AUTHORIZED OFFICER, STATE BANK OF TRAVANCORE AND ANOTHER versus MATHEW K. C. on 30 January 2018

AUTHORIZED OFFICER, STATE BANK OF TRAVANCOREAND ANOTHER

v.

MATHEW K. C.

(Civil Appeal No. 1281 of 2018)

JANUARY 30, 2018

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 – ss.13(4), 17, 18 – Grantof loans by financial institution – Failure of the borrower to paythe dues – Case of borrower that he was desirous to pay loan amount,as such sought regularization of the loan amount but bank failed toconsider the same – Writ petition u/Art.226 by borrower – Interimorder passed, staying further proceedings at the stage of s.13(4),on deposit of Rs.3,50,000/- – Appeal thereagainst dismissed by theDivision Bench – On appeal, held: In financial matters grant of ex-parte interim orders can have a deleterious effect and it is notsufficient to say that the aggrieved has the remedy to move forvacating the interim order – Such loan are granted from publicmoney generated at tax payers’ expense – Timely repayment cannotbe permitted to be blocked by frivolous litigation – It is the solemnduty of the court to apply the correct law without waiting for anobjection – Any departure, if permissible, has to be for reasonsdiscussed, of the case falling under a defined exception – HighCourt ought not to have entertained the writ petition in view of theadequate alternate statutory remedies available to the borrower andwithout granting opportunity to the bank to contest themaintainability of the writ petition – Opinion of the Division Benchthat the counter affidavit having subsequently been filed, stay/modification could be sought of the interim order cannot beconsidered sufficient justification to decline interference – Thus,the impugned orders are unsustainable, and set aside – Constitutionof India – Art.226 – Alternative Remedy.

Allowing the appeal, the Court

HELD: 1.1 The Securitisation and Reconstruction of

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AFinancial Assets and Enforcement of Security Interest Act, 2002is a complete code by itself, providing for expeditious recoveryof dues arising out of loans granted by financial institutions, theremedy of appeal by the aggrieved under Section 17 before theDebt Recovery Tribunal, followed by a right to appeal before theAppellate Tribunal u/s. 18. The High Court ought not to haveBentertained the writ petition in view of the adequate alternatestatutory remedies available to the Respondent. [Para 4][237-E]

1.2 Normally this Court in exercise of jurisdiction underArticle 136 of the Constitution is loathe to interfere with aninterim order passed in a pending proceeding before the HighCCourt, except in special circumstances, to prevent manifestinjustice or abuse of the process of the court. The discretionaryjurisdiction under Article 226 is not absolute but has to beexercised judiciously in the given facts of a case and in accordancewith law. The normal rule is that a writ petition under Article 226

Dought not to be entertained if alternate statutory remedies areavailable, except in cases falling within the well definedexceptions. [Para 6][238-C-D]

1.3 The pleadings in the writ petition are very bald andcontain no statement that the grievances fell within any of theEwell defined exceptions. The allegation for violation of principlesof natural justice is rhetorical, without any details and the prejudicecaused thereby. It harps only on a desire for regularisation of theloan account, even while the Respondent acknowledges its owninability to service the loan account for reasons attributable to italone. The writ petition was filed in undue haste immediately afterFdisposal of objections under Section 13(3A). The legislativescheme, in order to expedite the recovery proceedings, doesnot envisage grievance redressal procedure at this stage, byvirtue of the explanation added to Section 17 of the Act. [Para7][239-B-C]G

1.4 The Section 13(4) notice along with possession noticeu/r.8 was issued. The remedy u/s.17 was now available to therespondent if aggrieved. These developments were not broughton record or placed before the Court when the interim ordercame to be passed. The writ petition was clearly not institutedHbonafide, but patently to stall further action for recovery. There is no pleading why the remedy available u/s. 17 before the Tribunalwas not efficacious and the compelling reasons for by-passingthe same. Unfortunately, the High Court also did not dwell uponthe same or record any special reasons for grant of interim reliefby direction to deposit. [Para 8][239-E-F]

