SARFAESI: Allahabad HC Refuses To Entertain Borrower’s Loan Default Due To Demonetisation, GST [Read Judgment]

The Allahabad High Court has dismissed a writ petition challenging recovery proceedings initiated against a borrower firm, which challenged recovery proceedings on the ground that due to demonetisation and imposition of GST, it suffered loss in business and could not pay loan installments to the bank.

The bench comprising Justice Bharati Sapru and Justice Siddharth passed the above order in a petition filed by LED bulb manufacturing firm, M/S Kanika Swami of Meerut.

The issue before the division bench was whether the prayer for quashing a possession notice issued under Section 13(4) of the SARFAESI Act, 2002 (“SARFAESI Act”) could be entertained in the light of statutory and alternative remedy under the Act.

The facts of the case are that the petitioner had availed cash credit facility from the respondent bank for setting up business and the credit facility was accorded by the bank for a limit of Rs 93,00,000.

However, due to demonetisation, the goods purchased by the petitioner remained unsold and her business was further affected by the introduction of GST. Thereafter, Section 13(2) notice was issued to the petitioner by the respondent bank for payment of the outstanding dues and then the impugned possession notice. The petitioner had expressed her willingness to deposit Rs 3,50,000 and the balance amount for regularization of her account in the respondent bank but the bank did not accept the same.

The respondent bank contended that the petitioner had alternative remedy under Section 17(1) of the SARFAESI Act, 2002, and no interference of the court is warranted in the proceedings of recovery initiated by the bank against the petitioner. The bank also contended that the petitioner did not clear liability even after the issuance of the Section 13 (2) notice. It was further stated that the account of the petitioner had been declared as a non-performing asset (NPA) by the bank, therefore, unless outstanding dues are cleared, the account of the petitioner could not be regularised.

Accepting the contentions of the respondent bank, the court observed, “It is further notable that the invoking of the jurisdiction of the High Court by the defaulters of the banks and financial institutions against the proceedings under SARFAESI Act, 2002 is not in their larger interest since in most of the cases, the petitioner offers to deposit the amount in installments and in the process, they admit the outstanding liability without any demur before this Court. It is detrimental to the interest of the borrowers and guarantors in the long run since the scope of Section 17 of the SARFAESI Act, 2002 is akin to a court of appeal competent to go into the questions of facts and law, both, for the first time, at the behest of the borrower, or the guarantor, against the action taken by the secured creditor.”

Therefore, it was held by the division bench that the writ petition filed by the petitioner could not be entertained as the petitioner clearly had an alternative remedy available under Section 17 of the SARFAESI Act, 2002.