Orissa High Court
Swarna Prakash Routray vs The General Manager on 8 October, 2024
Author: Chittaranjan Dash
Bench: S.K. Sahoo, Chittaranjan Dash
IN THE HIGH COURT OF ORISSA AT CUTTACK
WP(C) No. 11749 of 2022
Swarna Prakash Routray .... Petitioner
Mr. S. K. Dalai,
Mr. Kabiraj Pradhan,
Advocates
-versus-
1. The General Manager, .... Opposite Parties
Reserve Bank of India,
Mr. M. Balakrishna Rao,
Bhubaneswar, Odisha
Advocate for
2. The General Manager, O.P. Nos. 2 & 3
Karur Vysya Bank Ltd.,
Bhubaneswar Mr. Krishna Ch. Sahu,
Advocate for O.P. No. 4
& Others.
CONTC No. 6770 of 2021
Swarna Prakash Routray .... Petitioner
Mr. S. K. Dalai,
Mr. Kabiraj Pradhan,
Advocates
-versus-
Hari Bijay Kumar, The .... Opposite Party
Authorised Officer, Karur
Mr. M. Balakrishna Rao,
Vysya Bank Ltd.,
Advocate
Bhubaneswar
CORAM:
THE HON'BLE MR. JUSTICE S.K. SAHOO
THE HON'BLE MR. JUSTICE CHITTARANJAN DASH
Date of Judgment: 08.10.2024
Chittaranjan Dash, J.
1. Heard Mr. S.K. Dalai, learned counsel appearing on behalf of the Petitioner and Mr. Balakrishna Rao, learned counsel representing the O.P. Nos. 2 & 3, Bank (hereinafter referred to as 'the Bank').
2. Challenge in this writ application has been made to the action of the O.P. Nos. 2 & 3, Bank in proceeding with the e- auction sale notice dated 12.08.2021 under Annexure-8, and consequential actions thereto, and for having not settled the loan account of the Petitioner.
3. The background facts of the case are that the wife of the Petitioner obtained a loan from O.P. Nos. 2 & 3, Bank which was extended to her in cash credit loan form limiting the amount to Rs. 30,00,000/- for the purpose of expansion of her business. The Petitioner was the guarantor of the said loan and presented his property with the Bank to secure the loan. The description of property submitted by the Petitioner before the Bank to secure loan was a residential plot measuring an area Ac. 0.055D out of total area Ac. 0.090D vide Plot No. 309 corresponding Plot No. 309/3387, Khata No. 644/263 corresponding to Hal Khata No. 644/1579, situated at Mouza: Bhubaneswar Sahar Unit No. 34, Meherpalli, P.S.: Laxmisagar, Bhubaneswar, Tahasil:
Bhubaneswar, Dist.: Khorda. After obtaining the loan, the wife of the Petitioner i.e. the Borrower, invested it for her business but as the business did not run well she could not repay the loan smoothly to the satisfaction of the Bank. As a result, the loan account became a Non-Performing Asset (NPA) on 28.11.2018 in terms of the WP(C) 11749 of 2022 Page 2 of 31 agreement as well as the guideline issued by the Reserve Bank of India (RBI) in that respect.
The O.P. Nos. 2 & 3, Bank accordingly issued a notice u/s 13(2) of the SARFAESI Act, 2002 (hereinafter referred to as 'the Act') under Annexure-1 dated 15.02.2019. Subsequent to the issuance of the notice under Section 13(2) as the Petitioner did not come forward to comply with the direction, the Bank issued notice under section 13(4) of the Act. It is alleged by the Petitioner that no such notice was served upon the Petitioner's wife as she was staying with her father and she had no scope to be aware of this fact. So, she could not inform the same to the Petitioner who was staying away from his wife. According to the Petitioner, another notice was issued on 29.07.2019 by the O.P. Nos. 2 & 3 - Bank wherein it was indicated that the Bank has redeemed the secured asset i.e. the immovable property in pursuance to the last notice and thereby the Bank took the symbolic possession. The claim of the Petitioner is that all the events took place behind the back of the Petitioner. However, again the O.P. Nos. 2 & 3, Bank issued a letter on 03.12.2019 individually upon the wife-borrower and the Petitioner, thereby, the Petitioner and the borrower could know that the Bank has initiated proceedings against the loan account which is at its fag end. It is only thereafter that the Petitioner came to know about the fact that an e-auction sale notice for the suit property has been issued on 20.01.2020 under Annexure-3.
