Himachal Pradesh High Court
M/S Neelkanth Yarn vs Punjab National Bank & Ors on 2 August, 2023
Author: Tarlok Singh Chauhan
Bench: Tarlok Singh Chauhan
IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA CWP No. 4538/2023 Reserved on: 31.7.2023 Decided on : 2.8.2023 M/s Neelkanth Yarn .....Petitioner Versus Punjab National Bank & ors. ....Respondents .
Coram:
The Hon'ble Mr. Justice Tarlok Singh Chauhan, Judge. The Hon'ble Mr. Justice Ranjan Sharma, Judge.
Whether approved for reporting?1Yes For the Petitioner: Mr. Chanchal K. Singla, Mr. Antriksh Sharma & Mr. Dhananjay Sharma, Advocates.
For the Respondents: Mr. Sanjay Dalmia, Advocate, for respondents No. 1, 4, 5 to 7.
_____________________________________________________________________ Justice Tarlok Singh Chauhan, Judge The petitioner-firm, being registered as Micro, Small and Medium Enterprises (for short, MSME), is engaged in the business of trading in all types of yarns, fibers, cotton and fabrics and has availed various financial assistances from the respondent-Bank since 2011, which were renewed from time to time.
2 According to the petitioner-firm, after latest renewal, the petitioner-firm was availing a cash credit limit of Rs.11,95,00,000/-, guaranteed emergency credit line limit of Rs.2,19,00,000/- an in-land letter of credit limit of Rs.11,00,00,000/-. It is averred that the petitioner-firm was a profit making firm and its business continued to flourish, however owing to default by its debtors, the petitioner-firm came under financial stress, which stood aggravated by the conduct of 1 Whether reporters of the local papers may be allowed to see the judgment? Yes.
::: Downloaded on - 02/08/2023 20:43:50 :::CIS 2the respondent-Bank by ignoring the mandate of law and circulars issued for the purpose.
3 It is further averred that in the month of April, 2019 .
statutory auditors, who were appointed as per the guidelines issued by the Reserve Bank of India (fort short, "RBI), audited the respondent-
Bank's Branch at Parwanoo and flagged issue of stress by observing that out of total recoverable amount of Rs. 41,00,00,000/- from the petitioner-firm, Rs.26,16,40,924/- was due towards only one debtor of the petitioner-firm, namely, M/s KSM Spinning Mills Limited, whose account had been declared as Non Performing Account (for short, NPA) in the year 2016. The petitioner-firm vide letter dated 10.4.2023 requested the respondent-Bank to consider its account for restructuring and preparation of a correcting action plan, however the respondent-bank did not pay any heed and instead of sending its case before the committee constituted for the purpose, chose to declare the petitioner's account as NPA on 1.5.2023. The petitioner responded to the aforesaid letter vide reply dated 2.5.2023 pointing out therein its financial stress owing to debtors, however the respondent-Bank started taking coercive actions by declaring the account as NPA, issuing recall letter dated 2.5.2023 and notice dated 18.5.2023 under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "SARFAESI Act").
4 Lastly, it is averred that the petitioner-firm on 23.5.2023 submitted a request for debt restructuring and corrective action plan, ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 3 but of no avail, constraining the petitioner-firm to issue a legal notice dated 15.6.2023 asking the respondent-Bank to constitute a committee for MSME as per the RBI guidelines and permitting the .
petitioner-firm to operate its sole account and file the instant petition for grant of following substantive reliefs:-
i. Issue a writ in the nature of Mandamus directing the Respondent No. 2 (PNB) to recall notice dated 18.05.2023 issued under section 13 (2) of the SARFAESI Act and also to withdraw recall letter dated 02.05.2023 or keep the proceeding under SARFAESI Act in abeyance until a Corrective Action plan (CAP) is prepared and executed by the committee for stressed Micro, Small and Medium Enterprises constituted under RBI master circular dated 17.03.2016, in the interest of justice, equity and fair play.
ii. Issuance of writ in the nature of Mandamus directing the respondent-bank to allow operations in the account of the petitioner firm as non-allowing of the operations would lead the firm into vicious cycle of losses which would not be recovered for all times to come and the firm would be closed forever leading into unwarranted losses to petitioner as well as respondent bank. iii. For issuance of writ in the nature of Mandamus, directing the respondents to classify the account of the petitioner as "Standard" after adjustment of extra interest charged by the respondents.
iv. For issuance of writ in the nature of Mandamus, directing the respondents to inform to the CIBIL regarding genuineness of the account of the petitioner and get the credit reports of the petitioner corrected by presenting the true picture. v. Further issuance of writ in the nature of Mandamus, directing the respondents to pay the consolidated damages of Rs.20 Crore to the petitioner for business malpractices, harassment and undue financial loss and reputational loss caused to the petitioner.::: Downloaded on - 02/08/2023 20:43:50 :::CIS 4
vi. For issuance of writ in the nature of mandamus directing Respondent No. 2 & 3 to ensure compliance of statutory circulars and schemes issued by them from time to time and by Government of India for the welfare of MSMEs and take .
appropriate action against the defaulting banks and other institutions as per law and for appropriate action against Respondent No. 1 bank for violation of RBI circulars and schemes for MSMEs noted by respondent No.3."
5 However, the moot question, even otherwise raised by the learned counsel for the respondent-Bank, is whether the instant writ petition is maintainable.
