6/20/2018 1 Comment
[Published in Chartered Secretary magazine of ICSI April 2018 Issue]
Delep Goswami, FCS, Advocate, Supreme Court of India, New Delhi
Anirrud Goswami, Advocate, Goswami & Goswami Advocates, New Delhi
In a significant judgement dated 30th January, 2018 in Authorised Officer, State Bank of Travancore and Another Versus Mathew K.C. (hereinafter referred to as the “SB Travancore judgement”), the Hon’ble Supreme Court has held therein that in financial matters like recovery of loans by banks, the High Court, when approached by way of a writ petition filed under Article 226 of the Constitution of India without the petitioner having exhausted alternate efficacious remedy available under a statute, ought not to have passed interim orders without following the settled position of law. The Apex Court, in Para 17 of the aforesaid judgement, has observed that:
“17. 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…”
Importantly, the Supreme Court has further observed that it is the solemn duty of the Court to apply the correct law without waiting for an objection to be raised by a party, especially when the law stands well settled. Any departure, if permissible, has to be for reasons discussed, of the case falling under a defined exception, duly discussed after noticing the relevant law. In financial matters grant of ex-parte interim orders can have a deleterious effect and it is not sufficient to say that the aggrieved has the remedy to move for vacating the interim order. Loans by financial institutions are granted from public money generated at the tax payers’ expense and that such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same.
With regard to the tendency of the High Courts to grant stay of recovery of taxes, dues, etc. payable to the financial institutions and banks and the deleterious effect of such stay orders, in the aforesaid judgement, the Supreme Court referred to its earlier decision passed in United Bank of India vs. Satyawati Tandon and others (2010 (8) SCC 110), wherein at Para 46, it was observed that:
“46. It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions carved out in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, Whirlpool Corpn. v. Registrar of Trade Marks and Harbanslal Sahnia v. Indian Oil Corpn. Ltd. and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass an appropriate interim order.”
Further, in the aforesaid judgement of Satyawati Tandon (supra), it was also observed by the Supreme Court that:
“55. 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. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.”
In respect of lender banks exercising action for recovery of their dues from the borrower by invoking the powers under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’), it was noticed by the Supreme Court that under Section 17 of the SARFAESI Act, the aggrieved party has an efficacious remedy available to challenge the said action of the lender banks by instituting appropriate proceedings before the appellate authority. The SARFAESI Act is a complete code by itself, providing for expeditious recovery of dues arising out of loans granted by financial institutions, the remedy of appeal by the aggrieved under Section 17 before the Debt Recovery Tribunal, followed by a right to appeal before the Appellate Tribunal under Section 18 of the SARFAESI Act.
With regard to the tendency of the defaulting borrowers to rush to the High Court with writ petitions under Article 226 of the Constitution, without having first exhausted the alternate efficacious remedy available under the relevant statute, the Supreme Court of India, in General Manager, Sri Siddeshwara Cooperative Bank Limited and another vs. Ikbal and others [2013 (10) SCC 83] observed and held that filing of a writ petition under Article 226 of the Constitution of India, without exhausting the alternate efficacious remedy available under the SARFAESI Act was not permitted and that such writ petitions ought to be dismissed at the threshold on the ground of maintainability and the High Court ought not to have entertained the writ petition in view of the adequate alternate statutory remedies available to the aggrieved respondent. The Supreme Court, in this connection, further observed as under:
“27. No doubt an alternative remedy is not an absolute bar to the exercise of extraordinary jurisdiction under Article 226 but by now it is well settled that where a statute provides efficacious and adequate remedy, the High Court will do well in not entertaining a petition under Article 226. On misplaced considerations, statutory procedures cannot be allowed to be circumvented…
28. …In our view, there was no justification whatsoever for the learned Single Judge to allow the borrower to bypass the efficacious remedy provided to him under Section 17 and invoke the extraordinary jurisdiction in his favour when he had disentitled himself for such relief by his conduct. The Single Judge was clearly in error in invoking his extraordinary jurisdiction under Article 226 in light of the peculiar facts indicated above. The Division Bench also erred in affirming the erroneous order of the Single Judge.”
