J&K&L High Court Flags Borrowers' Misuse Of Courts To Stall Loan Recovery; Says Conduct Defeats SARFAESI Act's Purpose
Deploring the growing tendency of defaulting borrowers to misuse judicial remedies to stall recovery of public money, the High Court of Jammu & Kashmir and Ladakh has held that such conduct strikes at the very purpose of the SARFAESI Act.
A Division Bench comprising Justice Sindhu Sharma and Shahzad Azeem observed,
“... It is highly disturbing that a small but recalcitrant class of borrowers, instead of honouring their legitimate contractual obligations, deliberately resort to a multiplicity of frivolous proceedings before civil courts and High Courts, with the sole objective of stalling enforcement measures, thereby defeating the very purpose for which the SARFAESI Act was enacted.”
Background:
The judgment, authored by Justice Shahzad Azeem for the Bench, arose out of two connected writ petitions with the first being filed by M/s Krishna Traders, the borrower, challenging a e-auction sale notice l and the sale intimation issued by Punjab National Bank under the SARFAESI Act.
The second being filed by Vikas Bharti and another, the successful bidders in the said e-auction, seeking a direction to the Bank to hand over physical possession of the auctioned property. The Court noted that since the relief sought by the auction purchasers was dependent upon the fate of the borrower's challenge, it proposed to decide the borrower's petition first.
The Court traced the background of the dispute and recorded that the borrower had availed a cash credit limit of ₹75 lakhs and a housing loan of ₹10 lakhs from the respondent-Bank by mortgaging a residential house. Upon default in repayment, the loan account was classified as a Non-Performing Asset and this was followed by issuance of statutory demand notice under Section 13(2) of the SARFAESI Act and measures under Section 13(4). The borrower failed to clear the outstanding dues despite these steps.
During the interregnum, the Bank approved a One Time Settlement in favour of the borrower in November 2017, clearly stipulating that the entire settled amount had to be paid within three months, failing which the Bank would proceed to recover the full dues. The borrower admittedly failed to comply with the OTS conditions.
Court's Observations:
Commenting on this aspect of failure on part of the borrower the Court observed that once the borrower had breached the terms of settlement, “he cannot be allowed to raise the plea that the bank for all the time to come, is duty bound to accept the amount even beyond the stipulated period of OTS.”
Rejecting the borrower's argument that SARFAESI proceedings initiated prior to the OTS had lost significance, the Bench noted that the borrower had already challenged the measures taken under Section 13(4) in an earlier writ petition, which stood dismissed. The Court observed,
“the petitioner now, cannot again question the action of the bank initiated in terms of Section 13(2) and 13(4) of the SARFAESI Act.”
A pivotal issue considered by the Court was whether the borrower's right of redemption survived after publication of the e-auction sale notice. On this question, the Bench relied upon the Supreme Court's decision in M. Rajendran v. M/s KPK Oils and Proteins India Pvt. Ltd. (2025 SCC OnLine SC 2036). The court observed that under Section 13(8) of the SARFAESI Act, a borrower has a right to tender the entire dues only up to the date of publication of the auction notice. The Court observed that once such notice is published, the secured creditor is not bound to accept it, and can continue to proceed with the transfer of the secured asset.
Applying this principle, the Bench categorically held that the borrower's right of redemption stood extinguished on the date on which the e-auction sale notice was published.
Observing that “once auction notice is published, right of redemption of the petitioner has extinguished… and any amount even if deposited, is immaterial.” the bench pointed that the auction purchasers had already been declared successful bidders and had deposited the consideration amount in terms of the auction notice.
The Court took serious exception to the borrower's conduct in repeatedly approaching civil courts and the High Court by filing one proceeding after another to obstruct recovery. Referring to the history of litigation, the Bench observed,
… the borrower had hit every door across all the rungs up to the High Court repeatedly to obstruct the bank from taking action to realize the outstanding loan amount which necessarily [is] paid by the bank out of the public corpus.” Such conduct, the Court held, amounts to abuse of the process of law and has been consistently condemned by courts, the court underscored.
In conclusion, the High Court held that the borrower's challenge was wholly devoid of merit. Accordingly, the writ filed by M/s Krishna Traders was dismissed, with the Court holding that the right of redemption stood extinguished upon publication and culmination of the auction process. Consequently, the writ filed by the successful bidders was disposed of by granting liberty to Punjab National Bank to complete the e-auction process and proceed in terms of the sale intimation letter.
Case Title: Vikas Bharti Vs Punjab National Bank