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Supreme Court of India
United Bank Of India vs Satyawati Tondon & Ors on 26 July, 2010
Bench: G.S. Singhvi, Asok Kumar Ganguly
                                                                             REPORTABLE

                       IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                    CIVIL APPEAL NO.               OF 2010
                    (Arising out of SLP(C) No.10145 of 2010)


United Bank of India                                         ...Appellant

                                  Versus

Satyawati Tondon and others                                  ...Respondents



                               JUDGMENT

1. Leave granted.

2. With a view to give impetus to the industrial development of the country,

the Central and State Governments encouraged the banks and other financial

institutions to formulate liberal policies for grant of loans and other financial

facilities to those who wanted to set up new industrial units or expand the

existing units. Many hundred thousand took advantage of easy financing by the

banks and other financial institutions but a large number of them did not repay

the amount of loan, etc. Not only this, they instituted frivolous cases and

succeeded in persuading the Civil Courts to pass orders of injunction against the

steps taken by banks and financial institutions to recover their dues. Due to lack

of adequate infrastructure and non-availability of manpower, the regular Courts

could not accomplish the task of expeditiously adjudicating the cases instituted
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by banks and other financial institutions for recovery of their dues. As a result,

several hundred crores of public money got blocked in unproductive ventures. In

order to redeem the situation, the Government of India constituted a committee

under the chairmanship of Shri T. Tiwari to examine the legal and other

difficulties faced by banks and financial institutions in the recovery of their dues

and suggest remedial measures. The Tiwari Committee noted that the existing

procedure for recovery was very cumbersome and suggested that special

tribunals be set up for recovery of the dues of banks and financial institutions by

following a summary procedure. The Tiwari Committee also prepared a draft of

the proposed legislation which contained a provision for disposal of cases in

three months and conferment of power upon the Recovery Officer for

expeditious execution of orders made by adjudicating bodies. The issue was

further examined by the Committee on the Financial System headed by Shri M.

Narasimham. In its First Report, the Narasimham Committee also suggested

setting up of special tribunals with special powers for adjudication of cases

involving the dues of banks and financial institutions.

After considering the reports of the two Committees and taking

cognizance of the fact that as on 30-9-1990 more than 15 lakh cases filed by

public sector banks and 304 cases filed by financial institutions were pending in

various Courts for recovery of debts, etc. amounting to Rs.6000 crores, the

Parliament enacted the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993 (for short, `the DRT Act’). The new legislation facilitated
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creation of specialised forums i.e., the Debts Recovery Tribunals and the Debts

Recovery Appellate Tribunals for expeditious adjudication of disputes relating to

recovery of the debts due to banks and financial institutions. Simultaneously,

the jurisdiction of the Civil Courts was barred and all pending matters were

transferred to the Tribunals from the date of their establishment.

An analysis of the provisions of the DRT Act shows that primary object of

that Act was to facilitate creation of special machinery for speedy recovery of the

dues of banks and financial institutions. This is the reason why the DRT Act not

only provides for establishment of the Tribunals and the Appellate Tribunals with

the jurisdiction, powers and authority to make summary adjudication of

applications made by banks or financial institutions and specifies the modes of

recovery of the amount determined by the Tribunal or the Appellate Tribunal but

also bars the jurisdiction of all courts except the Supreme Court and the High

Courts in relation to the matters specified in Section 17. The Tribunals and the

Appellate Tribunals have also been freed from the shackles of procedure

contained in the Code of Civil Procedure. To put it differently, the DRT Act has

not only brought into existence special procedural mechanism for speedy

recovery of the dues of banks and financial institutions, but also made provision

for ensuring that defaulting borrowers are not able to invoke the jurisdiction of

Civil Courts for frustrating the proceedings initiated by the banks and other

financial institutions.

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For few years, the new dispensation worked well and the officers

appointed to man the Tribunals worked with great zeal for ensuring that cases

involving recovery of the dues of banks and financial institutions are decided

expeditiously. However, with the passage of time, the proceedings before the

Tribunals became synonymous with those of the regular Courts and the lawyers

representing the borrowers and defaulters used every possible mechanism and

dilatory tactics to impede the expeditious adjudication of such cases. The flawed

appointment procedure adopted by the Government greatly contributed to the

malaise of delay in disposal of the cases instituted before the Tribunals.

