Judicial Restraint in SARFAESI Cases: Navigating Alternative Remedies and Writ Jurisdiction

Deciphering Legal Judgments: A Comprehensive Analysis of Case Law

Reported as:

2024 (4) TMI 466 - Supreme Court (LB)

Introduction

This article analyzes a recent judgment delivered by the Supreme Court of India in a case involving the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The case revolves around the maintainability of a writ petition filed before the High Court, challenging the actions taken by a secured creditor under the SARFAESI Act, when an alternative statutory remedy was available to the aggrieved party.

Arguments Presented

The appellant, an auction purchaser, contended that the High Court erred in entertaining the writ petition filed by the borrower when an efficacious alternative remedy of a statutory appeal was available under the SARFAESI Act. The appellant relied on several Supreme Court judgments that have consistently held that the High Court should ordinarily not entertain petitions under Article 226 of the Constitution if an effective alternative remedy is available, particularly in matters involving recovery of dues by banks and financial institutions.

The appellant further argued that the conduct of the borrower disentitled him to equitable relief, as the writ petition was filed after the entire payment was made by the appellant-auction purchaser and a Sale Certificate was issued in its favor.

On the other hand, the borrower contended that non-exercising jurisdiction under Article 226/227 of the Constitution on the ground of availability of an alternative remedy is a rule of self-restraint, and in deserving cases, the High Court is not precluded from entertaining a petition under Article 226 to do justice to the parties.

Discussions and Findings of the Supreme Court

The Supreme Court observed that it is a well-settled legal position that in matters involving recovery of dues by banks and financial institutions, the High Court should not entertain a petition under Article 226 of the Constitution, particularly when an alternative statutory remedy is available.

The Court noted that the High Court had failed to consider the conduct of the borrower and the subsequent developments in the case, such as the confirmation of the sale and registration of the Sale Certificate, which had reached an irreversible stage.

The Supreme Court emphasized that a confirmed auction sale can be interfered with only in exceptional cases, such as fraud or collusion, which was not the case here. The effect of the High Court's order would be to reopen issues that had achieved finality.

The Court further observed that the right of redemption stands extinguished upon the execution of a registered sale deed, and in the present case, the sale had been confirmed and registered.

While acknowledging that non-exercise of jurisdiction under Article 226 on the ground of availability of an alternative remedy is a rule of self-restraint, the Court clarified that there are certain exceptions carved out by its judgments, such as when the statutory authority has not acted in accordance with the provisions of the enactment, acted in defiance of fundamental principles of judicial procedure, invoked repealed provisions, or passed an order in total violation of principles of natural justice. However, the present case did not fall under any of these exceptions.

Analysis of the Supreme Court

The Supreme Court's judgment reaffirms the well-established principle that the High Court should exercise restraint in entertaining petitions under Article 226 of the Constitution when an effective alternative statutory remedy is available, particularly in matters involving recovery of dues by banks and financial institutions.

The Court has emphasized the importance of adhering to the statutory mechanisms and remedies provided under specific legislation, such as the SARFAESI Act, to ensure the efficient recovery of dues and to prevent unnecessary interference in the process.

The judgment also highlights the significance of considering the conduct of the parties and the subsequent developments in a case, particularly when irreversible actions, such as the confirmation and registration of a sale, have taken place.

Furthermore, the Court has reiterated the limited exceptions under which a writ petition can be entertained despite the availability of an alternative remedy, such as instances of violation of statutory provisions, defiance of fundamental principles of judicial procedure, or violation of principles of natural justice.

Concluding Remarks

The Supreme Court's judgment in this case serves as a reminder to the High Courts to exercise caution and circumspection in entertaining petitions under Article 226 of the Constitution when effective alternative statutory remedies are available, particularly in matters involving recovery of dues by banks and financial institutions.

The Court has emphasized the importance of adhering to the statutory mechanisms and respecting the finality of actions taken in accordance with the law, such as confirmed and registered auction sales, unless exceptional circumstances of fraud or collusion exist.

This judgment reinforces the principles of judicial restraint and the need to uphold the sanctity of statutory remedies, while also recognizing the limited exceptions under which the High Court's writ jurisdiction can be exercised in the interest of justice.

Summary of the Judgment

The Supreme Court, in this case, upheld the well-established principle that the High Court should exercise restraint in entertaining petitions under Article 226 of the Constitution when an effective alternative statutory remedy is available, particularly in matters involving recovery of dues by banks and financial institutions under the SARFAESI Act. The Court emphasized the importance of adhering to statutory mechanisms and respecting the finality of actions taken in accordance with the law, such as confirmed and registered auction sales, unless exceptional circumstances of fraud or collusion exist. The judgment serves as a strong reminder to the High Courts to exercise caution and circumspection in entertaining such petitions and to uphold the sanctity of statutory remedies while recognizing limited exceptions where the writ jurisdiction can be exercised in the interest of justice.

Full Text:

2024 (4) TMI 466 - Supreme Court (LB)