The Chhattisgarh High Court has reaffirmed that the District Magistrate's function under Section 14 of the SARFAESI Act is strictly ministerial and does not extend to adjudicating disputed property rights. Setting aside an order that denied possession assistance because the mortgaged property had been sold to a third party, the Court held that such disputes must be relegated to proceedings under Section 17 before the Debts Recovery Tribunal.
Background & Facts
The Dispute
The petitioner, Aadhar Housing Finance Ltd., a housing finance company, extended a loan of Rs. 7,96,388/- to respondents No. 1 and 2 (Manpreet Singh and Smt. Manjeet Kaur) on 24.05.2017. As security, the borrowers mortgaged their house situated at Khasra No. 101/5, P.H.N 35, R.N.M Rajnandgaon-1, Tahsil and District Rajnandgaon, Chhattisgarh. The borrowers defaulted on repayment, leading the petitioner to declare the loan account (No. 00131442) as a Non-Performing Asset on 10.08.2019.
Key Facts
- Loan agreement executed on 24.05.2017 for Rs. 7,96,388/-
- Mortgaged property: House at Khasra No. 101/5, P.H.N 35, R.N.M Rajnandgaon-1, Tahsil & District Rajnandgaon (C.G.)
- Loan account No. 00131442 classified as NPA on 10.08.2019
- Notice under Section 13(2) of SARFAESI Act issued for outstanding amount of Rs. 8,29,436/- Borrowers failed to repay despite notice
- Application under Section 14 SARFAESI Act filed before District Magistrate, Rajnandgaon
- Application registered as Case No. 202003090100010/77-B/121/Year 2019-20
- Mortgaged property sold to respondent No. 3 (Sheikh Wafeed) via registered sale deed dated 13.12.2019
- District Magistrate passed impugned order on 06.09.2021 rejecting application on ground of subsequent sale
Procedural History
- 24.05.2017: Loan agreement executed between petitioner and borrowers (respondents 1 & 2)
- 10.08.2019: Loan account declared NPA by petitioner
- 13.12.2019: Registered sale deed executed in favour of respondent No. 3 (subsequent purchaser)
- 06.09.2021: District Magistrate, Rajnandgaon passed impugned order rejecting Section 14 application
- 2021: Writ Petition (WPC No. 4952 of 2021) filed before High Court of Chhattisgarh
- 10.09.2026: Judgment reserved
- 29.10.2026: Judgment delivered
Relief Sought
The petitioner sought quashing of the impugned order dated 06.09.2021, remand of the matter to the District Magistrate for fresh consideration of the Section 14 application, and a direction to pass appropriate order within a specified timeframe.
The Legal Issue
The central question was whether the District Magistrate, while exercising jurisdiction under Section 14 of the SARFAESI Act, is empowered to enter into the merits of the claim and adjudicate upon disputed questions concerning the rights of parties, particularly where the secured asset has been subsequently transferred to a third party.
Arguments Presented
For the Petitioner
Counsel submitted that the District Magistrate erred in law by entering into the merits and adjudicating the rights and entitlements of the parties. The powers under Section 14 are purely ministerial, not adjudicatory, as held by the Supreme Court in R.D. Jain & Co. v. Capital First & Ors. (2023) 1 SCC 675. Any transfer of property by the mortgagor to a third party does not oust the secured creditor's right to recover dues from the mortgaged property. The District Magistrate exceeded jurisdiction by examining the validity of the subsequent sale.
For the Respondent
Counsel for respondent No. 3 supported the impugned order. The State counsel submitted that the District Magistrate rightly held that since the property had been sold, an order for possession of secured assets could not be passed.
The Court's Analysis
The Court examined the statutory scheme of Section 14 SARFAESI Act and the binding precedents on the nature of the District Magistrate's powers. It held that Section 14 is designed to facilitate the secured creditor in obtaining possession or control of the secured asset. Once the asset is mortgaged and the loan classified as NPA, the secured creditor is entitled to recourse under the Act subject to statutory compliance.
"The role of the District Magistrate under Section 14 is ministerial in nature. The legal position in this regard stands settled by the Hon'ble Supreme Court in R.D. Jain & Co. (supra), wherein it has been reiterated that the proceedings under Section 14 do not involve an adjudicatory process with respect to the objections or disputes raised by the borrower against the secured creditor."
The Court relied on R.D. Jain & Co. v. Capital First & Ors. (2023) 1 SCC 675, where the Supreme Court held that the step taken by the CMM/DM under Section 14 is a ministerial step involving no quasi-judicial function. The Magistrate only has to verify the correctness of information in the application.
The Court further cited Balkrishna Rama Tarle v. Phoenix ARC (P) Ltd. (2023) 1 SCC 662, where the Supreme Court reiterated that once all requirements under Section 14 are satisfied, it is the duty of the CMM/DM to assist the secured creditor in obtaining possession. The CMM/DM is not required to adjudicate disputes between borrower and secured creditor or between any third party and secured creditor. Aggrieved parties must raise objections under Section 17 before the Debts Recovery Tribunal.
The Calcutta High Court's decision in Only wheel and Others vs. Bank of Baroda and Others (2025 SCC OnLine Cal 7217) was also referenced, confirming that the powers under Section 14 are administrative/executive, limited to verification of compliance with the proviso to Section 14(1), and do not involve judicial or quasi-judicial functions.
Applying these principles, the Court found that the District Magistrate travelled beyond the scope of jurisdiction by entering into an adjudicatory exercise. The fact of subsequent sale to a third party could not, by itself, confer jurisdiction to adjudicate the validity or effect of such transfer.
The Verdict
The writ petition was allowed. The impugned order dated 06.09.2021 passed by the District Magistrate, Rajnandgaon, was set aside. The matter was remanded to the District Magistrate for fresh consideration of the petitioner's application under Section 14 SARFAESI Act, strictly in accordance with law and within the scope of jurisdiction conferred under the provision. The District Magistrate was directed to pass an appropriate order within 30 days from receipt of a copy of the judgment, after affording due opportunity of hearing to concerned parties. The petitioner was directed to extend full cooperation in the proceedings.
What This Means For Similar Cases
Ministerial Function Is Non-Negotiable
The judgment reinforces that the District Magistrate's role under Section 14 is strictly administrative. Practitioners must ensure applications are complete and compliant with statutory requirements, as the DM's inquiry ends at verification of the application's contents. Any attempt by the DM to evaluate competing title claims or the validity of subsequent transfers exceeds jurisdiction and is liable to be set aside.
- Section 14 applications cannot be rejected on grounds of third-party ownership claims
- DM cannot examine validity of sale deeds executed after mortgage creation
- Objections to possession must be routed through Section 17 before DRT
Secured Creditor's Rights Survive Subsequent Transfers
A mortgagor's transfer of secured property to a third party does not extinguish the secured creditor's right to enforce the security interest. The statutory scheme contemplates that disputes over title or the effect of subsequent transfers are for the DRT to adjudicate, not the District Magistrate.
- Secured creditors should not be deterred by subsequent sales to third parties
- Section 14 remains available regardless of intervening transfers
- Third-party purchasers' remedies lie in Section 17 proceedings or civil suits
Procedural Compliance Is Paramount
The Court's direction for disposal within 30 days underscores the summary nature of Section 14 proceedings. Practitioners should prepare applications with meticulous documentation to withstand verification scrutiny and avoid remand delays.
- Ensure all Section 13(2) notice requirements are met before filing
- Attach complete chain of documents: loan agreement, mortgage deed, NPA classification, demand notice
- Be prepared for expeditious hearing upon remand