1.5 It is the solemn duty of the Court to apply the correctlaw without waiting for an objection to be raised by a party,especially when the law stands well settled. Any departure, ifpermissible, has to be for reasons discussed, of the case fallingunder a defined exception, duly discussed after noticing therelevant law. In financial matters grant of ex-parte interim orderscan have a deleterious effect and it is not sufficient to say that theaggrieved has the remedy to move for vacating the interim order.Loans by financial institutions are granted from public moneygenerated at the tax payers expense. Such loan does not becomethe property of the person taking the loan, but retains its characterof public money given in a fiduciary capacity as entrustment bythe public. Timely repayment also ensures liquidity to facilitateloan to another in need, by circulation of the money and cannotbe permitted to be blocked by frivolous litigation by those whocan afford the luxury of the same. [Para 16][243-C-E]

1.6 The writ petition ought not to have been entertainedand the interim order granted for the mere asking withoutassigning special reasons, and that too without even grantingopportunity to the appellant to contest the maintainability of thewrit petition and failure to notice the subsequent developmentsin the interregnum. The opinion of the Division Bench that thecounter affidavit having subsequently been filed, stay/modificationcould be sought of the interim order cannot be consideredsufficient justification to have declined interference. Theimpugned orders are therefore contrary to the law laid down bythis Court under Article 141 of the Constitution and unsustainable.They are therefore, set aside. [Paras 17, 19][244-B-C, F]

United Bank of India v. Satyawati Tandon and others(2010) 8 SCC 110 : [2010] 9 SCR 1; General Manager,Sri Siddeshwara Cooperative Bank Limited and anotherv. Ikbal and others(2013) 10 SCC 83 : [2013] 8 SCR532; Commissioner of Income Tax and Others v. Chhabil A

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ADass Agarwal(2014) 1 SCC 603; Punjab NationalBank v. O.C. Krishnan and others(2001) 6 SCC 569 :[2001] 1 Suppl. SCR 466; Union Bank of India andanother v. Panchanan Subudhi(2010) 15 SCC 552;Kanaiyalal Lalchand Sachdev and others v. State ofMaharashtra and others(2011) 2 SCC 782 : [2011] 2BSCR 602; Punjab National Bank and another v.Imperial Gift House and others(2013) 14 SCC 622;Dwarikesh Sugar Industries Ltd. v. Prem HeavyEngineering Works (P) Ltd. and Another(1997) 6 SCC450 : [1997] 1 Suppl. SCR 184 – referred to.

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Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1281

of 2018.

From the Judgment and Order dated 19.06.2015 of the High Courtof Kerala at Ernakulam in W. A. No. 1218 of 2015 in W. P. (C) No.F10035 of 2015.

H. P. Raval, Sr. Adv., Sanjay Kapur, Ms. Megha Karnwal,Ms. Mansi Kapur, Aditya P. Arora, Advs. for the Appellants.

Roy Abraham, Praveen K., Ms. Reena Roy, Ms. Seema Jain,Akhil Abraham, Himinder Lal, Advs. for the Respondent.G

The Judgment of the Court was delivered by NAVIN SINHA, J. 1. Leave granted.

2. The present appeal assails an interim order dated 24.04.2015passed in a writ petition under Article 226 of the Constitution, staying H

further proceedings at the stage of Section 13(4) of the Securitisationand Reconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 (hereinafter referred as the ‘SARFAESI Act’), ondeposit of Rs.3,50,000/-within two weeks. An appeal against the samehas also been dismissed by the Division Bench observing that counteraffidavit having been filed, it would be open for the Appellant Bank toseek clarification/modification/variation of the interim order.

