Notice U/S 13(2) SARFAESI Act Not Sufficient For Instituting Legal Challenge, Adjudication Must Await Until S.13(4) Stage: Gujarat HC
The Gujarat High Court, while declining to exercise its writ jurisdiction at the stage of issuance of notice under Section 13(2) of the SARFAESI Act, has held that adjudication of matter would have to wait till the stage of Section 13(4) was reached. Thereafter, the aggrieved person can file a securitisation appeal under Section 17 of the SARFAESI Act before the...
The Gujarat High Court, while declining to exercise its writ jurisdiction at the stage of issuance of notice under Section 13(2) of the SARFAESI Act, has held that adjudication of matter would have to wait till the stage of Section 13(4) was reached. Thereafter, the aggrieved person can file a securitisation appeal under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal.
Section 13(2) of the Act refers to the issuance of notice to the borrower for discharging his liabilities within 60 days in case of default in payment of debt. While Section 13(4) pertains to declaring the accounts of the borrower as an NPA and thereafter, taking possession of secured assets and appointing a person to manage such assets.
Justice Vaibhavi Nanavati explained:
"It is open for the petitioners to avail statutory remedy by preferring an appeal/application under Section 17 of the SARFAESI Act, as per the ratio as referred hereinabove. No interference is called for at the stage of issuance of notice under Section 13(2) of the SARFAESI act. Consequently, the question of examining legality and validity of such demand notice would not arise. The adjudication would have to wait till the stage of Section 13(4) is reached…"
The Petitioners herein had challenged the notice issued by the Respondent-Bank under Section 13(2) demanding a sum of Rs. 33.9 lacs from Petitioner No. 1, one of the Directors of the Company for default.
The total liabilities of the Company with the bank were Rs. 41 lacs while the Bank held collateral security worth Rs. 87 lacs.
The notice cautioned that if the liabilities were not discharged, the Bank would recover the same from the sale of mortgage property which included the Petitioners' property.
It was the Petitioners' case that the Bank had issued a No Due Certificate releasing them from all liabilities in personal capacity and the capacity of the Director since Petitioner No. 1 had resigned from the post of Director and had deposited Rs. 20 lacs so as to secure the Bank. In light of this certificate, the Petitioner did not have any outstanding liabilities and the notice was entitled to be set aside. Further, the writ jurisdiction of the Court was invoked since the Respondent Bank had initiated recovery without jurisdiction.
The Bank averred that there was no statutory remedy under Section 17 to the Petitioners and that there was no violation of the provisions of the SARFAESI Act. Further, the Petitioners had themselves executed the affidavit-cum-declaration confirming the mortgage created in favour of the Respondent Bank and now it was not open for them to deny repayment of dues of the Company.
Upon referring to the No-Due Certificate, the High Court found that the property would still be mortgaged till the discharge of the full and final payment of the Bank. However, while referring to S.V. Developers v/s. State Bank of India and others case, the Single Judge confirmed that at the stage of Sec 13(2), there should be no judicial or quasi judicial interdiction. Thus, keeping in view the stage of the proceedings, the High Court did not exercise its jurisdiction.
Case No.: C/SCA/11149/2021
Case Title: RAJESH SUKAMARAN NAMBIAR v/s THE CENTRAL BANK OF INDIA THROUGH THE CHIEF MANAGER
Citation: 2022 LiveLaw (Guj) 359