2010 (7) TMI 829 - SC - Indian Laws

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?

Issues Involved:
1. Legitimacy of the appellant's action under Section 13(4) of the SARFAESI Act.
2. High Court's jurisdiction and discretion in granting interim orders.
3. Availability and adequacy of alternative remedies under the SARFAESI Act.
4. Obligations and rights of guarantors in loan recovery proceedings.

Detailed Analysis:

1. Legitimacy of the Appellant's Action under Section 13(4) of the SARFAESI Act:
The appellant sanctioned a term loan to a borrower, with the respondent No.1 acting as a guarantor and mortgaging her property. Due to non-repayment, the appellant classified the account as a Non-Performing Asset (NPA) and issued notices under Sections 13(2) and 13(4) of the SARFAESI Act. The High Court restrained the appellant from proceeding under Section 13(4), reasoning that the bank should have exhausted remedies against the borrower first. However, the Supreme Court held that the liability of the guarantor is co-extensive with that of the borrower, as established in precedents like *Bank of Bihar Ltd. v. Damodar Prasad* and *State Bank of India v. M/s. Indexport Registered*. Therefore, the appellant was entitled to proceed against the guarantor without first exhausting remedies against the borrower.

2. High Court's Jurisdiction and Discretion in Granting Interim Orders:
The Supreme Court emphasized that the High Court should exercise its discretion under Article 226 of the Constitution with caution, especially when statutory remedies are available. The High Court's interim order restraining the appellant from taking action under Section 13(4) was deemed inappropriate as it undermined the objectives of the SARFAESI Act, which aims for speedy recovery of debts. The Court reiterated that statutory remedies under the SARFAESI Act are both expeditious and effective, and the High Court should not interfere unless exceptional circumstances justify such intervention.

3. Availability and Adequacy of Alternative Remedies under the SARFAESI Act:
The SARFAESI Act provides a comprehensive mechanism for addressing grievances, including the right to appeal under Sections 17 and 18. The Supreme Court noted that the High Court overlooked the availability of these remedies, which are designed to be both expeditious and effective. The Court cited several precedents, such as *Punjab National Bank v. O.C. Krishnan* and *Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement*, to reinforce the principle that statutory remedies should be exhausted before invoking the High Court's jurisdiction under Article 226.

4. Obligations and Rights of Guarantors in Loan Recovery Proceedings:
The Supreme Court clarified that the guarantor's obligation to repay the loan is independent of the actions taken against the borrower. The Court referenced *Industrial Investment Bank of India Limited v. Biswanath Jhunjhunwala*, which established that the liability of the guarantor and principal debtor is co-extensive. Thus, the appellant's action against the guarantor was legally permissible, and the High Court erred in assuming otherwise.

Conclusion:
The Supreme Court set aside the High Court's interim order, allowing the appellant to proceed under Section 13(4) of the SARFAESI Act. The judgment underscores the importance of adhering to statutory remedies and the limited scope of High Court intervention in matters involving recovery of public dues. The Court reiterated that guarantors are equally liable for repayment and that banks are not required to exhaust remedies against the borrower before proceeding against the guarantor.

← Previous Next →