6 Learned counsel for the petitioner-firm would vehemently argue that the respondent-bank erroneously classified the petitioner's account as NPA and being registered under MSME, the petitioner-firm is entitled to certain benefits, more particularly, in light of the instructions/guidelines issued by the Reserve Bank of India, which require the respondent-Bank to restructure the accounts of small enterprises like the petitioner, but illegally the benefits thereof have not been extended to the petitioner. He would further submit that as per RBI guidelines, the petitioner has a right to seek enforcement of these measures and if these measures were properly applied, the petitioner's account could not have been declared as NPA. He would further submit that issue of declaring petitioner's account as NPA cannot be adjudicated by the Debts Recovery Tribunal (for short, "DRT") and, therefore, the petitioner had no other efficacious remedy except to invoke the extra ordinary jurisdiction of this Court. He would submit that under Section 17 of the SARFAESI Act, the DRT can only ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 5 go into the aspect whether the bank/financial institution has complied with the mandatory requirements of the SARFAESI Act and, therefore, cannot go into the validity of decision to declare the petitioner's .
account as NPA. According to the learned counsel for the petitioner, writ under Article 226 of the Constitution is maintainable where the petitioner seeks enforcement of RBI guidelines.
7 In support of such contentions, the petitioner would rely upon the following decisions:
1) Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai, 1991 (1) RCR (Civil) 220;
2) Central Bank of India vs. Ravindra, 2002 (1) SCC 367;
3) M/s Sardar Associates vs. Punjab & Sind Bank, 2009 (8) SCC 257; M/s Stan Commodities Pvt. Ltd vs. Punjab and Sind Bank, 2009 AIR Jharkhand 14;
4) Sravan Dall Mill P. Limited vs. Central Bank of India, 2010 (7) RCR (Civil) 750;
5) CWP No. 19472/2020, titled as Guru Nanak
Engineering Works vs. Reserve Bank of India
(Punjab and Haryana High Court);
6) M/s Amar Alloys Pvt. Limited (Regd.) vs. State Bank of India 2019 (3) PLR 81;
7) M/s Radha Krishan Industries vs. State of Himachal Pradesh 2021 (6) SCC 771;
8) M/s Maghadh Sugar & Energy Ltd. vs. State of Bihar, 2021 (11) scale 350; and
9) M/s Godrej Sara Lee Ltd. vs. The Excise and Taxation Officer-cum- Assessing Authority, 2023 (2) Scale 361.::: Downloaded on - 02/08/2023 20:43:50 :::CIS 6
8 On the other hand, the learned counsel for the respondent-Bank would contend that the writ petition is not maintainable because the issue with regard to declaration of the .
petitioner's account as NPA cannot be raised in the writ petition. He would also argue that the in case the petitioner is aggrieved by the steps taken by the respondent-Bank under the Act, then it has to avail remedy provided under the SARFAESI Act itself and writ remedy is not available. Lastly, he would contend that in case the petitioner is aggrieved by non-adherence of the RBI guidelines, then it is for the petitioner to bring these violations by filing complaint before the RBI Ombudsman.
9 We have heard the learned counsel for the parties and have also gone through the material available on record.
10 Scope of the object of the Act and remedy as provide under SARFAESI Act were considered in Mardia Chemicals Ltd. vs. Union of India, (2004) 4 SCC 311, wherein validity of the SARFAESI Act was challenged and the Hon'ble Supreme Court held as under:-
"45. In the background we have indicated above, we may consider as to what forums or remedies are available to the borrower to ventilate his grievance. The purpose of serving a notice upon the borrower under sub-section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of Section 13 in case of non- compliance of notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 7 meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to .
the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub- section (4) of Section 13. At the same time, more importantly we must make it clear unequivocally that communication of the reasons not accepting the objections taken by the secured borrower may not be taken to give an occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. Such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reason of non- acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debt Recovery Tribunal as provided ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 8 under Section 17 of the Act matures on any measure having been taken under sub- section (4) of Section 13 of the Act. ...........................
50. It has also been submitted that an appeal is entertainable .
before the Debt Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debt Recovery Tribunal or the appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-section (4) of Section 13, it is submitted by Mr. Salve one of the counsel for respondents that there would be no bar to approach the civil court. Therefore, it cannot be said no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under sub- section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub- section (4) of Section 13.
...........................
68. The main thrust of the petitioners as indicated in the earlier part of this judgment to challenge the validity of the impugned enactment is that no adjudicatory mechanism is available to the borrower to ventilate his grievance through an independent ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 9 adjudicatory authority. Access to the justice, it is submitted, is hall-mark of our system.................. ...........................
76. In regard to the submission made by the parties as indicated .
in preceding paragraphs, we would like to make it clear that issue of a notice to the debtor by the creditor does not attract the application of principles of natural justice. It is always open to tell the debtor what he owes to repay. No hearing can be demanded from the creditor at this stage. So far the provision of appeal is concerned, we have already discussed in the earlier part of the judgment that proceedings under Section 17 of the Act have been wrongly described as appeal before the Debt Recovery Tribunal.
It is in fact a forum where proceedings are originally initiated in case of any grievance against the creditor in respect of any measure taken under sub-section (4) of Section 13 of the Act.