The Petitioner accordingly moved this Court in a Writ Petitioner vide WP(C) No. 1668 of 2020, wherein, this Court considering the submission of the Petitioner disposed of the Writ Petition vide its order dated 17.01.2020, with an observation that, in WP(C) 11749 of 2022 Page 3 of 31 case, the Petitioner deposits a sum of Rs. 5,00,000/- before the O.P. Nos. 2 & 3, Bank on or before 24.01.2020, and files an application for loan settlement, the Bank shall consider the application within a period of two weeks from the filing of such application and the result thereof shall be communicated to the Petitioner. It is indicated in the said order by the Court, dated 17.01.2020, that, the e-auction for sale of the immovable property shall not be confirmed till a decision is taken with regard to the application of the Petitioner. The Court also made it clear that in case the Petitioner fails to deposit the amount, it is open to the O.P. Nos. 2 & 3, Bank to take consequential step for the recovery of the amount. Pursuant to the order dated 17.01.2020 passed by this Court, Petitioner deposited the sum of Rs. 5,00,000/- with the O.P. Nos. 2 & 3, Bank on 18.01.2020 and filed an application for settlement of the loan account.
After submission of the application, before the O.P. Nos. 2 & 3, Bank, the Bank issued a letter on 04.02.2020 intimating that the offer given by the Petitioner for settlement of loan account to have not been accepted by the Bank and further advised the Petitioner to submit a revised proposal with substantial increase in the compromise amount along with upfront deposit immediately. As per the direction of the Bank, the Petitioner deposited a further sum of Rs. 2,00,000/- on 15.02.2020 and submitted another application for loan settlement vide letter dated 03.03.2020 under Annexure-6. On 10.03.2020, the Bank once again turned down the proposal of the Petitioner allowing further opportunity for a revised proposal referring to the discussion that the Petitioner had with the Bank on 29.02.2020. It is submitted by the Petitioner that as the WP(C) 11749 of 2022 Page 4 of 31 pandemic situation arrived due to Covid-19, the Petitioner simply deposited a sum of Rs. 2,00,000/-. In the process, he deposited altogether a sum of Rs. 9,00,000/-. The Bank authorities denied settlement of the account on the basis of the proposal of the Petitioner and finally issued the e-auction notice for the sale of the immovable property under Rule 8(6) the SARFAESI Security Interest (Enforcement) Rules, 2002 on 15.09.2021. The Petitioner submits the aforesaid e-auction sale notice issued by the Bank on 12.08.2021 as illegal and arbitrary and in violation of the RBI guidelines, so also, in violation of Article 300A of the Constitution of India and as such moved the Writ Petition in WP(C) No. 26724 of 2021. The coordinate bench of this Court having heard the Petitioner as well as the counsel for the Bank, though, the cause title in the order did not reveal any name of the counsel representing the Bank and passed the order as here under:
"2. Heard learned counsel for the Petitioner and learned counsel for the Bank.
3. Having heard learned counsel for the parties, we are of the opinion that this matter may be settled out of the Court in OTS Scheme. Hence, we give liberty to the Petitioner to file an application for OTS rephasement/resettlement/reschedule of the loan within a period of two weeks by making upfront deposit of Rs.8,50,000/- (Rupees eight lakh fifty thousand) only before the opposite parties- Bank. On such event, his application shall be considered according to law and as per the guidelines of the Reserve Bank of India.
