2022 (1) TMI 503 - SC - Indian Laws

Maintenance of status quo with regard to SARFAESI action - Nonperforming Asset - creation of equitable mortgage by way of deposit of title deeds over the immovable properties with respect to the mortgaged properties - HELD THAT - In the present case, the respondents borrowers whose accounts have been declared as NPA in the year 2013 have filed the writ petitions before the High Court challenging the communication dated 13.08.2015 purporting it to be a notice under Section 13(4) of the SARFAESI Act. It is required to be noted that as per the appellant assignor approximately ₹ 117 crores is due and payable to the Bank. While passing the ex-parte interim order on 26.08.2015 and while entertaining the writ petitions against the communication dated 13.08.2015, the High Court has directed to maintain status quo with respect to the possession of the secured properties on condition that the borrowers deposit ₹ 1 crore only. Despite the fact that subsequently an application for vacating the exparte ad-interim order has been filed in the year 2016, the application for vacating the interim order has not been decided and disposed of. It is required to be noted that it is the case on behalf of the appellant that as such the communication dated 13.08.2015 cannot be said to be a notice under Section 13(4) of the SARFAESI Act at all. According to the appellant, after the notice under Section 13(2) of the SARFAESI Act was issued in the year 2013 and thereafter despite the Letter of Acceptance dated 27.02.2015, no further amount was paid, the appellant called upon the borrowers to make the payment within two weeks failing which a further proceeding under Section 13(4) of the SARFAESI Act was proposed. Thus, according to the appellant, it was a proposed action. Therefore, the writ petitions filed against the proposed action under Section 13(4) of the SARFAESI Act was not maintainable and/or entertainable at all. It appears that the High Court has initially granted an ex-parte ad-interim order mechanically and without assigning any reasons. The High Court ought to have appreciated that by passing such an interim order, the rights of the secured creditor to recover the amount due and payable have been seriously prejudiced. The secured creditor and/or its assignor have a right to recover the amount due and payable to it from the borrowers. The stay granted by the High Court would have serious adverse impact on the financial health of the secured creditor/assignor. Therefore, the High Court should have been extremely careful and circumspect in exercising its discretion while granting stay in such matters. In these circumstances, the proceedings before the High Court deserve to be dismissed. Petition dismissed.

Summary

Issues Involved:
1. Maintainability of writ petitions under Article 226 of the Constitution against a private Assets Reconstruction Company (ARC).
2. Validity of the interim orders passed by the High Court directing status quo on SARFAESI actions.
3. Availability and appropriateness of alternative remedies under the SARFAESI Act.

Detailed Analysis:

Maintainability of Writ Petitions:
The primary issue was whether the writ petitions filed under Article 226 of the Constitution against the private ARC were maintainable. The Court observed that the ARC, being a private financial institution, does not perform public functions typically expected of state authorities. Therefore, the writ petitions against the ARC for proposed actions under Section 13(4) of the SARFAESI Act were not maintainable. The Court emphasized that the ARC's actions were part of a commercial transaction and not public functions, thus not warranting judicial review under Article 226.

Interim Orders by the High Court:
The High Court had passed ex-parte interim orders directing the maintenance of the status quo with respect to the possession of secured properties, conditional on the borrowers depositing a sum far less than the outstanding dues. The Supreme Court found this to be unjustifiable, noting that the High Court's orders effectively stalled the SARFAESI proceedings and prejudiced the secured creditor's rights. The Court highlighted that the High Court should have been more circumspect and careful in granting such interim relief, given the substantial dues involved.

Alternative Remedies under the SARFAESI Act:
The Court reiterated the principle that when an effective alternative remedy is available, writ petitions under Article 226 should not be entertained. It was noted that the borrowers had a statutory remedy under Section 17 of the SARFAESI Act to challenge any measures taken under Section 13(4). The Court cited several precedents affirming that the presence of an alternative remedy should generally preclude the maintainability of a writ petition, especially in financial recovery matters involving significant public and institutional interests.

Conclusion:
The Supreme Court allowed the appeals, setting aside the High Court's interim orders and dismissing the writ petitions. The Court underscored the importance of adhering to statutory remedies and the need for judicial restraint in granting interim relief that could impede financial recovery processes. The borrowers were directed to pay costs to the appellants, reinforcing the Court's disapproval of the misuse of judicial processes to delay legitimate recovery actions.