Hence, the decisions on the point as to whether provision for an appeal is essential or not are not of any assistance in the facts of the present case.
77. It is also true that till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed for by the borrower. ........................... ...........................
80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debt Recovery Tribunal. The above noted provisions are for the purposes of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows :-
1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 10 of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons .
so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debt Recovery Tribunal under Section 17 of the Act, at that stage.
2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debt Recovery Tribunal.
3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition at it may deem fit and proper to impose.
4. In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down.
5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court.
81. In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 11 better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public interest."
.
11 In Transcore vs. Union of India, 2008 1 SCC 125, the Hon'ble Supreme Court analyzed in-depth the object behind bringing Debts Recovery Tribunal Act, 1993 (Act, 1993) and SARFAESI Act, scope and application of the enactments. The Hon'ble Supreme Court held as under:-
"Reasons for Enactment of the NPA Act, 2002:
12. The NPA Act, 2002 is enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. The NPA Act enables the banks and FI to realise long-term assets, manage problems of liquidity, asset liability mis- match and to improve recovery of debts by exercising powers to take possession of securities, sell them and thereby reduce non-performing assets by adopting measures for recovery and reconstruction. The NPA Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale. The said Act also empowers the said asset reconstruction companies to take over the management of the business of the borrower. ........................... ...........................
14. There is one more reason for enacting NPA Act, 2002. When the civil courts failed to expeditiously decide suits filed by the banks/ FIs., Parliament enacted the DRT Act, 1993. However, the DRT did not provide for assignment of debts to securitization companies. The secured assets also could not be liquidated in time. In order to empower banks or FIs. to liquidate the assets and the secured interest, the NPA Act is enacted in 2002. The enactment of NPA Act is, therefore, not in derogation of the DRT Act. The NPA Act removes the fetters which were in existence on ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 12 the rights of the secured creditors. The NPA Act is inspired by the provisions of the State Financial Corporations Act, 1951 ("SFC Act"), in particular Sections 29 and 31 thereof. The NPA Act proceeds on the basis that the liability of the borrower to repay .
has crystallized; that the debt has become due and that on account of delay the account of the borrower has become sub- standard and non-performing. The object of the DRT Act as well as the NPA Act is recovery of debt by non-adjudicatory process.
These two enactments provide for cumulative remedies to the secured creditors. By removing all fetters on the rights of the secured creditor, he is given a right to choose one or more of the cumulative remedies. The object behind Section 13 of the NPA Act and Section 17 r/w Section 19 of the DRT Act is the same, namely, recovery of debt. Conceptually, there is no inherent or implied inconsistency between the two remedies. Therefore, as stated above, the object behind the enactment of the NPA Act is to accelerate the process of recovery of debt and to remove deficiencies/ obstacles in the way of realisation of debt under the DRT Act by the enactment of the NPA Act, 2002.
..........................." emphasis supplied).
12 According to Section 2(o) of the SARFAESI Act, NPA means an asset or account of borrower classified by bank/financial institution as substandard, doubtful or loss asset. Account of the borrower in the books of the bank/Financial Institution is classified as substandard, doubtful or a loss and the debt has become due (Transcore's case).
13 In Mardia Chemicals' case (supra), the Hon'ble Supreme Court considered the issue of classification of assets as NPA. It was contended that on the whims and fancies of the financial institutions, the assets are classified as NPAs. The Hon'ble Supreme Court negatived said contention and also looked into the policy notified by ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 13 RBI known as "RBI's Prudential Norms On Income Recognition, Asset Classification and Provisioning-Pertaining To Advances" and rejected the contention that there are no guidelines for treating the debt as .
NPA.
14. On NPA, in Transcore's case (supra), the Hon'ble Supreme Court noted as under:
"13. Non-performing assets (NPA) are a cost to the economy. When the Act was enacted in 2002, the NPA stood at Rs 1.10 lakh crores. This was a drag on the economy. Basically, NPA is an account which becomes nonviable and non-performing in terms of the guidelines given by RBI. As stated in the Statement of Objects and Reasons, NPA arises on account of mismatch between asset and liability. The NPA account is an asset in the hands of the bank or FI. It represents an amount receivable and realisable by the banks or FIs. In that sense, it is an asset in the hands of the secured creditor. Therefore, the NPA Act, was primarily enacted to reduce the non-performing assets by adopting measures not only for recovery but also for reconstruction. Therefore, the Act provides for setting up of asset reconstruction companies, special purpose vehicles, asset management companies, etc. which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale. It also provides for realisation of the secured assets. It also provides for takeover of the management of the borrower company."
23. ...... On reading Section 13(2) it is clear that the said sub- section proceeds on the basis that the borrower is already under a liability and further that, his account in the books of the bank or FI is classified as substandard, doubtful or a loss. The NPA Act comes into force only when both these conditions are satisfied. Section 13(2) proceeds on the basis that the debt has become due. It proceeds on the basis that the account of the borrower in the books of bank/FI, which is an asset of the bank/FI, has ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 14 become non-performing. Therefore, there is no scope of any dispute regarding the liability. There is a difference between accrual of liability, determination of liability and liquidation of liability. Section 13(2) deals with liquidation of liability.
.
