Arbitration & Conciliation Act Provisions Can Be Invoked In Addition To Remedies Available Under SARFAESI Act: MP High Court

The Madhya Pradesh High Court at Jabalpur recently laid down that the provisions of the Arbitration and Conciliation Act, 1996 ('AC Act, 1996') can be invoked by a financial institution in addition to the remedies available under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act') for settlement of disputes in relation to non-payment of amount. 

The Division Bench comprising Justice Sheel Nagu and Justice Vinay Saraf took note that Section 35 of SARFAESI Act stipulates that provisions of the said enactment shall have overriding effect over anything in consistent in any other law for the time being in force or any instrument having effect by virtue of any such law. 

The Bench added that in Vishal N. Kalsaria v. Bank of India (2016), the Apex Court had interpreted the expression 'any other law for the time being in force' to mean any other law operating in the same field i.e. the field occupied by SARFAESI Act.

It further said that Section 37 of SARFAESI Act prescribes that the provisions of the Act are mandated to take effect in addition to and not in derogation of Companies Act, 1956, Securities Contracts (Regulation) Act, 1956 Securities and Exchange Board of India Act, 1992, and Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and any other law for the time being in force.

"Meaning thereby that the overriding effect of the SARFAESI Act mandated in Section 35 of the SARFAESI Act is diluted to a consideration extent by Section 37 of the SARFAESI Act by providing that the provisions of SARFAESI Act would be in addition to and not in derogation of various enactments referred to in Section 37 of the SARFAESI Act and also any other law for the time being in force, including AC Act, which has been invoked by respondent financial institution herein". 

The 2nd respondent financial institution herein had extended a loan of Rs. 45 Lakhs to the petitioner. The latter however defaulted in the repayment, pursuant to which the 2nd respondent took recourse to Section 13(4) of the SARFAESI Act ('Enforcement of Security Interest') by filing an application under Section 14 of the SARFAESI Act ('Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset') before District Magistrate, Rewa.

The petitioner-borrower objected to the same stating that the financial institution had already invoked the arbitration clause in the agreement between himself and the latter, whereafter an award had been passed in favour of the financial institution. It was contended that an application under Section 36 for executing the same was thus pending before the Commercial Court, Rewa.

Advocate Pushpendra Dubey argued on behalf of the petitioner that Section 11 of the SARFAESI Act mandates settlement of dispute regarding non-payment of amount due including interest by way of conciliation or arbitration in terms of procedure provided under the AC Act, 1996, notwithstanding non-grant of consent by any of the rival parties. 

The Court was of the considered view that Sections 35 and 36 of the SARFAESI Act made it clear that the provisions of the AC Act, 1996, are available to the financial institution to be invoked in addition to the remedies for recovery under the SARFAESI Act. 

The Court placed reliance on the Apex Court decision rendered in M. D. Frozen Foods Exports Private Limited Vs. Hero Fincorp Limited, wherein it had been laid down that SARFAESI proceedings are in the nature of enforcement proceedings, while arbitration is an adjudicatory process. 

"In the event that the secured assets are insufficient to satisfy the debts, the secured creditor can proceed against other assets in execution against the debtor, after determination of the pending outstanding amount by a competent forum....SARFAESI proceedings and arbitration proceedings, thus, can go hand in hand," the Apex Cort 

The Court took note that in the instant case, the respondent financial institution invoked the AC Act and obtained an award for execution of which an application is pending before the Commercial Court.

"Simultaneously, respondent financial institution has invoked one of the recourses of Section 14 of the SARFAESI Act available u/S 13(4) of the SARFAESI Act, by approaching District Magistrate, Rewa u/S 14 of SARFAESI Act," it added. 

It thus found that no fault could be attributed to the respondent financial institution for invoking Section 14 of SARFAESI Act by approaching District Magistrate, Rewa, and dismissed the plea. 

The respondents were represented by Govt. Advocate Ankit Agarwal and Advocate Anupam Bhatt.

Citation: 2024 LiveLaw (MP) 17

Case Title: Umesh Kumar Gupta v. The Collector, Rewa District & Anr. 

Case Number: W.P. No.19144 of 2023

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