Loan Recovery | Bank Can Invoke Simultaneous Proceedings Under SARFAESI Act And Arbitration Act: Andhra Pradesh High Court

The Andhra Pradesh High Court has held that a Bank can invoke SARFAESI and Arbitration Act proceedings simultaneously to recover outstanding loan amounts. Furthermore, writ courts should be extremely circumspect of granting orders in cases of the SARFAESI Act as effective remedy lies before the Debt Recovery Tribunal (DRT).

In this case, the Petitioners had availed a total loan amount of Rs. 5.13 crores from Respondent Bank. Since the amount was not repaid, the account was classified as Non-Performing Asset (NPA).

The Respondent Bank invoked Arbitration proceedings and an Arbitral Award was passed. Thereafter, the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2022 (SARFAESI) were also invoked before the DRT by the Bank. A notice of auction for Petitioners’ property was issued. Thus, the petitioners challenged by filing a writ petition.

The counsel for Petitioners Sita Ram Chaparla contended that since an Arbitral Award is passed in Arbitration proceedings, proceedings under SARAFESI cannot be invoked.

On the other hand, Respondent Bank’s counsel Sreedhar Valiveti submitted that writ petition is not a proper remedy as complicated issues of fact cannot be raised before the Writ court. He contended that the Arbitration and SARFAESI Act operate in different fields and there is no bar for institution take steps under both the Acts.

Observation of the Court

The Division Bench comprising Justice DVSS Somayajulu and Justice Duppala Venkata Ramana observed that if the petitioners are aggrieved of the classification of their loan as the NPA, their remedy lies before the DRT under SARFAESI and not the writ court as held by the Supreme Court in State Bank of Travancore v. Mathews (2018).

With respect to the steps taken by the Respondent Bank of invoking SARFAESI after Arbitral Award was passed by the Arbitrator, the Court did not ex-facie find any error in it. It relied on Supreme Court's decision in M.D. Frozen Foods Exports (P) Ltd., v. Hero Fincorp Ltd., (2017) to opine as:

“In the opinion of the Court both the remedies available can be simultaneously exercised by the respondents. As things stand, they have a right to recover the loan outstanding and for the said purpose, they are entitled to invoke the provisions of the SARFAESI Act and also the Arbitration Act simultaneously.”

The writ petition was dismissed with liberty to petitioners to agitate their case in appropriate forum.

Case Title: M/s Sri Rajaram Constructions & Ors. v. IKF Finance Ltd. & Ors.

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