24. ...... After classification of an account as NPA, a last opportunity is given to the borrower of sixty days to repay the debt. Section 13(3-A) was inserted by amending Act 30 of 2004 after the judgment of this Court in Mardia Chemicals [(2004) 4 SCC 311] whereby the borrower is permitted to make representation/objection to the secured creditor against classification of his account as NPA. He can also object to the amount due if so advised. Under Section 13(3-A), if the bank/FI comes to the conclusion that such objection is not acceptable, it shall communicate within one week the reasons for non- acceptance of the representation/objection. A proviso is added to Section 13(3-A) which states that the reasons so communicated shall not confer any right upon the borrower to file an application to DRT under Section 17. The scheme of sub-sections (2), (3) and (3-A) of Section 13 of the NPA Act shows that the notice under Section 13(2) is not merely a show-cause notice, it is a notice of demand. That notice of demand is based on the footing that the debtor is under a liability and that his account in respect of such liability has become substandard, doubtful or a loss. The identification of debt and the classification of the account as NPA is done in accordance with the guidelines issued by RBI. Such notice of demand, therefore, constitutes an action taken under the provisions of the NPA Act and such notice of demand cannot be compared to a show-cause notice. In fact, because it is a notice of demand which constitutes an action, Section 13(3-A) provides for an opportunity to the borrower to make representation to the secured creditor. Section 13(2) is a condition precedent to the invocation of Section 13(4) of the NPA Act by the bank/FI. Once the two conditions under Section 13(2) are fulfilled, the next step which the bank or FI is entitled to take is either to take possession of the secured assets of the borrower or to take over management of the business of the borrower or to appoint any ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 15 manager to manage the secured assets or require any person, who has acquired any of the secured assets from the borrower, to pay the secured creditor towards liquidation of the secured debt." (emphasis supplied) .
15 Therefore, what appears from the discussions on relevant statutory provisions and opinion expressed by the Hon'ble Supreme Court in the aforesaid two cases (Mardia Chemicals and Transcore) is that once a loan account becomes substandard, doubtful or loss asset, in the books of a bank/financial institution, it is classified as NPA. The RBI Guidelines clearly specify when a loan account reaches that stage to be classified as NPA. The steps taken leading to classifying a loan account as NPA is an internal matter within the bank/financial institution. The Bank/financial institution notifies the same in Section 13 (2) of the SARFAESI Act by way of notice and calls upon the borrower to clear the loan within sixty days. At that stage, it is open to the borrower to respond and place before the bank/financial institution borrower point of view. It can also oppose declaring its account as NPA. The borrower can rely on RBI Guidelines on various aspects. The Bank/Financial institution is required to consider the objections objectively and to take a decision. It is also required to communicate the decision to the borrower.
16 A perusal of the aforesaid decisions would further go to show that there is a statutorily prescribed restraint in taking legal course by a borrower before Section 13 (4) SARFAESI Act stage.
Statute prescribed this course having regard to accumulation of debts ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 16 to banks stifling the banking/financial sector. It is in public interest to fast track the recovery of dues by banks/financial institutions. Thus, in Mardia Chemicals' case, the Hon'ble Supreme Court held that .
scheme of SARFAESI Act does not envisage any remedy till Section 13(4) stage is reached. The Hon'ble Supreme Court has gone to the extent of saying that borrower has no right of hearing at the stage of Section 13(2) and it can only file objections under Section 13(3-A) of the SARFAESI Act. Therefore, upto Section 13(4) no remedy is provided to a borrower/guarantor. It is the statutory scheme that must be respected by all, more so when the scheme stood test of judicial scrutiny.
17 After Section 13(4) notice, it is open to borrower to approach DRT under Section 17 of the SARFAESI Act. The DRT is competent to go into all aspects leading to bank/financial institution taking recourse under Section 13(4) of the SARFAESI Act. Per force, when the DRT examines the claim of borrower/guarantor/person aggrieved opposing measures taken under Section 13(4) of the SARFAESI Act, such as taking symbolic possession, notice of sale of secured asset, taking physical possession etc., the borrower/ guarantor/person aggrieved can plead before the DRT its defence against such action including alleged violation of RBI Guidelines leading to its account being classified as NPA illegally.
18 Further, classifying loan account as NPA can be challenged before RBI alleging that its guidelines have been violated. A complaint can be filed before the Ombudsman. Therefore, taking ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 17 recourse to writ remedy before reaching Section 13(4) of the SARFAESI Act stage defeats the statutory scheme and scuttles the very object in creating special dispensation to recover the debts by banks/financial .
institutions. The object and purpose of these two Acts have to be kept in mind while considering a writ petition filed against classifying an account as NPA. It is not for no reason the legal remedy is differed till Section 13(4) of the SARFAESI Act stage is reached. Till this stage, as consistently held by the Hon'ble Supreme Court, no cause of action arises to the borrower/guarantor to seek legal remedy. The borrower has to wait till further steps are taken under Section 13(4) of the SARFAESI Act.
19 It would be apt to reproduce Sections 13 and 17 of the SARFAESI Act, which read as under:-
"13. Enforcement of security interest (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 18 intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured .
creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
PROVIDED that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:--
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
PROVIDED that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt.
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;::: Downloaded on - 02/08/2023 20:43:50 :::CIS 19
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to .
pay the secured debt.
(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.
(6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
(7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.
(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.
