Supreme Court Restricts High Court Interference in SARFAESI Act Cases: South Indian Bank Ltd. vs. Naveen Mathew Philip (2023)

Date of the Judgment: April 17, 2023

Citation: 2023 INSC 338

Judges: Sanjiv Khanna, J., M.M. Sundresh, J.

Can a High Court use its writ jurisdiction to interfere with actions taken under the SARFAESI Act, especially when a Debt Recovery Tribunal (DRT) is available? The Supreme Court addressed this crucial question in a recent case, clarifying the circumstances under which High Courts can intervene in such financial matters. This judgment emphasizes the importance of adhering to statutory remedies and limits the scope of interference by High Courts in commercial disputes where a specific legal mechanism is already in place.

Case Background

The respondents had taken two loans from the appellants: a housing/KCC overdraft loan and a business loan. The respondents’ accounts were declared Non-Performing Assets (NPA) on May 27, 2021. Subsequently, the bank issued notices under Section 13(2) of the SARFAESI Act on August 7, 2021, and August 12, 2021. The respondents replied on October 28, 2021, seeking twelve months to repay the loan.

Within three days of their reply, the respondents challenged the demand notice by filing a writ petition. The High Court directed the bank to consider their proposal. The bank allowed the respondents to repay in five installments, instead of twelve, but the respondents failed to utilize this extended benefit. Consequently, the bank issued notices under Section 13(4) of the SARFAESI Act on December 2, 2021, and December 20, 2021.

The respondents then filed two more writ petitions challenging these notices and seeking a direction to accept their unilateral offers. It is important to note that while the DRT was not functional when the initial writ petitions were filed, it became functional in March 2022.

Timeline:

Course of Proceedings

The High Court initially directed the bank to consider the respondents’ proposal for repayment. Subsequently, the High Court allowed the respondents to make deferred payments in 20 installments, which was later modified to 12 months by the Division Bench. The bank then appealed to the Supreme Court, arguing that the High Court should not have entertained the writ petitions given the availability of the Debt Recovery Tribunal (DRT).

Legal Framework

The core legal framework of this case revolves around the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), specifically Section 13, which deals with the enforcement of security interest. The SARFAESI Act provides a mechanism for banks and financial institutions to recover their dues without court intervention. Section 17 of the SARFAESI Act allows any person aggrieved by actions taken under Section 13(4) to approach the Debt Recovery Tribunal (DRT). The judgment also refers to Article 226 of the Constitution of India, which grants High Courts the power to issue writs.

The Supreme Court also considered the order passed in Special Leave Petition No. 10911 dated 16.12.2021, which allowed High Courts to entertain matters falling under the jurisdiction of DRTs and DRATs under Article 226 of the Constitution of India, till further orders, due to the non-appointment of members in DRTs and DRATs. This interim arrangement was disposed of by the order dated 12.09.2022, after the post in the Debt Recovery Tribunal was filled up.

Arguments

Appellants’ (Bank) Submissions:

• The bank argued that the High Court should not have entertained writ petitions involving private financial transactions, especially when an effective alternative remedy was available under the SARFAESI Act.
• The bank contended that the High Court’s intervention frustrated the objective of the SARFAESI Act, which is to provide a faster and smoother mode of recovery.
• The bank highlighted that the DRT was functional from March 2022, yet the High Court continued to exercise writ jurisdiction in such matters.
• The bank emphasized that the writ jurisdiction under Article 226 of the Constitution, whether a writ of certiorari or mandamus, should not be invoked when an alternative remedy is available.
• The bank cited several Supreme Court decisions to support their arguments, including Phoenix Arc Private Limited vs. Vishwa Bharati Vidya Mandir & Ors., (2022) 5 SCC 345, Federal Bank Ltd. vs. Sagar Thomas & Ors., (2003) 10 SCC 733, State Bank of India vs. Arvindra Electronics (P) Ltd., 2022 SCCOnline SC 1522, United Bank of India vs. Satywati Tondon & Others, (2010) 8 SCC 110, Authorized Officer, State Bank of Travancore & Another vs. Mathew K.C., (2018) 3 SCC 85 and Varimadugu OBI Reddy vs. B. Sreenivasulu & Others, (2023) 2 SCC 168.