The Supreme Court, in the above-mentioned SB Travancore judgement case (supra) has also observed that the discretionary jurisdiction under Article 226 of the Indian Constitution, is not absolute, but has to be exercised judiciously in the given facts of the case and in accordance with law. The Court further opined that the normal rule is that a writ petition under Article 226 of the Constitution ought not to be entertained if alternate statutory remedies are available, except in cases falling within the well defined exceptions as observed by the Supreme Court in its earlier decision of Commissioner of Income Tax and Others vs. Chhabil Dass Agarwal [2014 (1) SCC 603], where at Para 15, it was observed that:
“Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case, Titaghur Paper Mills case and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.”
The brief facts leading to the aforesaid SB Travancore case (supra) are that the loan account of the respondent was declared as a non-performing asset (NPA) on 28.12.2014 and the outstanding dues as on that date amounted to Rs.41,82,560/-. However, despite repeated notices by the appellant bank, the respondent failed and neglected to pay the outstanding dues and thereupon statutory notice under Section 13(2) of the SARFAESI Act was issued by the bank to the respondent on 21.01.2015. The objections raised by the respondent under Section 13(3A) of SARFAESI Act were considered and rejection was communicated by the appellant bank to the respondent on 31.03.2015. Thereafter, the lender bank issued possession notice under Section 13(4) of the SARFAESI Act read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 on 21.04.2015.
On behalf of the respondent, it was contended that the respondent was desirous to repay the loan, and merely sought for regularisation of the loan account. It was further submitted by the respondent that its inability to service the loan was genuine, occasioned due to market fluctuations causing huge loss in business, beyond the control of the respondent. Upon the failure of the appellant Bank to consider the request for regularisation of the loan account and the apparent absence of a right to appeal under Section 17 of the SARFAESI Act against the order passed under Section 13(3A), the respondent submitted that it was left with no option but to prefer the writ application as the respondent genuinely desired to discharge the loans. The respondent further contended that the collateral security offered included agricultural lands also, which had to be excluded under Section 31 of the SARFAESI Act and that there had been violation of the principles of natural justice. The respondent submitted that although a large number of similar writ applications are pending before the High Court preferred by the concerned borrowers, but the appellant Bank had, in the instant case, singled out the present respondent alone for a challenge before the Supreme Court.
In response to the respondent’s submissions, the Supreme Court observed that the pleadings in the writ petition are very bald and contain no statement that the grievances fell within any of the well defined exceptions for invoking the writ jurisdiction of the High Court. The allegation for violation of principles of natural justice is rhetorical, without any details of the prejudice caused thereby. It harps only on a desire for regularisation of the loan account, even while the Respondent acknowledges its own inability to service the loan account for reasons attributable to it alone. The writ petition was filed in undue haste in March 2015 immediately after disposal of objections under Section 13(3A).
The Supreme Court noted that the legislative scheme in the SARFAESI Act, in order to expedite the recovery proceedings, does not envisage grievance redressal procedure at this stage, by virtue of the explanation added to Section 17 of the Act, by Amendment Act 30 of 2004, as follows
“Explanation.—For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including the borrower) to make an application to the Debts Recovery Tribunal under this sub-section.”
In the instant case, the statutory notice under Section 13(4) along with possession notice under Rule 8 was issued on 21.04.2015. The remedy under Section 17 of the SARFAESI Act was now available to the respondent if it was aggrieved. The Supreme Court observed that these developments were not brought on record or placed before the High Court when the impugned interim order came to be passed by the High Court on 24.04.2015. The writ petition was, clearly not instituted bonafide, but patently to stall further action for recovery. The Supreme Court also observed that the respondent did not make any pleading to state why the remedy available under Section 17 of the Act before the Debt Recovery Tribunal was not efficacious and the compelling reasons for it having by-passed the same. The Supreme Court noted that unfortunately, the High Court also did not dwell upon the same or record any special reasons for grant of interim relief by direction to deposit.