4. We hope and trust that if any representation is made by the Petitioner with the upfront deposit mentioned above within the time WP(C) 11749 of 2022 Page 5 of 31 stipulated, the Bank shall not take any further coercive steps against him"
In view of the order passed in the said Writ Petition, it is the case of the Petitioner that he deposited a sum of Rs. 8,50,000/- in the loan account of the Petitioner on 24.09.2021. The Petitioner also asserts that since the amount deposited by him was returned to the account, he visited the Bank with an application and after the lapse of one hour, the Petitioner was given the account details wherein he deposited Rs. 27,00,000/- in the above-mentioned account through RTGS i.e. Rs. 7,00,000/- from Account No. 10067331437 and Rs. 20,00,000/- from 10066722936 standing in State Bank of India, Laxmisagar Branch though RTGS and an application was annexed thereto. According to the Petitioner, the Bank authority received the application at 06:01p.m. on 04.05.2022. The Petitioner therefore claims that he complied with the direction of the Court dated 25.04.2022, by depositing a sum of Rs. 27,00,000/- but the Bank issued letter dated 16.10.21 disclosing that the e-auction sale in respect of the mortgaged property was completed and it has gotten a successful bidder for the said property who is ready to make the payment on the entire overdue amount along with all the interim expenditure and expenses till date and accordingly the Bank intimated the recovery as per the SARFAESI Act, 2002. The Petitioner held the aforesaid action of the O.P. Nos. 2 & 3 - Bank to be a willful and deliberate neglect of the Court's order dated 24.09.2021 and moved CONTC No. 6770 of 2021 praying to initiate a contempt proceeding for violation of the order of this Court dated 13.09.2021 in WP(C) No. 26724 of 2021 and to WP(C) 11749 of 2022 Page 6 of 31 suitably punish the contemnor. This Court in the aforesaid contempt petition, passed Order No. 7 dated 25.04.22, as under -
"2. Mr. Rao very graciously accepts that the proper course for the Bank should have been to inform the Court before proceeding to issue the Sale Certificate in the light of deposit of a heavy amount (almost 1/4th of the outstanding liability) in compliance of the directions passed on 13th September, 2021 by this Court. He however, submits that after waiting for a substantial period of time and incomplete proposal submitted for an amicable settlement, the Bank was obligated to issue a sale certificate on account of the deposit of the entire sale price by the auction purchaser. Still further to resolve the issue, the Bank may consider reversing the process provided the Petitioner deposits the entire outstanding liabilities along with some reasonable compensation for the auction purchaser.
3. At this stage, learned counsel for the Petitioner prays for short adjournment to enable the Petitioner to file a separate writ petition with necessary particulars and by impleading the auction purchaser."
In the above background the Petitioner filed the present Writ Petition i.e. WP(C) No. 11749 of 2022 challenging the e-auction sale notice under Annexure-8 and the consequential action thereto initiated by O.P. Nos. 2 & 3, Bank and for settlement of the account and for adjustment of the final account as submitted by the Petitioner in pursuance to the direction of this Court.
4. Mr. S. K. Dalai, learned counsel for the Petitioner humbly submits that the e-auction sale notice dated 12.08.2021 under Annexure-8, issued by the O.P. Nos. 2 & 3, Bank, is illegal and in clear violation of the Petitioner's rights under law. According to Mr. Dalai, the actions of the Bank, as a secured creditor under the WP(C) 11749 of 2022 Page 7 of 31 SARFAESI Act, 2002, are not only arbitrary but also in contravention of the procedural safeguards provided under the Act. He asserts that the Petitioner was neither properly informed nor was there adequate service of the demand notice, possession notice, or the e-auction sale notice, all of which are mandatory requirements under the Act. The Petitioner, standing as guarantor for the cash credit facility availed by the borrower, has always acted in good faith and with the intent of resolving the outstanding debt amicably. However, despite the genuine efforts made by the Petitioner, including the offer of a One-Time Settlement (OTS), the Bank chose to proceed with the auction process without considering the Petitioner's representation vide Annexure-10. Mr. Dalai submits that the Bank's rejection of the OTS offer was arbitrary and lacked transparency. The OTS offer was submitted by the Petitioner with the bona fide intent of settling the outstanding dues, particularly in light of the economic difficulties arising from the COVID-19 pandemic. The Bank's refusal to consider the OTS, despite the unique circumstances, is unjust and contrary to the principles of fairness. Mr. Dalai further submits that the O.P. Nos. 2 & 3, Bank's actions are in direct violation of this Court's order dated 13.09.2021 passed in WP(C) No. 26724/2021, wherein, the Court had specifically directed the Petitioner to deposit Rs. 8,50,000/- along with a representation for OTS, which the Petitioner complied with in full. The Petitioner deposited the said amount on 24.09.2021, and any claim by the Bank that the representation was not accompanied by the deposit is baseless. Despite the Petitioner's compliance, the Bank hastily proceeded with the confirmation of the e-auction sale WP(C) 11749 of 2022 Page 8 of 31 and issued the sale certificate to the e-auction purchaser, thereby completely disregarding this Court's order.
The learned counsel further contends that the e-auction sale was conducted in undue haste and without affording the Petitioner a fair opportunity to resolve the matter. The Petitioner's affidavit dated 15.09.2021, informing the Bank of the Court's order, was dispatched to the Bank on time. The subsequent issuance of the sale demonstrates lack of good faith and amounts to willful disobedience of the Court's order. Mr. Dalai asserts that the actions of the Bank have caused undue hardship to the Petitioner, who has been diligently trying to resolve the outstanding loan in a fair and reasonable manner. The Petitioner has complied with all directions of this Court and has made earnest efforts to settle the matter. The Bank's continued refusal to cooperate and its high-handed actions, including the confirmation of the e-auction sale, have deprived the Petitioner of a fair opportunity to protect the secured property.