The survey conducted by the Ministry of Finance, Government of India

revealed that as in 2001, a sum of more than Rs.1,20,000/- crores was due to

the banks and financial institutions and this was adversely affecting the economy

of the country. Therefore, the Government of India asked the Narasimham

Committee to suggest measures for expediting the recovery of debts due to

banks and financial institutions. In its Second Report, the Narasimham

Committee noted that the non-performing assets of most of the public sector

banks were abnormally high and the existing mechanism for recovery of the

same was wholly insufficient. In Chapter VIII of the Report, the Committee

noted that the evaluation of legal framework has not kept pace with the

changing commercial practice and financial sector reforms and as a result of that

the economy could not reap full benefits of the reform process. The Committee

made various suggestions for bringing about radical changes in the existing
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adjudicatory mechanism. By way of illustration, the Committee referred to the

scheme of mortgage under the Transfer of Property Act and suggested that the

existing laws should be changed not only for facilitating speedy recovery of the

dues of banks, etc. but also for quick resolution of disputes arising out of the

action taken for recovery of such dues. The Andhyarujina Committee constituted

by the Central Government for examining banking sector reforms also considered

the need for changes in the legal system. Both, the Narasimham and

Andhyarujina Committees suggested enactment of new legislation for

securitisation and empowering the banks and financial institutions to take

possession of the securities and sell them without intervention of the court. The

Government of India accepted the recommendations of the two committees and

that led to enactment of the Securitization and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 (for short `the SARFAESI Act’),

which can be termed as one of the most radical legislative measures taken by

the Parliament for ensuring that dues of secured creditors including banks,

financial institutions are recovered from the defaulting borrowers without any

obstruction. For the first time, the secured creditors have been empowered to

take steps for recovery of their dues without intervention of the Courts or

Tribunals.

3. Section 13 of the SARFAESI Act contains detailed mechanism for

enforcement of security interest. Sub-section (1) thereof lays down that

notwithstanding anything contained in Sections 69 or 69-A of the Transfer of
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Property Act, any security interest created in favour of any secured creditor may

be enforced, without the intervention of the court or tribunal, by such creditor in

accordance with the provisions of this Act. Sub-section (2) of Section 13

enumerates first of many steps needed to be taken by the secured creditor for

enforcement of security interest. This sub-section provides that if a borrower,

who is under a liability to a secured creditor, makes any default in repayment of

secured debt and his account in respect of such debt is classified as non-

performing asset, then the secured creditor may require the borrower by notice

in writing to discharge his liabilities within sixty days from the date of the notice

with an indication that if he fails to do so, the secured creditor shall be entitled

to exercise all or any of its rights in terms of Section 13(4). Sub-section (3) of

Section 13 lays down that notice issued under Section 13(2) shall contain details

of the amount payable by the borrower as also the details of the secured assets

intended to be enforced by the bank or financial institution. Sub-section (3-A) of

Section 13 lays down that the borrower may make a representation in response

to the notice issued under Section 13(2) and challenge the classification of his

account as non-performing asset as also the quantum of amount specified in the

notice. If the bank or financial institution comes to the conclusion that the

representation/objection of the borrower is not acceptable, then reasons for non-

acceptance are required to be communicated within one week. Sub-section (4)

of Section 13 specifies various modes which can be adopted by the secured

creditor for recovery of secured debt. The secured creditor can take possession

of the secured assets of the borrower and transfer the same by way of lease,
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assignment or sale for realising the secured assets. This is subject to the

condition that the right to transfer by way of lease, etc. shall be exercised only

where substantial part of the business of the borrower is held as secured debt. If

the management of whole or part of the business is severable, then the secured

creditor can take over management only of such business of the borrower which

is relatable to security. The secured creditor can appoint any person to manage

the secured asset, the possession of which has been taken over. The secured

creditor can also, by notice in writing, call upon a person who has acquired any

of the secured assets from the borrower to pay the money, which may be

sufficient to discharge the liability of the borrower. Sub-section (7) of Section

13 lays down that where any action has been taken against a borrower under

sub-section (4), all costs, charges and expenses properly incurred by the secured

creditor or any expenses incidental thereto can be recovered from the borrower.

The money which is received by the secured creditor is required to be held by

him in trust and applied, in the first instance, for such costs, charges and

expenses and then in discharge of dues of the secured creditor. Residue of the

money is payable to the person entitled thereto according to his rights and

interest. Sub-section (8) of Section 13 imposes a restriction on the sale or

transfer of the secured asset if the amount due to the secured creditor together

with costs, charges and expenses incurred by him are tendered at any time

before the time fixed for such sale or transfer. Sub-section (9) of Section 13

deals with the situation in which more than one secured creditor has stakes in

the secured assets and lays down that in the case of financing a financial asset
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by more than one secured creditor or joint financing of a financial asset by

secured creditors, no individual secured creditor shall be entitled to exercise any

or all of the rights under sub-section (4) unless all of them agree for such a

course. There are five unnumbered provisos to Section 13(9) which deal with

pari passu charge of the workers of a company in liquidation. The first of these

provisos lays down that in the case of a company in liquidation, the amount

realised from the sale of secured assets shall be distributed in accordance with

the provisions of Section 529-A of the Companies Act, 1956. The second proviso

deals with the case of a company being wound up on or after the

commencement of this Act. If the secured creditor of such company opts to

realise its security instead of relinquishing the same and proving its debt under

