SC: Section 13(3A) of SARFAESI Act is a Mandatory Provision

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2648

March 21, 2018

Case name: ITC Limited v. Blue Coast Hotels Ltd. & Ors.

Date of Judgement: March 19, 2018

In this recent case, the Two-Judge Bench of the Supreme Court extensively dealt with the purported scheme of Section 13(3A) of SARFAESI Act (Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest).

The relevant provision is reproduced herein below:

1[(3-A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:

Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17-A.]

  • The Supreme Court Bench in the case has held that the language of sub-section (3A) is clearly impulsive. It states that the secured creditor “shall consider such representation or objection and further, if such representation or objection is not acceptable or tenable, he shall communicate the reasons for non-acceptance” thereof.
  • That the word ‘shall’ invariably raises a presumption that the particular provision is imperative. That further there is nothing in the legislative scheme of Section 13(3A) of SARFAESI Act  which requires the Court to consider whether or not, the word ‘shall’ is to be treated as directory in the provision.
  • That as the Section stood originally, there was no provision for the above mentioned requirement of a debtor to make a representation or raise any objection to the notice issued by the creditor under Section 13(2).
  • That it could not be the intention of the Parliament for the provision to be futile and for the discretion to ignore the objection/representation and proceed to take measures, be left with the creditor. That a provision which requires reasons to be furnished must be considered as mandatory. Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully.
  • That the provision under Section 13(3A) of SARFAESI Act  must nonetheless be treated as ‘mandatory’.

The entire case can be accessed here.