Ashmi Mohan Vatsala Pandey April 26 2022 No writ petition maintainable in cases where remedy lies under SARFAESI Act Clasis Law | Litigation - India Ashmi Mohan, Vatsala Pandey Litigation FactsSubmissionsDecisionThe Supreme Court of India has clarified that borrowers aggrieved by proceedings initiated by banks or asset reconstruction companies (ARCs) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (the SARFAESI Act) have to avail remedy under the same law and a writ petition will not be maintainable.(1)FactsVishwa Bharati Vidya Mandir availed credit facilities of approximately 1,050,000,000 rupees from the Saraswat Cooperative Bank by executing various loan/security documents as well as by mortgaging property in favour of the bank. St Ann's Education Society also availed credit facilities of approximately 200,000,000 rupees from the same bank. In order to secure the repayment of the credit facilities, various loan documents, including personal guarantees, were issued in favour of the bank. Vishwa Bharati Vidya Mandir and St Ann's Education Society (the respondents) also created an equitable mortgage by depositing title deeds with respect to the mortgaged properties.Subsequently, on account of non-payment of dues, the respondents' account was declared as a non-performing asset (NPA). As the respondents failed to make payments, a notice under section 13(2) of the SARFAESI Act was issued to them. After about a month, the NPA account was assigned by the bank in favour of Phoenix ARC Private Limited (the appellant). Pursuant to the assignment of debt, the borrowers approached the appellant for restructuring the repayment of the debt and, therefore, a letter of acceptance was executed between the parties by virtue of which the respondents promised to clear all their dues.In spite of the notice served under section 13(2) of the SARFAESI Act and the letter of acceptance, the respondents continued to default on their payments. Therefore, the appellant sent a letter dated 13 August 2015 that informed the respondents of its intention to take possession of the mortgaged properties on the expiry of 15 days from the date of the letter.Against the appellant's letter, the respondents filed a writ petition under article 226 of the Constitution before the High Court on the ground that the letter constituted a possession notice under section 13(4) of the SARFAESI Act and that this was in violation of rules 8(1) and (2) of the Security Interest Enforcement Rules 2002 (the 2002 Rules). Rules 8(1) and (2) of the 2002 Rules mandate that in a case of possession of immovable property, the possession notice must be served on the borrower and published in two leading newspapers. The High Court passed an ex parte interim order dated 26 August 2015 directing a status quo to be maintained with respect to the possession of the mortgaged property subject to the respondents making a payment of 10 million rupees to the appellant.The appellant opposed the writ petition, mainly, on the grounds that a writ petition was not maintainable against a private financial institution such as itself. The appellant also filed an application seeking a vacation of the ex parte ad interim order. However, in an order on 28 February 2017, instead of deciding on such application, the High Court extended the interim order on the condition that the respondents deposit a further sum of 10 million rupees. In another order on 27 March 2018, the High Court further extended the ex parte order subject to another deposit of 10 million rupees.Feeling aggrieved and dissatisfied with the orders of the High Court, the appellant filed an appeal before the Supreme Court.SubmissionsAppellant's submissionsIn the appeal before the Supreme Court, the appellant made the following submissions, among others:The communication dated 13 August 2018 was merely an intimation of a future action to be taken in case of non-repayment of debt and did not constitute a possession notice under section 13(4) of the SARFAESI Act.The High Court had been wholly unjustified in exercising its powers under article 226 as even if the communication dated 13 August 2018 was assumed to be a possession notice under section 13(4) of the SARFAESI Act, a writ petition would not have been maintainable against a private financial institution such as an ARC.The only remedy available to any person aggrieved by an action taken under the SARFAESI Act is that of an appeal under section 17 of the SARFAESI Act. This had been upheld in United Bank of India v Satyawati Tondon & Ors,(2) Kanaiyalal Lalchand Sachdev & Ors v State of Maharashtra & Ors,(3) and Authorized Officer, State Bank of Travancore & Anr v Mathew KC.(4)Respondents' submissionsIn defence, the respondents made the following submissions, among others:The appellant's letter dated 13 August 2018 constituted a possession notice under section 13(4) of the SARFAESI Act and this was in violation of rule 8 of the 2002 Rules, which imposes a statutory duty upon the secured creditor to act fairly while dealing with the security so as to secure the interest of the borrower as well as the public at large.A writ petition is maintainable even against a purely private body performing public functions. This had been observed in Praga Tools Corporation v Shri CA Imanual and Ors(5) and Ramesh Ahluwalia v State of Punjab and Ors.(6)The presence of an alternate remedy cannot be a bar to filing a writ petition under article 226/227 of the Constitution.DecisionThe Court dwelled on the question of the maintainability of the writ petitions. It relied upon the judgments pronounced in City and Industrial Development Corpn v Dosu Aardeshir Bhiwandiwala,(7) Satyawati Tondon and Kanaiyalal Lalchand Sachdev to conclude that section 17 of the SARFAESI Act constituted an effective and expeditious remedy and a writ under article 226 was not available to a person aggrieved by proceedings initiated under the SARFAESI Act. Applying this principle to the present case, the Court observed that even assuming that the communication dated 13 August 2015 was a notice under section 13(4) of the SARFAESI Act, in view of the statutory remedy available under section 17 of the same Act, the High Court was not required to entertain the writ petitions. Therefore, the High Court had erred in entertaining the writ petitions and passing the interim orders on the condition of depositing a total of 30 million rupees as against total dues of 1,170,000,000 rupees.Further, the Court also clarified that an action by way of a writ under article 226 was not maintainable against a private financial institution such as an ARC, and that such institutions cannot be said to be performing public functions, which are usually expected to be performed by state authorities. The Court reiterated that if proceedings are initiated and/or proposed action is to be taken under the SARFAESI Act and a borrower is aggrieved by such actions of a private bank, a bank or an ARC, then the borrower must avail the remedy under SARFAESI Act and no writ petition would be maintainable or entertainable.Thus, applying these principles of law, the Court held that the letter dated 13 August 2018 did not constitute a possession notice under section 13(4) of the SARFAESI Act; it was merely a proposed action. Therefore, the writ was not maintainable. The Court also observed that even if the letter was assumed to be a notice under section 13(4) of the SARFAESI Act, the writ was once again not maintainable as the appellant is a private financial institution and also because of the existence of an efficacious alternative remedy under section 17 of the SARFAESI Act. Accordingly, the appeal was allowed.For further information on this topic please contact Ashmi Mohan or Vatsala Pandey at Clasis Law by telephone (+91 11 4213 0000) or email ([email protected] or [email protected]). The Clasis Law website can be accessed at www.clasislaw.com.Endnotes(1) Phoenix ARC Private Limited v Vishwa Bharati Vidya Mandir, 12 January 2022, Civil Appeal Nos. 257-259 of 2022.(2) (2010) 8 SCC 110.(3) (2011) 2 SCC 782.(4) (2018) 3 SCC 85.(5) (1969) 1 SCC 585.(6) (2012) 12 SCC 331.(7) (2009) 1 SCC 168.