Section 529(1) of the Companies Act, then it can retain sale proceeds after

depositing the workmen’s dues with the liquidator in accordance with Section

529-A. The third proviso requires the liquidator to inform the secured creditor

about the dues payable to the workmen in terms of Section 529-A. If the amount

payable to the workmen is not certain, then the liquidator has to intimate the

estimated amount to the secured creditor. The fourth proviso lays down that in

case the secured creditor deposits the estimated amount of the workmen’s dues,

then such creditor shall be liable to pay the balance of the workmen’s dues or

entitled to receive the excess amount, if any, deposited with the liquidator. In

terms of the fifth proviso, the secured creditor is required to give an undertaking

to the liquidator to pay the balance of the workmen’s dues, if any. Sub-section

(10) of Section 13 lays down that where dues of the secured creditor are not
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fully satisfied by the sale proceeds of the secured assets, the secured creditor

may file an application before the Tribunal under Section 17 for recovery of

balance amount from the borrower. Sub-section (11) states that without

prejudice to the rights conferred on the secured creditor under or by this section,

it shall be entitled to proceed against the guarantors or sell the pledged assets

without resorting to the measures specified in clauses (a) to (d) of sub-section

(4) in relation to the secured assets. Sub-section (12) of Section 13 lays down

that rights available to the secured creditor under the Act may be exercised by

one or more of its officers authorised in this behalf. Sub-section (13) lays down

that after receipt of notice under sub-section (2), the borrower shall not transfer

by way of sale, lease or otherwise (other than in the ordinary course of his

business) any of his secured assets referred to in the notice without prior written

consent of the secured creditor. In terms of Section 14, the secured creditor can

file an application before the Chief Metropolitan Magistrate or the District

Magistrate, within whose jurisdiction the secured asset or other documents

relating thereto are found for taking possession thereof. If any such request is

made, the Chief Metropolitan Magistrate or the District Magistrate, as the case

may be, is obliged to take possession of such asset or document and forward the

same to the secured creditor.

4. Section 17 speaks of the remedies available to any person including

borrower who may have grievance against the action taken by the secured

creditor under sub-section (4) of Section 13. Such an aggrieved person can make
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an application to the Tribunal within 45 days from the date on which action is

taken under that sub-section. By way of abundant caution, an Explanation has

been added to Section 17(1) and it has been clarified that the communication of

reasons to the borrower in terms of Section 13(3-A) shall not constitute a ground

for filing application under Section 17(1). Sub-section (2) of Section 17 casts a

duty on the Tribunal to consider whether the measures taken by the secured

creditor for enforcement of security interest are in accordance with the

provisions of the Act and the Rules made thereunder. If the Tribunal, after

examining the facts and circumstances of the case and evidence produced by the

parties, comes to the conclusion that the measures taken by the secured creditor

are not in consonance with sub-section (4) of Section 13, then it can direct the

secured creditor to restore management of the business or possession of the

secured assets to the borrower. On the other hand, if the Tribunal finds that the

recourse taken by the secured creditor under sub-section (4) of Section 13 is in

accordance with the provisions of the Act and the Rules made thereunder, then,

notwithstanding anything contained in any other law for the time being in force,

the secured creditor can take recourse to one or more of the measures specified

in Section 13(4) for recovery of its secured debt. Sub-section (5) of Section 17

prescribes the time-limit of sixty days within which an application made under

Section 17 is required to be disposed of. The proviso to this sub-section

envisages extension of time, but the outer limit for adjudication of an application

is four months. If the Tribunal fails to decide the application within a maximum

period of four months, then either party can move the Appellate Tribunal for
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issue of a direction to the Tribunal to dispose of the application expeditiously.

Section 18 provides for an appeal to the Appellate Tribunal.

5. Section 34 lays down that no Civil Court shall have jurisdiction to entertain

any suit or proceeding in respect of any matter which a Tribunal or Appellate

Tribunal is empowered to determine. It further lays down that no injunction shall

be granted by any Court or other authority in respect of any action taken or to

be taken under the SARFAESI Act or the DRT Act. Section 35 of the SARFAESI

Act is substantially similar to Section 34(1) of the DRT Act. It declares that the

provisions of this Act shall have effect, notwithstanding anything inconsistent

therewith contained in any other law for the time being in force or any

instrument having effect by virtue of any such law.

