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IN THE HIGH COURT OF MADHYA PRADESH AT JABALPUR
SHEEL NAGU, VINAY SARAF, JJ.
Umesh Kumar Gupta S/o Late Shri Ram Sajivan Gupta – Petitioner
Versus
The Collector Rewa – Respondent
W.P. No. 19144 of 2023
Decided On : 12-01-2024
SARFAESI Act - Invocation of Section 14 - 35, 37 - The court discussed the provisions of the SARFAESI Act, particularly Sections 35 and 37, which stipulate the overriding effect of the SARFAESI Act over other laws and the additional applicability of the Act in conjunction with other specified enactments. The court emphasized that the provisions of the Arbitration and Conciliation Act, 1996 are available to financial institutions in addition to the remedies under the SARFAESI Act, and upheld the invocation of Section 14 of the SARFAESI Act by the financial institution.
Fact of the Case:
The petitioner, a borrower, challenged the dismissal of their objection by the Collector, Rewa, in a proceeding under Section 14 of the SARFAESI Act. The objection was based on the invocation of an arbitration clause by the financial institution and the pendency of a Securitization Application.
Finding of the Court:
The court declined to interfere with the dismissal of the objection, citing the overriding effect of the SARFAESI Act and the availability of the provisions of the Arbitration and Conciliation Act, 1996 to the financial institution. The court also noted the absence of a speaking order by the District Magistrate, Rewa, but held that it did not warrant interference.
Issues: Invocation of Section 14 of the SARFAESI Act, applicability of the provisions of the Arbitration and Conciliation Act, 1996, and the absence of a speaking order by the District Magistrate, Rewa.
Ratio Decidendi: The provisions of the SARFAESI Act have overriding effect over other laws, and the provisions of the Arbitration and Conciliation Act, 1996 are available to financial institutions in addition to the remedies under the SARFAESI Act.
Final Decision: The petition was dismissed, with liberty granted to the petitioner to raise contentions in the pending Securitization Application before the Debt Recovery Tribunal.
Key Points: - The SARFAESI Act has overriding effect over other laws, with Section 35 stating this, and Section 37 enabling its provisions to operate in addition to other laws; AC Act can be invoked in addition to SARFAESI remedies (!) (!) (!) . - The court held that invoking Section 14 of the SARFAESI Act by a financial institution is within the law’s parameters, even when arbitration is invoked and a Securitization Application is pending; non-speaking order by the District Magistrate is not a ground to interfere given the legality of Section 14 invocation (!) (!) (!) (!) . - The matter references a Transcore v. Union of India principle that SARFAESI remedies are in addition to arbitration avenues, not a mere election of remedies, supporting concurrent use of SARFAESI and Arbitration Act remedies (!) . - The petitioner’s challenge under Article 226 was dismissed with liberty to raise issues in the pending Securitization Application before the Debt Recovery Tribunal; interim orders were vacated; no costs (!) (!) . - The decision reiterates that the availability of AC Act remedies does not preclude SARFAESI actions, and that overlapping remedies can be pursued simultaneously (!) (!) (!) .
ORDER :
1. This petition filed under 226 of the Constitution of India assails order dated 27.06.2023 (Annexure P/1) passed by respondent No. 1 Collector, Rewa dismissing objection preferred by petitioner-borrower in a proceeding u/s 14 of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘SARFAESI Act’) pending before District Magistrate, Rewa.
2. Bare facts giving rise to the present case are that petitioner is a borrower while respondent No. 2 is a financial institution which had extended loan facility of Rs. 45.00 lacs to petitioner and for securing the same petitioner mortgaged certain piece of land. It is further not disputed that petitioner defaulted in repayment of loan leading to the loan account becoming NPA and the financial institution after resorting to Section 13(1) & (2) of the SARFAESI Act took recourse to Section 13(4) of the SARFAESI Act by filing an application u/s 14 of the SARFAESI Act before District Magistrate, Rewa. During pendency of these proceedings u/s 14 of the SARFAESI Act, the objection of petitioner-borrower has been rejected.
2.1 The objection of petitioner-borrower was that the financial institution has already invoked arbitration clause in the agreement between petitioner-borrower and financial institution whereafter award has been passed on 27.08.2021 in favour of financial institution and an application u/s 36 for executing the same is preferred and pending before the Commercial Court, Rewa.
2.2 It is further not disputed by petitioner that a Securitization Application has been filed by petitioner-borrower assailing the notice for possession issued by respondent financial institution u/s 13(4) of the SARFAESI Act.
3. Learned counsel for petitioner Shri Pushpendra Dubey referring to Section 11 of the SARFAESI Act submits that the said provision mandates settlement of dispute regarding non-payment of amount due including interest by way of conciliation or arbitration in terms of procedure provided under Arbitration & Conciliation Act, 1996 (for short ‘AC Act’) notwithstanding non-grant of consent by any of the rival parties.
4. After having heard learned counsel for rival parties, this Court is of the considered view that power of judicial review as sought by petitioner cannot be invoked by this Court in the given and attending facts and circumstances for the reasons infra:
4.1 No doubt Section 11 of the SARFAESI Act mandates dispute to be resolved by way of conciliation and arbitration but Section 35 & 37 of the SARFAESI Act are worthy of reference at this stage. The said two provisions i.e. Section 35 & 37 of the SARFAESI Act for ready reference and convenience are produced herein-below:
37. Application of other laws not barred - The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.”
Section 35 of SARFAESI Act stipulates that provisions of SARFAESI Act shall have overriding effect over anything in consistent in any other law for the time being in force or any instrument having effect by virtue of any such law. The Apex Court in Vishal N. Kalsaria vs. Bank of India, AIR 2016 SC 530 has interpreted the expression “any other law for the time being in force” to mean that any other law operating in the same field i.e. the field occupied by SARFAESI Act.
4.2 Whereas Section 37 prescribes that the provisions of SARFAESI Act are mandated to take
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