SARFAESI Act No License For Bank Officers To Act Against Law : Supreme Court

In a recent judgement, the Supreme Court underlined that all litigants, including banks, were duty bound to follow provisions of law and that banks would not be treated on a different footing than other litigants. The Court said that the the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) does not give any "license to the Bank officers to act de hors the scheme of the law or the binding verdicts".

The bench comprising CJI DY Chandrachud and Justice JB Pardiwala was dealing with a case where a bank had permitted a borrower to redeem the mortgage of a secured asset after the said asset had already been auctioned off to the highest bidder by the bank. The judgement authored by Justice Pardiwala held that the same was impermissible under Section 13(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and stressed that law treated everyone equally, including banks and its officers.

The court stated–

"Bank is duty bound to follow the provisions of the law as any other litigant. It is to be noted that the Bank i.e., the secured creditor acts under the SARFAESI Act through the authorised officer who is appointed under Section 13(2). Thus, the authorised officer and the Bank cannot act in a manner so as to keep the sword hanging on the neck of the auction purchaser."

Highlighting further upon the principle of equity, the judgement also added–

"The law treats everyone equally and that includes the Bank and its officers. The said enactments were enacted for speedy recovery and for benefitting the public at large and does not give any license to the Bank officers to act de hors the scheme of the law or the binding verdicts. The proposition of law as discernible from the aforesaid decisions is that equity cannot supplant the law...Equity has to follow law, if the law is clear and unambiguous."

Facts of the Case

The issue arose when the borrowers in the case availed a credit facility from the Bank to the tune of Rs. 100 crore. While the amount of Rs. 65 crore was adjusted against the then existing LRD facility, for the balance amount of Rs. 35 crore a security in the form of a simple mortgage was created over a parcel of land. The borrower defaulted in repayment of the loan amount and the loan account was declared as a Non-Performing Asset. The Bank issued a demand notice under Section 13(2) of the SARFAESI Act for repayment of the principal amount along with interest, cost, charges, etc which came up to Rs. 123.83 crore. The borrower was unable to pay the same and the Bank decided to put the secured asset to auction. On the ninth try, the Bank secured the sale of the asset at Rs 105 crore. The appellant was declared as the highest bidder and deposited the sum of the total bid amount. Meanwhile, the borrower filed a redemption application before DRT-I and while the parties were awaiting for the DRT order, the borrowers also went to the High Court, seeking directions to the Bank to permit them to redeem the mortgage of the secured asset. Before the High Court, the borrowers expressed their willingness to pay Rs. 129 crore for redeeming the mortgage and the bank accepted the same. The High Court permitted the borrowers to redeem the mortgage of the secured asset subject to the payment. The appellant approached Supreme Court against the High Court order.