Supreme Court Upholds Auction Sale Under SARFAESI Act, Dismissing Borrower’s Writ Petition (10 April 2024)

Introduction

Date of the Judgment: 10 April 2024
Citation: 2024 INSC 297
Judges: B.R. Gavai, J., Rajesh Bindal, J., and Sandeep Mehta, J.
Can a High Court bypass the statutory appeal process and directly entertain a writ petition when a borrower challenges actions taken by a bank under the SARFAESI Act? The Supreme Court of India recently addressed this question, emphasizing the importance of adhering to statutory remedies. This case revolves around a borrower who challenged an auction sale of his mortgaged properties through a writ petition, despite having an alternative remedy under the SARFAESI Act. The bench comprised Justices B.R. Gavai, Rajesh Bindal, and Sandeep Mehta, with the judgment authored by Justice B.R. Gavai.

Case Background

The case involves a borrower, Dr. M.V. Ramana Rao, who had taken a loan from UCO Bank and mortgaged four properties in Vijayawada, Andhra Pradesh, as collateral security. Upon defaulting on the loan, the bank initiated proceedings under the SARFAESI Act. The bank issued an auction sale notice on 2nd September 2017, scheduling the auction for 14th December 2017. The borrower filed a securitization application (S.A. No. 1476 of 2017) before the Debts Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act, challenging the auction notice. The auction was conducted as scheduled, and PHR Invent Educational Society emerged as the highest bidder, depositing 25% of the bid amount. The DRT initially refused to interfere with the sale but directed the bank not to confirm the sale if the borrower deposited 30% of the outstanding dues in two installments. The borrower failed to comply with this condition. Subsequently, the auction purchaser deposited the remaining amount. The borrower then proposed a One Time Settlement (OTS), which the bank rejected. The DRT dismissed the borrower’s S.A. No. 1476 of 2017 as withdrawn, based on a statement by the borrower’s counsel that the matter had been settled out of court. The bank confirmed the sale and issued a sale certificate to the auction purchaser. The borrower then filed a miscellaneous application (M.A. No. 97 of 2020) for restoration of the S.A., which was dismissed by the DRT. Aggrieved, the borrower filed a writ petition before the High Court, which was allowed, setting aside the DRT’s order and directing the DRT to proceed with the S.A.

Timeline:

Arguments

Appellant (Auction Purchaser):

• The High Court erred in entertaining the writ petition because the borrower had an alternative statutory remedy of appeal under the SARFAESI Act.
• The borrower’s conduct disentitled him to equitable relief, as he filed the writ petition after the auction purchaser had made the full payment and received the sale certificate.
• Relied on the judgments of the Supreme Court in United Bank of India v. Satyawati Tandon and Others [ (2010) 8 SCC 110 ], Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others [(2024) 2 SCC 1] and South Indian Bank Limited and Others v. Naveen Mathew Philip and Another [2023 SCC OnLine SC 435] to support the contention that writ petitions should not be entertained when an alternative remedy is available.

UCO Bank:

• Supported the arguments of the auction purchaser and prayed for the dismissal of the borrower’s writ petition.

Borrower:

• The High Court has the power to entertain a petition under Article 226 of the Constitution to do justice, even if an alternative remedy is available.
• Relied on the judgment of the Supreme Court in State of U.P. v. Mohammad Nooh [AIR 1958 SC 86] to argue that the High Court is not precluded from exercising its powers under Article 226 in deserving cases.