5. O.P. Nos. 2 & 3, through the Chief Manager-cum- Authorised Officer, Karur Vysya Bank Ltd., Bhubaneswar, in their counter affidavit, through Mr. Sreedhar, contended that Petitioner's challenge to the e-auction sale notice dated 12.08.2021 under Annexure-8 in the present writ petition is entirely misplaced and not maintainable before this Court. The actions taken by the Bank as a secured creditor are in strict compliance with the SARFAESI Act, 2002. As per the decision laid down by the Hon'ble Supreme Court in Phoenix ARC Private Limited vs. Vishwa Bharati Vidya Mandir and others reported in AIR 2022 SC 1045, any challenge to the actions of the Bank under the SARFAESI Act, 2002 cannot WP(C) 11749 of 2022 Page 9 of 31 be entertained by this Court under Article 226 of the Constitution if an alternative statutory remedy exists. Hence, the Writ Petition is liable to be dismissed as not maintainable. The Bank categorically denies the Petitioner's allegations of non-service of demand notice, possession notice, and e-auction sale notice while submitting the proof of notice in the form of postal receipts under Annexures-C/3, D/3, and E/3 demonstrating that all statutory notices were duly served as required under the SARFAESI Act, 2002. Any claim of non-service is thus baseless and should be dismissed.
In response to the Petitioner's plea for One-Time Settlement (OTS), it is reiterated that OTS offers are discretionary and subject to the Bank's commercial judgment. No borrower has an automatic right to OTS, especially when the value of the secured asset exceeds the outstanding loan amount. In the present case, the secured asset is worth more than the debt, and the decision to not grant OTS was taken in accordance with sound Banking principles. The Petitioner's allegations of mala fide are unfounded and unsupported by any factual basis. It is further submitted that with respect to the compliance of this Court's order dated 13.09.2021 in WP(C) No. 26724 of 2021, the e-auction was conducted on 15.09.2021, prior to any intimation of the said order. The Petitioner's affidavit dated 15.09.2021 was received by the Bank only on 16.09.2021, through a DTDC courier as per Annexure-F/3. Upon receiving the affidavit, the Bank acted promptly and reasonably, by issuing a letter dated 17.09.2021, requesting the Petitioner to provide a copy of the Court's order, which was only received by the Bank on 21.09.2021. Despite this, the Petitioner failed to submit any valid representation as directed by this Court. The Petitioner instead deposited Rs.
WP(C) 11749 of 2022 Page 10 of 318,50,000/- on 24.09.2021 without the requisite representation, and even the Bank waited for a reasonable period before proceeding with the confirmation of the e-auction and issuing the sale certificate to the successful bidder, O.P. No. 4. It is asserted that the Petitioner's failure to submit the representation as directed, despite multiple opportunities afforded by the Bank, left the Bank with no option but to proceed with the e-auction sale and issue the sale certificate. The Petitioner's inaction and lack of response to the Bank's letter dated 16.10.2021 forced the Bank to complete the transaction with the auction purchaser, who had deposited the full bid amount.
Moreover, the allegations of non-cooperation and harassment by the Bank officials are entirely baseless. The Bank has acted in full compliance with the provisions of the SARFAESI Act, 2002, as well as this Court's orders. It is the Petitioner who failed to comply with the directions of this Court, and thus any allegations of contempt or non-compliance by the Bank are unjustified. The Bank submits that it has acted in a diligent, lawful, and reasonable manner throughout the proceedings. The Petitioner's allegations of mala fide and violation of Court orders are without merit, and the Bank should not be held liable for the Petitioner's own inaction. The Bank requests this Court to dismiss the writ petition and contempt petition, as there has been no violation of any Court order or statutory provision on its part.
