Supreme Court Deprecates HC Practice Of Entertaining Writ Petitions Filed In SARFAESI Matters Without Exhausting Alternative Remedy

The Supreme Court deprecated the practice of entertaining writ petitions filed in SARFAESI matters without exhausting the alternative statutory remedy.

In this case, the Telangana High Court set aside the e-auction sale held by the Bank (secured creditor) under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 on the following grounds (1) there was an error in the description of the scheduled property in e­auction sale notice dated 25th February, 2015 and that was considered to be a serious infirmity in the process and cannot be sanctified and (2) since the auction purchase failed to deposit balance 75% of the bid amount within the stipulated time of 15 days which ought to have been deposited by him on or before 10th April, 2015, that admittedly deposited by him on 15th April, 2015, is in clear breach of Rule 9(4) of the Rules, 2002. The High Court also reversed the decision of the Debt Recovery Tribunal which had dismissed the application of borrower in this regard.

Before the Apex Court, it was contended by the Bank that there was no reasonable justification tendered by the borrowers in approaching the High Court and filing writ application assailing order of the Tribunal  without exhausting the statutory right of appeal available at its command.

In this context, the bench comprising Justices Ajay Rastogi and CT Ravikumar noted that in United Bank of India vs. Satyawati Tondon (2010) 8 SCC 110 and observed:

"In the instant case, although the respondent borrowers initially approached the Debts Recovery Tribunal by filing an application under Section 17 of the SARFAESI Act, 2002, but the order of the Tribunal indeed was appealable under Section 18 of the Act subject to the compliance of condition of pre­deposit and without exhausting the statutory remedy of appeal, the respondent borrowers approached the High Court by filing the writ application under Article 226 of the Constitution. We deprecate such practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy available under the law. This circuitous route appears to have been adopted to avoid the condition of pre­deposit contemplated under 2nd proviso to Section 18 of the Act 2002."

The court agreed with the contention of the bank that the borrower failed to demonstrate that because of a typographical inadvertent error in door number.

"It is true that the secured creditor is under an obligation to undertake the exercise and cross­check the description of the mortgaged property at the stage when the initial proceedings under Section 13(2) are initiated or in the later consequential proceedings, but at the same time, mere typographical error due to inadvertence which has not caused any prejudice to the borrowers, that in itself could not be considered to be the ground to annul the process held by the secured creditor which, in our view, is in due compliance with the requirement as contemplated under the provisions of Rules, 2002.", the bench observed.

On the issue regarding the breach of Rule 9(4) of Security Interest (Enforcement) Rules, 2002, the bench observed thus:

In the given facts and circumstances, the four days' delay which was caused in terms of the original auction notice, in no manner, would frustrate or annul the auction proceedings and the Debts Recovery Tribunal has rightly held that because in such state of flux, particularly when the bank/secured creditor requested the auction purchaser to wait for some time because the borrowers are negotiating with the bank in the light of interim order dated 26th March, 2015 of the Tribunal, delay in depositing 75% of the bid amount by four days in no manner would frustrate the rights of the parties inter se, more so, when the conduct of the borrowers in getting extension orders on two different occasions and still not depositing Rs.6 lakhs in terms of the order of the Tribunal would clearly reflect that the intention of the borrowers was only to frustrate the auction sale by one reason or the other, which they could not succeed.

Case details

Varimadugu Obi Reddy vs B. Sreenivasulu | 2022 LiveLaw (SC) 967 | CA 8470 OF 2022 | 16 Nov 2022 | Justices Ajay Rastogi and CT Ravikumar

For Petitioner(s) Mr. Byrapaneni Suyodhan, Adv. Mr. Kumar Shashank, Adv. Ms. Tatini Basu, AOR

For Respondent(s) Mr. Krishna Dev Jagarlamudi, AOR Mr. Inderdeep Kaur Raina, Adv. Mr. N. Sai Kaushal, Adv. Mr. Sanjay Kapur, AOR Ms. Megha Karnwal, Adv. Mr. Arjun Bhatia, Adv. Ms. Akshata Joshi, Adv. Ms. Shubhra Kapur, Adv. Mr. Lalit Rajput, Adv. 

Headnotes

Constitution of India, 1950 ; Article 226  - SARFAESI Act, 2002 ; Section 18 - Without exhausting the statutory remedy of appeal under Section 18 of SARFAESI Act, the borrowers approached the High Court by filing the writ application - Practice of entertaining the writ application by the High Court in exercise of jurisdiction under Article 226 of the Constitution without exhausting the alternative statutory remedy deprecated - Referred to United Bank of India vs. Satyawati Tondon & Others (2010) 8 SCC 110 (Para 34)

SARFAESI Act, 2002 ; Section 13(2) - Security Interest (Enforcement) Rules, 2002 - It is true that the secured creditor is under an obligation to undertake the exercise and cross­check the description of the mortgaged property at the stage when the initial proceedings under Section 13(2) are initiated or in the later consequential proceedings, but at the same time, mere typographical error due to inadvertence which has not caused any prejudice to the borrowers, that in itself could not be considered to be the ground to annul the process held by the secured creditor which, in our view, is in due compliance with the requirement as contemplated under the provisions of Rules, 2002. (Para 37)

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