Case Note & Summary
The present writ petition arose from a challenge to an order dated 23.02.2026 passed by the District Magistrate, Nagpur, directing the Tahsildar, Saoner to handover possession of mortgaged property to respondent No.3, an Asset Reconstruction Company (ARC), instead of respondent No.2 Bank. The petitioner No.1, a proprietorship firm, had availed a credit facility from respondent No.2 Bank, and the mortgaged properties were owned by petitioner No.2. Upon the account being declared a Non Performing Asset, the Bank approached the District Magistrate under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. By order dated 04.12.2019, the District Magistrate directed the Tahsildar to take possession of the secured asset on behalf of the Bank. Subsequently, the Bank executed an assignment agreement dated 30.06.2025 in favour of the ARC. In light of this assignment, the District Magistrate passed the impugned order on 23.02.2026 substituting the ARC's name in place of the Bank. The petitioners contended that the District Magistrate had become functus officio after passing the 2019 order and could not review, modify, or amend it. They argued that the ARC was required to file a fresh application under Section 14 and that mere substitution was unlawful. In support, they relied on Union Bank of India v. State of Maharashtra, 2010(5) Mh.L.J. 270 and a Gujarat High Court decision in India Resurgence Arc Private Limited v. District Magistrate (Valsad). The respondents argued that proceedings under Section 14 remain pending until possession is actually taken, and therefore the District Magistrate was empowered to pass the substitution order. They relied on Section 5(5) of the SARFAESI Act, which permits an ARC, with the consent of the originator, to file an application before any court or authority for substitution of its name in any pending suit, appeal or other proceedings. They also cited R.D. Jain and Company v. Capital First Ltd., 2013(1) SCC 675. The Court examined Section 14 and observed that its sole purpose is to assist the secured creditor in taking possession of secured assets. It noted that after an order under sub-section (1), sub-section (2) empowers the CMM/DM to take steps and use force until possession is handed over. The Court held that until actual possession is taken by the CMM/DM, the proceeding is not concluded, and therefore the District Magistrate does not become functus officio. The reasoning indicated that substitution by an assignee ARC under Section 5(5) in a pending Section 14 proceeding is permissible. The final operative direction was not included in the provided excerpt, but the analysis strongly suggested that the substitution was legally valid and the writ petition would be dismissed.
Headnote
A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Enforcement of Security Interest - Powers of District Magistrate under Section 14 - The District Magistrate does not become functus officio upon passing an order under Section 14(1); the proceeding remains pending until possession of secured asset is actually taken and handed over to secured creditor under Section 14(2) - Section 14 is enacted solely to assist the secured creditor in taking possession of secured assets; sub-section (2) empowers the CMM/DM to take steps and use force to secure compliance, so the proceeding is not concluded until possession is handed over. Held that the District Magistrate retains jurisdiction until actual possession is taken (Paras 14-16). B) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Assignment of Financial Assets and Substitution of Assignee in Pending Proceedings - Section 5(5) - Upon assignment of financial assets, an asset reconstruction company may with consent of the originator file an application before any court or authority for substitution of its name in any pending proceedings; substitution of ARC's name in earlier Section 14 order in place of original secured creditor is permissible without fresh application - The Court considered that sub-section (5) of Section 5 permits substitution in pending suits, appeals or other proceedings, and that the Supreme Court in R.D. Jain and Company v. Capital First Ltd., 2013(1) SCC 675 analyzed the scope of Section 14 and the statement of objects and reasons (Paras 10, 17).
Issue of Consideration
Whether the District Magistrate becomes functus officio after passing an order under Section 14 of the SARFAESI Act, and whether an asset reconstruction company can be substituted as secured creditor in such order without filing a fresh application.
Law Points
- Section 14 of SARFAESI Act is enacted solely to assist secured creditor in taking possession
- District Magistrate does not become functus officio until possession is actually taken
- proceedings under Section 14 continue until possession handed over
- Section 5(5) permits asset reconstruction company to be substituted in pending proceedings with consent of originator
- substitution of ARC name in earlier Section 14 order is permissible without fresh application