6. O.P. No. 4, Mrs. Sudhanshubala Chhatoi, the auction purchaser, in her counter affidavit, contended that the application filed by the Petitioner is not maintainable as the e-auction process WP(C) 11749 of 2022 Page 11 of 31 was conducted strictly in accordance with the SARFAESI Act, 2002 and the SARFAESI Security Interest (Enforcement) Rules, 2002, following all formalities necessitated. The property in question was mortgaged with O.P. Nos. 2 and 3, Bank's, and after the borrower defaulted on repayment obligations, the loan account was classified as a Non-Performing Asset (NPA). Following the due legal process, the Bank initiated steps for the recovery of dues by conducting an e-auction of the mortgaged property, as authorised. Mrs. Chhatoi further submits that she participated in the e-auction process after the issuance of a public e-auction notice dated 12.08.2021. The e-auction was held on 15.09.2021, in which she emerged as the highest bidder, with a winning bid amount of Rs. 78,90,000/-. Upon the successful completion of the e-auction, the entire bid amount was duly deposited by her, and the sale was confirmed by the Bank in accordance with Rule 9(2) of the Security Interest (Enforcement) Rules, 2002. A Sale Certificate was issued to her on 15.11.2021, and physical possession of the property was handed over accordingly. On 17.12.2021, the Bank executed a registered sale deed in favour of her, thereby legally transferring the title and interest in the property to the her as the auction purchaser. Mrs. Chhatoi asserts that she has since mutated the property in her name and obtained the RoR from the concerned authorities and has been in peaceful and undisputed possession of the property, paying all applicable dues, including land revenue and other taxes.
She further submits that it is clear that the e-auction process was conducted lawfully, and she acquired valid and legal title to the property. The writ petition filed by the borrower, seeking to challenge the e-auction sale, is an afterthought and is not WP(C) 11749 of 2022 Page 12 of 31 maintainable, as the borrower had ample opportunity to redeem the property under the SARFAESI Act, 2002 but failed to do so. The borrower's failure to avail of the statutory remedies within the stipulated time frames does not entitle him to challenge the lawful rights of the auction purchaser. Mrs. Chhatoi finally concludes that given the lawful and bona fide actions of herself in purchasing the property and the fact that the borrower has no valid claim to redeem the secured asset after the completion of the sale process, the present writ petition deserves no consideration and is liable to be dismissed.
7. From the submissions made by Mr. Dalai, the Petitioner's grievance lies on the issue that his right to redeem the mortgaged property has been violated by the Opposite Party-Bank, which proceeded with the e-auction sale despite the Petitioner having deposited substantial amounts towards the settlement of the loan account backed by the Order of this Court under its writ Jurisdiction.
8. The Hon'ble Supreme Court, in a catena of decisions, has consistently reiterated the limitations on the exercise of writ jurisdiction by High Courts in matters arising out of actions taken under the SARFAESI Act, 2002.
9. The Apex Court, in its decision in the matter of Celir vs. BAFNA Motors (Mumbai) Pvt. Ltd. & Ors. passed in Civil Appeal Nos. 5542-5543 of 2023, has made the aforementioned stance very clear, as follows -
92. This Court has time and again, reminded the High Courts that they should not entertain petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person under the provisions of the WP(C) 11749 of 2022 Page 13 of 31 SARFAESI Act. This Court in Satyawati Tondon (supra) made the following observations:
"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 quasi-judicial bodies for redressal of the 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.WP(C) 11749 of 2022 Page 14 of 31
×××
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."
96. More than a decade back, this Court had expressed serious concern despite its repeated pronouncements in regard to the High Courts ignoring the availability of statutory remedies under the RDBFI Act and the SARFAESI Act and exercise of jurisdiction under Article 226 of the Constitution. Even after, the decision of this Court in Satyawati Tondon (supra), it appears that the High Courts have continued to exercise its writ jurisdiction under Article 226 ignoring the statutory remedies under the RDBFI Act and the SARFAESI Act.
105. We summarise our final conclusion as under:
(i) The High Court was not justified in exercising its writ jurisdiction under Article 226 of the Constitution more particularly when the borrowers had already availed the alternative remedy available to them under Section 17 of the SARFAESI Act.
(ii) The confirmation of sale by the Bank under Rule 9(2) of the Rules of 2002 invests the successful auction purchaser with a vested right to obtain a certificate of sale of the immovable property in form given in appendix (V) to the Rules i.e., in accordance with Rule 9(6) of the SARFAESI.
(iii) In accordance with the unamended Section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset. In other words, the borrower's right of redemption did not stand terminated on the date of the auction sale of the secured asset itself and remained alive till the transfer was completed in favour of the auction purchaser, by registration of the sale certificate and delivery of possession of the secured asset. However, the amended provisions of Section 13(8) of the SARFAESI Act, make it clear that the right of the borrower to redeem WP(C) 11749 of 2022 Page 15 of 31 the secured asset stands extinguished thereunder on the very date of publication of the notice for public auction under Rule 9(1) of the Rules of 2002. In effect, the right of redemption available to the borrower under the present statutory regime is drastically curtailed and would be available only till the date of publication of the notice under Rule 9(1) of the Rules of 2002 and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser......"