(9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 20 creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:
PROVIDED that in the case of a company in liquidation, the .
amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956):
PROVIDED FURTHER that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act:
PROVIDED ALSO that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator:
PROVIDED ALSO that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator:
PROVIDED ALSO that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any.
Explanation : For the purposes of this sub-section,--
(a) "record date" means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date; (b) "amount outstanding" shall ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 21 include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor.
.
(10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.
(11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act.
(12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed.
(13) No borrower shall, after receipt of notice referred to in sub-
section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.
17. Right to appeal (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application alongwith such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measure had been taken:
PROVIDED that different fees may be prescribed for making the application by the borrower and the person other than the borrower.::: Downloaded on - 02/08/2023 20:43:50 :::CIS 22
Explanation : For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of .
communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub-section.
(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the secured creditors as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.::: Downloaded on - 02/08/2023 20:43:50 :::CIS 23
(5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application:
PROVIDED that the Debts Recovery Tribunal may, from time to .
time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-
section (1).
(6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-
section (5), any part to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the rules made thereunder."
20 On a careful consideration of the statutory language employed in the proviso to sub-Section (3A) of section 13 of the SARFAESI Act read with the explanation to sub-section (1) of section 17 of the SARFAESI Act, it is crystal clear that a notice under Section 13 (2) of the SARFAESI Act or the rejection of the objection raised to the petitioner-firm including the reasons in support thereof would not give rise to a cause of action for instituting an action in law.
::: Downloaded on - 02/08/2023 20:43:50 :::CIS 2421 The statute does not contemplate any intervention at this preliminary stage and as observed above, it is only when the process ripens into a definitive action taken by the secured creditor under sub-
.
section (4) of Section 13 of the SARFAESI Act, the aggrieved person can avail the statutory remedy under Section 17 of the SARFAESI Act.
22 In coming to such conclusion, we are fortified by the judgment rendered by the Hon'ble Supreme Court in Punjab National Bank Vs. Imperial Gift House, (2013) 14 SCC 622. It shall be apt to reproduce the judgment in its entirety and the same reads as under:-
"1. Leave granted. Heard learned counsel for the parties.
2. By the impugned order, in effect and substance, the High Court has quashed notice issued by the bank under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, [for short, "the Act"].
3. Upon receipt of notice, respondents filed representation under Section 13(3)(A) of the Act, which was rejected. Thereafter, before any further action could be taken under Section 13(4) of the Act by the Bank, the writ petition was filed before the High Court.
4. In our view, the High Court was not justified in entertaining the writ petition against the notice issued under Section 13(2) of the Act and quashing the proceedings initiated by the bank.
5. Accordingly, the appeal is allowed, impugned order passed by the High Court is set aside and the writ petition filed before it is dismissed."
23 Time and again, the Constitutional Courts have frowned upon the practice of High Courts in entertaining the writ petition(s) against classifying a loan account as NPA and various measures taken by the Banks/Financial Institutions under the SARFAESI and have ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 25 relegated parties to avail remedy under Section 17 of the SARFAESI Act.
24 We need not to multiply judgments on the subject and .
suffice to refer to recent judgment of the Hon'ble Supreme Court in M/s South Indian Bank Ltd. & ors. vs. Naveen Mathew Philip & anr.
2023 6 SCALE 224. It shall be apt to reproduce paras 15 to 18 thereof, which read as under:-
"15. The object and reasons behind the Act 54 of 2002 are very clear as observed by this Court in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311. While it facilitates a faster and smoother mode of recovery sans any interference from the Court, it does provide a fair mechanism in the form of the Tribunal being manned by a legally trained mind. The Tribunal is clothed with a wide range of powers to set aside an illegal order, and thereafter, grant consequential reliefs, including re-possession and payment of compensation and costs. Section 17(1) of the SARFAESI Act gives an expansive meaning to the expression "any person", who could approach the Tribunal.
16. 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 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. We wish to quote with profit a recent decision of this Court in Radha Krishan Industries v. State of H.P., (2021) 6 SCC 771, ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 26
"25. In this background, it becomes necessary for this Court, to dwell on the "rule of alternate remedy" and its judicial exposition. In Whirlpool Corpn. v. Registrar of Trade Marks (1998) 8 SCC 1, a two-Judge Bench of this Court after reviewing the case law on .
this point, noted: (SCC pp. 9-10, paras 14-15) "14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose".
15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction.
But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the field".
(emphasis supplied)
26. Following the dictum of this Court in Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1], in Harbanslal Sahnia v. Indian Oil Corpn. Ltd. [(2003) 2 SCC 107], this Court noted that: (Harbanslal Sahnia case, SCC p. 110, para 7) "7. So far as the view taken by the High Court that the remedy by way of recourse to arbitration clause was available to the appellants and therefore the writ petition filed by the appellants ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 27 was liable to be dismissed is concerned, suffice it to observe that the rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case, in spite of availability of the .
alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies:
(i) where the writ petition seeks enforcement of any of the fundamental rights;
(ii) where there is failure of principles of natural justice; or
(iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. (See Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1].) The present case attracts applicability of the first two contingencies. Moreover, as noted, the appellants' dealership, which is their bread and butter, came to be terminated for an irrelevant and non-existent cause. In such circumstances, we feel that the appellants should have been allowed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings."
