Interim Order In Writ Petition Challenging SARFAESI Proceedings Should Generally Not Be Passed Without Hearing Secured Creditors: Supreme Court

The Supreme Court has observed that interim orders in writ petitions challenging SARFAESI proceedings should generally not be passed without hearing the secured creditor.

Interim orders defeat the very purpose of expeditious recovery of public money, said the bench comprising Justices L. Nageswara Rao, Hemant Gupta and Ajay Rastogi. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters, the court said.

The court noted that, in United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, it was observed that,  in cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which will ultimately prove detrimental to the economy of the nation

The remedy of an aggrieved person by a secured creditor under the Act is by way of an application before the Debts Recovery Tribunal, however, borrowers and other aggrieved persons are invoking the jurisdiction of the High Court under Articles 226 or 227 of the Constitution of India without availing the alternative statutory remedy, the court observed. The bench therefore said: 

"The Hon'ble High Courts are well aware of the limitations in exercising their jurisdiction when affective alternative remedies are available, but a word of caution would be still necessary for the High Courts that interim orders should generally not be passed without hearing the secured creditor as interim orders defeat the very purpose of expeditious recovery of public money."

These observations were made while upholding a Kerala High Court judgment that Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, mandating the District Magistrate to deliver possession of a secured asset within 30 days, extendable to an aggregate of 60 days upon reasons recorded in writing, is a directory provision.

In Satyawati Tandon case, it was observed thus: "It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection."

Later, in State Bank of Travancore and Anr. vs. Mathew K.C., (2018) 3 SCC 85, the Court observed that in financial matters grant of ex parte interim orders can have a deleterious effect and it is not sufficient to say that the aggrieved has the remedy to move for vacating the interim order.

Case: C. BRIGHT vs. THE DISTRICT COLLECTOR [CIVIL APPEAL NO. 3441 OF 2020]
Coram: Justices L. Nageswara Rao, Hemant Gupta and Ajay Rastogi

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