Supreme Court Deprecates High Courts Entertaining Writ Petitions In SARFAESI Matters; Frowns Upon Borrowers Approaching HCs To Consider Offers To Banks

The Supreme Court has deprecated the interference of the High Courts in commercial matters, more particularly pertaining to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act, 2002”).The Bench comprising of Justice Sanjiv Khanna and Justice M.M. Sundresh while adjudicating an appeal filed in M/s South Indian Bank Ltd. & Ors. V Naveen Mathew Philip & Anr., expressed its displeasure on the Borrowers approaching the High Court for the consideration of their offer to the Bank. The Bench held, “More circumspection is required in a financial transaction, particularly when one of the parties would not come within the purview of Article 12 of the Constitution of India. When a statute prescribes a particular mode, an attempt to circumvent shall not be encouraged by a writ court. A litigant cannot avoid the noncompliance of approaching the Tribunal which requires the prescription of fees and use the constitutional remedy as an alternative.”The Supreme Court further said that it is "constrained to take judicial notice" of the fact that "certain High Courts" and named Punjab and Haryana High Court as one such court. The present case was an appeal from the Kerala High Court.BACKGROUND FACTSThe Borrowers (“Respondents”) availed loans from the South Indian Bank ltd. (“Appellant/Bank”) and their accounts were declared Non-Performing Assets (“NPA”) on 27.05.2021. The Bank issued Notices under Section 13(2) of SARFAESI Act to the Borrowers on 07.08.2021 and 12.08.2021. In response, the Borrowers addressed a letter dated 28.10.2021, seeking twelve months’ time to repay the loan.In 2021, the post of Presiding Officer in various benches of Debt Recovery Tribunals (“DRT”) and Debt Recovery Appellate Tribunals (“DRAT”) remained vacant. The Supreme Court had taken note of the situation and requested the concerned High Court(s) to entertain the matters falling within the jurisdiction of DRTs and DRATs under Article 226 of the Constitution of India. It was clarified that once Tribunals are constituted; the matters can be relegated to the Tribunals by the High Courts.Since the concerned DRT was non-functional, the Borrowers filed a writ petition before the Kerala High Court, challenging the Notice under Section 13(2) of SARFAESI Act issued by the Bank. The writ petition was filed merely after three days of response letter dated 28.10.2021 and prior to the expiry of the statutory period prescribed. The High Court directed the Bank to consider the proposal placed by the Borrowers for repayment and permitted the Borrowers to remit the dues in installments. However, the Borrowers failed to do so. Therefore, the Bank issued notices under Section 13(4) of the SARFAESI Act to the Borrowers in December 2021. Thereafter, the Borrowers filed another writ petition before the High Court, seeking quashing of Notices under Section 13(4) of SARFAESI Act and a direction to Bank to accept deferred payments. The High Court permitted the Borrowers to make deferred payments within 12 months to the Bank. Following which, the Bank preferred an appeal before the Supreme Court. It was argued that since an equally efficacious remedy was available, the extraordinary jurisdiction of the High Court under Article 226 of the Constitution of India could not have been invoked. SUPREME COURT VERDICTThe Bench noted that DRT was not functional at the time of filing the Writ Petitions by the Borrowers. However, it became functional from March, 2022 and matters should have been relegated to the Tribunal by the High Court.High Courts not to interfere in commercial matters where equally efficacious alternative forum existsWhile conveying dismay on the interference of High Courts in commercial matters for which an alternative forum exists, the Bench observed as under:“We may, however, reiterate the settled position of law on the interference of the High Court invoking Article 226 of the Constitution of India in commercial matters, where an effective and efficacious alternative forum has been constituted through a statute. We are also constrained to take judicial notice of the fact that certain High Courts continue to interfere in such matters, leading to a regular supply of cases before this Court. One such High Court is that of Punjab & Haryana.”The Bench further held that a litigant cannot avoid approaching the Tribunal and rather approach the High Court to use the constitutional remedy as an alternative. It was observed that:“Approaching the High Court for the consideration of an offer by the borrower is also frowned upon by this Court. A writ of mandamus is a prerogative writ. In the absence of any legal right, the Court cannot exercise the said power. More circumspection is required in a financial transaction, particularly when one of the parties would not come within the purview of Article 12 of the Constitution of India. When a statute prescribes a particular mode, an attempt to circumvent shall...

Supreme Court Deprecates High Courts Entertaining Writ Petitions In SARFAESI Matters; Frowns Upon Borrowers Approaching HCs To Consider Offers To Banks

Pallavi Mishra

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Pallavi Mishra

Supreme Court Deprecates High Courts Entertaining Writ Petitions In SARFAESI Matters; Frowns Upon Borrowers Approaching HCs To Consider Offers To Banks

Pallavi Mishra

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