Supreme Court Says Writ Petition Cannot Be Maintained Against Proceedings By Banks Under SARFAESI Act

The Apex Court instructed that  borrowers, aggrieved by proceedings initiated under the SARFAESI ACT by the bank or the assets reconstruction company (ARC), have to avail the remedy under this law and no writ petition would be maintainable.

The supreme court held this while vacating the order passed by the Karnataka High Court which had directed maintenance of status quo with regard to possession of mortgaged properties subject to the borrowers making a payment of Rs 1 crore with the ARC concerned.

A bench of Justices M R Shah and B V Nagarathna, while referring to an earlier judgement delivered by the top court, opined that filing of writ petitions by the borrowers before the high court under Article 226 of the Constitution in the case was an “abuse of process” of the court.

“If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable,” the bench said.

The apex court delivered its judgement on the pleas filed by the ARC challenging the order passed by the high court, which had entertained the writ petition and passed interim order directing for maintaining status quo with regard to the proposed action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI) 2002.

“Filing of the writ petition by the borrowers before the high court is nothing but an abuse of process of court. It appears that the high court has initially granted an ex-parte ad-interim order mechanically and without assigning any reasons,” the supreme court said.

“Even otherwise, it is required to be noted that a writ petition against the private financial institution – ARC – appellant herein under Article 226 of the Constitution of India against the proposed action/actions under section 13(4) of the SARFAESI Act can be said to be not maintainable,” the apex court noted.

The bench said the high court ought to have appreciated that by such an interim order, the rights of secured creditor to recover the due amount have been seriously prejudiced. It said the secured creditor or its assignor have a right to recover the amount due and payable to it from borrowers.

“The stay granted by the high court would have serious adverse impact on the financial health of the secured creditor/assignor. Therefore, the high court should have been extremely careful and circumspect in exercising its discretion while granting stay in such matters,” the bench said, adding, “In these circumstances, the proceedings before the high court deserve to be dismissed.”

The bench said an ARC cannot be said to be performing public functions which are normally expected to be performed by the state authorities.

“During the course of a commercial transaction and under the contract, the bank/ARC lent the money to the borrowers herein and therefore the said activity of the bank/ARC cannot be said to be as performing a public function which is normally expected to be performed by the state authorities,” it noted.

The apex court, while allowing the appeals, vacated the interim order of August 2015, which was further extended by the orders passed in February 2017 and March 2018.

“Present appeals are accordingly allowed with costs to the appellants (ARC) to be paid by the original writ petitioners quantified at Rs one lakh in both the cases to be directly paid to the appellant within a period of four weeks from today,” it said.

( With PTI Inputs)