2017 (3) TMI 1339 - HC - Indian Laws

Whether the guarantor/ mortgagor could be proceeded against under Section 13 for recovery of the secured debt? - Held that - The Court finds that when the stand taken by respondent No.1 is that advancing financial assistance of ₹ 10 crore to the borrower was not independent loan given to the borrower but was part of the restructured loan which was made for restructuring of dues/ financial assistance, it is a stand taken contrary to the stand taken by the petitioner and gives rise to a dispute which could be resolved only on considering or appreciating the evidence including documentary evidence and this Court under Article 226 of the Constitution of India may not go into disputed questions of fact. Since statutory remedy of appeal is available to all the petitioners under Section 17 of the Act against the actions impugned in the petitions, the petitions are not entertained and are rejected, leaving it open to the petitioners to avail of alternative remedy before appropriate forum. Rule discharged. At this stage, learned advocates appearing for the petitioners request to continue the interim relief for a period of four weeks to enable them to approach the higher forum. Such request is opposed by learned advocates appearing for the respondents. The Court however finds that since the interim relief has remained in operation till these matters are finally decided, no prejudice would be caused to the respondents if interim relief is extended for a period of three weeks from today. Hence, it is directed that no coercive steps shall be taken against the petitioners in connection with their secured assets for a period of THREE WEEKS from today to enable them to approach the higher forum.

Issues Involved:
1. Applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to guarantors.
2. Jurisdiction of securitisation and reconstruction companies to take measures under Section 13(4) of the SARFAESI Act.
3. Availability and exhaustion of statutory remedies under Section 17 of the SARFAESI Act.
4. Maintainability of writ petitions under Article 226 of the Constitution of India when statutory remedies are available.
5. Compliance with mandatory procedures under the Security Interest (Enforcement) Rules, 2002.

Detailed Analysis:

1. Applicability of SARFAESI Act to Guarantors:
The petitioners argued that the SARFAESI Act does not apply to them as they are guarantors and not borrowers. They contended that action under Section 13 could be taken only against borrowers who default in loan repayment and whose accounts are classified as Non-Performing Assets (NPA). The court, however, found that the definition of 'borrower' under the Act includes guarantors and mortgagors. The court emphasized that excluding guarantors from the Act's purview would contradict the legislative intent to reduce NPAs and facilitate speedy recovery of financial assets. The court concluded that guarantors/mortgagors are indeed covered under Section 13(2) and 13(4) for recovery of secured debt.

2. Jurisdiction of Securitisation and Reconstruction Companies:
In Special Civil Application No. 11437 of 2014, the petitioners argued that the respondent, a securitisation and reconstruction company, lacked jurisdiction to take measures under Section 13(4) to recover ?10 crore independently lent to them. The court noted that the respondent claimed the ?10 crore was part of restructured dues and not an independent loan. The court held that disputed questions of fact, such as whether the loan was part of restructuring, should be resolved by the appropriate forum, not under Article 226. The court also referenced the Bharat Steel Tubes Limited case, affirming that securitisation companies could act under the SARFAESI Act if the financial assistance was part of restructuring.

3. Availability and Exhaustion of Statutory Remedies:
The court highlighted that Section 17 of the SARFAESI Act provides an efficacious and exhaustive remedy of appeal to the Debts Recovery Tribunal (DRT) for any person aggrieved by measures taken under Section 13(4). The court cited multiple Supreme Court judgments, including United Bank of India Vs. Satyawati Tondon and Jagdish Singh Vs. Heeralal, to emphasize that the statutory remedy must be exhausted before invoking the writ jurisdiction under Article 226. The court reiterated that the DRT is competent to examine the legality of actions taken under Section 13(4).

4. Maintainability of Writ Petitions under Article 226:
The court addressed the petitioners' argument that the action taken under Section 13(4) was without jurisdiction and thus warranted judicial review under Article 226. The court, however, maintained that the existence of an alternative statutory remedy under Section 17 precluded the necessity of invoking Article 226. The court underscored that the High Court should not entertain writ petitions when an effective alternative remedy is available, especially in matters involving recovery of public dues.

5. Compliance with Mandatory Procedures:
The petitioners in Special Civil Application No. 15599 of 2016 contended that the mandatory procedure under Rule 8 of the Security Interest (Enforcement) Rules, 2002, was not followed before taking possession of the secured assets. The court held that any non-compliance with procedural requirements could be scrutinized by the DRT under Section 17. The court emphasized that allegations of procedural lapses do not justify bypassing the statutory remedy of appeal.

Conclusion:
The court dismissed the petitions, directing the petitioners to avail the statutory remedy of appeal under Section 17 of the SARFAESI Act. The court extended interim relief for three weeks to enable the petitioners to approach a higher forum. The civil application was disposed of accordingly.

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