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2020 (12) TMI 362 - HC - Indian LawsCIRP Proceedings - Validity of notice of sale under Rule 8(6) of Security Interest (Enforcement) Rules, 2002 - validity of notice for sale of secured assets in e-aucion sale in terms of SARFAESI Act - HELD THAT - It is not in dispute that the petitioner had offered his personal properties as security for the loan availed by the corporate debtor. From perusal of the sale notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (Ext.P3), it is clear that because of default in repayment of loan of ₹ 50 crores availed by the corporate debtor, the secured creditor had recalled the entire loan by issuing demand notice under Section 13(2) of the SARFAESI Act on 26.10.2018. It is further seen that possession of assets mortgaged with the secured creditor was also taken by resorting to provisions of the SARFAESI Act. Subsequently, sale notice (Ext.P3) came to be issued. The argument advanced by the learned counsel for the petitioner that because of pendency of proceedings before the NCLT, parallel proceedings under the SARFAESI Act are not maintainable, needs to be rejected. Even otherwise Section 7 of the Insolvency and Bankruptcy Code has application against the corporate debtor. It cannot be said that there is bar for proceedings against the guarantor under the SARFAESI Act because of pendency of corporate insolvency resolution process against the corporate debtor. It is the solemn duty of the Court to apply the correct law without waiting for an objection to be raised by a party, especially when the law stands well settled. Any departure, if permissible, has to be of the case falling under a defined exception, duly discussed after noticing the relevant law. In financial matters grant of ex-parte interim orders can have a deleterious effect and it is not sufficient to say that the aggrieved has the remedy to move for vacating the interim order. Loans by financial institutions are granted from public money generated at the tax payers expense. Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same. Petition dismissed.
Issues Involved:
1. Legality of parallel proceedings under the SARFAESI Act during the pendency of Corporate Insolvency Resolution Process (CIRP) before the NCLT. 2. Applicability of moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) to personal guarantors. 3. Availability and necessity of exhausting alternative statutory remedies before invoking writ jurisdiction under Article 226 of the Constitution. Detailed Analysis: 1. Legality of Parallel Proceedings under SARFAESI Act: The petitioner, the Managing Director of a corporate debtor, challenged the notices issued under the SARFAESI Act (Exts.P3, P4, and P4(a)) on the grounds that parallel proceedings were not maintainable during the pendency of CIRP before the NCLT. The petitioner argued that the moratorium order (Ext.P1) issued by the NCLT should prevent any actions under the SARFAESI Act against the properties involved in the insolvency proceedings. However, the court rejected this argument by referring to the judgment of the Hon'ble Apex Court in State Bank of India vs. V. Ramakrishnan and another (2018 KHC 6591), which clarified that SARFAESI proceedings against guarantors can continue despite ongoing CIRP. The court emphasized that the moratorium under Section 14 of the IBC applies to the corporate debtor and not to the guarantors. Therefore, the initiation of SARFAESI proceedings by the secured creditor was deemed lawful. 2. Applicability of Moratorium to Personal Guarantors: The petitioner contended that Section 60 of the IBC bars parallel insolvency proceedings concerning the same assets during the pendency of proceedings before the NCLT. The court, however, reiterated the position established in V. Ramakrishnan, stating that the moratorium under Section 14 does not extend to personal guarantors. The court noted that the personal properties of the petitioner, offered as security for the corporate debtor's loan, could be subject to SARFAESI proceedings. The court further referenced the statutory interpretation of "bankruptcy" under Section 60(2) of the IBC, which does not encompass SARFAESI proceedings. Thus, the court concluded that there is no bar under the IBC for proceedings against guarantors under the SARFAESI Act during the pendency of CIRP against the corporate debtor. 3. Exhaustion of Alternative Statutory Remedies: The court highlighted the principle that writ petitions under Article 226 of the Constitution should not be entertained if an effective alternative remedy is available. The court cited multiple precedents, including the judgments in Authorized Officer, State Bank of Travancore vs. Mathew K.C (2018(1) KLT 784) and Punjab National Bank vs. O.C. Krishnan (2001) 6 SCC 569, which underscore the necessity of exhausting statutory remedies before seeking writ jurisdiction. The court noted that the petitioner had not disclosed the fact that the subject properties were leased to M/s. Hotel Mythri, which had already approached the Debts Recovery Tribunal (DRT) under the SARFAESI Act. This omission was significant as the petitioner sought equitable relief. The court reiterated that the discretionary jurisdiction under Article 226 should be exercised judiciously and only in exceptional cases where statutory remedies are inadequate or unavailable. The court concluded that the petitioner should have pursued the remedy available under Section 17 of the SARFAESI Act before approaching the High Court. Consequently, the writ petition was dismissed on the grounds of non-exhaustion of alternative statutory remedies. Conclusion: The court dismissed the writ petition, affirming the legality of SARFAESI proceedings against personal guarantors during the pendency of CIRP and emphasizing the necessity of exhausting alternative statutory remedies before invoking writ jurisdiction under Article 226.
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