Magistrate Under SARFAESI Has No Business Protecting Third Parties: Karnataka High Court Quashes Protective Clause in Possession Order

"The action of the Magistrate under Section 14 of the SARFAESI Act is purely ministerial — there is no adjudicatory role involved, and hence no authority to shield third parties from the delivery of possession", ruled the Karnataka High Court in a significant judgment.

In a strong reminder of the statutory framework of the SARFAESI Act, the Court held that a Magistrate has no jurisdiction to dilute or condition the possession delivery warrant in favour of third parties when enforcing orders under Section 14. The High Court set aside the impugned observation of the Magistrate that "This possession delivery warrant is not binding on third parties, if they are in possession of the property in any of the capacity."

"SARFAESI Does Not Create Safe Zones for Occupants — Possession Orders Must Be Executed Unconditionally"

The controversy arose when the Senior Civil Judge and CJM, Koppal, while allowing a plea by State Bank of India under Section 14 of the SARFAESI Act for possession of secured assets, appended a protective clause stating that the warrant would not bind third parties who might be in possession.

Aggrieved, SBI approached the High Court, arguing that such an observation not only diluted the Bank's rights as a secured creditor but also undermined the statutory sanctity of SARFAESI enforcement.

The High Court agreed with the Bank, clarifying: “Once a property is declared as a secured asset under the SARFAESI Act, it is subject to the provisions of the Act and cannot be made conditional upon third-party claims through a Section 14 order. Any such claims must be raised independently under Section 17 before the Debts Recovery Tribunal.”

"Magistrate's Role Under Section 14 is Ministerial, Not Adjudicatory" — High Court Reiterates Legal Position

The judgment reaffirms that a Magistrate acting under Section 14 of the SARFAESI Act does not function in a judicial capacity but merely acts to "assist the secured creditor in obtaining possession of the secured asset."

Citing the Supreme Court’s landmark ruling in Balkrishna Rama Tarle v. Phoenix ARC Pvt. Ltd., AIR 2022 SC 4756, Justice Suraj Govindaraj observed:

“At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets.”

Hence, any attempt by the Magistrate to recognize or protect third-party claims during the enforcement of possession is beyond jurisdiction and legally untenable.

"No Notice, No Objections — Section 14 Is Meant for Swift Enforcement, Not Dispute Resolution"

The Court further held that there is no requirement under Section 14 to issue notice to the borrower or third parties, nor any obligation to entertain their objections.

“The statute mandates the Magistrate to act on an affidavit filed by the secured creditor. The timeline to act — within 30 to 60 days — underscores that no adjudication or hearing is contemplated at this stage,” the Court held.

If any party is aggrieved — borrower or third party — their only remedy lies under Section 17, which provides for appeal before the Debts Recovery Tribunal (DRT).

"Rights of Possession Flow from Security Interest, Not Occupancy": Occupants Directed to Seek Redress Before DRT

The Court observed that any third party who claims tenancy or occupancy over the secured asset must approach the DRT under Section 17(4A), which empowers the tribunal to examine if such tenancy:

• is expired,

• violates Section 65A of the Transfer of Property Act,

• contradicts mortgage terms, or

• was created after issuance of default notice.

“The Magistrate has no authority to inquire into such facts or protect such occupants — the DRT is the competent forum,” the Court clarified.

"Courts Must Uphold the Scheme and Sanctity of SARFAESI" — High Court Issues Binding Clarification

The High Court expressed concern that such protective clauses in possession orders defeat the very objective of SARFAESI, which was enacted to provide swift and efficient recovery mechanisms for banks and financial institutions.

“The very purpose of SARFAESI would be rendered otiose if Magistrates begin conditioning possession warrants or creating exceptions outside the statute,” the Court said.

Accordingly, the High Court allowed the writ petition and quashed the impugned clause in the Magistrate’s order dated 29.04.2025.

“The observation made in the order dated 29.04.2025… that ‘this possession delivery warrant is not binding on the 3rd parties’ is hereby set aside. The said order shall be implemented without reference to the aforesaid observation.”

This ruling affirms that once a Bank follows the procedure under Section 13 and files for possession under Section 14, the Magistrate’s role is mechanical, not discretionary, and execution of the warrant cannot be subjected to collateral claims.

Date of Decision: 08 September 2025