Bank Cannot Break Open Flat Of Loan Defaulter

Bank cannot break into a flat in case of loan default, rules HC-Times of India-26.01.2015

MUMBAI: The Bombay high court has allowed proceedings against HDFC Bank over allegations that it seized a flat in Pune by breaking open the locks after its owners defaulted on a loan. Justice Abhay Thipsay questioned whether the bank could have forcibly taken possession of the flat without a court order and directed a magistrate-ordered investigation into the case. The HC directive comes on a private complaint by the flat's owners, Milind Mahadik and his wife Aarti.

The bank said the couple were wilful defaulters and under law—Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFEASI) Act—it had powers to seize the flat. The judge held that while the law does not bar a bank from taking possession of a secured asset without court orders, when force is to be used, the district magistrate's orders are necessary.

"If breaking open the lock put on a flat and taking forcible possession... is held to be permissible on the grounds that the SARFEASI Act empowers a secured creditor to do so without the intervention of the district magistrate, then it would be extremely dangerous. The problems arising from holding such a course to be legal will be more serious in cases where such a flat is residential," said Justice Thipsay, pointing out that the bank had not taken police assistance.

He said things can be complicated if the flat contains movable property and possession is taken "by a secured creditor on his own, and without involving the state machinery" by use of force. The Mahadiks had alleged that household articles like a refrigerator, washing machine, and computer, and gold and silver ornaments worth over Rs 22 lakh were in the flat. The HC said the possibility of the articles being stolen or the persons who took physical possession of the flat being falsely accused of theft could not be ruled out and so it was in the interest of the bank to take the state machinery's help in such cases.

In 2003, the Mahadiks had taken a loan of Rs 8.5 lakh to buy the flat. They claimed that they initially paid the EMIs regularly, but stopped after suffering losses in their business and also due to ill health. They said they asked the bank to restructure the payments, but received no reply. In 2008, the bank pasted a notice on the flat under the SARFEASI Act.

The couple alleged that some persons also used threatening language and abused them while asking them to repay the loan. On December 24, 2010, when the couple, who were staying elsewhere, visited the flat, they found that the bank had broken open the locks and sealed the property. They lodged a complaint before the magistrate, who dismissed it saying the couple were "defaulters". Their appeal in the sessions court too was dismissed. Then they approached the HC.

The bank said it was empowered under law to take possession of the flat, and as such it had not committed any criminal offence. The HC did not agree. "Whether offences have been committed in the process of taking possession of the said flat, and if so, by whom, can be properly decided only after an investigation is carried out," the judge said.

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