Writ petition against notice issued under Section 13(4) SARFAESI Act not to be entertained by a High Court: Supreme Court

  • 10:43 AM, 13 Jan 2022

The Supreme Court has held that writ petitions against the notice issued under Section 13(4) of the SARFAESI Act are not required to be entertained by the High Court.

"...in view of the statutory remedy available under Section 17 of the SARFAESI Act and in view of the law laid down by this Court in the cases referred to hereinabove, the writ petitions against the notice under Section 13(4) of the SARFAESI Act was not required to be entertained by the High Court.", remarked a bench of Justices MR Shah and BV Nagarathna.

The bench further said,

"If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable."

Phoenix ARC Private Limited had approached the top court assailing an order passed by the the High Court of Karnataka by which the High Court had entertained the writ petitions under Article 226 of the Constitution of India against it, an Assets Reconstructing Company and had passed an interim order directing for maintaining status quo with regard to SARFAESI action (possession of the secured assets).

"...it is required to be noted that a writ petition against the private financial institution – ARC – appellant herein under Article 226 of the Constitution of India against the proposed action/actions under Section 13(4) of the SARFAESI Act can be said to be not maintainable", said the court.

The bench further noted that in the present case, the ARC proposed to take action/actions under the SARFAESI Act to recover the borrowed amount as a secured creditor and as such the ARC cannot be said to be performing public functions which are normally expected to be performed by the State authorities.

"During the course of a commercial transaction and under the contract, the bank/ARC lent the money to the borrowers herein and therefore the said activity of the bank/ARC cannot be said to be as performing a public function which is normally expected to be performed by the State authorities. If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable", further held the Court.

While relying on the dictum in Authorized Officer, State Bank of Travancore & Anr. Vs. Mathew K.C., the bench was of the opinion that filing of the writ petitions by the borrowers before the High Court under Article 226 of the Constitution of India was an abuse of process of the Court. 

"Filing of the writ petition by the borrowers before the High Court is nothing but an abuse of process of Court. It appears that the High Court has initially granted an ex-parte ad-interim order mechanically and without assigning any reasons. The High Court ought to have appreciated that by passing such an interim order, the rights of the secured creditor to recover the amount due and payable have been seriously prejudiced. The secured creditor and/or its assignor have a right to recover the amount due and payable to it from the borrowers. The stay granted by the High Court would have serious adverse impact on the financial health of the secured creditor/assignor....", the bench held.

Accordingly, while allowing the appeals, the court imposed costs to be paid by the original writ petitioners quantified at Rs.1 lakh in both the cases to be directly paid to the appellant within a period of four weeks.

Cause Title: Phoenix ARC Private Limited v Vishwa Bharati Vidya Mandir & Ors.