Respondents’ Submissions:

• The respondents argued that at the time of filing the writ petitions, the DRT was not functional, leaving them with no other option but to approach the High Court.
• They contended that the power available under Article 226 of the Constitution cannot be taken away, notwithstanding the existence of the Tribunal.
• The respondents submitted that when extreme steps are taken by the bank, a litigant may not have any other option except to approach the writ court.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame the issues in a separate section, but the core issue addressed by the Court was:

1. Whether the High Court should have entertained the writ petitions under Article 226 of the Constitution of India, given the availability of an effective alternative remedy under the SARFAESI Act through the Debt Recovery Tribunal (DRT).

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on several cases and legal provisions to support its decision:

Cases:

• Hari Vishnu Kamath v. Syed Ahmad Ishaque, (1955) 1 SCR 1104 – This case was cited to explain the scope of a writ of certiorari. The Court highlighted that a writ of certiorari is issued to correct errors of jurisdiction or when a court acts illegally, but not to review findings of fact. The Court also emphasized that an error of law must be apparent on the face of the record.
• Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311 – This case was cited to highlight the object and reasons behind the SARFAESI Act, which is to facilitate a faster and smoother mode of recovery without court interference.
• Radha Krishan Industries v. State of H.P., (2021) 6 SCC 771 – This case was cited to reiterate the principles of law regarding the rule of alternate remedy and the exceptions to it. The Court emphasized that when a statute prescribes a remedy, that remedy must be exhausted before invoking the discretionary remedy under Article 226 of the Constitution.
• Federal Bank Ltd. v. Sagar Thomas, (2003) 10 SCC 733 – This case was cited to explain that a private banking company is generally not amenable to writ jurisdiction under Article 226, except in certain circumstances where there is a violation of a statutory provision.
• United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 – This case was cited to emphasize that the High Court should not entertain a petition under Article 226 if an effective remedy is available under the SARFAESI Act. The Court also reiterated that the remedies available under the SARFAESI Act are both expeditious and effective.
• State Bank of Travancore v. Mathew K.C., (2018) 3 SCC 85 – This case was cited to reiterate that a writ petition should not be entertained if an alternate statutory remedy is available, except in cases falling within well-defined exceptions. The Court also highlighted the objectives of the SARFAESI Act.
• Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir, (2022) 5 SCC 345 – This case was cited to emphasize that a writ petition against a private financial institution under Article 226 is not maintainable against proposed actions under Section 13(4) of the SARFAESI Act.
• Varimadugu Obi Reddy v. B. Sreenivasulu, (2023) 2 SCC 168 – This case was cited to deprecate the practice of entertaining writ applications by the High Court without exhausting the alternative statutory remedy available under the law.

Legal Provisions:

• Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) – This section deals with the enforcement of security interest by secured creditors.
• Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) – This section provides the remedy to any person aggrieved by actions taken under Section 13(4) to approach the Debt Recovery Tribunal (DRT).
• Article 226 of the Constitution of India – This article grants High Courts the power to issue writs for the enforcement of fundamental rights and for any other purpose.

Authority Consideration Table

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on the following authorities for its reasoning:

• Hari Vishnu Kamath v. Syed Ahmad Ishaque, (1955) 1 SCR 1104*: The Court used this case to define the scope and limitations of the writ of certiorari, emphasizing that it is not an appellate jurisdiction and should only be used to correct jurisdictional errors or errors of law apparent on the record.
• Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311*: The Court cited this case to underscore the purpose of the SARFAESI Act, which is to facilitate faster debt recovery.
• Radha Krishan Industries v. State of H.P., (2021) 6 SCC 771*: This case was used to reinforce the rule of exhaustion of statutory remedies before invoking the High Court’s writ jurisdiction.
• Federal Bank Ltd. v. Sagar Thomas, (2003) 10 SCC 733*: The Court referred to this case to highlight that private banking companies are generally not subject to writ jurisdiction under Article 226.
• United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110*: This case was used to emphasize that the High Court should not entertain petitions under Article 226 when an effective alternative remedy is available under the SARFAESI Act.
• State Bank of Travancore v. Mathew K.C., (2018) 3 SCC 85*: This case was cited to reiterate that writ petitions should not be entertained when there is an alternate statutory remedy, unless exceptions apply.
• Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir, (2022) 5 SCC 345*: The Court relied on this case to assert that a writ petition against a private financial institution under Article 226 is not maintainable against actions under Section 13(4) of the SARFAESI Act.
• Varimadugu Obi Reddy v. B. Sreenivasulu, (2023) 2 SCC 168*: This case was cited to deprecate the practice of approaching the High Court without exhausting statutory remedies.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that when a statute provides a specific mechanism for redressal, that mechanism should be exhausted before invoking the writ jurisdiction of the High Court. The Court emphasized the need to adhere to statutory remedies and avoid interference in commercial matters where a specific legal framework is in place. The Court also took note of the fact that certain High Courts were repeatedly interfering in SARFAESI matters, leading to a regular supply of cases before the Supreme Court. The Court’s reasoning was also influenced by the need to ensure the expeditious recovery of dues by banks and financial institutions, as intended by the SARFAESI Act.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

