2023 (7) TMI 961 - HC - Insolvency and Bankruptcy

CIRP - Recovery of dues from the Guarantor, while moratorium was decelerated against the corporate debtor - Legal Steps taken by the Respondent Bank under the provision of the SARFAESI Act - Plaintiff is an MSME within the meaning of the MSMED Act of 2006 or not - applicability of notification S.O. 1432(E) dated 29.5.2015 - no opportunity of restructuring of the Principal Borrower Company and to its directors/ guarantors, provided by the Respondent No. 1 Bank. Petitioner submitted that the Borrower being an MSME should be taken care of by the Government and Special Mention Accounts and rectification, restructuring and if both the options do not work, then recovery option as last option should be used. HELD THAT - Supreme Court in the matter of AUTHORIZED OFFICER, STATE BANK OF TRAVANCORE AND ANOTHER VERSUS MATHEW K.C. 2018 (2) TMI 25 - SUPREME COURT held that if statutory remedies under the DRT Act and the SARFAESI Act is available, High Court should not exercise its jurisdiction under Article 226 for passing orders. In the case of PHOENIX ARC PRIVATE LIMITED VERSUS VISHWA BHARATI VIDYA MANDIR ORS. 2022 (1) TMI 503 - SUPREME COURT it was held that High Court should not entertain Petition when a remedy under SARFAESI Act is available. Petitioner has already availed the benefits of Section 17, by preferring an exhaustive application by way of Securitisation Application No. 92 of 2022 before the D.R.T. On 8 May 2023, liberty was granted to the parties to file Written submissions, and matter was closed for orders. By Order dated 11.09.2019, the NCLT has declared a moratorium against the action being taken against the Borrower, including the SARFAESI proceedings. However, the Secured Asset is owned by the Petitioner/Guarantor. Therefore, as such, the Respondent No. 3 /Bank can proceed against the Mortgaged Property of Personal Guarantor as per S. 13(11) of the SARFAESI - The issue is already covered by the judgment of the Supreme Court in STATE BANK OF INDIA VERSUS V. RAMAKRISHNAN AND ANR. 2018 (8) TMI 837 - SUPREME COURT which holds that S. 14 and S.31 of the IBC does not bar initiation and continuation of the SARFAESI proceedings against the Guarantor. As such, the bank has not violated the moratorium as ordered by the NCLT, in initiating SARFAESI Proceedings against Petitioner / Guarantor. The present proceedings cannot be entertained - This, more particularly, for the reason that the adjudication on such prayer and that too at the behest of the petitioner, is wholly academic - Petition dismissed.

Summary

Issues Involved:
1. Applicability of MSMED Act vis-a-vis SARFAESI Act.
2. Enforceability of the Respondent Bank's claims.
3. Legality of actions under SARFAESI Act.
4. Declaration of Borrower as a willful defaulter.
5. Constitutionality of Section 14 of the SARFAESI Act.

Summary:

1. Applicability of MSMED Act vis-a-vis SARFAESI Act:
The Petitioner, a Guarantor, filed under Article 226 of the Constitution, sought a declaration that the MSMED Act, being a special and later law, should prevail over the SARFAESI Act. The Petitioner argued that the Borrower, categorized as an MSME, should be protected under the MSMED Act and not subjected to recovery proceedings under the SARFAESI Act. The court noted that the Borrower defaulted on the loan, leading to the account being declared as NPA and subsequent actions under the SARFAESI Act.

2. Enforceability of the Respondent Bank's claims:
The Petitioner contended that the Respondent Bank had no enforceable cause of action as the losses suffered by the Principal Borrower exceeded the Bank's claims. The court observed that the Borrower had availed the loan and created a charge over the Secured Assets, and the Petitioner had guaranteed the due payment of the Credit Facility. The court found no merit in the Petitioner's claims, noting multiple proceedings initiated by the Petitioner on the same cause of action.

3. Legality of actions under SARFAESI Act:
The Petitioner sought to restrain the Respondent Bank from taking any action under the SARFAESI Act, arguing that the actions were null and void. The court highlighted that the Borrower's account was declared NPA, and the Bank took symbolic possession under Section 13(4) of the SARFAESI Act. The court referenced Supreme Court judgments emphasizing that High Courts should not entertain writ petitions when statutory remedies under the SARFAESI Act are available.

4. Declaration of Borrower as a willful defaulter:
The Petitioner argued that declaring a Borrower as a willful defaulter results in civil death and that there was no legal authority for such declarations. The court did not find substantial grounds to address this issue in detail, focusing instead on the procedural aspects and the availability of statutory remedies.

5. Constitutionality of Section 14 of the SARFAESI Act:
The Petitioner challenged the constitutionality of Section 14 of the SARFAESI Act, arguing it violated principles of natural justice. The court noted that the Petitioner had already availed remedies under Section 17 by filing a Securitisation Application before the DRT, which was pending for orders. The court reiterated that the SARFAESI Act provides a complete code for expeditious recovery of dues, and High Courts should exercise caution in entertaining writ petitions when statutory remedies are available.

Conclusion:
The court dismissed the Petition, finding no merits in the Petitioner's arguments and emphasizing the availability of statutory remedies under the SARFAESI Act. The court referenced multiple Supreme Court judgments to support its decision, underscoring the importance of adhering to statutory processes for debt recovery.