Forum Shopping: Gujarat High Court Refuses To Hear Plea Challenging Validity Of S.14 SARFAESI Act

The Gujarat High Court recently refused to entertain a plea challenging the vires of Section 14 of the SARFAESI Act, while admonishing the Petitioner for indulging in forum shopping.

Section 14 provides that the District Magistrate concerned shall assist the secured creditor in taking possession of secured asset of the borrower. The plea challenged this provision as being violative of Articles 14, 19 and 21 of the Constitution inasmuch as the above power may be exercised by the Magistrate on a mere application at the hands of a Bank or Financial Institution, without notice and without hearing the borrower.

While dismissing the challenge, a Bench of Chief Justice Vikram Nath and Justice Biren Vaishnav relied on the decision of a Division Bench of the Gujarat High Court in Parvin Cotgin Pvt. Ltd. v Axis Bank Ltd., upholding the provision and observing as under:

"Section 14 of the 2002 Act is an enabling provision which is non-adjudicatory provision and executory in nature. The function of the District Magistrate under Section 14 of the Act is non-adjudicatory in nature subject to examination of factual correctness of the assertions made in the affidavit filed under the proviso to Section 14(1) of the Act."

That apart, the challenge was also dismissed on the ground that the Petitioner had indulged into forum shopping and had filed a similar petition before the Bombay High Court, which remains pending.

Background

The petitioner, a company engaged in the manufacture and sale of Polypropylene (PP) cups and glasses, was sanctioned and granted cash credit facility of Rs. 8 crores by Union Bank of India.

Having failed to repay the dues of the bank, the bank declared the account of the petitioner as a NPA on October 31, 2019. A demand notice dated November 1, 2019 under Section 13(2) read with Section 13(3) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was then issued.

Aggrieved by the proceedings under the SARFAESI Act, the petitioner company approached the DRT and prayed for quashing the demand notice as well as the notice for taking over symbolic possession dated February 23, 2020.

The proceedings under the SARFAESI Act culminated into passing of an order under Section 14 on January 27, 2021

Findings

The Court noted that the order passed on January 27 was under challenge in the instant petition filed under Article 226 of the Constitution of India.

It was the case of the petitioner that the order under Section 14 of the SARFAESI Act which empowers the District Magistrate to take forceful possession of the property of the borrower, is unconstitutional.

A part of the pleadings indicated that in December 2019, the petitioner approached the Bombay High Court, while filing a "mirror image" of the present petition with the same reliefs.

The High Court recorded the "chequered history" of the case in the following manner:

"This conduct eloquently speaks of forum shopping by the petitioner vis-a-vis his challenge to the vires of Section 14 of the SARFAESI Act," the Court observed at the outset. "Apparently, this conduct, needs to be deprecated and the petition deserves to be dismissed only on this ground," it added.

With regard to the other prayers, the Court sent the matter back to the Single Judge for consideration afresh on merits.

Click here to Download the Judgment