Supreme Court Criticizes High Courts Entertaining Writ Petitions Cases Pertaining to SARFAESI Act even after Debt Recovery Tribunal became Functional

Supreme Court Criticizes High Courts Entertaining Writ Petitions Cases Pertaining to SARFAESI Act even after Debt Recovery Tribunal became Functional

The Supreme Court has expressed its criticism by the practice of interference followed by High Courts in commercial matters, more particularly pertaining to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act, 2002”), even after the establishment of Debt Recovery Tribunal.

In the present case, Naveen Mathew Philip & Anr. Etc. (Respondents) had availed loans from the South Indian Bank ltd. (“Appellant/Bank”) and their accounts were declared Non-Performing Assets (“NPA”) on 27 May, 2021. The Bank issued Notices under Section 13(2) of SARFAESI Act to the Borrowers on 7 August, 2021 and 12 August, 2021. In reply, the Borrowers addressed a letter dated 28 October, 2021, seeking twelve months’ time to repay the loan.

It was submitted in 2021, that the post of Presiding Officer in various benches of Debt Recovery Tribunals (“DRT”) and Debt Recovery Appellate Tribunals (“DRAT”) remained vacant. The Supreme Court had taken note of the situation and requested the concerned High Court(s) to entertain the matters falling within the jurisdiction of DRTs and DRATs under Article 226 of the Constitution of India. It was clarified that once Tribunals are constituted; the matters can be relegated to the Tribunals by the High Courts.

The Borrowers had filed a writ petition before the Kerala High Court, as the concerned DRT was non-functional. The Borrowers challenged the Notice under Section 13(2) of SARFAESI Act issued by the Bank. The writ petition was filed merely after three days of response letter dated 28 October, 2021 and prior to the expiry of the statutory period prescribed.

The High Court directed the Bank to consider the proposal placed by the Borrowers for repayment and permitted the Borrowers to remit the dues in installments. However, the Borrowers failed to do so. Therefore, the Bank issued notices under Section 13(4) of the SARFAESI Act to the Borrowers in December 2021.

Thereafter, the Borrowers filed another writ petition before the High Court, seeking quashing of Notices under Section 13(4) of SARFAESI Act and a direction to Bank to accept deferred payments. The High Court permitted the Borrowers to make deferred payments within 12 months to the Bank.

Aggrieved by the same, the Bank filed an appeal before the Supreme Court. It was argued that since an equally efficacious remedy was available, the extraordinary jurisdiction of the High Court under Article 226 of the Constitution of India could not have been invoked.

The division judges bench comprising of Justice Sanjiv Khanna and Justice M.M. Sundresh while adjudicating an appeal noted that DRT was not functional at the time of filing the Writ Petitions by the Borrowers.

However, the Court deemed that matters should have been relegated to the Tribunal by the High Court, since it became functional from March, 2022.

In this regard the bench remarked, “Despite the position being settled, the interference by various High Courts continues. The very objective of the Act 54 of 2002 is being frustrated by such interference. The alternative remedy being effective and efficacious, the extraordinary jurisdiction of the High Court under Article 226 of the Constitution of India, either be a writ of certiorari or mandamus, ought not to have been invoked. One has to see the impact on the Appellants of the repeated interference by the High Court.”

Further, the Court refused to interfere with the High Court's order in view of concessions made on behalf of the bank. After the filing of the Special Leave Petitions, 35 Writ Petitions have been filed. The Court was of the view that, the Appellants were not in a position to proceed further to recover the amounts due from the defaulting borrowers/guarantors, defeating the object of the SARFAESI Act itself.

Moreover, the Court expressed that a litigant cannot avoid approaching the Tribunal and rather approach the High Court to use the constitutional remedy as an alternative.

The bench appositely stated that a writ of certiorari is to be issued over a decision when the Court finds that the process does not conform to the law or statute. In other words, courts are not expected to substitute themselves with the decision-making authority while finding fault with the process along with the reasons assigned. Such a writ is not expected to be issued to remedy all violations

It was pertinently emphasized by the Apex Court in the event when a Tribunal is constituted, it is expected to go into the issues of fact and law, including a statutory violation. A question as to whether such a violation would be over a mandatory prescription as against a discretionary one is primarily within the domain of the Tribunal. So also, the issue governing waiver, acquiescence, and estoppel.

“Approaching the High Court for the consideration of an offer by the borrower is also frowned upon by this Court. A writ of mandamus is a prerogative writ. In the absence of any legal right, the Court cannot exercise the said power. More circumspection is required in a financial transaction, particularly when one of the parties would not come within the purview of Article 12 of the Constitution of India. When a statute prescribes a particular mode, an attempt to circumvent shall not be encouraged by a writ court. A litigant cannot avoid the noncompliance of approaching the Tribunal which requires the prescription of fees and use the constitutional remedy as an alternative,” the bench expressed.

Accordingly, the Court while disposing the appeal directed a copy of this judgment be circulated to the High Courts of Kerala and Punjab and Haryana.