2007 (8) TMI 768 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the Debt Recovery Tribunal (DRT) to pass interim orders u/s 17 of the Sarfaesi Act.
2. Automatic stay of proceedings u/s 13(4) of the Sarfaesi Act upon filing an application u/s 17.

Summary:

Issue 1: Jurisdiction of DRT to Pass Interim Orders u/s 17 of the Sarfaesi Act

The court examined whether the DRT has the jurisdiction to pass interim orders in an application filed u/s 17 of the Sarfaesi Act. It was noted that the Supreme Court in the case of *Mardia Chemicals Ltd. v. Union of India* upheld the validity of Section 17, except Sub-section (2) which was declared ultra vires. The court observed that Sub-section (7) to Section 17 of the Sarfaesi Act empowers the DRT to dispose of applications in accordance with the provisions of the Recovery of Debts due to Banks and Financial Institutions Act (RDDB & FI Act) and the Rules made thereunder. Sub-section (12) to Section 19 of the RDDB & FI Act allows the Tribunal to pass interim orders. Therefore, the DRT has jurisdiction to pass interim orders u/s 17 of the Sarfaesi Act.

Issue 2: Automatic Stay of Proceedings u/s 13(4) upon Filing an Application u/s 17

The court addressed whether all proceedings u/s 13(4) of the Sarfaesi Act automatically stay upon filing an application u/s 17. It was argued by the borrower that the proceedings should automatically stay, but the court found no specific provision in the Sarfaesi Act that supports this claim. The Supreme Court in *Mardia Chemicals* held that the Tribunal has jurisdiction to pass stay/interim orders, but there is no automatic stay. The court concluded that there is no automatic stay or prohibition on the secured creditor to take recourse to measures u/s 13(4) until an interim order is passed by the Tribunal.

Conclusion:

The court held that the DRT has jurisdiction to pass interim orders u/s 17 of the Sarfaesi Act. It also concluded that there is no automatic stay of proceedings u/s 13(4) upon filing an application u/s 17. The borrower-company and guarantors may pursue their application pending before the DRT, and if the DRT declares the bank's action invalid, they may request restoration of possession of the assets. The auction sale of secured assets on 16th April 2007 should not be confirmed until the Tribunal decides the issue. Both the writ petition and the civil revision petition were disposed of with these observations, without deciding the claims on merits.