2017 (6) TMI 607 - HC - Companies Law

Recourse to proceedings under the SARFAESI Act - procedure for recovery of debts due to the Banks - Held that - In the present case, the petitioners had made a representation to the respondent vide letter dated 27.10.2016, but the respondent/creditor has rejected the same under Section 13(3A) of the SARFAESI Act. The reasons for rejecting the petitioners representation have been communicated by the respondent vide its reply dated 17.11.2016. In the case of Mardia Chemicals (2004 (4) TMI 294 - SUPREME COURT OF INDIA) it was clarified that a borrower may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debt Recovery Tribunal as provided under Section 17 of the Act, matures on any measure having been taken under sub- section (4) of Section 13 of the Act . This being the legal position, as and when the respondent takes any steps under Section 13(4) of the SARFAESI Act, the petitioners will be entitled to approach the Debt Recovery Tribunal for relief under Section 17 of the SARFAESI Act. Given the fact that the Statute lays down a step-by-step procedure for the creditor to take action thereunder and remedies have been provided to the debtor against such action, judicial prudence demands that this Court must refrain from exercising its jurisdiction under Article 226 of the Constitution of India. Any view to the contrary shall derail the procedure contemplated under the Statute and seriously impact the rights of financial institutions like the respondent herein, to recover its dues. Thus the plea of the petitioners that the respondent is amenable to writ jurisdiction of the High Court is repelled. It is held that the present petition is not maintainable against the respondent under Article 226 of the Constitution of India as it is neither a State , or any other person or authority and nor is it discharging any public or statutory duty. If they have a grievance against the respondent, then the petitioners must seek recourse to proceedings under the SARFAESI Act, which provides for a special procedure for recovery of debts due to the Banks and financial institutions, to be moved at the appropriate stage.

Summary

Issues Involved:
1. Maintainability of the writ petition under Article 226 of the Constitution of India.
2. Whether the respondent is considered a 'State' or 'public authority' under Article 12 of the Constitution of India.
3. The nature of the respondent's activities and whether they constitute public functions or duties.
4. Availability of alternative remedies under the SARFAESI Act.

Issue-Wise Detailed Analysis:

1. Maintainability of the Writ Petition under Article 226:
The petitioners sought a writ of mandamus against the respondent for non-disbursal of the sanctioned loan amount and to prevent coercive actions against their assets. The respondent contested the maintainability of the petition, arguing it is neither a 'State' nor a 'public authority' and does not perform public functions or duties. The court noted that Article 226 allows writs against any "person" performing public functions or duties, but emphasized that writs are generally not a remedy for enforcing contractual obligations. The court concluded that the respondent, being a private entity engaged in commercial activities, is not amenable to writ jurisdiction under Article 226.

2. Whether the Respondent is a 'State' or 'Public Authority' under Article 12:
The respondent argued it is a private entity, not a 'State' or 'public authority' under Article 12. The petitioners contended that the respondent is controlled by the government through its parent company, M/s PTC India Ltd., which is promoted by Central Government Public Sector Undertakings. The court examined the shareholding pattern and management structure of the respondent and found that the Central or State Government does not hold any shares in the respondent. The court concluded that the respondent is not a 'State' or 'public authority' as it is not created by statute, nor does it enjoy any monopoly status or State protection.

3. Nature of the Respondent's Activities:
The court analyzed whether the respondent's activities constitute public functions or duties. The respondent, classified as an Infrastructure Finance Company by the RBI, engages in commercial lending activities. The court noted that merely being regulated by the RBI does not make the respondent's activities public in nature. The court found that the respondent's activities are purely commercial and private, with no public function or statutory duty being enforced. Therefore, the respondent is not amenable to writ jurisdiction for its commercial transactions.

4. Availability of Alternative Remedies under the SARFAESI Act:
The court highlighted that the SARFAESI Act provides a comprehensive procedure for the recovery of debts and includes remedies for borrowers. The petitioners had already received a notice under Section 13(2) of the SARFAESI Act and had made a representation, which was rejected by the respondent. The court emphasized that the petitioners should exhaust the remedies available under the SARFAESI Act before approaching the High Court. The court concluded that judicial prudence demands refraining from exercising jurisdiction under Article 226 when an alternative remedy is available.

Conclusion:
The court dismissed the petition as not maintainable, holding that the respondent is neither a 'State' nor 'any other person or authority' under Article 226 of the Constitution of India. The petitioners were directed to seek recourse under the SARFAESI Act for their grievances. The court emphasized that the respondent's commercial lending activities do not constitute public functions or duties, and thus, it is not amenable to writ jurisdiction. The petition was dismissed with no orders as to costs.