(emphasis supplied)
27. The principles of law which emerge are that:
27.1. The power under Article 226 of the Constitution to issue writs can be exercised not only for the enforcement of fundamental rights, but for any other purpose as well. 27.2. The High Court has the discretion not to entertain a writ petition. One of the restrictions placed on the power of the High Court is where an effective alternate remedy is available to the aggrieved person.
27.3. Exceptions to the rule of alternate remedy arise where:
(a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution;
(b) there has been a violation of the principles of natural justice;
(c) the order or proceedings are wholly without jurisdiction; or
(d) the vires of a legislation is challenged.
27.4. An alternate remedy by itself does not divest the High Court of its powers under Article 226 of the Constitution in an ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 28 appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternate remedy is provided by law.
27.5. When a right is created by a statute, which itself prescribes .
the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion.
27.6. In cases where there are disputed questions of fact, the High Court may decide to decline jurisdiction in a writ petition. However, if the High Court is objectively of the view that the nature of the controversy requires the exercise of its writ jurisdiction, such a view would not readily be interfered with."
17. We shall reiterate the position of law regarding the interference of the High Courts in matters pertaining to the SARFAESI Act by quoting a few of the earlier decisions of this Court wherein the said practice has been deprecated while requesting the High Courts not to entertain such cases.
● Federal Bank Ltd. v. Sagar Thomas, (2003) 10 SCC 733, "18. From the decisions referred to above, the position that emerges is that a writ petition under Article 226 of the Constitution of India may be maintainable against (i) the State (Government); (ii) an authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any statute, to compel it to perform such a statutory function.
26. A company registered under the Companies Act for the purposes of carrying on any trade or business is a private enterprise to earn livelihood and to make profits out of such activities. Banking is also a kind of profession and a commercial activity, the primary motive behind it can well be said to earn returns and profits. Since time immemorial, such activities have ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 29 been carried on by individuals generally. It is a private affair of the company though the case of nationalized banks stands on a different footing.
There may well be companies, in which majority of the share .
capital may be contributed out of the State funds and in that view of the matter there may be more participation or dominant participation of the State in managing the affairs of the company. But in the present case we are concerned with a banking company which has its own resources to raise its funds without any contribution or shareholding by the State. It has its own Board of Directors elected by its shareholders. It works like any other private company in the banking business having no monopoly status at all. Any company carrying on banking business with a capital of five lakhs will become a scheduled bank. All the same, banking activity as a whole carried on by various banks undoubtedly has an impact and effect on the economy of the country in general. Money of the shareholders and the depositors is with such companies, carrying on banking activity. The banks finance the borrowers on any given rate of interest at a particular time. They advance loans as against securities.
Therefore, it is obviously necessary to have regulatory check over such activities in the interest of the company itself, the shareholders, the depositors as well as to maintain the proper financial equilibrium of the national economy. The banking companies have not been set up for the purposes of building the economy of the State; on the other hand such private companies have been voluntarily established for their own purposes and interest but their activities are kept under check so that their activities may not go wayward and harm the economy in general. A private banking company with all freedom that it has, has to act in a manner that it may not be in conflict with or against the fiscal policies of the State and for such purposes, guidelines are provided by Reserve Bank so that a proper fiscal discipline, to conduct its affairs in carrying on its business, is maintained. So as to ensure adherence to such fiscal discipline, if need be, at ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 30 times even the management of the company can be taken over. Nonetheless, as observed earlier, these are all regulatory measures to keep a check and provide guidelines and not a participatory dominance or control over the affairs of the .
company.
For other companies in general carrying on other business activities, maybe manufacturing, other industries or any business, such checks are provided under the provisions of the Companies Act, as indicated earlier. There also, the main consideration is that the company itself may not sink because of its own mismanagement or the interest of the shareholders or people generally may not be jeopardized for that reason.
Besides taking care of such interest as indicated above, there is no other interest of the State, to control the affairs and management of the private companies. Care is taken in regard to the industries covered under the Industries (Development and Regulation) Act, 1951 that their production, which is important for the economy, may not go down, yet the business activity is carried on by such companies or corporations which only remains a private activity of the entrepreneurs/companies.
27. Such private companies would normally not be amenable to the writ jurisdiction under Article 226 of the Constitution. But in certain circumstances a writ may issue to such private bodies or persons as there may be statutes which need to be complied with by all concerned including the private companies.
For example, there are certain legislations like the Industrial Disputes Act, the Minimum Wages Act, the Factories Act or for maintaining proper environment, say the Air (Prevention and Control of Pollution) Act, 1981 or the Water (Prevention and Control of Pollution) Act, 1974 etc. or statutes of the like nature which fasten certain duties and responsibilities statutorily upon such private bodies which they are bound to comply with. If they violate such a statutory provision a writ would certainly be issued for compliance with those provisions. For instance, if a private employer dispenses with the service of its employee in violation of the provisions contained under the ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 31 Industrial Disputes Act, in innumerable cases the High Court interfered and has issued the writ to the private bodies and the companies in that regard. But the difficulty in issuing a writ may arise where there may not be any non-compliance with or .
violation of any statutory provision by the private body. In that event a writ may not be issued at all. Other remedies, as may be available, may have to be resorted to."
● United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110, "42. There is another reason why the impugned order should be set aside. If Respondent 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression "any person" used in Section 17(1) is of wide import.
It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.
43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions.
In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasijudicial bodies for redressal of the ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 32 grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.