6. However, effective implementation of the SARFAESI Act was delayed by

more than two years because several writ petitions were filed in the High Courts

and this Court questioning its vires. The matter was finally decided by this Court

in Mardia Chemicals v. Union of India (2004) 4 SCC 311 and the validity of

the SARFAESI Act was upheld except the condition of deposit of 75% amount

enshrined in Section 17(2). The Court referred to the recommendations of the

Narasimham and Andhyarujina Committees on the issue of constitution of special

tribunals to deal with cases relating to recovery of the dues of banks etc. and

observed:

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“One of the measures recommended in the circumstances was to
vest the financial institutions through special statutes, the power of
sale of the assets without intervention of the court and for
reconstruction of assets. It is thus to be seen that the question of
non-recoverable or delayed recovery of debts advanced by the
banks or financial institutions has been attracting attention and the
matter was considered in depth by the Committees specially
constituted consisting of the experts in the field. In the prevalent
situation where the amounts of dues are huge and hope of early
recovery is less, it cannot be said that a more effective legislation
for the purpose was uncalled for or that it could not be resorted to.
It is again to be noted that after the Report of the Narasimham
Committee, yet another Committee was constituted headed by Mr.
Andhyarujina for bringing about the needed steps within the legal
framework. We are, therefore, unable to find much substance in
the submission made on behalf of the petitioners that while the
Recovery of Debts Due to Banks and Financial Institutions Act was
in operation it was uncalled for to have yet another legislation for
the recovery of the mounting dues. Considering the totality of
circumstances and the financial climate world over, if it was
thought as a matter of policy to have yet speedier legal method to
recover the dues, such a policy decision cannot be faulted with nor
is it a matter to be gone into by the courts to test the legitimacy of
such a measure relating to financial policy.”

(emphasis supplied)

This Court then held that the borrower can challenge the action taken under

Section 13(4) by filing an application under Section 17 of the SARFAESI Act and

a civil suit can be filed within the narrow scope and on the limited grounds on

which they are permissible in the matters relating to an English mortgage

enforceable without intervention of the Court. In paragraph 31 of the judgment,

the Court observed as under:

“In view of the discussion held in the judgment and the findings
and directions contained in the preceding paragraphs, we hold that
the borrowers would get a reasonably fair deal and opportunity to
get the matter adjudicated upon before the Debts Recovery
Tribunal. The effect of some of the provisions may be a bit harsh
for some of the borrowers but on that ground the impugned
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provisions of the Act cannot be said to be unconstitutional in view
of the fact that the object of the Act is to achieve speedier recovery
of the dues declared as NPAs and better availability of capital
liquidity and resources to help in growth of the economy of the
country and welfare of the people in general which would subserve
the public interest.”

(emphasis supplied)

7. In the light of the above, we shall now consider whether the Division

Bench of the High Court was justified in restraining the appellant from

proceeding under Section 13(4) of the SARFAESI Act against the property of

respondent No.1.

8. A perusal of the record shows that the appellant sanctioned a term loan of

Rs.22,50,000/- in favour of M/s. Pawan Color Lab [through its proprietor Pawan

Singh (respondent No.2)] some time in November, 2004. Respondent No.1 gave

guarantee for repayment of the loan and mortgaged her property bearing House

No. 752/062, Bakshi Khurd, Daraganj, Pargana and Tehsil Sadar, District

Allahabad by deposit of title deeds. She also submitted an affidavit dated

28.12.2004 and executed agreement of guarantee dated 29.12.2004 making

herself liable for repayment of the loan amount with interest.

9. After one year and six months, the appellant sent letter dated 6.5.2006 to

respondent Nos.1 and 2 pointing out that repayment of loan was highly irregular.

After another one year, the account of respondent No.2 was classified as Non-

Performing Asset. On 19.7.2007, the appellant sent separate letters to
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respondent Nos. 1 and 2 requiring them to deposit the outstanding dues

amounting to Rs.23,78,478/-. Thereupon, respondent No.1 deposited a sum of

Rs.50,000/- and gave written undertaking to pay the balance amount in

instalments. However, she did not fulfil her promise to repay the remaining

amount. This compelled the appellant to issue notice to respondent Nos.1 and 2

under Section 13(2) requiring them to pay Rs.23,22,972/- along with future

interest and incidental expenses within 60 days. Upon receipt of the notice,

respondent No.1 offered to pay a sum of Rs.18 lakhs for settlement of the loan

account, but the appellant did not accept the offer and filed an application under

Section 14 of the SARFAESI Act, which was allowed by District

Magistrate/Collector, Allahabad vide his order dated 25.8.2008. Thereafter, the

appellant issued notice dated 21.1.2009 to respondent Nos.1 and 2 under

Section 13(4) of the SARFAESI Act.