10. It is further held in the following decisions of the Hon'ble Supreme Court -
United Bank of India v. Satyawati Tondon reported in (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 WP(C) 11749 of 2022 Page 16 of 31 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 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 selfimposed 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. reported in (2018) 3 SCC 85 -
WP(C) 11749 of 2022 Page 17 of 31"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 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.
WP(C) 11749 of 2022 Page 18 of 31The 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 should have directed the respondent to take recourse to the appeal mechanism provided by the Act."
WP(C) 11749 of 2022 Page 19 of 3115. 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 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."
WP(C) 11749 of 2022 Page 20 of 31 Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir, reported in (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 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 WP(C) 11749 of 2022 Page 21 of 31 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 reported in (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 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 WP(C) 11749 of 2022 Page 22 of 31 the condition of pre-deposit contemplated under 2nd proviso to Section 18 of the 2002 Act."
×××
27. From the statutory scheme and decisions noted hereinabove, it is clear that this Court, in exercise of its jurisdiction, cannot go into the decision of respondent- Bank in classifying the Petitioner's 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.
11. It is well established in light of the settled legal position and the principles reiterated in the afore-mentioned decisions that SARFAESI Act, 2002 provides a comprehensive mechanism for addressing grievances related to actions taken by Banks or financial institutions. The borrower has the statutory remedy under Section 17 of the Act to challenge the Bank's actions, including the classification of the account as NPA.
As observed in these rulings, Courts have consistently held that writ petitions should not be entertained when there exists an effective alternative remedy, such as those provided under the SARFAESI Act, 2002. The statutory process for recovery of dues and redressal of grievances is already in place, including Debt Recovery Tribunals (DRTs) and appellate authorities, which are equipped to deal with such matters. The High Courts, therefore, have repeatedly been urged by the Hon'ble Supreme Court to WP(C) 11749 of 2022 Page 23 of 31 exercise their discretion with greater caution, and not interfere in matters where statutory remedies are available. Therefore, the petition is clearly an attempt to evade the procedural safeguards and the Petitioner is misusing the judicial process without exhausting the alternate statutory remedy provided by the Act.
12. In the instant case, the Petitioner had the statutory remedy of filing an application before the DRT under Section 17 of the SARFAESI Act, 2002 challenging the Bank's actions. The Act provides a detailed mechanism under Section 17, whereby the Petitioner could have approached the DRT to challenge the Bank's actions, including the issuance of the e-auction sale notice. However, instead of following the prescribed statutory process, the Petitioner has chosen to bypass the Tribunal's jurisdiction and sought to invoke the extraordinary powers of this Court under Article 226 of the Constitution. This conduct not only undermines the legislative intent behind the SARFAESI Act but also reflects an attempt to stall the recovery proceedings initiated by the Bank in as much as the law is clear that the SARFAESI Act provides a complete mechanism for adjudicating disputes between borrowers and secured creditors.
13. The Petitioner has relied upon the decision of Hon'ble Supreme Court in the matter of Surinder Pal Singh vs. Vijaya Bank & Ors. passed in Civil Appeal No.6843 of 2023 arising from SLP (C) NO.16771/2018, as follows -
"12. The net result is that the right of the Borrower to redeem would be available till the sale certificate is registered and the possession is handed over after which the Borrower will not have a right for WP(C) 11749 of 2022 Page 24 of 31 redemption under the unamended provision of Section 13 (8) of the SARFAESI Act.
13. Considering the above facts and circumstances of the case, we are not inclined to interfere with the impugned judgment and order passed by the High Court dismissing the Writ Petition. However, in the interest of justice and to do equity between the parties, we are of the view that the borrowers must pay a reasonable amount to the appellant."
14. In the case of the Petitioner, the e-auction notice was published on 12.08.2021. In the amended provision of section 13(8), which applies to the Petitioner's case, the right of redemption extinguishes on the date the publication of notice for public auction under Rule 9(1) of the SARFAESI Security interest (Enforcement) rules, 2002 is made. This means that once the auction notice is published, the borrower no longer has the right to redeem the secured asset by clearing the dues. The Petitioner's case squarely falls within the ambit of this amended provision as the e-auction notice was published and sale was conducted with SARFAESI Act, 2002 by the time the Petitioner approached this Court under the Writ jurisdiction. The amended Section 13(8), therefore, limits the Petitioner's right of redemption to point before publication of the e- e-auction notice, which had already occurred in this case. The decision referred to by Mr. Dalai in the matter of Surinder Pal Singh vs. Vijaya Bank & Ors. (Supra) giving a right of redemption being one in connection with un-amended provision is not applicable to the present case. Consequently, any subsequent payments made by the Petitioner towards the loan account cannot revive the right of redemption.