3. Shri H.P. Raval, learned Senior Counsel appearing for theAppellants, submits that the loan account of the Respondent was declareda Non-Performing Asset (NPA) on 28.12.2014. The outstanding duesof the Respondent on the date of the institution of the writ petition wasRs.41,82,560/-. Despite repeated notices, the Respondent failed andneglected to pay the dues. Statutory notice under Section 13(2) of theSARFAESI Act was issued to the Respondent on 21.01.2015. Theobjections under Section 13(3A) were considered, and rejection wascommunicated by the Appellant on 31.3.2015. Possession notice wasthen issued under Section 13(4) of the Act read with Rule 8 of TheSecurity Interest (Enforcement) Rules, 2002 (hereinafter referred to as‘the Rules’) on 21.04.2015.

4. The SARFAESI Act is a complete code by itself, providing forexpeditious recovery of dues arising out of loans granted by financialinstitutions, the remedy of appeal by the aggrieved under Section 17before the Debt Recovery Tribunal, followed by a right to appeal beforethe Appellate Tribunal under Section 18. The High Court ought not tohave entertained the writ petition in view of the adequate alternatestatutory remedies available to the Respondent. The interim order waspassed on the very first date, without an opportunity to the Appellant tofile a reply. Reliance was placed on United Bank of India vs. SatyawatiTandon and others, 2010 (8) SCC 110, and General Manager, SriSiddeshwara Cooperative Bank Limited and another vs. Ikbal andothers, 2013 (10) SCC 83. The writ petition ought to have been dismissedat the threshold on the ground of maintainability. The Division Bencherred in declining to interfere with the same.

5. Shri Roy Abraham, learned Counsel for the Respondent,submitted that it was desirous to repay the loan, and merely soughtregularisation of the loan account. The inability to service the loan wasgenuine, occasioned due to market fluctuations causing huge loss inbusiness, beyond the control of the Respondent. The failure of the Bank A

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Ato consider the request for regularisation of the loan account, the absenceof a right to appeal under Section 17 against the order passed underSection 13(3A), the Respondent was left with no option but to prefer thewrit application as the Respondent genuinely desired to discharge theloans. The collateral security offered included agricultural lands also,which had to be excluded under Section 31 of the SARFAESI Act.BThere had been violation of the principles of natural justice. A largenumber of similar writ applications are pending before the High Courtpreferred by the concerned borrowers, but the Bank has singled out thepresent Respondent alone for a challenge.

6. We have considered the submissions on behalf of the parties.CNormally this Court in exercise of jurisdiction under Article 136 of theConstitution is loathe to interfere with an interim order passed in a pendingproceeding before the High Court, except in special circumstances, toprevent manifest injustice or abuse of the process of the court. In thepresent case, the facts are not in dispute. The discretionary jurisdictionDunder Article 226 is not absolute but has to be exercised judiciously inthe given facts of a case and in accordance with law. The normal rule isthat a writ petition under Article 226 of the Constitution ought not to beentertained if alternate statutory remedies are available, except in casesfalling within the well defined exceptions as observed in Commissioner of Income Tax and Others vs. Chhabil Dass Agarwal, 2014 (1) SCCE603, as follows:

“15. Thus, while it can be said that this Court has recognisedsome exceptions to the rule of alternative remedy i.e. where thestatutory authority has not acted in accordance with the provisionsof the enactment in question, or in defiance of the fundamentalFprinciples of judicial procedure, or has resorted to invoke theprovisions which are repealed, or when an order has been passedin total violation of the principles of natural justice, the propositionlaid down in Thansingh Nathmal case, Titaghur Paper Mills caseand other similar judgments that the High Court will not entertainGa petition under Article 226 of the Constitution if an effectivealternative remedy is available to the aggrieved person or the statuteunder which the action complained of has been taken itself containsa mechanism for redressal of grievance still holds the field.Therefore, when a statutory forum is created by law for redressalof grievances, a writ petition should not be entertained ignoringHthe statutory dispensation.”

