1. Loan default — NPA declaration — SARFAESI Act notices — Challenge via writ petitions in High Court seeking enforcement of unilateral settlement offers. (Para 2 , 4 , 5 , 6 )
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2023 Supreme(SC) 706
SUPREME COURT OF INDIA
SANJIV KHANNA, M. M. SUNDRESH, JJ.
M/s. South Indian Bank Ltd. & Ors. - Appellants
Versus
Naveen Mathew Philip & Anr. Etc. Etc. - Respondents
Civil Appeal Nos. …… Of 2023 [Arising out of SLP (Civil) Nos. 22021-22022 of 2022]
Decided On : 17-04-2023
High Courts should not exercise jurisdiction under Article 226 in commercial matters, particularly under the SARFAESI Act, when an effective alternative statutory remedy exists via the Debt Recovery Tribunal, unless extraordinary circumstances—such as violations of natural justice or lack of jurisdiction—are present.
Headnote:SARFAESI Act - Enforcement of Unilateral Offer - Section 13(2), Section 13(4), Article 226 of the Constitution of India Summary:
Fact of the Case:
The case involves the enforcement of a unilateral offer concerning private financial transactions and the steps taken to recover dues under the SARFAESI Act. The High Court had passed orders in exercise of its powers under Article 226 of the Constitution, which are being challenged in the present appeals.Finding of the Court:
The court found that despite the existence of an effective alternative remedy through the Debt Recovery Tribunal, the High Court had entertained writ petitions and granted reliefs beyond what was prayed for by the respondents. The court expressed concern over repeated interference by various High Courts in commercial matters involving lenders and borrowers.Issues:
The issues revolved around whether the High Court's exercise of jurisdiction under Article 226 was appropriate given the availability of an alternative statutory remedy, and whether it should have entertained writ petitions in commercial matters involving private financial transactions.Ratio Decidendi:
The court emphasized that when a statute prescribes a particular mode, attempts to circumvent it through a writ court should not be encouraged. It reiterated that interference by High Courts in matters pertaining to the SARFAESI Act has been deprecated and requested them not to entertain such cases.Final Decision:
The court disposed of the appeals without interfering with the impugned orders but reiterated settled law on interference by High Courts invoking Article 226 in commercial matters where an effective alternative forum has been constituted through a statute.Legal Category Hierarchy
Table of Contents
2. Maintainability of writ petitions in commercial transactions versus the availability of an effective alternative statutory remedy under the SARFAESI Act. (Para 10 , 11 , 12 )
3. High Courts should not substitute themselves for decision-making authorities or entertain writ petitions in commercial matters when an efficacious statutory forum exists. (Para 13 , 14 , 15 , 16 , 17 , 18 )
4. Writ jurisdiction under Article 226 should not be invoked in commercial matters where an effective alternative statutory remedy is available, except in extraordinary circumstances. (Para 13 , 16 , 18 )
5. Appeals disposed of with a reiteration of the law against High Court interference in SARFAESI matters when alternative remedies are available. (Para 13 , 19 )
6. When can a writ of certiorari be issued against a Tribunal's decision?
Certiorari is issued to correct errors of jurisdiction, illegal exercise of jurisdiction (such as violating natural justice), or when there is a manifest error of law apparent on the face of the record. It is supervisory, not appellate, and does not review findings of fact. (Para 14 )
7. What is the rule of alternate remedy under Article 226 of the Constitution?
High Courts normally decline jurisdiction if an effective alternative remedy exists. Exceptions include cases involving the enforcement of fundamental rights, violations of natural justice, orders wholly without jurisdiction, or challenges to the vires of a legislation. (Para 16 )
8. Can writ jurisdiction be invoked against private financial institutions in SARFAESI proceedings?
Generally, no. Private banking and financial activities are commercial transactions, not public functions. Borrowers must utilize the statutory remedy under Section 17 of the SARFAESI Act rather than approaching the High Court. (Para 11 , 17 )
9. Why is High Court interference deprecated in SARFAESI Act recovery proceedings?
The Act facilitates fast recovery of public money to maintain the financial health of institutions and the national economy. Interference by High Courts frustrates the Act's object and defeats the purpose of the specialized Debt Recovery Tribunal mechanism. (Para 15 , 17 )
JUDGMENT :
(M.M. Sundresh, J.)
1. Leave granted.
2. Seeking enforcement of a unilateral offer concerning private financial transactions, while questioning the steps taken to recover the dues on the failure to comply with the one-time settlements, extraordinary jurisdiction of the High Court was sought to be invoked. Acceding to the request made by duly interfering with the action taken by the Appellants, orders were passed, in exercise of the powers conferred under Article 226 of the Constitution of India by the High Court of Kerala, which are impugned in the present appeals.
3. Heard Mr. K.V. Vishwanathan, learned Senior Counsel for the Appellants and Mr. Shyam Divan, learned Senior Counsel for the Respondents.
4. Two loans were obtained by the Respondents, being a housing / KCC overdraft loan and a business loan. The accounts of the Respondents were declared as non-performing assets (“NPA”) on 27.05.2021. Notices under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act”) were issued on 07.08.2021 and 12.08.2021, respectively, which were duly replied to by the Respondents on 28.10.2021, seeking twelve months’ time to repay the loan.
5. Strangely enough, within 3 days of the reply dated 28.10.2021, prior to the expiry of the statutory period prescribed, a challenge was laid to the demand notice issued under Section 13(2) of the SARFAESI Act, by filing Writ Petition No. 23940 of 2021. Entertaining the said lis, a direction was issued to the Appellants to consider the proposal placed. In due compliance of the aforesaid order, the Respondents were allowed to remit the dues accrued in five installments instead of twelve. The extended benefit conferred was not utilized by the Respondents, and therefore, a reminder was also sent. Receiving no response, two notices under Section 13(4) of the SARFAESI Act, were issued on 02.12.2021 and 20.12.2021.
6. Impugning the aforesaid notices, two writ petitions were filed by the Respondents, being Writ Petition No. 30238 of 2021 and 30450 of 2021 questioning the action taken, through a writ of certiorari while praying for a positive direction to accept the unilateral offers made. It is to be noted that the Debt Recovery Tribunal, though was not functional at the time of filing the aforesaid Writ Petitions, became so from the month of March, 2022.
7. Taking note of the then prevailing situation resulting in the post of Presiding Officer lying vacant for proper adjudication in various Tribunals, an order was passed by this Court in Special Leave Petition No. 10911 dated 16.12.2021,
“Learned Senior Counsel appearing for the petitioner has brought to our notice the difficulty being faced by parties on account of non-appointment of members in DRTs and DRATs.
He requested that the matters before DRT and DRAT can be directed to be considered by other Tribunals like Central Administrative Tribunal, Armed Forces Tribunal and Industrial Tribunal within the State.
With a view to resolve the problem being faced by the parties, for the time being and purely as a stop-gap arrangement, we request the concerned High Court(s) to entertain the matters falling within the jurisdiction of DRTs and DRATs under Article 226 of the Constitution of India, till further orders.
We make it clear that once the Tribunal(s) is/are constituted, the matters can be relegated to the Tribunals by the High Court(s).
List the matter on 21-1-2022.”
8. As could be seen, the order is self-explanatory, making it clear that it is only an interim arrangement, and therefore, the pending matters ought to be transferred to the concerned Tribunals when they start functioning with their respective Presiding Officers duly in-charge. The aforesaid matter was disposed of by the order dated 12.09.2022,
“1. Counsel appearing on behalf of the petitioner states that since the post in the Debt Recovery Tribunal has been filled up, the cause do
