Rajasthan HC Admits Challenge by AU Small Finance Bank to Police Charges Levied for SARFAESI Asset Recovery Assistance

AU Small Finance Bank contends that police assistance under Section 14 of the SARFAESI Act is a judicial function, and no charges are leviable without statutory backing under Rajasthan law.

The High Court of Judicature for Rajasthan at Jodhpur, on 6 July 2026, took up a writ petition filed by AU Small Finance Bank Ltd. challenging the Rajasthan Police Department’s practice of levying charges for providing assistance during the recovery of secured assets under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Justice Sameer Jain, sitting singly, allowed the bank to amend its petition to incorporate a challenge to the underlying government circular on which the State’s demand rests, and fixed 22 July 2026 as the next date of hearing. The court observed that the matter raises “substantial questions of law” touching the interplay between the SARFAESI Act, the Rajasthan Police Act, 2007, and constitutional principles governing fee levies by State instrumentalities.

The Dispute Before the Court

AU Small Finance Bank, a private banking institution funded by private equity, approached the High Court under Article 226 of the Constitution of India. The bank’s grievance is directed at the Rajasthan Police Department’s insistence on collecting charges whenever police personnel accompany secured creditors to take physical possession of secured assets pursuant to a court order under Section 14 of the SARFAESI Act.

Section 14 of the SARFAESI Act empowers a Chief Judicial Magistrate or another competent authority to direct deployment of force to assist a secured creditor in taking possession of secured assets. The bank’s counsel, Mr. Vijay Purohit, appearing with Mr. Hanuman Singh Gour, Mr. Pradeep Singh Rajpurohit, and Mr. Arpit Mehta, argued that when police act under such a magisterial direction they are executing a judicial order and thereby performing a judicial or sovereign function. On that premise, no charges can be levied for performing that function unless a law explicitly authorises such recovery.

The bank also pointed to Section 46 of the Rajasthan Police Act, 2007, read with Rule 10 of the Rajasthan Police Rules, 2008. Those provisions, the bank submitted, enumerate a closed list of services for which the Police Department may charge prescribed fees. Police assistance rendered pursuant to a Section 14 SARFAESI order does not appear on that list. Demanding charges outside the statutorily enumerated services, the bank contended, is arbitrary and legally unsustainable.

Precedents Cited and the State’s Counterposition

Mr. Purohit placed before the court a line of orders from coordinate benches and other High Courts to show that the question is not open and that judicial opinion has consistently gone against such police charges. The decisions relied upon included the Allahabad High Court’s ruling in Gopal v. Amarjeet Singh, 2019 AHC 3878; the order dated 30 October 2025 of the coordinate bench of the Rajasthan High Court at Jaipur in S.B. Civil Writ Petition No. 14449/2025, Tyger Home Finance Pvt. Ltd. v. State of Rajasthan & Ors.; the order in S.B. Civil Writ Petition No. 10189/2015, M/s S. Jhalani & Co. v. The District Collector And District Magistrate, Jaipur & Ors.; and the interim order dated 10 March 2026 of the coordinate bench in S.B. Civil Writ Petition No. 5468/2026, AU Small Finance Bank Ltd. v. State of Rajasthan & Ors. — a case involving the petitioner bank itself. The bank submitted that the State has not preferred any appeal against any of those coordinate bench orders.

The bank also relied on an order dated 3 February 2026 passed by A.G.C. Dr. Prakasha Mathur, described as the competent authority, which had determined the appropriate charges payable by the bank in a related context.

The respondent State, represented by Mr. Raj Singh Bhati and Mr. Paramvir Singh for Mr. Rituraj Singh Bhati, Government Counsel, and Mr. Sandeep Soni for Mr. B.L. Bhati, Additional Advocate General, took a contrary position. The State argued that the demand is not a statutory tax but a fee grounded in the principle of quid pro quo. Since AU Small Finance Bank and similarly placed entities are commercial, profit-making institutions — not charitable bodies — they are legally obligated to pay for specialised police services rendered, for which the competent authority has issued a relevant circular. The State also argued that because the amount is a fee and not a tax, the embargo under Article 265 of the Constitution has no application, and no separate statutory enactment is required to sustain the recovery.

The State further contended that the precedents cited by the bank are distinguishable because no challenge had been made to the circular underpinning the demand in those earlier proceedings.

Amendment Permitted to Challenge the Circular

In rejoinder, the bank’s counsel accepted that the State’s distinguishing argument about the circular had procedural force. To cure the defect, the bank sought the court’s permission to amend the writ petition by adding pleadings that directly challenge the foundational circular.

Justice Sameer Jain noted the consensus of the parties on the proposed amendment and granted liberty to the bank to carry out the necessary amendments. The court directed the bank to supply an advance copy of the amended petition to the respondents’ counsel before the next date of hearing.

Court’s Observation on the Significance of the Issue

While passing the interim directions, the court recorded that the petition raises an issue of “high significance” involving substantial questions of law concerning the interplay among the SARFAESI Act, the Rajasthan Police Act, and constitutional principles governing the levy of fees by State instrumentalities. The court directed the bank to supply a copy of the writ petition to the office of Mr. Rajendra Prasad, the learned Advocate General, so that the State’s senior law officer is aware of the proceedings.

The court also directed that the matter be listed with the name of the Advocate General’s junior counsel reflected in the cause list on the next date.

Outcome

Justice Sameer Jain allowed the bank to amend S.B. Civil Writ Petition No. 12432/2026, directed service of the amended petition on the respondents in advance, directed supply of the petition to the Advocate General’s office, and listed the matter on 22 July 2026 in the supplementary cause list before the Rajasthan High Court at Jodhpur.