10. Faced with the imminent threat of losing the mortgaged property,

respondent No.1 filed C.M.W.P. No.55375 of 2009 and prayed that the appellant

herein may be restrained from taking coercive action in pursuance of the notices

issued under Section 13(2) and (4) and order dated 25.8.2008 passed by District

Magistrate/Collector, Allahabad. She pleaded that the notices issued by the

appellant for recovery of the outstanding dues are ex facie illegal and liable to be

quashed because no action had been taken against the borrower i.e., respondent

No.2 for recovery of the outstanding dues.

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11. In the counter affidavit filed on behalf of the appellant, it was pleaded

that action initiated against respondent No.1 was consistent with the provisions

of SARFAESI Act and writ petitioner (respondent No.1 herein) was bound to

discharge her obligations to pay the outstanding dues and there was no merit in

her challenge to the notices issued under Section 13(2) and 13(4) or the order

passed under Section 14. It was further pleaded that the writ petition is liable to

be dismissed because an alternative remedy is available to the petitioner under

Section 17 of the SARFAESI Act.

12. The Division Bench of the High Court did not even advert to the

appellant’s plea that the writ petition should not be entertained because an

effective alternative remedy was available to the writ petitioner under Section 17

of the SARFAESI Act and passed the impugned order restraining the appellant

from taking action in furtherance of notice issued under Section 13(4) of the

SARFAESI Act. The reason which prompted the High Court to pass the

impugned interim order and operative portion thereof are extracted below:

“Learned counsel for the petitioner has urged that the loan was
taken by respondent No.4 for opening a colour lab at 50/43, Raj
Complex, K.P. Kakkar Road, Allahabad, but the loan has not been
repaid by respondent No.4 and the bank is proceeding against the
petitioner who is the guarantor of the loan. It is not clear from the
documents produced by learned counsel for the bank as to what
steps have been taken by the bank against the borrower of the
loan and merely issuance of notice under section 13(2) of the
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 against the borrower is
not sufficient. The bank should have proceeded against the
borrower and exhausted all the remedies against him and
thereafter the bank could have proceeded against the guarantor.

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Until further orders of this court, the respondents are restrained
from proceeding under section 13(4) of the Act 2002 with regard to
petitioner’s property who was the guarantor of the loan. However,
if any possession has been taken by the bank then the property
shall not be sold to any one else and the petitioner shall be
continued in possession of the property.”

13. We have heard learned counsel for the appellant and perused the record.

Normally, this Court does not interfere with the discretion exercised by the High

Court to pass an interim order in a pending matter but, having carefully

examined the matter, we have felt persuaded to make an exception in this case

because the order under challenge has the effect of defeating the very object of

the legislation enacted by the Parliament for ensuring that there are no

unwarranted impediments in the recovery of the debts, etc. due to banks, other

financial institutions and secured creditors.

14. The question whether the appellant could have issued notices to

respondent No.1 under Section 13(2) and (4) and filed an application under

Section 14 of the SARFAESI Act without first initiating action against the

borrower i.e., respondent No.2 for recovery of the outstanding dues is no longer

res integra. In Bank of Bihar Ltd. v. Damodar Prasad (1969) 1 SCR 620,

this Court considered and answered in affirmative the question whether the bank

is entitled to recover its dues from the surety and observed:

“It is the duty of the surety to pay the decretal amount. On such
payment he will be subrogated to the rights of the creditor under
Section 140 of the Indian Contract Act, and he may then recover
the amount from the principal. The very object of the guarantee is
defeated if the creditor is asked to postpone his remedies against
17

the surety. In the present case the creditor is banking company. A
guarantee is a collateral security usually taken by a banker. The
security will become useless if his rights against the surety can be
so easily cut down.”

In State Bank of India v. M/s. Indexport Registered and others (1992) 3

SCC 159, this Court held that the decree-holder bank can execute the decree

against the guarantor without proceeding against the principal borrower and

then proceeded to observe:

“The execution of the money decree is not made dependent on first
applying for execution of the mortgage decree. The choice is left
entirely with the decree-holder. The question arises whether a
decree which is framed as a composite decree, as a matter of law,
must be executed against the mortgage property first or can a
money decree, which covers whole or part of decretal amount
covering mortgage decree can be executed earlier. There is nothing
in law which provides such a composite decree to be first executed
only against the [principal debtor].”