Summary of Arguments

Issues Framed by the Supreme Court

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

• Whether the High Court was justified in entertaining the writ petition under Article 226 of the Constitution of India, when an efficacious alternative remedy of statutory appeal was available to the Borrower under the SARFAESI Act.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

On the principle of alternative remedy:

• United Bank of India v. Satyawati Tondon and Others [(2010) 8 SCC 110] – Supreme Court: The Court held that the High Court should not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available. This principle applies with greater rigor in cases involving recovery of public money and dues of banks.
• Authorized Officer, State Bank of Travancore and Another v. Mathew K.C. [(2018) 3 SCC 85] – Supreme Court: The Court held that writ petitions should not be entertained and interim orders should not be granted without assigning special reasons when an alternative remedy is available.
• Agarwal Tracom Private Limited v. Punjab National Bank and Others [(2018) 1 SCC 626] – Supreme Court: The Court followed the view taken in Satyawati Tondon’s case regarding the principle of alternative remedy.
• Phoenix ARC Private Limited v. Vishwa Bharati Vidya Mandir and Others [(2022) 5 SCC 345] – Supreme Court: The Court reiterated the principle of not entertaining writ petitions when an alternative remedy is available.
• Varimadugu Obi Reddy v. B. Sreenivasulu and Others [(2023) 2 SCC 168] – Supreme Court: The Court observed that when a statutory remedy of appeal is available, the High Court should not entertain a writ petition.
• Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others [(2024) 2 SCC 1] – Supreme Court: The Court reiterated the concern that High Courts continue to ignore statutory remedies under the RDBFI Act and the SARFAESI Act.
• Commissioner of Income Tax and Others v. Chhabil Dass Agarwal [(2014) 1 SCC 603] – Supreme Court: The Court clarified the exceptions to the rule of alternative remedy, stating that a writ petition can be entertained if the statutory authority has not acted in accordance with the law, has acted in defiance of fundamental principles of judicial procedure, or has passed an order in violation of natural justice.

On the powers of the High Court under Article 226:

• State of U.P. v. Mohammad Nooh [AIR 1958 SC 86] – Supreme Court: The Court held that non-exercising of jurisdiction under Article 226 on the ground of availability of an alternative remedy is a rule of self-restraint.

On the finality of auction sales:

• Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others [(2008) 9 SCC 299] – Supreme Court: The Court held that once an auction sale is confirmed, it cannot be set aside unless fraud or collusion is proved.
• Dwarika Prasad v. State of Uttar Pradesh and Others [(2018) 5 SCC 491] – Supreme Court: The Court held that the right of redemption stands extinguished on the execution of the registered sale deed.

Authorities Considered by the Court

Judgment

The Supreme Court allowed the appeal, set aside the High Court’s order, and dismissed the borrower’s writ petition. The Court emphasized that the High Court should not have entertained the writ petition due to the availability of an alternative statutory remedy under the SARFAESI Act. The Court also noted that the High Court failed to consider the conduct of the borrower and the fact that the auction sale had been confirmed and registered.

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

How each authority was viewed by the Court?

The Supreme Court relied on its previous judgments, particularly United Bank of India v. Satyawati Tondon and Others [(2010) 8 SCC 110], to reiterate that High Courts should not entertain writ petitions under Article 226 of the Constitution when an effective alternative remedy is available. The Court also emphasized the finality of confirmed auction sales, referring to Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others [(2008) 9 SCC 299], and that the right of redemption is extinguished upon registration of the sale deed, citing Dwarika Prasad v. State of Uttar Pradesh and Others [(2018) 5 SCC 491]. The Court distinguished State of U.P. v. Mohammad Nooh [AIR 1958 SC 86], clarifying that while the High Court has powers under Article 226, it should exercise self-restraint and not bypass statutory remedies. The Court also clarified the exceptions to the rule of alternative remedy as laid down in Commissioner of Income Tax and Others v. Chhabil Dass Agarwal [(2014) 1 SCC 603].

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that High Courts should not entertain writ petitions when an effective alternative statutory remedy is available. The Court emphasized the importance of adhering to the mechanisms provided under the SARFAESI Act for resolving disputes related to recovery of dues by banks and financial institutions. The Court also considered the conduct of the borrower, who had initially withdrawn his application before the DRT and then sought its restoration, and the fact that the auction sale had been confirmed and registered, making the situation irreversible.

Fact:Law Ratio

The Court’s decision was more heavily weighted towards legal principles and precedents (70%) than the factual aspects of the case (30%).

“It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues.”