7. The pleadings in the writ petition are very bald and contain nostatement that the grievances fell within any of the well definedexceptions. The allegation for violation of principles of natural justice isrhetorical, without any details and the prejudice caused thereby. It harpsonly on a desire for regularisation of the loan account, even while theRespondent acknowledges its own inability to service the loan accountfor reasons attributable to it alone. The writ petition was filed in unduehaste in March 2015 immediately after disposal of objections underSection 13(3A). The legislative scheme, in order to expedite the recoveryproceedings, does not envisage grievance redressal procedure at thisstage, by virtue of the explanation added to Section 17 of the Act, byAmendment Act 30 of 2004, as follows :- “Explanation.—For the removal of doubts, it is hereby declaredthat the communication of the reasons to the borrower by thesecured creditor for not having accepted his representation orobjection or the likely action of the secured creditor at the stageof communication of reasons to the borrower shall not entitle theperson (including the borrower) to make an application to theDebts Recovery Tribunal under this sub-section.”

8. The Section 13(4) notice along with possession notice underRule 8 was issued on 21.04.2015. The remedy under Section 17 of theSARFAESI Act was now available to the Respondent if aggrieved. Thesedevelopments were not brought on record or placed before the Courtwhen the impugned interim order came to be passed on 24.04.2015.The writ petition was clearly not instituted bonafide, but patently to stallfurther action for recovery. There is no pleading why the remedy availableunder Section 17 of the Act before the Debt Recovery Tribunal was notefficacious and the compelling reasons for by-passing the same.Unfortunately, the High Court also did not dwell upon the same or recordany special reasons for grant of interim relief by direction to deposit.

9. The statement of objects and reasons of the SARFAESI Actstates that the banking and financial sector in the country was felt not tohave a level playing field in comparison to other participants in the financialmarkets in the world. The financial institutions in India did not have thepower to take possession of securities and sell them. The existing legalframework relating to commercial transactions had not kept pace with A

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Achanging commercial practices and financial sector reforms resulting intardy recovery of defaulting loans and mounting non-performing assetsof banks and financial institutions. The Narasimhan Committee I and IIas also the Andhyarujina Committee constituted by the CentralGovernment Act had suggested enactment of new legislation forsecuritisation and empowering banks and financial institutions to takeBpossession of securities and sell them without court intervention whichwould enable them to realise long term assets, manage problems ofliquidity, asset liability mismatches and improve recovery. Theproceedings under the Recovery of Debts due to Banks and FinancialInstitutions Act, 1993, (hereinafter referred to as ‘the DRT Act’) withCpassage of time, had become synonymous with those before regularcourts affecting expeditious adjudication. All these aspects have notbeen kept in mind and considered before passing the impugned order.

10. Even prior to the SARFAESI Act, considering the alternateremedy available under the DRT Act it was held in Punjab NationalDBank vs. O.C. Krishnan and others, (2001) 6 SCC 569, that :- “6. The Act has been enacted with a view to provide a specialprocedure for recovery of debts due to the banks and the financialinstitutions. There is a hierarchy of appeal provided in the Act,namely, filing of an appeal under Section 20 and this fast-trackEprocedure cannot be allowed to be derailed either by takingrecourse to proceedings under Articles 226 and 227 of theConstitution or by filing a civil suit, which is expressly barred.Even though a provision under an Act cannot expressly oust thejurisdiction of the court under Articles 226 and 227 of theConstitution, nevertheless, when there is an alternative remedyFavailable, judicial prudence demands that the Court refrains fromexercising its jurisdiction under the said constitutional provisions.This was a case where the High Court should not have entertainedthe petition under Article 227 of the Constitution and should havedirected the respondent to take recourse to the appeal mechanismGprovided by the Act.”

11. In Satyawati Tandon (supra), the High Court had restrainedfurther proceedings under Section 13(4) of the Act. Upon a detailedconsideration of the statutory scheme under the SARFAESI Act, theavailability of remedy to the aggrieved under Section 17 before the H

AUTHORIZED OFFICER, STATE BANK OF TRAVANCORE v.MATHEW K. C. [NAVIN SINHA, J.]

