Proceedings Under SARFAESI Act 2002 Are To Remain Unaffected By Orders Passed Under SEBI Act 1992: Delhi High Court

The Delhi High Court has observed that the proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 will remain unaffected by the orders passed under SEBI Act, 1992.

“….an interpretation of Section 35 and Section 37 of the SARFAESI Act, 2002 would reveal that the proceedings under the SARFAESI Act, 2002 are to be treated as a carve out to, and remain unaffected by, the orders passed under the SEBI Act, 1992,” Justice Purushaindra Kumar Kaurav observed.

In the ruling running into 81 pages, the court said that the statement of objects and purpose of the SARFAESI Act, 2002 makes it clear that its provisions “create a prioritization” i.e. the debts of the secured creditor are to be prioritised over any dues to the government or any local authority.

“Thus the mischief sought to be cured was the lack of a statutory mechanism that provided, and further allowed, banks to realise their security interests with minimum interference from courts. The SARFAESI Act, 2002 was thus enacted to provide a statutory framework that allows for swifter and prioritised recovery of the bank‟s secured debt. There is thus a clear intention to prioritise the bank‟s realisation of its security under the SARFAESI Act, 2002,” the court said.

Justice Kaurav was dealing with a plea moved by ICICI Bank Limited seeking a declaration that the orders passed by the Whole Time Members of the Securities and Exchange Board of India (SEBI) under the 1992 Act dated 29.05.2018 and 14.12.2018 are not applicable to it.

On May 29, 2018, SEBI had passed an interim order restraining various noticees, including two borrowers who availed a home loan facility from the bank, from accessing securities market and prohibiting them from buying or selling with the securities market. The order was confirmed on December 14, 2018, until further orders.

The bank was also aggrieved by the e- mails dated 29.01.2021 and 18.03.2021 sent by SEBI directing it to comply with the impugned orders and not to proceed against the mortgaged property under SARFAESI Act, 2002 without prior permission of the statutory body.

In its plea, the bank also sought a declaration that the impugned orders do not prevent it from proceeding further under SARFAESI Act, 2002 to sell the mortgaged property which it took over after the borrowers failed to repay the outstanding amount.

Disposing of the plea, the court observed that SEBI had the power to direct ICICI bank, however, it added that power must be exercised with due caution. It was observed that the power must not be exercised so as to curtail the effect of other laws.

“From the above analysis, it can be concluded that SEBI is possessed with powers under the SEBI Act, 1992 to direct the petitioner bank in specific, and banks in general, regardless of them being registered with SEBI,” the court said.

It added that though the impugned orders apply to ICICI bank and SEBI possesses the legal power to direct it, “the precise and specific wording” of the directions was not of such a nature that the bank was prevented from alienating the assets of the two borrowers, including the mortgaged property.

“The said Orders do contain directions that are applicable to the petitioner bank, and SEBI has powers vested in it by law, however, the precise wording of the directions contained within them, does not contain an order that prevents the petitioner bank from dealing with the property of respondent nos.3 and 4 which is mortgaged to it, and realising it, in accordance with law,” the court said.

Title: ICICI BANK LIMITED v. THE DEPUTY GENERAL MANAGER & ORS.

Citation: 2023 LiveLaw (Del) 619

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