The Supreme Court further examined the statement of objects and reasons of the SARFAESI Act which states that the banking and financial sector in the country was felt not to have a level playing field in comparison to other participants in the financial markets in the world. The financial institutions in India did not have the power to take possession of securities and sell them. The existing legal framework relating to commercial transactions had not kept pace with changing commercial practices and financial sector reforms resulting in tardy recovery of defaulting loans and mounting non-performing assets of banks and financial institutions. The Narasimhan Committee I and II as also the Andhyarujina Committee constituted by the Central Government Act had suggested enactment of new legislation for securitisation and empowering banks and financial institutions to take possession of securities and sell them without court intervention which would enable them to realise long term assets, manage problems of liquidity, asset liability mismatches and improve recovery. The proceedings under the Recovery of Debts due to Banks and Financial Institutions Act, 1993, (hereinafter referred to as ‘the DRT Act’) with passage of time, had become synonymous with those before regular courts affecting expeditious adjudication. The Supreme Court observed that all the aforesaid aspects had not been kept in mind and considered before the High Court passed the impugned order in the writ petition filed by the respondent Mathew K.C.
The Supreme Court in SB Travancore judgement (supra) thereafter referred to its earlier decisions on how the Apex Court has dealt with the issue of High Courts passing interim orders under writ jurisdiction despite alternate statutory remedies being available but not exhausted by the concerned litigant. In Punjab National Bank vs. O.C. Krishnan and others [(2001) 6 SCC 569], while dealing with availability of alternate statutory remedy under the DRT Act, the Supreme Court had observed as follows:
“The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions. This was a case where the High Court should not have entertained the petition under Article 227 of the Constitution and should have directed the respondent to take recourse to the appeal mechanism provided by the Act.”
Further, in Union Bank of India and another vs. Panchanan Subudhi [2010 (15) SCC 552], where the High Court had, in exercise of its writ jurisdiction, stayed further proceedings under Section 13(4) of the SARFAESI Act subject to deposit of Rs.10,00,000/-, the Supreme Court, on an appeal, had observed as follows:
“In our view, the approach adopted by the High Court was clearly erroneous. When the respondent failed to abide by the terms of one-time settlement, there was no justification for the High Court to entertain the writ petition and that too by ignoring the fact that a statutory alternative remedy was available to the respondent under Section 17 of the Act.”
Thereafter, in Kanaiyalal Lalchand Sachdev and others vs. State of Maharashtra and others [2011 (2) SCC 782] where the High Court had dismissed a writ petition filed by the appellant while proceedings had been initiated against the appellant under the SARFAESI Act, the Supreme Court of India while dismissing the appeal held that:
“23. In our opinion, therefore, the High Court rightly dismissed the petition on the ground that an efficacious remedy was available to the appellants under Section 17 of the Act. It is well settled that ordinarily relief under Articles 226/227 of the Constitution of India is not available if an efficacious alternative remedy is available to any aggrieved person. (See Sadhana Lodh v. National Insurance Co. Ltd.; Surya Dev Rai v. Ram Chander Rai and SBI v. Allied Chemical Laboratories.)”
In the aforesaid SB Travancore judgement (supra), the Supreme Court relied upon the principle enunciated by it in Dwarikesh Sugar Industries Ltd. vs. Prem Heavy Engineering Works (P) Ltd. and Another [1997 (6) SCC 450], wherein it was observed that:
“When a position, in law, is well settled as a result of judicial pronouncement of this Court, it would amount to judicial impropriety to say the least, for the subordinate courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate courts in not applying the settled principles and in passing whimsical orders which necessarily has the effect of granting wrongful and unwarranted relief to one of the parties. It is time that this tendency stops.”
Thus, in the SB Travancore judgement (supra), the Supreme Court set aside the interim order passed by the High Court as it held to be contrary to the law laid down by the Supreme Court under Article 141 of the Constitution and hence, unsustainable. In view of the settled position of law that unless the aggrieved party exhausts the alternate efficacious remedies available to it under statute, it cannot simpliciter file writ petitions before the High Court under Article 226 of the Indian Constitution and the Supreme Court has been emphatic in its disapproval of interim orders passed by the High Court in such writ petitions filed in ignorance of the settled position of the law on the subject.
The above-mentioned judgement of the Supreme Court of India stresses the importance of recovery of loans and outstanding dues by banks and financial institutions from the defaulting borrowers and also emphasises that any attempt by such defaulting borrowers to somehow bypass the statute and to invoke the writ jurisdiction of the High Court to stall/thwart the attempts of the lenders, shall be sustained in view the principles laid down by the Supreme Court in the aforementioned important judgements. Simultaneously, the professionals associated with the borrower companies are required to exercise caution in suggesting remedies against the principles laid down by the Apex Court.
Anirrud Goswami, Advocate, Goswami & Goswami, Associates and Advocates,