15. In view of the above, the contentions of the Petitioner that the Bank's action violated her constitutional right to property under WP(C) 11749 of 2022 Page 25 of 31 Article 300A of the Constitution of India bears no significance. At the same time, it may be clarified here that the SARFAESI Act, 2002 and its provisions are part of statutory framework aimed at enabling secured creditors to recover their dues. The right to property under Article 300A is subject to operation of laws such as SARFAESI Act, 2002 which provide enforcement of Security interest. As such, the Petitioner's claim of violation of his constitutional rights under Article 300A is untenable, as the Bank has acted within the bounds of law.
16. As held in Celir vs. BAFNA Motors (supra), interpreting the law otherwise would undermine the sanctity of the e-auction process and deter public participation in auctions under the SARFAESI Act, 2002. Therefore, the Petitioner cannot claim the right to redeem the property once the e-auction notice was issued, and the Respondent Bank was well within its rights to proceed with the e-auction and finalise the sale.
17. The judicial discipline dictates that Courts must be cautious while exercising extraordinary jurisdiction under Article 226, particularly when statutory remedies exist within the framework of a specialized statute like the SARFAESI Act, 2002. The rule of judicial discipline and the doctrine of precedents ensure consistency and certainty in judicial decisions, promoting fairness and clarity in the judicial process. This not only strengthens the confidence of individuals in the legal system but also prevents misuse of judicial orders to thwart the legitimate recovery process initiated by Banks and financial institutions. In the present case, the Petitioner's conduct clearly demonstrates an attempt to misuse the interim WP(C) 11749 of 2022 Page 26 of 31 protection granted by this Court while failing to avail the remedies provided under the SARFAESI Act, 2002 which were specifically designed to address such grievances.
18. The Petitioner's failure to approach the DRT, and the deliberate choice to come before this Court time and again under different guise also raises concerns of forum shopping. Forum shopping occurs when a litigant, instead of following the correct legal process, seeks out a forum that they believe will be more favorable to their case, thereby attempting to manipulate the judicial process. This Court must be cautious of such tactics and should not lend its hand to litigants seeking to misuse judicial orders to delay or obstruct the recovery proceedings under the SARFAESI Act, 2002.
Furthermore, it is crucial for this Court to act within the bounds of the law and not pass orders that fall outside its jurisdiction or interfere with statutory mechanisms designed to provide relief. In Authorised Officer, State Bank of Travancore v. Mathew K.C. reported in (2018) 3 SCC 85, the Hon'ble Supreme Court held that it is not appropriate for the High Courts to interfere in recovery proceedings under the SARFAESI Act, 2002 unless exceptional circumstances warrant such interference.
The purpose of the SARFAESI Act, 2002 is to provide a speedy and effective remedy for Banks and financial institutions, and judicial interference at every stage of the recovery process would defeat the very object of the statute. In view of the above, the prayer of the Petitioner invoking the Writ jurisdiction of this Court WP(C) 11749 of 2022 Page 27 of 31 being not in consonance with fact and law deserves no merit for consideration.
19. It is also incumbent upon this Court to highlight the fact that the Petitioner in this case is not the borrower but the guarantor of the loan in question. This raises a significant question regarding his locus standi to challenge the e-auction sale and other proceedings initiated. As per the established legal principles, the primary responsibility for repayment of the loan lies with the borrower, while the role of the guarantor is secondary and contingent upon the borrower's default. In the present case, the borrower has not come forward to challenge the actions of the Bank or the e-auction sale.
The role of a guarantor is fundamentally to provide assurance to the creditor that the loan will be repaid, either by the borrower or, in the event of the borrower's failure, by the guarantor. However, unless the specific terms of the loan agreement explicitly assign the guarantor a more active or equal role in the repayment process, the guarantor's liability arises only after the borrower defaults, although the guarantor's liability is co-extensive.