The Supreme Court’s decision was influenced more by legal considerations than factual aspects of the case. The ratio of fact to law is as follows:

Logical Reasoning:

The Court considered the arguments that the DRT was not functional initially, but it emphasized that once the DRT became functional, the High Court should have directed the respondents to approach the DRT. The Court also considered the wide powers under Article 226 but emphasized that these powers should be exercised judiciously, especially when an alternative remedy is available under a statute. The Court rejected the argument that the High Court should interfere in such matters, emphasizing the need to adhere to statutory remedies and avoid interference in commercial matters.

The Court’s decision was based on the following reasons:

• The SARFAESI Act provides a specific mechanism for redressal through the DRT.
• The rule of exhaustion of statutory remedies requires that the alternative remedy be exhausted before invoking the writ jurisdiction of the High Court.
• The High Court’s interference frustrates the objective of the SARFAESI Act, which is to provide a faster and smoother mode of recovery.
• The writ jurisdiction under Article 226 should not be invoked when an alternative remedy is available.
• The High Court should not act as an appellate authority over the decisions of the DRT.

The Court quoted the following from the judgment:

• “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.”
• “When a Tribunal is constituted, it is expected to go into the issues of fact and law, including a statutory violation.”
• “When a statute prescribes a particular mode, an attempt to circumvent shall not be encouraged by a writ court.”

Key Takeaways

• High Courts should not entertain writ petitions under Article 226 of the Constitution in matters related to the SARFAESI Act when an effective alternative remedy is available through the Debt Recovery Tribunal (DRT).
• The rule of exhaustion of statutory remedies must be followed, meaning that litigants should first pursue the remedies available under the relevant statute before approaching the High Court.
• The SARFAESI Act provides a specific mechanism for debt recovery, and this mechanism should not be circumvented by invoking the writ jurisdiction of the High Court.
• The High Court’s power under Article 226 is discretionary and should be exercised judiciously, especially in commercial matters where a specific legal framework is in place.
• The judgment aims to curb the practice of High Courts interfering in SARFAESI matters, which has been leading to a regular supply of cases before the Supreme Court.
• This decision reinforces the importance of the DRT as the primary forum for resolving disputes under the SARFAESI Act.

Directions

No specific directions were given by the Supreme Court in this case.

Specific Amendments Analysis

This judgment does not discuss any specific amendments.

Development of Law

The ratio decidendi of this case is that High Courts should not entertain writ petitions under Article 226 of the Constitution in matters related to the SARFAESI Act when an effective alternative remedy is available through the Debt Recovery Tribunal (DRT). This judgment reinforces the principle of exhausting statutory remedies and limits the High Court’s interference in SARFAESI Act matters. There is no change in the previous positions of law, but the Court has reiterated the settled position of law and expressed concern about the repeated interference by High Courts in such matters.

Conclusion

The Supreme Court’s judgment in M/S. South Indian Bank Ltd. & Ors. vs. Naveen Mathew Philip & Anr. Etc. Etc. clarifies the limits of High Court intervention in matters related to the SARFAESI Act. The Court reiterated that when a statute provides a specific mechanism for redressal, that mechanism should be exhausted before invoking the writ jurisdiction of the High Court. This decision reinforces the importance of the Debt Recovery Tribunal (DRT) as the primary forum for resolving disputes under the SARFAESI Act and aims to curb the practice of High Courts interfering inSARFAESI matters, thereby ensuring a more streamlined and efficient debt recovery process. The judgment serves as a reminder to litigants that they must first exhaust the remedies available under the relevant statute before approaching the High Court under Article 226 of the Constitution.