.
44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-
imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution.
45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance.
55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection."
● State Bank of Travancore v. Mathew K.C., (2018) 3 SCC 85, "5. We have considered the submissions on behalf of the parties. Normally this Court in exercise of jurisdiction under Article 136 of the Constitution is loath to interfere with an interim order passed ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 33 in a pending proceeding before the High Court, except in special circumstances, to prevent manifest injustice or abuse of the process of the court. In the present case, the facts are not in dispute.
.
The discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The normal rule is that a writ petition under Article 226 of the Constitution ought not to be entertained if alternate statutory remedies are available, except in cases falling within the well-defined exceptions as observed in CIT v. Chhabil Dass Agarwal [(2014) 1 SCC 603], as follows:
(SCC p. 611, para 15) "15. Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal v. Supt. of Taxes [AIR 1964 SC 1419], Titaghur Paper Mills Co. Ltd. v. State of Orissa [(1983) 2 SCC 433: 1983 SCC (Tax) 131] and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation."
8. The Statement of Objects and Reasons of the SARFAESI Act states that the banking and financial sector in the country was felt not to have a level playing field in comparison to other participants in the financial markets in the world. The financial institutions in India did not have the power to take possession of securities and sell them.::: Downloaded on - 02/08/2023 20:43:50 :::CIS 34
The existing legal framework relating to commercial transactions had not kept pace with changing commercial practices and financial sector reforms resulting in tardy recovery of defaulting loans and mounting non-performing assets of banks and .
financial institutions. Narasimhan Committee I and II as also the Andhyarujina Committee constituted by the Central Government Act had suggested enactment of new legislation for securitisation and empowering banks and financial institutions to take possession of securities and sell them without court intervention which would enable them to realise long-term assets, manage problems of liquidity, asset liability mismatches and improve recovery.
The proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the DRT Act") with passage of time, had become synonymous with those before regular courts affecting expeditious adjudication. All these aspects have not been kept in mind and considered before passing the impugned order.
9. Even prior to the SARFAESI Act, considering the alternate remedy available under the DRT Act it was held in Punjab National Bank v. O.C. Krishnan [(2001) 6 SCC 569] that: (SCC p. 570, para 6) "6. The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions. This was a case where the High Court should not have entertained the petition under Article 227 of the Constitution and ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 35 should have directed the respondent to take recourse to the appeal mechanism provided by the Act."
15. It is the solemn duty of the court to apply the correct law without waiting for an objection to be raised by a party, .
especially when the law stands well settled. Any departure, if permissible, has to be for reasons discussed, of the case falling under a defined exception, duly discussed after noticing the relevant law. In financial matters grant of ex parte interim orders can have a deleterious effect and it is not sufficient to say that the aggrieved has the remedy to move for vacating the interim order. Loans by financial institutions are granted from public money generated at the taxpayer's expense.
Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same. The caution required, as expressed in United Bank of India v. Satyawati Tondon [(2010) 8 SCC 110: (2010) 3 SCC (Civ) 260], has also not been kept in mind before passing the impugned interim order: (SCC pp. 123-24, para 46) "46. It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which (sic will) ultimately prove detrimental to the economy of the nation.
Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions carved out in Baburam Prakash ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 36 Chandra Maheshwari v. Antarim Zila Parishad [AIR 1969 SC 556], Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1] and Harbanslal Sahnia v. Indian Oil Corpn. Ltd. [(2003) 2 SCC 107] and some other judgments, then the High Court may, after .
considering all the relevant parameters and public interest, pass an appropriate interim order."
● Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir, (2022) 5 SCC 345, "18. Even otherwise, it is required to be noted that a writ petition against the private financial institution - ARC - the appellant herein under Article 226 of the Constitution of India against the proposed action/actions under Section 13(4) of the SARFAESI Act can be said to be not maintainable. In the present case, the ARC proposed to take action/actions under the SARFAESI Act to recover the borrowed amount as a secured creditor.
The ARC as such cannot be said to be performing public functions which are normally expected to be performed by the State authorities. During the course of a commercial transaction and under the contract, the bank/ARC lent the money to the borrowers herein and therefore the said activity of the bank/ARC cannot be said to be as performing a public function which is normally expected to be performed by the State authorities. If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable.
Therefore, decisions of this Court in Praga Tools Corpn. v. C.A. Imanual, [(1969) 1 SCC 585] and Ramesh Ahluwalia v. State of Punjab, [(2012) 12 SCC 331: (2013) 3 SCC (L&S) 45: 4 SCEC 715] relied upon by the learned counsel appearing on behalf of the borrowers are not of any assistance to the borrowers.
21. Applying the law laid down by this Court in State Bank of Travancore v. Mathew K.C., [(2018) 3 SCC 85: (2018) 2 SCC (Civ) 41] to the facts on hand, we are of the opinion that filing of the writ petitions by the borrowers before the High Court under ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 37 Article 226 of the Constitution of India is an abuse of process of the court. The writ petitions have been filed against the proposed action to be taken under Section 13(4).
As observed hereinabove, even assuming that the communication .
dated 13-8-2015 was a notice under Section 13(4), in that case also, in view of the statutory, efficacious remedy available by way of appeal under Section 17 of the SARFAESI Act, the High Court ought not to have entertained the writ petitions. Even the impugned orders passed by the High Court directing to maintain the status quo with respect to the possession of the secured properties on payment of Rs 1 crore only (in all Rs 3 crores) is absolutely unjustifiable. The dues are to the extent of approximately Rs 117 crores.
