The Rajasthan High Court has held that police assistance required to implement statutory orders for taking possession of secured assets under the SARFAESI Act, 2002, must be provided without charging the secured creditor.
The ruling reinforces the principle that the State cannot impose fees for performing a statutory duty without clear legislative authority.
Introduction
In a significant ruling concerning bank recovery proceedings, the Rajasthan High Court has clarified the legal position on police charges for assisting banks and financial institutions in taking physical possession of secured properties. The Court held that police assistance provided to execute orders under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, constitutes a statutory obligation of the State rather than a commercial service.
The decision is particularly relevant to banks, non-banking financial companies (NBFCs), housing finance companies and other secured creditors seeking to recover defaulted loans through the statutory mechanism prescribed under the SARFAESI Act.
Background of the Case
The dispute arose after AU Small Finance Bank initiated recovery proceedings against borrowers who had defaulted on their loan repayment obligations. When the bank encountered difficulties in obtaining physical possession of the secured assets, it approached the competent authority under Section 14 of the SARFAESI Act.
The authority directed the deployment of police personnel to facilitate the possession process. However, the police authorities subsequently demanded payment for providing the required assistance.
The bank challenged the demand, contending that police personnel were being deployed to implement a statutory order and that such assistance could not be treated as a private service attracting charges.
The Single Judge had earlier permitted the police to levy charges, subject to the rates prescribed under Rule 10 of the Rajasthan Police Rules, 2008. Aggrieved by this decision, AU Small Finance Bank approached the Division Bench of the Rajasthan High Court.
Key Legal Issue Before the Court
The principal question was whether police authorities could demand charges from a secured creditor for providing police assistance to implement an order passed under Section 14 of the SARFAESI Act.
The dispute also required the Court to examine the scope of Section 46 of the Rajasthan Police Act, 2007, which provides the legal framework for charging fees for specified police services.
The bank argued that assistance provided to execute a statutory order was fundamentally different from police deployment for private functions or other services for which the law permits charges.
The State, on the other hand, maintained that the assistance facilitated the recovery of a private commercial loan and could therefore be treated as a chargeable service.
Court’s Observations on Section 14 of the SARFAESI Act
The Division Bench, comprising Justice Vinit Kumar Mathur and Justice Chandra Shekhar Sharma, emphasised that Section 14 of the SARFAESI Act empowers the competent authority to facilitate the taking of possession of secured assets and ensure effective implementation of its orders.
The Court observed that police assistance may be necessary to give practical effect to such directions. Where the competent authority requires police support for implementing a statutory order, the State is under an obligation to provide the necessary assistance without levying charges.
The Bench treated the implementation of Section 14 orders as part of the State’s sovereign functions. It rejected the argument that the commercial nature of the underlying loan transaction could transform the execution of a statutory order into a private service.
Why Section 46 of the Rajasthan Police Act Was Not Applicable
The Court held that Section 46 of the Rajasthan Police Act, 2007, could not be interpreted as authorising charges for police deployment undertaken to implement statutory orders under the SARFAESI Act.
The distinction was between police assistance for private functions, where charging fees may be legally permissible, and assistance required to discharge a statutory responsibility.
According to the Court, the absence of a clear statutory provision authorising the levy was decisive. A public authority cannot impose a financial burden merely because the party benefiting from the performance of a statutory duty is a commercial entity.
The Bench also relied on the reasoning in PNB Housing Finance Ltd. v. State of Uttar Pradesh, which recognised the statutory responsibility associated with implementing orders under Section 14 of the SARFAESI Act.
Final Decision of the Rajasthan High Court
Allowing the appeals filed by AU Small Finance Bank, the Division Bench set aside the Single Judge’s order permitting the levy of charges in the circumstances before it.
The Court directed the State authorities to provide the requisite additional police force for implementing orders passed under Section 14 of the SARFAESI Act without charging the secured creditor.
The ruling establishes that statutory police assistance cannot automatically be treated as a fee-based service merely because it facilitates recovery of a commercial loan.
Legal Significance for Banks, NBFCs and Borrowers
The judgment is important for secured creditors who encounter demands for police deployment charges while enforcing security interests under the SARFAESI Act.
For banks and NBFCs, the decision may help reduce additional recovery-related expenses and prevent delays arising from disputes over police assistance fees. It also reinforces the requirement that government authorities must identify clear legal authority before imposing financial levies.
For legal practitioners, the ruling highlights the importance of distinguishing between statutory enforcement functions and chargeable private services. Any demand for police assistance charges should be examined in light of the applicable legislation, rules and judicial precedents.
The decision should, however, be read in the context of its facts and the statutory framework considered by the Court.
Conclusion
The Rajasthan High Court’s ruling reinforces an important principle of public law: the State cannot impose charges for performing a statutory duty without legal authority. By holding that police assistance required to implement Section 14 orders under the SARFAESI Act must be provided without charges, the Court has strengthened the statutory recovery framework available to secured creditors.
Case Title: AU Small Finance Bank Ltd. v. State of Rajasthan & Others
Case Number: D.B. Special Appeal (Writ) No. 1107 of 2026
Court: Rajasthan High Court
Subject: SARFAESI Act, 2002 — Section 14; Rajasthan Police Act, 2007 — Section 46; Rajasthan Police Rules, 2008 — Rule 10.
Disclaimer: This article is intended for general legal information and educational purposes. The precise scope of the ruling should be assessed with reference to the full judgment and applicable statutory provisions.