide police assistance for peaceful repossession.
Procedural History
- The bank filed a writ petition under Article 226 of the Constitution seeking mandamus for state assistance in dispossessing trespassers.
- The State opposed the petition, suggesting the bank fulfill a voluntary CSR obligation as a precondition for assistance.
- The petitioner cited a prior judgment in Cholamandalam Investment and Finance Company Limited v. District Magistrate, Gwalior (WP No. 1681/2025), where the same court had directed similar assistance.
Relief Sought
The petitioner sought:
- A writ of mandamus directing state authorities to assist in the physical repossession of the secured asset;
- Directions to take action against borrowers for illegal trespass;
- Any other relief deemed appropriate by the Court.
The Legal Issue
The central question was whether Section 14 of the SARFAESI Act imposes a legal obligation on state authorities to provide assistance for the repossession of secured assets, even in the absence of a formal application under Rule 8 of the SARFAESI Rules.
Arguments Presented
For the Petitioner
The petitioner relied on Cholamandalam Investment and Finance Company Limited v. District Magistrate, Gwalior to establish that courts have consistently held that Section 14 mandates state cooperation. Counsel argued that the SARFAESI Act is a special law intended to create an efficient recovery mechanism, and administrative reluctance undermines its legislative intent. The bank emphasized that possession had been lawfully taken under Section 13(4) and that the borrowers were in illegal occupation.
For the Respondent
The State contended that assistance could not be granted without a formal application under Rule 8 of the SARFAESI Rules and suggested the bank’s CSR contribution as a condition precedent. However, the Additional Advocate General conceded that the facts were materially identical to the Cholamandalam case and did not dispute the legal principle.
The Court's Analysis
The Court examined the statutory scheme of the SARFAESI Act, particularly Sections 13 and 14, and held that the legislature intended to empower secured creditors with a self-help remedy, backed by state machinery. The Court noted that Section 14 explicitly provides that the District Magistrate or Chief Metropolitan Magistrate shall, on application by the secured creditor, take possession of the secured asset and assist in its transfer.
"The object of the SARFAESI Act is to ensure expeditious recovery of dues without protracted litigation, and the role of the state authorities is not discretionary but statutory."
The Court distinguished the State’s suggestion of a CSR deposit as irrelevant to the legal obligation under Section 14. It held that conditioning state assistance on voluntary corporate contributions would introduce an unauthorized condition into a statutory process, violating the principle of legality. The Court further relied on the precedent in Cholamandalam, observing that the factual matrix was identical and that consistency in judicial application was essential.
The Court rejected the notion that procedural technicalities under Rule 8 could override the substantive mandate of Section 14, noting that the bank had already complied with all pre-requisites under Section 13.
The Verdict
The petitioner succeeded. The Court held that Section 14 of the SARFAESI Act compels state authorities to provide necessary assistance for repossession of secured assets once the conditions under Section 13 are satisfied. The Court directed the respondents to immediately assist the bank in dispossessing the borrowers and handing over possession of the mortgaged property.
What This Means For Similar Cases
State Assistance Is Mandatory, Not Discretionary
- Banks need not file a separate application under Rule 8 if they have already issued notices under Section 13 and obtained possession.
- District Magistrates cannot refuse assistance on grounds of administrative convenience or unrelated conditions.
- Any delay or refusal by state authorities may be challenged under Article 226 with immediate effect.
CSR Cannot Be a Condition for Legal Enforcement
- Voluntary corporate social responsibility initiatives cannot be made a precondition for enforcing statutory rights under the SARFAESI Act.
- Courts will not permit the conflation of moral obligations with legal entitlements.
- Practitioners should immediately challenge any such conditions imposed by authorities.
Precedent-Based Enforcement Is Binding
- The Cholamandalam judgment now serves as binding precedent within the Madhya Pradesh jurisdiction for SARFAESI enforcement.
- Banks can cite this judgment to compel assistance in any district where similar obstruction occurs.
- Legal notices to authorities should now explicitly reference both Section 14 and Cholamandalam to pre-empt resistance.
