Secured Creditor Can't Proceed Under SARFAESI Act Following Dismissal Of Civil Suit For Recovery On Merits: Kerala High Court

The Kerala High Court has held that a secured creditor cannot proceed with recovery measures under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act after it chose to file a civil suit seeking recovery of dues, which got dismissed.Justice Easwaran S. stated that the Bank cannot initiate recovery proceedings by ignoring the civil court's judgement that there was no legally recoverable debt. “….once an adjudication by the civil court has taken place ending in dismissal of the suit finding that there is no debt due from her, necessarily, it has to be held that the secured creditor is disentitled from proceeding further with measures under the Securitisation Act, since there is no legally recoverable debt.”In the facts of the case, the Court found the civil suit was adjudicated and dismissed on the finding that there were no pending dues.Background The petitioner availed a car loan for nine lakh rupees and he executed documents for security. The Bank issued notice to the petitioner under Section 13 (2) of the Securitization SARFAESI Act for repayment of loan amount. On the other hand, the petitioner contended that she had paid the entire amount under the loan account and no amount was due. Hence, this writ petition was filed.The Counsel for the Petitioner submitted that during the pendency of the writ petition, the Bank had filed a commercial suit before Commercial Court, Kottayam and the suit was dismissed on finding that there was no amount due to be recovered. It was thus argued that the Bank cannot proceed with recovery proceedings under the SARFAESI Act since the suit was dismissed. The Counsel for the Bank submitted that recovery measures under the SARFAESI Act and filing civil suits were entirely different and independent procedures. It was argued that Bank being the secured creditor was entitled to initiate parallel proceedings for recovering dues and proceedings under the SARFAESI Act cannot be interdicted in a writ petition. It was also submitted that the writ petition was not maintainable under Article 226 and the petitioner could approach the Debt Recovery Tribunal under Section 17 of the SARFAESI Act. Court Findings Referring to the Apex Court judgment in Authorized Officer, State Bank of Travancore v. Mathew K.C. (2018), the Court stated that a writ petition against measures taken by the Bank under the SARFAESI Act was entertained only in exceptional circumstances and that it was a self-imposed restraint by the High Court. The Court also referred to CIT v. Chhabil Das Agarwal (2016), South Indian Bank Ltd. v. Naveen Mathew Philip (2023) where the Apex Court laid down four exceptional circumstances when a writ petition was maintainable against the proceedings under the SARFAESI Act. The Court concluded thus“…This Court is of the considered view that normally a writ petition will not lie against the measures under the Securitisation Act, unless exceptional circumstances are made out in the writ petition”. The Court then went on to define the term 'debt' as a liability inclusive of interest claimed from any person by the Bank payable under a decree or order of any civil court or an arbitration award or otherwise or under a mortgage subsisted on and legally recoverable as on the date of application. In the facts of the case, the Court noted that the Bank approached the Civil Court with a civil suit which was dismissed. It thus stated that since the civil suit was dismissed there was no debt to be recovered by the creditor against the borrower for proceeding under the SARFAESI Act. The Court stated that the Bank could not ignore the judgment of the Civil Court that no amount was liable to be recovered. It stated that the civil suit was adjudicated and dismissed on finding that there were no dues. It called the action of the Bank as irrational and contrary to the statute for initiating recovery proceedings against the petitioner. “When the plain and ordinary meaning is given to the definition of “debt” under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, it leaves no doubt on one's mind that it includes the amount so ordered by any civil court and should be legally recoverable one”, stated the Court. The Court also stated that the Bank was not compelled to institute a civil suit. It stated that since the Bank chose to proceed with the civil suit and now that it was dismissed, the petitioner need not be relegated to approach the Debt Recovery Tribunal as an alternative remedy under Section 17 of the SARFAESI Act instead of the writ petition. The Court thus invoking its writ jurisdiction held that the writ petition was maintainable since the recovery proceedings initiated by the Bank were without jurisdiction and come under the exceptions laid down by the Apex Court in Chhabil Das Agarwal (supra) “Therefore, it becomes imperative for this Court to hold that since the measures now initiated and continued are without...

Secured Creditor Can't Proceed Under SARFAESI Act Following Dismissal Of Civil Suit For Recovery On Merits: Kerala High Court

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Secured Creditor Can't Proceed Under SARFAESI Act Following Dismissal Of Civil Suit For Recovery On Merits: Kerala High Court

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