Tribunal and the appellate remedy under Section 18 before the AppellateTribunal, the object and purpose of the legislation, it was observed that awrit petition ought not to be entertained in view of the alternate statutoryremedy available holding :-

“43. Unfortunately, the High Court overlooked the settled lawthat the High Court will ordinarily not entertain a petition underArticle 226 of the Constitution if an effective remedy is availableto the aggrieved person and that this rule applies with greaterrigour in matters involving recovery of taxes, cess, fees, othertypes of public money and the dues of banks and other financialinstitutions. In our view, while dealing with the petitions involvingchallenge to the action taken for recovery of the public dues, etc.the High Court must keep in mind that the legislations enacted byParliament and State Legislatures for recovery of such dues area code unto themselves inasmuch as they not only containcomprehensive procedure for recovery of the dues but alsoenvisage constitution of quasi-judicial bodies for redressal of thegrievance of any aggrieved person. Therefore, in all such cases,the High Court must insist that before availing remedy under Article226 of the Constitution, a person must exhaust the remediesavailable under the relevant statute.

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55. It is a matter of serious concern that despite repeatedpronouncement of this Court, the High Courts continue to ignorethe availability of statutory remedies under the DRT Act and theSARFAESI Act and exercise jurisdiction under Article 226 forpassing orders which have serious adverse impact on the right ofbanks and other financial institutions to recover their dues. Wehope and trust that in future the High Courts will exercise theirdiscretion in such matters with greater caution, care andcircumspection.”

12. In Union Bank of India and another vs. PanchananSubudhi, 2010 (15) SCC 552, further proceedings under Section 13(4)were stayed in the writ jurisdiction subject to deposit of Rs.10,00,000/-leading this Court to observe as follows :

“7. In our view, the approach adopted by the High Court wasclearly erroneous. When the respondent failed to abide by the A

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Aterms of one-time settlement, there was no justification for theHigh Court to entertain the writ petition and that too by ignoringthe fact that a statutory alternative remedy was available to therespondent under Section 17 of the Act.”

13. The same view was reiterated in Kanaiyalal LalchandBSachdev and others vs. State of Maharashtra and others, 2011 (2)SCC 782 observing:

“23. In our opinion, therefore, the High Court rightly dismissedthe petition on the ground that an efficacious remedy was availableto the appellants under Section 17 of the Act. It is well settled thatordinarily relief under Articles 226/227 of the Constitution of IndiaCis not available if an efficacious alternative remedy is available toany aggrieved person. (See Sadhana Lodh v. National InsuranceCo. Ltd.; Surya Dev Rai v. Ram Chander Rai and SBI v. AlliedChemical Laboratories.)”

14. In Ikbal (supra), it was observed that the action of the BankDunder Section 13(4) of the ‘SARFAESI Act’ available to challenge bythe aggrieved under Section 17 was an efficacious remedy and theinstitution directly under Article 226 was not sustainable, relying uponSatyawati Tandon (Supra), observing :

“27. No doubt an alternative remedy is not an absolute bar to theEexercise of extraordinary jurisdiction under Article 226 but by nowit is well settled that where a statute provides efficacious andadequate remedy, the High Court will do well in not entertaining apetition under Article 226. On misplaced considerations, statutoryprocedures cannot be allowed to be circumvented.

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28…….In our view, there was no justification whatsoever for thelearned Single Judge to allow the borrower to bypass theefficacious remedy provided to him under Section 17 and invokethe extraordinary jurisdiction in his favour when he had disentitledhimself for such relief by his conduct. The Single Judge was clearlyGin error in invoking his extraordinary jurisdiction under Article 226in light of the peculiar facts indicated above. The Division Benchalso erred in affirming the erroneous order of the Single Judge.”

