2015 (12) TMI 573 - HC - Companies Law

SARFAESI Act - proceedings initiated by the 2nd respondent-bank herein, under Section 13(4) of the SARFAESI Act, against the scheduled property - whether the procedings are void, illegal and arbitrary - petitioners seeking a writ of mandamus to direct the 2nd respondent-bank to give a valid discharge of the liability over the scheduled property; and to deliver the documents/execute a sale deed in favour of the petitioners - Held that - a private company carrying on banking business as a scheduled bank, cannot be termed as an institution or a company carrying on any statutory or public duty. A private body or a person may be amenable to writ jurisdiction only where it may become necessary to compel such body or association to enforce any statutory obligations or such obligations of public nature casting positive obligation upon it. We dont find such conditions are fulfilled in respect of a private company carrying on a commercial activity of banking. Merely regulatory provisions to ensure such activity carried on by private bodies work within a discipline, do not confer any such status upon the company nor put any such obligation upon it which may be enforced through issue of a writ under Article 226 of the Constitution. Present is a case of disciplinary action being taken against its employee by the appellant Bank. The respondents service with the Bank stands terminated. The action of the Bank was challenged by the respondent by filing a writ petition under Article 226 of the Constitution of India. The respondent is not trying to enforce any statutory duty on the part of the Bank. That being the position, the appeal deserves to be allowed Division bench held that an agreement of sale was not prohibited by Section 13(13) of the SARFAESI Act; if at all entered into, that would be subject to the mortgage already created by the borrower in favour of the bank; and it could not, therefore, curtail the rights of the banks in any manner whatsoever. As this finding is binding inter-parties, this question could not have been re-agitated before the Division bench and the Division Bench ought not to have re-examined this question to hold that the sale in favour of the petitioners was void ab initio in view of the interdict contained under Section 13(13) of the SARFAESI Act. To the extent the Division bench, examined this question, in a subsequent proceeding inter-parties, the order under review suffers from an error apparent on the face of the record and necessitates being reviewed. Point No.2 is answered in favour of the review petitioners. While point Nos.1 and 2, decided by the Division bench necessitate being reviewed, and the conclusions recorded thereunder being set aside, we see no reason to review the order on point No.3. Consequently the contentions urged by the petitioner, on the validity of the order of the Debt Recovery Tribunal cannot be examined on merits. To the extent that the petitioner has been relegated to the remedy of a statutory appeal, under Section 18(1) of the SARFAESI Act, the review petition fails and is, accordingly, dismissed.

Summary

Issues Involved:
1. Maintainability of the writ petition against a private bank under Article 226 of the Constitution of India.
2. Validity of the sale agreement under Section 13(13) of the SARFAESI Act.
3. Requirement to exhaust alternative remedy of appeal under Section 18 of the SARFAESI Act before invoking writ jurisdiction.

Issue-Wise Detailed Analysis:

1. Maintainability of the Writ Petition:
The Division Bench held that the 2nd respondent (a private bank) was not an instrumentality of the State under Article 12 of the Constitution of India and thus, a writ petition was not maintainable against it. The Bench referred to the judgment in *Federal Bank Limited v. Sagar Thomas*, which established that private banks do not perform public functions merely by providing banking services. The petitioners argued that the bank was required to discharge statutory duties under the SARFAESI Act and that a writ petition is maintainable for statutory violations. However, the court maintained that the writ petition was not maintainable against the private bank as it was not performing a public function. The review petition was partially allowed on this point, recognizing that statutory obligations imposed on private banks can be questioned under Article 226.

2. Validity of the Sale Agreement:
The Division Bench initially held that the sale agreement in favor of the petitioners was invalid under Section 13(13) of the SARFAESI Act, which prohibits the creation of any interest in the secured asset without the consent of the secured creditor. The petitioners contended that a previous Division Bench had already ruled that such an agreement was not void under Section 13(13). The court acknowledged that the previous judgment was binding and that the Division Bench in W.P. No.35413 of 2013 erred in re-examining the validity of the sale agreement. Thus, the order on this point was reviewed and set aside.

3. Exhaustion of Alternative Remedy:
The Division Bench held that the petitioners should have exhausted the alternative remedy of appeal under Section 18 of the SARFAESI Act before invoking the writ jurisdiction of the High Court. The court cited several Supreme Court judgments emphasizing that the existence of an alternative remedy is a bar to the exercise of writ jurisdiction, especially in matters involving recovery of dues by banks. The petitioners argued that the alternative remedy was neither effective nor efficacious due to the pre-deposit condition. However, the court upheld the requirement of exhausting the statutory remedy, stating that the pre-deposit condition does not render the remedy ineffective. The review petition was dismissed on this point.

Conclusion:
The review petition was partially allowed. Points 1 and 2 were reviewed, and the conclusions recorded thereunder were set aside. However, the order on Point 3, requiring the petitioners to exhaust the alternative remedy of appeal, was upheld, and the review petition was dismissed to that extent.