Kerala High Court: Writ Petitions Cannot Be Used to Bypass SARFAESI Tribunal to Avoid Fees

Kochi, India – In a significant ruling that reinforces the primacy of statutory remedial mechanisms, the Kerala High Court has held that the constitutional remedy of a writ petition cannot be invoked by a litigant as a strategic alternative to avoid approaching the Debt Recovery Tribunal (DRT) under the SARFAESI Act, which requires the payment of fees.

A Division Bench comprising Justice Anil K. Narendran and Justice Muralee Krishna S, in the case of M/S Thiruvonam Industries and Others v Hero Fincorp Ltd , dismissed a writ appeal, thereby upholding the sanctity of the specialized adjudicatory framework established by Parliament for debt recovery. The judgment sends a clear message against the circumvention of statutory procedures and reaffirms the limited scope of the High Court's extraordinary jurisdiction under Article 226 of the Constitution in matters governed by specific legislation.

Background of the Case

The case originated from a writ petition filed by M/S Thiruvonam Industries challenging recovery proceedings initiated by Hero Fincorp Ltd., a private Non-Banking Financial Company (NBFC). The NBFC had issued a possession notice under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The petitioners sought to quash the notice and requested a facility to repay the loan in instalments.

A Single Judge of the High Court had previously dismissed their petition, pointing to the availability of an alternative and efficacious statutory remedy before the DRT. The judge also noted a lack of bona fides on the part of the petitioners. Undeterred, the petitioners filed a writ appeal before the Division Bench, raising a specific legal contention. They argued that the SARFAESI proceedings were void ab initio as they were barred by Section 31(j) of the Act, which prohibits the application of the Act if the amount due is less than 20% of the principal amount and interest thereon.

The Court's Analysis: Upholding Procedural Sanctity

The Division Bench meticulously examined the appellants' contentions and the established legal principles governing writ jurisdiction in the context of the SARFAESI Act.

1. The Limited Scope of Writ Jurisdiction

The court began by reiterating the principles guiding the issuance of a writ of certiorari, leaning on the Supreme Court's decision in South Indian Bank Ltd. v Naveen Mathew Philip . It emphasized that the High Court's role in a writ petition is to scrutinize the decision-making process , not to substitute its own judgment for that of the competent authority.

“Courts are not expected to substitute themselves with the decision-making authority while finding fault with the process along with the reasons assigned. Such a writ is not expected to be issued to remedy all violations,” the Bench observed.

This observation underscores a fundamental tenet of judicial review: deference to statutory bodies unless there is a patent illegality, jurisdictional error, or violation of natural justice. The court stressed that when a statute prescribes a specific mode of adjudication, the High Court must not encourage attempts to bypass it. The DRT, being a specialized tribunal, is fully equipped to adjudicate on complex issues of fact and law, including allegations of statutory violations.

2. The Purpose of the SARFAESI Act and the Role of the DRT

Citing the landmark Supreme Court ruling in Mardia Chemicals Ltd. v. Union of India , the Bench highlighted the dual objectives of the SARFAESI Act: to facilitate rapid recovery for financial institutions without court interference, while simultaneously providing a fair and robust mechanism for aggrieved parties through the DRT.

“The Tribunal is clothed with a wide range of powers to set aside an illegal order, and thereafter, grant consequential reliefs, including repossession and payment of compensation and costs,” the court noted, pointing to the expansive powers granted under Section 17 of the Act.

The Bench implicitly criticized the appellants' attempt to use the writ court as a means to evade the procedural requirements of the DRT, including the payment of requisite fees. This practice, the court suggested, undermines the very structure and purpose of the specialized tribunal system.

3. Writ Maintainability Against Private NBFCs

A crucial question addressed by the court was whether a writ petition under Article 226 is maintainable against a private entity like Hero Fincorp Ltd. when it is exercising powers conferred by the SARFAESI Act. Relying on a recent Supreme Court decision in Shobha S v Muthoot Finance Ltd. , the Bench decisively held that it is not. This finding significantly narrows the avenue for borrowers to challenge SARFAESI actions by private financial institutions directly in the High Court, directing them squarely towards the DRT.

4. Interpretation of Section 31(j) of the SARFAESI Act

The court then dismantled the appellants' core legal argument regarding the bar under Section 31(j). The appellants claimed the "amount due" was the defaulted overdue amount, which was less than 20% of the total loan. The Bench, however, adopted a purposive interpretation, aligning with its earlier decision in Biju Mathew Abraham v State Bank of Travancore .

The court clarified that the phrase "amount due is less than twenty per cent of the principal amount and interest thereon" in Section 31(j) refers to the total outstanding liability . The provision is intended to apply only when a borrower has already discharged more than 80% of their total financial obligation (principal plus interest).

“There is no ambiguity to the words used in the statute to have a different interpretation. If this interpretation is not given to clause (j) of Section 31 of the SARFAESI Act, Sections 13(1) and (2) and other measures will become meaningless,” the court reasoned.

Accepting the appellants' interpretation would effectively cripple the Act, as any minor default at the beginning of a loan tenure would fall under the 20% threshold, preventing lenders from initiating recovery proceedings.

Conclusion and Implications for Legal Practitioners

In dismissing the writ appeal, the Kerala High Court has delivered a robust defense of statutory remedies and procedural discipline. The judgment serves as a stern reminder to litigants and legal practitioners that the writ jurisdiction of the High Court is an extraordinary remedy, not a convenient shortcut to bypass established legal frameworks.

For banking and finance lawyers, this ruling has several key takeaways:

* Strengthening the DRT: It reinforces the DRT as the primary and appropriate forum for all disputes arising from SARFAESI proceedings, including challenges to their legality and constitutionality.

* Discouraging Dilatory Tactics: The decision will likely deter borrowers from filing writ petitions solely to delay recovery or avoid the pre-deposit/fee requirements of the DRT.

* Clarity on Section 31(j): The court's interpretation provides much-needed clarity on the application of Section 31(j), preventing its misuse to stall legitimate recovery actions.

* Limited Recourse Against Private NBFCs: The confirmation that writ petitions are not maintainable against private NBFCs under SARFAESI solidifies the legal position and streamlines the dispute resolution path towards the DRT.

Ultimately, the High Court's decision in M/S Thiruvonam Industries champions the legislative intent behind the SARFAESI Act, ensuring that the balance between swift recovery for lenders and fair recourse for borrowers is maintained within the specialized ecosystem of the Debt Recovery Tribunal.