SARFAESI Act | Orders Passed In Interim Application Appealable U/S 18; Cannot Invoke Supervisory Jurisdiction U/Art 227: Kerala High Court

The Kerala High Court recently held that an order passed in an interim application is appealable before the Appellate Tribunal, under Section 18 of the SARFAESI Act ('Appeal to Appellate Tribunal').

It thus proceeded to declare that Article 227 of the Constitution cannot be invoked by the High Court, when the Tribunal had considered the matter before it in the proper perspective. 

Justice K. Babu, reminded that the power under Article 227 of the Constitution could be exercised only when there is grave injustice or failure of justice and when (i) the Court or the Tribunal has assumed a jurisdiction which it does not have (ii) has failed to exercise a jurisdiction which it does have, such failure occasioning a failure of justice and (iii) the jurisdiction though available is being exercised in a manner which tantamounts to overstepping the limits of jurisdiction. 

"It is trite that whenever the Tribunal has considered the matter in its proper perspective and where the impugned order shows the application of mind by the Tribunal, this Court will not entertain a petition under Article 227 merely because another view could have been taken," the Court observed.

Factual Background

As per the factual matrix, the Managing Partner of the Partnership Firm, M/S Sama Rubbers, had availed a credit facility from the Bank to the tune of Rs.10 Crores. An immovable property in Kanjirappally Taluk, Kottayam, had been given as security for repayment of the loan amount, and the title deeds of the property were deposited with the bank for creating an equitable mortgage.

Subsequently, the loan account was declared as a Non-Performing Asset (NPA), pursuant to which the Bank initiated proceedings under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Bank also issued possession notice under the Act Section 13(4) of the statute. 

The petitioners challenged the recovery proceedings before the Debts Recovery Tribunal (DRT), which granted an interim stay, and after final adjudication, dismissed the Securitisation Application. The bank subsequently filed an application before the DRT, and issued notice under the SARFAESI Act proposing to sell the mortgaged property, in the event of the petitioner's failure to discharge his liability. The Bank had also approached the Chief Judicial Magistrate Court (CJM), Kottayam, for appointment of an Advocate Commissioner under Section 14 of the SARFAESI Act, which was allowed, and the latter was directed to take possession of the properties. 

A plea was subsequently filed before the High Court by the Managing Partner of the firm, seeking the issuance of direction to the respondents to consider the petitioners' request for One Time Settlement, which had been rejected by the Bank. When the plea was later withdrawn from the High Court and filed before the DRT, along with an interim application seeking stay of the measures taken under the SARFAESI Act, the Tribunal dismissed the same. 

It is against the dismissal of the application that the present plea has been filed. 

The petitioners averred that they were constrained to file the present plea under Art 227 of the Constitution since the interim order under challenge was not appealable under Section 18 of the SARFAESI Act.

It was submitted that the Tribunal had not considered the fundamental principles of ad-interim relief, namely (i) strong prima facie case, (ii) balance of convenience and (iii) irreparable injury, and also failed to appreciate that the CJM had not satisfied with the requirements provided in Section 14 of the SARFAESI Act ('Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset') while passing the impugned order. 

On the other hand, it was argued by the counsel for the respondents that the impugned order was appealable under Section 18 of the SARFAESI Act. It was added that the order passed by the CJM was only in the nature of an administrative order, whereby the Magistrate had satisfied the requirements of Section 14 of the SARFAESI Act.

Findings of the Court

The Court at the outset perused Sections 17, and 18 of the SARFAESI Act, and observed that any order made by the Tribunal in a proceeding under Section 17 ('Application against measures to recover secured debts') of the SARFAESI Act is appealable before the Appellate Tribunal. 

The Court went on to state that the power under Article 227 ought to be exercised by the High Court sparingly, to set right grave dereliction of duty or flagrant abuse, violation of fundamental principles of law or justice. 

As regards the question as to whether the Tribunal had exercised its jurisdiction properly in the present case, the Court took note that the proceedings initiated by the Bank were challenged before the DRT by the petitioners on the grounds that the Bank had not complied with the mandatory requirements in accordance with the provisions of the SARFAESI Act. The petitioners had also alleged that the affidavit filed before the CJM was violative of Section 14 of the Act, since the Authorized Officer of the Bank had not declared the aggregate amount of financial assistance granted to the petitioners, as well as the total claim, nor had the deponent declared that the Bank was holding a valid and subsisting security interest over the petitioner's properties. It was further contended before the DRT that the date on which the affidavit was attested had not been mentioned either. 

The Court in this case, upon perusal of the factual aspects, was of the considered view that the inquiry conducted by the CJM under Section 14 of the SARFAESI Act did not amount to an adjudication of the parties' inter se rights regarding the subject matter. 

"It is an administrative or executive function regarding the verification of the affidavit and documents relied on by the parties," it observed. 

The Court thus found that it could not be concluded that the Tribunal had not taken into account the question whether the Chief Judicial Magistrate had displayed a judicial approach in verifying the affidavit and the documents produced along with it.

"The materials placed before this Court do not demonstrate that the Tribunal has failed to exercise its jurisdiction in a manner negating justice. It is difficult to hold that the approach adopted by the Tribunal has occasioned a failure of justice. The impugned order requires no interference by this Court exercising jurisdiction under Article 227 of the Constitution of India," the Court observed while dismissind the plea. 

The petitioners were however granted liberty to approach the statutory forum for appropriate remedies. 

Counsel for the Petitioners: Advocate R. Surendran

Counsel for the Respondents: Senior Advocate K.K. Chandran Pillai, Standing Counsel of South Indian Bank S. Ambily, and Advocates Rupa R. Nair, Ruban Joe Toniyo, and Mathew Joseph Balummel

Citation: 2023 LiveLaw (Ker) 594 

Case Title: M/S Sama Rubbers & Ors. v. South Indian Bank Ltd. & Anr. 

Case Number: OP (DRT) NO. 392 OF 2023

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