“The writ petition ought not to have been entertained and the interim order granted for the mere asking without assigning special reasons, and that too without even granting opportunity to the appellant to contest the maintainability of the writ petition and failure to notice the subsequent developments in the interregnum.”

“Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.”

Logical Reasoning

Key Takeaways

• High Courts should exercise self-restraint and not entertain writ petitions under Article 226 of the Constitution when an effective alternative statutory remedy is available, especially in matters related to recovery of dues by banks and financial institutions under the SARFAESI Act.
• The availability of an alternative remedy is not merely a rule of discretion but a principle that should be strictly adhered to, except in exceptional circumstances.
• Confirmed auction sales should not be easily set aside, and the right of redemption is extinguished upon registration of the sale deed.
• Borrowers must follow the statutory mechanisms provided under the SARFAESI Act and should not bypass them by directly approaching the High Court.
• The Supreme Court has reiterated the importance of adhering to statutory remedies and has cautioned High Courts against interfering in matters where such remedies are available.

Directions

The Supreme Court directed the following:

• The appeal is allowed.
• The impugned order dated 4th February 2022 passed by the High Court in Writ Petition No. 5275 of 2021 is quashed and set aside.
• Writ Petition No. 5275 of 2021 is dismissed with costs quantified at Rs.1,00,000/- imposed upon the Borrower.

Development of Law

The judgment reinforces the settled position of law that High Courts should not entertain writ petitions under Article 226 of the Constitution when an effective alternative statutory remedy is available. The ratio decidendi of this case is that the availability of an alternative remedy under a statute is not merely a rule of discretion but a principle that should be strictly adhered to. This judgment also emphasizes the finality of confirmed auction sales and the extinguishment of the right of redemption upon registration of the sale deed. The Supreme Court has not introduced any new legal principles, but it has reiterated and clarified the existing principles regarding the exercise of writ jurisdiction in matters involving the SARFAESI Act.

Conclusion

In conclusion, the Supreme Court’s judgment in PHR Invent Educational Society vs. UCO Bank and Others clarifies that High Courts should not entertain writ petitions when an effective alternative remedy is available under the SARFAESI Act. The Court upheld the auction sale, emphasizing the finality of confirmed sales and the importance of adhering to statutory mechanisms for dispute resolution. This judgment serves as a reminder to High Courts to exercise self-restraint and not bypass the statutory remedies provided by the legislature.

Category

Parent Category: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Child Categories:

• Section 17, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
• Alternative Remedy
• Writ Jurisdiction
• Auction Sale
• Debts Recovery Tribunal

FAQ

Q: What is the main issue addressed in this judgment?
A: The main issue is whether a High Court can entertain a writ petition under Article 226 of the Constitution of India when an alternative statutory remedy is available under the SARFAESI Act.

Q: What did the Supreme Court decide regarding the High Court’s power to entertain writ petitions?
A: The Supreme Court held that High Courts should exercise self-restraint and not entertain writ petitions when an effective alternative statutory remedy is available, especially in matters related to recovery of dues by banks and financial institutions.

Q: What is the SARFAESI Act?
A: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, is an Indian law that allows banks and financial institutions to recover their dues by selling the mortgaged properties of defaulting borrowers without the intervention of the court.

Q: What is the significance of an auction sale being confirmed?
A: Once an auction sale is confirmed, it cannot be easily set aside unless fraud or collusion is proven. The rights of the auction purchaser are protected after confirmation.

Q: What is the remedy available to a borrower under the SARFAESI Act?
A: A borrower aggrieved by the actions of a secured creditor under Section 13(4) of the SARFAESI Act can file an application before the Debts Recovery Tribunal (DRT) under Section 17 of the Act.

Q: What should a borrower do if they are aggrieved by the actions of the bank under SARFAESI Act?
A: A borrower should approach the Debts Recovery Tribunal (DRT) by filing an application under Section 17 of the SARFAESI Act. They should not directly approach the High Court under Article 226 of the Constitution, unless there are exceptional circumstances.