2016 (9) TMI 822 - HC - Indian Laws

Default in liquidating the liability - Held that - Discipline is not only to be employed by the bank in its day to day business activities but even customers of a bank require to show a steadfast commitment and discipline. Failure to live up to the promises made, which alone induce the bank to lend money, will have a cascading effect on the business operations of a bank. This apart, when the non-performing assets are mounting, the very vitals of the economy gets impacted. Keeping all these factors in mind and to keep the economy afloat in the most-testing and trying circumstances, the SARFAESI Act has been ushered in by the Parliament. This is a special piece of legislation intended to secure the interest of the financial institutions, while at the same time, affording a reasonable protection to the borrowers as well. When the measures adopted by the respondent bank by affording opportunity after opportunity to the petitioners to liquidate their liability have not been availed, there is nothing that this Court can do, particularly in exercise of its jurisdiction under Article 226 of the Constitution of India, which is essentially a discretionary jurisdiction, all the more so in the absence of any enforceable right in the hands of the petitioners vis--vis the 1st respondent bank. This apart, the transaction of financial arrangements entered into by and between the petitioners on the one hand and the 1st respondent bank on the other, have no element of public duty and hence, it falls squarely within the realm of private arrangement. Keeping all these factors in our mind, we regret to concede to the demand made by the learned counsel for the petitioners that the 1st respondent bank shall be directed to negotiate with the petitioners and settle the dispute under one-time settlement scheme nor do we see any justifiable reason for us to interdict the intended sale on 10.03.2016.

Issues:
1. Default in repayment of financial assistance availed from the bank.
2. Challenge to securitization measures initiated by the bank under the SARFAESI Act.
3. Non-performing assets and recovery proceedings initiated by the bank.
4. Justifiability of the bank's actions under Section 13 of the SARFAESI Act.
5. Legal obligations of borrowers and financial institutions in loan agreements.
6. Discretionary jurisdiction of the High Court under Article 226 of the Constitution of India.

Analysis:
1. The petitioners had availed financial assistance from the bank but failed to repay the money, leading to the declaration of their loan account as a non-performing asset by the bank. The petitioners cited reasons like power-cuts and natural calamities affecting their business, but the court found these reasons insufficient to justify the default.
2. The bank initiated securitization measures under Section 13 of the Securitization and Reconstruction of Financial Assets and Security Interest Act, 2002 (SARFAESI Act). Despite multiple opportunities provided by the bank to clear the outstanding liability, the petitioners procrastinated, leading to the initiation of recovery proceedings by the Debts Recovery Tribunal.
3. The Debts Recovery Tribunal passed an order providing the petitioners with a chance to clear the outstanding liability within a specified timeframe, but the petitioners failed to respond adequately. The bank rejected the petitioners' offer of a one-time settlement, leading to the issuance of multiple sale notices for the secured asset.
4. The court affirmed that the bank's actions were in accordance with the provisions of Section 13 of the SARFAESI Act, which allows for securitization measures for non-performing assets. The court highlighted the importance of borrowers fulfilling their repayment obligations to maintain the stability of financial institutions and the economy.
5. Public-sector banks like the respondent bank play a crucial role in providing financial stability and credit access to various sectors. The court emphasized the importance of borrowers honoring their commitments to ensure the efficient functioning of financial institutions and the equitable distribution of resources among different sectors.
6. The High Court, exercising its discretionary jurisdiction under Article 226 of the Constitution of India, declined to intervene in the bank's actions, as the transaction between the petitioners and the bank was deemed a private arrangement without any enforceable right for the petitioners to demand negotiation or settlement under a one-time settlement scheme. The court dismissed the writ petition without costs, upholding the bank's right to proceed with the intended sale as per the SARFAESI Act.

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