The ad interim relief has been continued since 2015 and the secured creditor is deprived of proceeding further with the action under the SARFAESI Act. Filing of the writ petition by the borrowers before the High Court is nothing but an abuse of process of court. It appears that the High Court has initially granted an ex parte ad interim order mechanically and without assigning any reasons. The High Court ought to have appreciated that by passing such an interim order, the rights of the secured creditor to recover the amount due and payable have been seriously prejudiced.
The secured creditor and/or its assignor have a right to recover the amount due and payable to it from the borrowers. The stay granted by the High Court would have serious adverse impact on the financial health of the secured creditor/assignor. Therefore, the High Court should have been extremely careful and circumspect in exercising its discretion while granting stay in such matters. In these circumstances, the proceedings before the High Court deserve to be dismissed."
● Varimadugu Obi Reddy v. B. Sreenivasulu, (2023) 2 SCC 168, "36. In the instant case, although the respondent borrowers initially approached the Debts Recovery Tribunal by filing an application under Section 17 of the SARFAESI Act, 2002, but the order of the Tribunal indeed was appealable under Section 18 of ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 38 the Act subject to the compliance of condition of pre-deposit and without exhausting the statutory remedy of appeal, the respondent borrowers approached the High Court by filing the writ application under Article 226 of the Constitution.
.
We deprecate such practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy available under the law. This circuitous route appears to have been adopted to avoid the condition of pre-deposit contemplated under 2nd proviso to Section 18 of the 2002 Act."
25 From the aforesaid discussions, it is absolutely clear that if proceedings have been initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the bank/financial institutions, it has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable save and except to a limited extent as has been indicated in para 18 of the judgment in M/s South Indian Bank Ltd.'s case (supra).
26 We may at this stage take note of an another recent judgment of the Hon'ble Supreme Court in G. Vikram Kumar vs. State Bank of Hyderabad, AIR 2023 Supreme Court 2359, wherein the Hon'ble Supreme Court has again reiterated that the writ petition assailing the action of the Bank under Section 13(4) of the SARFAESI Act is not maintainable and the aggrieved party has a remedy of an appeal under Section 17 to approach the DRT. It was further held that the High Court erred in entertaining writ petition since statutory ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 39 alternative remedy was available. It shall be apt to reproduce para 8 of the judgment which reads as under:-
8. At the outset, it is required to be noted that what was .
challenged before the High Court by respondent no.1 in a writ petition under Article 226 of the Constitution of India was the e auction notice which was pursuant to the action initiated by the Bank in exercise of powers under Section 13(4) of the SARFAESI Act. At this stage it is required to be noted that Civil Appeal Nos. 31523153 of 2023 eauction was held/conducted on 31.08.2016 in which the appellant participated and was declared as a successful bidder and he made a payment of 25% of the bid amount on the very day i.e., on 31.08.2016. However, thereafter the respondent no.1 filed the writ petition before the High Court challenging the eauction notice dated 28.07.2016 on 14.09.2016 that is after conducting of the auction. It is required to be noted that against any steps taken by the Bank under Section 13(4) of the SARFAESI Act the aggrieved party has a remedy under the SARFAESI Act by way of appeal under Section 17 of the SARFAESI Act to approach the DRT. Therefore, in view of the availability of the alternative statutory remedy available by way of Civil Appeal Nos. 31523153 of 2023 proceedings/appeal under Section 17 of the SARFAESI Act, the High Court ought not to have entertained the writ petition under Article 226 of the Constitution of India in which the e auction notice was under
challenge. Therefore, the High Court has committed a very serious error in entertaining the writ petition under Article 226 of the Constitution of India challenging the eauction notice issued by the Bank in exercise of power under Section 13(4) of the SARFAESI Act.
27 From the statutory scheme and decisions noted here-in-
above, it is clear that this Court, in exercise of its jurisdiction, cannot go into the decision of respondent-bank in classifying the petitioner's ::: Downloaded on - 02/08/2023 20:43:50 :::CIS 40 account as NPA. If the respondent-bank proceeds further and reaches Section 13(4) of the SARFAESI Act stage, the petitioner-firm can file application under Section 17 of the SARFAESI Act. The DRT can go .
into the aspect of classifying the account as NPA and also whether RBI guidelines have been violated on any aspect leading to declaring the account as NPA and taking recourse under the SARFAESI Act.
28 It has also been repeatedly held that the aspect of classifying an account as NPA is not justiciable in exercise of power of judicial review under Article 226 of the Constitution.
29 We are, therefore, of the opinion that the instant petition is not maintainable and is accordingly dismissed leaving open to the petitioner-firm to avail remedy under Section 17 of the SARFAESI Act as and when Section 13(4) thereof is invoked by the respondent-Bank.
However, it is made clear that we have not expressed any opinion on the merits of the case and all issues are left open to be urged before the competent authority. Pending application(s), if any, also stands disposed of. The parties are left to bear their own costs.
(Tarlok Singh Chauhan) Judge (Ranjan Sharma) 2.8.2023 Judge (pankaj) ::: Downloaded on - 02/08/2023 20:43:50 :::CIS