REVIEWING SECTION 17 (1) OF SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF

Section 17(1) of the SARFAESI Act, 2002, is a significant provision that outlines the borrower’s right to object to actions taken by secured creditors. This section grants the borrower the right to oppose the secured creditor against any proposed action under Section 13(4) of the SARFAESI act which includes objections to the enforcement of security interest, like taking possession of the secured assets of the borrower or against any of the measure referred in Section 13(4) of the act. This provision upholds the principle of natural justice i.e. “Audi Alteram Partem”. The Supreme Court in Mardia Chemicals Ltd. VS Union of India has rendered it evident that the borrower may submit an application under Section 17 of the act prior to the sale auction after all the measures have been taken under Section 13(4) of the act. This procedure for obtaining possession involves first affixing a possession notice to the door (Symbolic Possession), followed by the actual possession upon the publication of that possession in the newspaper.

Here, the question of what can be done about symbolic possession emerges: can the borrower file a lawsuit against the notice of symbolic possession or against it, or must they wait until actual possession occurs? The provision does not directly respond to the posed question and stays silent on it.

The Supreme Court has addressed this question in the recent matter of Hindon Forge Pvt. Ltd & Anr. Vs State of Uttar Pradesh. The Supreme Court ruled that a borrower may file an application under Section 17(1) of the SARFAESI Act even prior to the actual possession taken by the secured creditor. The Supreme Court further held that according to Section 13(4) of the act, “measures’ also refer to obtaining symbolic possession rather than only physical or actual possession. The Supreme Court stipulated that possession may be obtained under Rule 8(3) in addition to under Rules 8(1) and 8(2) of the 2002 Rules. Given this, the secured creditor takes these actions in accordance with Section 13(4) of the SARFAESI Act in order to attract Section 17(1), regardless of whether possession is obtained under Rules 8(1), 8(2), or 8(3) and the borrower does not have to wait until actual possession is taken.

The Supreme Court has observed that the object of the SARFAESI Act is to enable the borrower with speedy remedy and if a borrower must wait until a sale notice is issued, the purpose of giving them a remedy against the wrongdoing of a secured creditor will be defeated. With this ruling, the Supreme Court has resolved the crucial question regarding the borrower’s right to approach the court of law under Section 17, against the acts of the secured creditor, and has also interpreted Section 13(4) of the act with regard to the actual and symbolic possession.

The Supreme Court as a way of this judgment upholds the intent of the SARFAESI Act. The borrower's right to challenge the acts of the secured creditor with respect to the symbolic possession was a crucial question prior to this, which was not only being addressed by the Supreme Court but also being resolved by the Apex Court, providing the borrowers right to challenge the Symbolic possession now. The borrowers did not have to wait till the actual possession took place in order to seek remedy, and could approach the court at the earlier stage itself in order for the speedy resolution of the dispute.