Borrower/Debtor Can File Securitisation Application At The Stage Of The Possession Notice under Safaesi Rule

In M/S HINDON FORGE PVT. LTD. vs THE STATE OF UTTAR PRADESH, the appeal was filed before the Supreme Court against the judgment of the full bench of the Allahabad High Court wherein the high court had held that a securitisation application under Section 17(1) of the Act is maintainable only when actual/physical possession is taken by the secured creditor or the borrower loses actual/physical possession of the secured assets. The high court had further held that taking “symbolic possession” or issuance of possession notice, cannot be treated as “measure”/s taken under Section 13(4) of the Act and, therefore, the borrower at that stage cannot file application under Section 17(1) of the Act.

While referring to all previous major judgments including Mardia Chemicals, Travancore & Nobel Kumar, the Supreme Court actually turned the clock back on the often disputed issue of Symbolic &  Physical Possession by setting aside the order of the Full bench. The Court decided that after possession notice is issued under Rule 8(1) & (2), there is no difference between Symbolic or Physical Possession as far as the grievance of a borrower is concerned. The Court observed that the object of providing a remedy against the wrongful action of a secured creditor to a borrower will be stultified if the borrower has to wait until a sale notice is issued, or worse still, until a sale actually takes place. Referring to newly inserted APPENDIX – IV-A, the bench said it makes clear that rule 8(1) and 8(2) refer to constructive possession whereas rule 8(3) refers to physical possession. “Whether possession taken under rule 8(1) and 8(2) is called symbolic possession or statutory possession, the fact remains that rule 8(1) and rule 8(2) specifically provide for a particular mode of possession taken under section 13(4)(a) of the Act,” the court said setting aside the High Court judgment.