Borrowers Should Avail Statutory Remedies Under SARFAESI Act Before Invoking Article 226 Against Recovery Proceedings: Delhi High Court

The Delhi High Court recently observed that the SARFAESI Act provides statutory remedies for borrowers, including the right to appeal, and that the court should not interfere in recovery proceedings unless there is a clear violation of law.

Justice Purushaindra Kumar Kaurav reiterated that the borrower will have to wait till measures under Section 13(4) of the SARFAESI Act for taking possession of the mortgaged property are taken by the creditor. In the interregnum period, the scope for interference in writ jurisdiction is not warranted.

"This court cannot transgress into the domain of the legislature to fill the alleged legal void in the scheme of SARFAESI Act, which according to the petitioners, is rendering them remediless under the Act before the possession is taken over by the respondent. This court cannot create a fresh normative reality by interpreting the way as desired by the petitioners. The scope of writ jurisdiction cannot be allowed to trounce the statutory obligation, on the stratagem of efficacious alternate remedy."

The case involved a loan of Rs. 10 crores granted against a property. Due to repayment default, the loan was classified as a non-performing asset (NPA). The respondent, a secured creditor, initiated actions under Sections 13(2) and 13(4) of the SARFAESI Act to recover the outstanding loan and take possession of the mortgaged property.

Later, an application was filed under Section 14 before the Magistrate who allowed the said application and appointed a Receiver to take over possession of the mortgaged property.

The plea was raised by the borrower arguing that before Section 13(4) measures are taken for possession of the secured asset, the remedy under Section 17 of the SARFAESI Act cannot be availed and therefore, a legal void was created which had to be redressed. The borrowers thus challenged the notices issued by the respondent under the SARFAESI Act.

It was the case of the borrower companies that they did not have any remedy for redressal of their grievances and therefore, the court in the exercise of power under Article 226 of the Constitution must interfere.

Throughout the legal proceedings, various precedents were relied on, including the jurisdiction of writ courts in such matters, the legality of the Receiver's appointment, and the sequence of legal actions taken by the parties involved.

The Court observed that the remedy, in any case, would lie under Section 17, once the measures under Section 13(4) or Section 14 of the SARFAESI Act are taken and that the borrower cannot invoke Article 226 of the Constitution to frustrate the object of recovery proceedings.

Regarding proceedings under Section 14, the court stated that the secured creditor could decide whether to use Section 13(4) or Section 14 measures. Borrowers or guarantors didn't have the authority to dictate how the secured creditor should proceed under the SARFAESI Act.

It was also held that if measures under Section 13(4) were taken up by the creditor and at a later stage, after having withdrawn the said measures, the creditor intends to move to measures under Section 14, there is no restraint under the law which bars the creditor from doing so. 

The Court rejected the argument that the petition was valid due to the respondent NBFC's alleged discharge of public functions. It clarified that Religare, as an NBFC, wasn't proven to be involved in public functions and thus couldn't be considered a public entity. The court emphasized that the loan agreement was a private transaction for monetary gain, devoid of public elements, making it inappropriate for the petitioners to seek a public law remedy.

It was observed that in any case, if the petitioner-borrowers feel that there are irregularities or illegality in taking action against them, the remedy would lie under Section 17. Thus it was held that the petitioners cannot invoke Article 226 to frustrate the object of recovery proceedings and that the scope of writ jurisdiction cannot be allowed to trounce the statutory obligation, on the stratagem of efficacious alternate remedy.

As such, the petition was dismissed.

Case Title: Diamond Entertainment Technologies Pvt Ltd & Ors. vs Religare Finvest Limited

Citation: 2023 LiveLaw (Del) 689

Counsel for the Petitioners: Mr. Praveen Kumar and Mr. Nitesh Tiwari, Advocates

Counsel for the Respondent: Mr. Sanjeev Singh, Ms. Ridhi Pahuja and Ms. Taniya Bansal, Advocates

Click Here To Read/Download Judgment