Supreme Court Deprecates High Courts Entertaining Writ Petitions In SARFAESI Matters; Frowns Upon Borrowers Approaching HCs To Consider Offers To Banks

The Supreme Court has deprecated the interference of the High Courts in commercial matters, more particularly pertaining to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act, 2002”).

The Bench comprising of Justice Sanjiv Khanna and Justice M.M. Sundresh while adjudicating an appeal filed in M/s South Indian Bank Ltd. & Ors. V Naveen Mathew Philip & Anr., expressed its displeasure on the Borrowers approaching the High Court for the consideration of their offer to the Bank. The Bench held, “More circumspection is required in a financial transaction, particularly when one of the parties would not come within the purview of Article 12 of the Constitution of India. When a statute prescribes a particular mode, an attempt to circumvent shall not be encouraged by a writ court. A litigant cannot avoid the noncompliance of approaching the Tribunal which requires the prescription of fees and use the constitutional remedy as an alternative.”

The Supreme Court further said that it is "constrained to take judicial notice" of the fact that "certain High Courts" and named Punjab and Haryana High Court as one such court. The present case was an appeal from the Kerala High Court.

BACKGROUND FACTS

The Borrowers (“Respondents”) availed loans from the South Indian Bank ltd. (“Appellant/Bank”) and their accounts were declared Non-Performing Assets (“NPA”) on 27.05.2021. The Bank issued Notices under Section 13(2) of SARFAESI Act to the Borrowers on 07.08.2021 and 12.08.2021. In response, the Borrowers addressed a letter dated 28.10.2021, seeking twelve months’ time to repay the loan.

In 2021, the post of Presiding Officer in various benches of Debt Recovery Tribunals (“DRT”) and Debt Recovery Appellate Tribunals (“DRAT”) remained vacant. The Supreme Court had taken note of the situation and requested the concerned High Court(s) to entertain the matters falling within the jurisdiction of DRTs and DRATs under Article 226 of the Constitution of India. It was clarified that once Tribunals are constituted; the matters can be relegated to the Tribunals by the High Courts.

Since the concerned DRT was non-functional, the Borrowers filed a writ petition before the Kerala High Court, challenging the Notice under Section 13(2) of SARFAESI Act issued by the Bank. The writ petition was filed merely after three days of response letter dated 28.10.2021 and prior to the expiry of the statutory period prescribed. The High Court directed the Bank to consider the proposal placed by the Borrowers for repayment and permitted the Borrowers to remit the dues in installments. However, the Borrowers failed to do so. Therefore, the Bank issued notices under Section 13(4) of the SARFAESI Act to the Borrowers in December 2021.

Thereafter, the Borrowers filed another writ petition before the High Court, seeking quashing of Notices under Section 13(4) of SARFAESI Act and a direction to Bank to accept deferred payments. The High Court permitted the Borrowers to make deferred payments within 12 months to the Bank. Following which, the Bank preferred an appeal before the Supreme Court. It was argued that since an equally efficacious remedy was available, the extraordinary jurisdiction of the High Court under Article 226 of the Constitution of India could not have been invoked.

SUPREME COURT VERDICT

The Bench noted that DRT was not functional at the time of filing the Writ Petitions by the Borrowers. However, it became functional from March, 2022 and matters should have been relegated to the Tribunal by the High Court.

High Courts not to interfere in commercial matters where equally efficacious alternative forum exists

While conveying dismay on the interference of High Courts in commercial matters for which an alternative forum exists, the Bench observed as under:

“We may, however, reiterate the settled position of law on the interference of the High Court invoking Article 226 of the Constitution of India in commercial matters, where an effective and efficacious alternative forum has been constituted through a statute. We are also constrained to take judicial notice of the fact that certain High Courts continue to interfere in such matters, leading to a regular supply of cases before this Court. One such High Court is that of Punjab & Haryana.”

The Bench further held that a litigant cannot avoid approaching the Tribunal and rather approach the High Court to use the constitutional remedy as an alternative. It was observed that:

“Approaching the High Court for the consideration of an offer by the borrower is also frowned upon by this Court. A writ of mandamus is a prerogative writ. In the absence of any legal right, the Court cannot exercise the said power. More circumspection is required in a financial transaction, particularly when one of the parties would not come within the purview of Article 12 of the Constitution of India. When a statute prescribes a particular mode, an attempt to circumvent shall not be encouraged by a writ court. A litigant cannot avoid the noncompliance of approaching the Tribunal which requires the prescription of fees and use the constitutional remedy as an alternative.”

It has been held that the powers conferred under Article 226 of the Constitution of India are to be exercised only in extraordinary circumstances, particularly in commercial matters which involve a lender and a borrower and the legislature has provided specific mechanism for redressal.

High Courts in writ jurisdiction not expected to substitute themselves with the decision-making authority

It was further observed that a writ of certiorari is to be issued over a decision when the Court finds that the process does not conform to the law or statute. The courts are not expected to substitute themselves with the decision-making authority, while finding fault with the process along with the reasons assigned. It is the Tribunals which have been constituted to go into the issues of fact and law, including a statutory violation.

“A question as to whether such a violation would be over a mandatory prescription as against a discretionary one is primarily within the domain of the Tribunal. So also, the issue governing waiver, acquiescence, and estoppel” the Bench opined.

However, the Court did not interfere with the High Court's order in view of concessions made on behalf of the bank. Senior Advocate KV Viswanathan appearing on behalf of the bank requested the Court to streamline the law on the point to guide the High Courts. He pointed out that the High Court has exercised writ jurisdiction under Article 226 of the Constitution of India, even after the Debt Recovery Tribunal became functional, in about 185 cases pertaining to the Appellants alone. After the filing of the Special Leave Petitions, 35 Writ Petitions have been filed. Resultantly, the Appellants are not in a position to proceed further to recover the amounts due from the defaulting borrowers/guarantors, defeating the object of the SARFAESI Act itself. 

Disposing of the appeal, the Court directed a copy of this judgment be circulated to the High Courts of Kerala and P&H.

Case Title: M/S. South Indian Bank Ltd. & Ors. V Naveen Mathew Philip & Anr.

Citation:  2023 LiveLaw (SC) 320

Constitution of India -Article 226- Supreme Court deprecates High Court entertaining writ petitions in SARFAESI matters, especially against private banks-When a statute prescribes a particular mode, an attempt to circumvent shall not be encouraged by a writ court. A litigant cannot avoid the noncompliance of approaching the Tribunal which requires the prescription of fees and use the constitutional remedy as an alternative

SARFAESI Act 2002- Writ petitions in SARFAESI matters - Approaching the High Court for the consideration of an offer by the borrower is also frowned upon by this Court. A writ of mandamus is a prerogative writ. In the absence of any legal right, the Court cannot exercise the said power. More circumspection is required in a financial transaction, particularly when one of the parties would not come within the purview of Article 12 of the Constitution of India.  

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