In Industrial Investment Bank of India Limited v. Biswanath

Jhunjhunwala (2009) 9 SCC 478, this Court again held that the liability of the

guarantor and principal debtor is co-extensive and not in alternative and the

creditor/decree-holder has the right to proceed against either for recovery of

dues or realization of the decretal amount.

15. In view of the law laid down in the aforementioned cases, it must be held

that the High Court completely misdirected itself in assuming that the appellant

could not have initiated action against respondent No.1 without making efforts

for recovery of its dues from the borrower – respondent No.2.
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16. The facts of the present case show that even after receipt of notices

under Section 13(2) and (4) and order passed under Section 14 of the SARFAESI

Act, respondent Nos.1 and 2 did not bother to pay the outstanding dues. Only a

paltry amount of Rs.50,000/- was paid by respondent No.1 on 29.10.2007. She

did give an undertaking to pay the balance amount in installments but did not

honour her commitment. Therefore, the action taken by the appellant for

recovery of its dues by issuing notices under Section 13(2) and 13(4) and by

filing an application under Section 14 cannot be faulted on any legally

permissible ground and, in our view, the Division Bench of the High Court

committed serious error by entertaining the writ petition of respondent No.1.

17. There is another reason why the impugned order should be set aside. If

respondent No.1 had any tangible grievance against the notice issued under

Section 13(4) or action taken under Section 14, then she could have availed

remedy by filing an application under Section 17(1). The expression `any person’

used in Section 17(1) is of wide import. It takes within its fold, not only the

borrower but also guarantor or any other person who may be affected by the

action taken under Section 13(4) or Section 14. Both, the Tribunal and the

Appellate Tribunal are empowered to pass interim orders under Sections 17 and

18 and are required to decide the matters within a fixed time schedule. It is

thus evident that the remedies available to an aggrieved person under the

SARFAESI Act are both expeditious and effective. Unfortunately, the High Court

overlooked the settled law that the High Court will ordinarily not entertain a
19

petition under Article 226 of the Constitution if an effective remedy is available to

the aggrieved person and that this rule applies with greater rigour in matters

involving recovery of taxes, cess, fees, other types of public money and the dues

of banks and other financial institutions. In our view, while dealing with the

petitions involving challenge to the action taken for recovery of the public dues,

etc., the High Court must keep in mind that the legislations enacted by

Parliament and State Legislatures for recovery of such dues are code unto

themselves inasmuch as they not only contain comprehensive procedure for

recovery of the dues but also envisage constitution of quasi judicial bodies for

redressal of the grievance of any aggrieved person. Therefore, in all such cases,

High Court must insist that before availing remedy under Article 226 of the

Constitution, a person must exhaust the remedies available under the relevant

statute.

18. While expressing the aforesaid view, we are conscious that the powers

conferred upon the High Court under Article 226 of the Constitution to issue to

any person or authority, including in appropriate cases, any Government,

directions, orders or writs including the five prerogative writs for the

enforcement of any of the rights conferred by Part III or for any other purpose

are very wide and there is no express limitation on exercise of that power but, at

the same time, we cannot be oblivious of the rules of self-imposed restraint

evolved by this Court, which every High Court is bound to keep in view while

exercising power under Article 226 of the Constitution. It is true that the rule of
20

exhaustion of alternative remedy is a rule of discretion and not one of

compulsion, but it is difficult to fathom any reason why the High Court should

entertain a petition filed under Article 226 of the Constitution and pass interim

order ignoring the fact that the petitioner can avail effective alternative remedy

by filing application, appeal, revision, etc. and the particular legislation contains a

detailed mechanism for redressal of his grievance. 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

AIR 1969 SC 556, Whirlpool Corporation v. Registrar of Trade Marks,

Mumbai (1998) 8 SCC 1 and Harbanslal Sahnia and another v. Indian Oil

Corporation Ltd. and others (2003) 2 SCC 107 and some other judgments,

then the High Court may, after considering all the relevant parameters and public

interest, pass appropriate interim order.

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19. In Thansingh Nathmal v. Superintendent of Taxes (1964) 6 SCR

654, the Constitution Bench considered the question whether the High Court of

Assam should have entertained the writ petition filed by the appellant under

Article 226 of the Constitution questioning the order passed by the Commissioner

of Taxes under the Assam Sales Tax Act, 1947. While dismissing the appeal, the

Court observed as under:

“The jurisdiction of the High Court under Article 226 of the
Constitution is couched in wide terms and the exercise
thereof is not subject to any restrictions except the
territorial restrictions which are expressly provided in the
Articles. But the exercise of the jurisdiction is
discretionary: it is not exercised merely because it is lawful
to do so. The very amplitude of the jurisdiction demands
that it will ordinarily be exercised subject to certain self-
imposed limitations. Resort that jurisdiction is not intended
as an alternative remedy for relief which may be obtained
in a suit or other mode prescribed by statute. Ordinarily
the Court will not entertain a petition for a writ under
Article 226, where the petitioner has an alternative
remedy, which without being unduly onerous, provides an
equally efficacious remedy. Again the High Court does not
generally enter upon a determination of questions which
demand an elaborate examination of evidence to establish
the right to enforce which the writ is claimed. The High
Court does not therefore act as a court of appeal against
the decision of a court or tribunal, to correct errors of fact,
and does not by assuming jurisdiction under Article 226
trench upon an alternative remedy provided by statute for
obtaining relief. Where it is open to the aggrieved
petitioner to move another tribunal, or even itself in
another jurisdiction for obtaining redress in the manner
provided by a statute, the High Court normally will not
permit by entertaining a petition under Article 226 of the
Constitution the machinery created under the statute to be
bypassed, and will leave the party applying to it to seek
resort to the machinery so set up.”

22

20. In Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433,

a three-Judge Bench considered the question whether a petition under Article

226 of the Constitution should be entertained in a matter involving challenge to

the order of the assessment passed by the competent authority under the

Central Sales Tax Act, 1956 and corresponding law enacted by the State

legislature and answered the same in negative by making the following

observations:

“Under the scheme of the Act, there is a hierarchy of authorities
before which the petitioners can get adequate redress against the
wrongful acts complained of. The petitioners have the right to
prefer an appeal before the Prescribed Authority under sub-section
(1) of Section 23 of the Act. If the petitioners are dissatisfied with
the decision in the appeal, they can prefer a further appeal to the
Tribunal under sub-section (3) of Section 23 of the Act, and then
ask for a case to be stated upon a question of law for the opinion
of the High Court under Section 24 of the Act. The Act provides for
a complete machinery to challenge an order of assessment, and the
impugned orders of assessment can only be challenged by the
mode prescribed by the Act and not by a petition under Article 226
of the Constitution. It is now well recognised that where a right or
liability is created by a statute which gives a special remedy for
enforcing it, the remedy provided by that statute only must be
availed of. This rule was stated with great clarity by Willes, J. in
Wolverhampton New Waterworks Co. v. Hawkesford in the
following passage:

“There are three classes of cases in which a liability may
be established founded upon statute. . . . But there is a
third class, viz. where a liability not existing at common
law is created by a statute which at the same time gives
a special and particular remedy for enforcing it. . .the
remedy provided by the statute must be followed, and it
is not competent to the party to pursue the course
applicable to cases of the second class. The form given
by the statute must be adopted and adhered to.”

The rule laid down in this passage was approved by the House of
Lords in Neville v. London Express Newspapers Ltd. and has been
23

reaffirmed by the Privy Council in Attorney-General of Trinidad and
Tobago v. Gordon Grant & Co. Ltd. and Secretary of State v. Mask
& Co. It has also been held to be equally applicable to enforcement
of rights, and has been followed by this Court throughout. The High
Court was therefore justified in dismissing the writ petitions in
limine.”

21. The views expressed in Titaghur Paper Mills Co. Ltd. v. State of

Orissa (supra) were echoed in Assistant Collector of Central Excise,

Chandan Nagar, West Bengal v. Dunlop India Ltd. and others (1985) 1

SCC 260 in the following words:

“Article 226 is not meant to short-circuit or circumvent statutory
procedures. It is only where statutory remedies are entirely ill-
suited to meet the demands of extraordinary situations, as for
instance where the very vires of the statute is in question or where
private or public wrongs are so inextricably mixed up and the
prevention of public injury and the vindication of public justice
require it that recourse may be had to Article 226 of the
Constitution. But then the Court must have good and sufficient
reason to bypass the alternative remedy provided by statute. Surely
matters involving the revenue where statutory remedies are
available are not such matters. We can also take judicial notice of
the fact that the vast majority of the petitions under Article 226 of
the Constitution are filed solely for the purpose of obtaining interim
orders and thereafter prolong the proceedings by one device or the
other. The practice certainly needs to be strongly discouraged.”

22. In Punjab National Bank v. O.C. Krishnan and others (2001) 6 SCC

569, this Court considered the question whether a petition under Article 227 of

the Constitution was maintainable against an order passed by the Tribunal under

Section 19 of the DRT Act and observed:

“5. In our opinion, the order which was passed by the Tribunal
directing sale of mortgaged property was appealable under Section
20 of the Recovery of Debts Due to Banks and Financial Institutions
24

Act, 1993 (for short “the Act”). The High Court ought not to have
exercised its jurisdiction under Article 227 in view of the provision
for alternative remedy contained in the Act. We do not propose to
go into the correctness of the decision of the High Court and
whether the order passed by the Tribunal was correct or not has to
be decided before an appropriate forum.