15. A similar view was taken in Punjab National Bank andanother vs. Imperial Gift House and others, (2013) 14 SCC 622,Hobserving:- “3. Upon receipt of notice, the respondents filed representationunder Section 13(3-A) of the Act, which was rejected. Thereafter,before any further action could be taken under Section 13(4) ofthe Act by the Bank, the writ petition was filed before the HighCourt.

4. In our view, the High Court was not justified in entertaining thewrit petition against the notice issued under Section 13(2) of theAct and quashing the proceedings initiated by the Bank.”

16. It is the solemn duty of the Court to apply the correct lawwithout waiting for an objection to be raised by a party, especially whenthe law stands well settled. Any departure, if permissible, has to be forreasons discussed, of the case falling under a defined exception, dulydiscussed after noticing the relevant law. In financial matters grant ofex-parte interim orders can have a deleterious effect and it is not sufficientto say that the aggrieved has the remedy to move for vacating the interimorder. Loans by financial institutions are granted from public moneygenerated at the tax payers expense. Such loan does not become theproperty of the person taking the loan, but retains its character of publicmoney given in a fiduciary capacity as entrustment by the public. Timelyrepayment also ensures liquidity to facilitate loan to another in need, bycirculation of the money and cannot be permitted to be blocked by frivolouslitigation by those who can afford the luxury of the same. The cautionrequired, as expressed in Satyawati Tandon (supra), has also not beenkept in mind before passing the impugned interim order:- “46. It must be remembered that stay of an action initiated by theState and/or its agencies/instrumentalities for recovery of taxes,cess, fees, etc. seriously impedes execution of projects of publicimportance and disables them from discharging their constitutionaland legal obligations towards the citizens. In cases relating torecovery of the dues of banks, financial institutions and securedcreditors, stay granted by the High Court would have seriousadverse impact on the financial health of such bodies/institutions,which (sic will) ultimately prove detrimental to the economy ofthe nation. Therefore, the High Court should be extremely carefuland circumspect in exercising its discretion to grant stay in suchmatters. Of course, if the petitioner is able to show that its case A

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Afalls within any of the exceptions carved out in Baburam PrakashChandra Maheshwari v. Antarim Zila Parishad, WhirlpoolCorpn. v. Registrar of Trade Marks and Harbanslal Sahnia v.Indian Oil Corpn. Ltd. and some other judgments, then the HighCourt may, after considering all the relevant parameters and publicinterest, pass an appropriate interim order.”B

17. The writ petition ought not to have been entertained and theinterim order granted for the mere asking without assigning specialreasons, and that too without even granting opportunity to the Appellantto contest the maintainability of the writ petition and failure to notice thesubsequent developments in the interregnum. The opinion of the DivisionCBench that the counter affidavit having subsequently been filed, stay/modification could be sought of the interim order cannot be consideredsufficient justification to have declined interference.

18. We cannot help but disapprove the approach of the High Courtfor reasons already noticed in Dwarikesh Sugar Industries Ltd. vs.DPrem Heavy Engineering Works (P) Ltd. and Another, 1997 (6) SCC450, observing :- “32. When a position, in law, is well settled as a result of judicialpronouncement of this Court, it would amount to judicial improprietyto say the least, for the subordinate courts including the High CourtsEto ignore the settled decisions and then to pass a judicial orderwhich is clearly contrary to the settled legal position. Such judicialadventurism cannot be permitted and we strongly deprecate thetendency of the subordinate courts in not applying the settledprinciples and in passing whimsical orders which necessarily hasFthe effect of granting wrongful and unwarranted relief to one ofthe parties. It is time that this tendency stops.”

19. The impugned orders are therefore contrary to the law laiddown by this Court under Article 141 of the Constitution andunsustainable. They are therefore set aside and the appeal is allowed.

G20. All questions of law and fact remain open for consideration inany application by the aggrieved before the statutory forum under theSARFAESI Act.

Nidhi JainH

Appeal allowed.