Introduction:
In the matter titled AU Small Finance Bank v. State of Punjab and Others, the Punjab and Haryana High Court, presided over by Chief Justice Sheel Nagu and Justice Ramesh Kumari, addressed the pressing issue of mounting Non-Performing Assets (NPAs) and the systemic delays by District Magistrates in executing orders under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Court expressed grave concern over the adverse impact of NPAs on the public exchequer and the financial system, noting that timely recovery mechanisms are essential for liquidity and financial discipline. The bench emphasized that District Magistrates and Revenue Authorities cannot afford to sit over files once orders under Section 14 are passed, as such inertia defeats the object of the Act and frustrates the purpose of empowering secured creditors to recover dues swiftly. The case was triggered by AU Small Finance Bank’s grievance that despite orders being passed under Section 14, the execution was either unduly delayed or not carried out at all by the District Magistrates and concerned Revenue Authorities, forcing banks and financial institutions to repeatedly knock on the doors of the judiciary.
Arguments of the Petitioner:
On behalf of the petitioner AU Small Finance Bank, Ms. Deepika Mittal, assisted by Mr. Bharat Mani Goyal, argued that NPAs have emerged as one of the most significant threats to the stability of the Indian financial system, and statutory tools like the SARFAESI Act were introduced precisely to empower banks and financial institutions to recover their dues without unnecessary judicial intervention. Counsel stressed that Section 14 places a clear ministerial duty upon the District Magistrate or Chief Metropolitan Magistrate to take possession of secured assets and hand them over to creditors within the statutory time frame of thirty days, extendable up to sixty days. However, in practice, District Magistrates were not adhering to this mandate, and their failure or delay in executing such orders was not only arbitrary but also in contempt of binding precedents laid down by the Supreme Court and the High Court itself. The petitioner relied on the Supreme Court’s ruling in R.D. Jain & Co. v. Capital First Ltd. & Ors., where it was unequivocally held that the role of the CMM/DM under Section 14 is ministerial and time-bound. The petitioner further pointed out that the coordinate bench in Cholamandal Investment and Finance Co. Ltd. v. DM Bhatinda & Ors. (May 2024) had already laid down detailed guidelines, including a procedural roadmap and timeline for District Magistrates to deal with Section 14 applications, but those directions were being consistently flouted. Counsel argued that such non-compliance not only jeopardizes the interests of banks but also aggravates the NPA crisis, which ultimately burdens the public exchequer since public money deposited in banks is put at risk. The petitioner urged the Court to take corrective measures, including strict directions to ensure timely execution, sensitization of District Magistrates through training, and warning of contempt proceedings for failure to comply.
Arguments of the Respondents:
Representing the State of Punjab, Additional Advocate General Mr. Vipin Pal Yadav, and for the State of Haryana, Additional Advocate General Mr. Deepak Balyan, sought to justify the administrative delays while also assuring the Court that steps would be taken to comply with judicial directions. It was submitted that while the SARFAESI Act prescribes a timeline for passing orders under Section 14, the statute does not explicitly provide a time frame for execution of those orders, which sometimes leads to administrative backlogs. The respondents argued that District Magistrates are burdened with multifarious responsibilities and often face practical difficulties such as law-and-order concerns, lack of adequate police force for assisting in possession, resistance from borrowers or occupants of secured assets, and complications arising from disputes raised by third parties. They submitted that in some cases, orders could not be executed promptly due to genuine constraints rather than deliberate negligence. The State counsel also pointed out that coordination between Tehsildars, Revenue Authorities and the Police is necessary for smooth execution, and delays sometimes arise due to logistical or manpower shortages. While acknowledging the importance of timely enforcement, the respondents requested the Court to take a balanced view, recognizing the ground realities faced by District Magistrates and Revenue Authorities, and to permit orientation or training programs rather than imposing punitive directions straightaway. The States also assured the Court of their commitment to ensuring compliance with SARFAESI provisions and to cooperating with the Judicial Academy in training officers to discharge their duties effectively.
Court’s Judgment:
After hearing the arguments, the Division Bench of Chief Justice Sheel Nagu and Justice Ramesh Kumari delivered a strongly worded judgment underscoring the gravity of the NPA problem and the urgent need for timely execution of recovery proceedings under SARFAESI. The Court began by noting that NPAs have become a crippling burden on the banking system and, by extension, on the public exchequer, as unrecovered loans and bad debts ultimately undermine financial stability, reduce liquidity, and erode depositor confidence. It observed that the entire object of enacting SARFAESI was to empower banks and financial institutions to swiftly recover secured debts without protracted litigation, and the statutory role of the District Magistrates under Section 14 is central to this mechanism. The Court referred to R.D. Jain & Co. wherein the Supreme Court had categorically held that the role of the District Magistrate/Chief Metropolitan Magistrate under Section 14 is purely ministerial, leaving no scope for discretionary delay. The High Court criticized the repeated instances where banks were compelled to approach the judiciary because District Magistrates either delayed or refused to execute orders under Section 14, effectively rendering the legislative intent nugatory.
The Court made it clear that merely because the statute does not expressly prescribe a time frame for the execution of Section 14 orders, it does not mean that District Magistrates can indefinitely sit over the files. Instead, time is of the essence, and execution must follow promptly, ideally within thirty days, and in no case beyond sixty days for passing orders, with a further maximum of thirty days for execution. The Court observed: “Non-Performing Assets are a huge burden on the public exchequer, banking and financial system, and, thus, prompt enforcement of recovery mechanism under the SARFAESI Act is paramount for liquidity in the system. The functionaries of the State cannot be allowed to frustrate this purpose by delaying execution on the ground of administrative convenience.” The bench expressed surprise that despite earlier rulings, including the Cholamandal Investment decision of May 2024, laying down explicit procedures and timelines, functionaries were either unaware of or intentionally disregarding such directions. This, the Court noted, was unacceptable and tantamount to contempt.
Consequently, the Court directed the Chandigarh Judicial Academy to conduct specialized orientation programs for all District Magistrates, Deputy Commissioners, Tehsildars and other relevant authorities in Punjab, Haryana, and the Union Territory of Chandigarh, to ensure they fully understand the statutory scheme of SARFAESI and discharge their duties without delay. The Court mandated that after attending such training, District Magistrates must pass orders under Section 14 within a maximum period of sixty days from receiving an application, and ensure execution through themselves or their subordinates within thirty days thereafter. Any failure in this regard, the Court warned, would amount to contempt of court orders. The matter was listed for compliance on November 7, 2025, with a stern reminder that accountability and urgency cannot be compromised. In its concluding remarks, the Court stated that the SARFAESI Act represents a special enactment designed to tackle NPAs, and unless functionaries at the district level carry out their ministerial duties expeditiously, the very objective of the law will stand defeated. The bench reiterated that “time is of the essence” and District Magistrates “cannot brook delay” in matters of financial recovery affecting the entire economy.