6. 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.”

23. In CCT, Orissa and others v. Indian Explosives Ltd. (2008) 3 SCC

688, the Court reversed an order passed by the Division Bench of Orissa High

Court quashing the show cause notice issued to the respondent under the Orissa

Sales Tax Act by observing that the High Court had completely ignored the

parameters laid down by this Court in a large number of cases relating to

exhaustion of alternative remedy.

24. In City and Industrial Development Corporation v. Dosu Aardeshir

Bhiwandiwala and others (2009) 1 SCC 168, the Court highlighted the

parameters which are required to be kept in view by the High Court while
25

exercising jurisdiction under Article 226 of the Constitution. Paragraphs 29 and

30 of that judgment which contain the views of this Court read as under:-

“29. In our opinion, the High Court while exercising its
extraordinary jurisdiction under Article 226 of the Constitution is
duty-bound to take all the relevant facts and circumstances into
consideration and decide for itself even in the absence of proper
affidavits from the State and its instrumentalities as to whether any
case at all is made out requiring its interference on the basis of the
material made available on record. There is nothing like issuing an
ex parte writ of mandamus, order or direction in a public law
remedy. Further, while considering the validity of impugned action
or inaction the Court will not consider itself restricted to the
pleadings of the State but would be free to satisfy itself whether
any case as such is made out by a person invoking its extraordinary
jurisdiction under Article 226 of the Constitution.

30. The Court while exercising its jurisdiction under Article 226 is
duty-bound to consider whether:

(a) adjudication of writ petition involves any complex and
disputed questions of facts and whether they can be
satisfactorily resolved;

           (b)    the petition reveals all material facts;
           (c)      the petitioner has any alternative or effective remedy
                    for the resolution of the dispute;
           (d)      person invoking the jurisdiction           is   guilty   of
                    unexplained delay and laches;
           (e)    ex facie barred by any laws of limitation;
           (f)      grant of relief is against public policy or barred by any
                    valid law; and host of other factors.


The Court in appropriate cases in its discretion may direct the State
or its instrumentalities as the case may be to file proper affidavits
placing all the relevant facts truly and accurately for the
consideration of the Court and particularly in cases where public
revenue and public interest are involved. Such directions are always
required to be complied with by the State. No relief could be
granted in a public law remedy as a matter of course only on the
ground that the State did not file its counter-affidavit opposing the
writ petition. Further, empty and self-defeating affidavits or
26

statements of Government spokesmen by themselves do not form
basis to grant any relief to a person in a public law remedy to
which he is not otherwise entitled to in law.”

25. In Raj Kumar Shivhare v. Assistant Director, Directorate of

Enforcement and another (2010) 4 SCC 772, the Court was dealing with the

issue whether the alternative statutory remedy available under the Foreign

Exchange Management Act, 1999 can be bypassed and jurisdiction under Article

226 of the Constitution could be invoked. After examining the scheme of the

Act, the Court observed:

“31. When a statutory forum is created by law for redressal of
grievance and that too in a fiscal statute, a writ petition should not
be entertained ignoring the statutory dispensation. In this case the
High Court is a statutory forum of appeal on a question of law.
That should not be abdicated and given a go-by by a litigant for
invoking the forum of judicial review of the High Court under writ
jurisdiction. The High Court, with great respect, fell into a manifest
error by not appreciating this aspect of the matter. It has however
dismissed the writ petition on the ground of lack of territorial
jurisdiction.

32. No reason could be assigned by the appellant’s counsel to
demonstrate why the appellate jurisdiction of the High Court under
Section 35 of FEMA does not provide an efficacious remedy. In fact
there could hardly be any reason since the High Court itself is the
appellate forum.”

26. In Modern Industries v. Steel Authority of India Limited (2010) 5

SCC 44, the Court held that where the remedy was available under the Interest

on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act,

1993, the High Court was not justified in entertaining a petition under Article 226

of the Constitution.

27

27. 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 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.

28. Insofar as this case is concerned, we are convinced that the High Court

was not at all justified in injuncting the appellant from taking action in

furtherance of notice issued under Section 13(4) of the Act.

29. In the result, the appeal is allowed and the impugned order is set aside.

Since the respondent has not appeared to contest the appeal, the costs are

made easy.

………………………………….J.

[G.S. Singhvi]

………………………………….J.

[Asok Kumar Ganguly]

New Delhi
July 26, 2010.


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