20. In the instant case, no such loan agreement has been filed by either party, leaving the exact terms of the Petitioner's liability as guarantor unclear. Without these terms on record, it cannot be assumed that the guarantor has any immediate right or responsibility to intervene in the auction process initiated after the borrower's default. The borrower, who is primarily liable, has chosen not to contest the e-auction or the measures taken by the Bank. Therefore, the Petitioner's attempt to challenge the proceedings, without the borrower's participation or support, seems WP(C) 11749 of 2022 Page 28 of 31 to be an indirect attempt to shield the borrower from the consequences of default. This, coupled with the lack of any challenge by the borrower himself, calls into question the legitimacy of the Petitioner's objections and highlights the limited scope of the guarantor's role under these circumstances.
21. As far as the contempt petition, in CONTC No. 6770 of 2021 filed by the Petitioner against the Bank for violating this Court's order dated 13.09.2021 in WP(C) No. 26724 of 2021, is concerned, the Petitioner argues that the Bank proceeded with the e- auction of the secured asset despite the directions of this Court. After examining the pleadings and the Bank's show cause reply, we find that the petition does not have merit for the following reasons.
22. The O.P. Nos. 2 & 3, Bank argues that the order passed by this Court on 13.09.2021 was an ex-parte order and that the Bank had no knowledge of the same. The said order was communicated to the Bank by the Petitioner only on 21.09.2021, as per Annexure A/1. In any case the e-auction had already been conducted on 15.09.2021 prior to any intimation of the order in question. The successful bidder, Mrs. Sudhanshubala Chhatoi, had emerged as the highest bidder during the auction process, offering an amount of Rs. 78,90,000/- as per Annexure-B/1. The O.P. Nos. 2 & 3, Bank submits that they received notice of the Court's order only after the e-auction had already concluded. Furthermore, it is important to address the Petitioner's claim that he complied with the Court's order by depositing Rs. 8,50,000/- on 24.09.2021. While the Bank acknowledges this deposit, the record reflects that the Petitioner failed to submit a valid representation for One-Time Settlement WP(C) 11749 of 2022 Page 29 of 31 (OTS) scheme as was specifically directed by the Court. The mere deposit of funds without the accompanying OTS proposal, as required by the Court, cannot be construed as full compliance with the order.
23. In view of these facts, the O.P. Nos. 2 & 3, Bank's actions were consistent with its obligations under law. After receiving the Petitioner's affidavit on 16.09.2021, the Bank sought clarification by issuing a letter on 17.09.2021, requesting a copy of the Court's order. Despite this, the Petitioner did not submit a valid OTS proposal or make any effort to resolve the matter. Only after waiting a reasonable time and without any proper response from the Petitioner did the Bank confirm the sale to the highest bidder and issue the sale certificate. The delay in finalising the sale was to give the Petitioner ample opportunity to comply with the Court's directions, which he failed to do.
24. Based on the discussion as above, it is clear that the O.P. Nos. 2 & 3, Bank acted in a diligent and lawful manner throughout the proceedings. The Petitioner's assertion that the Bank wilfully and deliberately violated this Court's order is unfounded. The Bank's actions were taken in good faith, following all necessary procedures, and allowing sufficient time for the Petitioner to comply. There is no infirmity found on the O.P. Nos. 2 & 3, Bank's part, as a result of which, the contempt petition is liable to be dismissed.
25. On the contrary, it is also evident that the Petitioner has attempted to delay the proceedings and misuse the orders of this Court. As a result of which, the Petitioner has also lost the right of WP(C) 11749 of 2022 Page 30 of 31 redemption upon the publication of the e-auction notice dated 12.08.2021. Such actions not only hinder the recovery process but also lead to judicial overreach where Courts are called upon to intervene in matters already covered by specialized laws and forums. Therefore, it is imperative for this Court to dismiss the present writ petition and remind the Petitioner of the importance of adhering to statutory processes before seeking relief from a writ Court.
26. In view of the discussions above, and the availability of an alternative statutory remedy, this writ petition is dismissed as not maintainable. However, the Petitioner is at liberty to pursue the alternative remedy available under the SARFAESI Act, if so advised.
It is made clear that we have not expressed any opinion on the merits of the case and all the issues are left open to be urged before the competent authority as per the SARFAESI Act, 2002. The CONTC also stands disposed of. There will be no order as to costs.
(Chittaranjan Dash) Judge (S.K.Sahoo) Judge A.K.Pradhan/Bijay Signature Not Verified Digitally SignedWP(C) 11749 of 2022 Page 31 of 31 Signed by: BIJAY KETAN SAHOO Reason: Authentication Location: HIGH COURT OF ORISSA Date: 09-Oct-2024 13:32:17