The Supreme Court, in Phoenix ARC Private Limited Vs Vishwa Bharati Vidya Mandir & Ors., decided on 12 January 2022, has held that no writ petition would lie against a proceeding initiated by a lender under the SARFAESI Act; and the only remedy with the borrower aggrieved by any of the actions of the private bank/bank/ARC is to approach DRT under the SARFAESI Act. The Court also held that a writ petition is not maintainable against the private financial institution like an asset reconstruction company against the proposed action/actions under Section 13(4) of the SARFAESI Act.

Background
Vishwa Bharati Vidya Mandir (Vidya Mandir), a Society registered under the Karnataka Societies Registration Act, 1960, and St. Ann's Education Society
(the Respondents/borrowers) availed credits for approx. 105 crores from Saraswat Cooperative Bank Limited (the Bank).
In April 2013, the Bank declared the Respondents’ accounts as a “Nonperforming Asset” (NPA). Since the Respondents failed to repay the outstanding dues, the Bank issued a notice dated in June 2013 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI Act/ the Act”).
In March 2014, the Bank assigned the NPA account of the Respondents to the appellant – Phoenix ARC Private Limited (ARC). After the assignment, the Respondents approached the ARC with a request for restructuring the repayment of dues and a Letter of Acceptance dated 27.02.2015 was executed between the parties, wherein the Respondents acknowledged and admitted the liability to repay the entire outstanding dues. However, the Respondents failed to repay the dues as per the Letter of Acceptance.
Since the Respondents again committed defaults in payment of the outstanding dues, ARC issued a letter dated 13.08.2015 intimating the Respondents that since despite issuance of 13(2) notice dated 01.06.2013 and the subsequent execution of the Letter of Acceptance dated 27.02.2015, the Respondents had failed to repay the outstanding dues, therefore, ARC would be proceeding to take possession of the mortgaged properties after the expiry of 15 days from the date of the letter.
Against the aforesaid letter dated 13.08.2015, the Respondents filed a writ petition before the High Court of Karnataka contending that the letter dated 13.08.2015 is a possession notice under Section 13(4) of the SARFAESI Act, which is against the Security Interest (Enforcement) Rules, 2002.
The High Court passed an ex-parte ad-interim order dated 26.08.2015 directing status quo to be maintained with regard to possession of the mortgaged properties subject to the Respondents/ borrowers making a payment of Rs. 1 crore with ARC. ARC opposed the Writ on the grounds that firstly the letter dated 13.08.2015 cannot be said to be taking a measure under Section 13(4) of the SARFAESI Act and that it was only a proposed action/measure to be taken by the appellant and secondly, the writ petitions are not maintainable against a private party like ARC.
The High Court instead of deciding the applications filed by ARC for the vacation of the
ex-parte ad interim extended the interim order from time to time on deposit of a sum of
Rs. 1 crore, in total 3 crores. Aggrieved with the interim orders/extension of the interim orders and entertaining the writ petitions, Phoenix ARC preferred the appeals before the Supreme Court.
Issues before the Supreme Court and the decision
The Supreme Court decided the following issues:
Whether the High Court was justified to interfere in the exercise of the powers under Article 226 of the Constitution of India against a private party and a non-State actor like the appellant – Phoenix ARC.
Whether the High Court was justified in entertaining the writ petitions against the communication dated 13.08.2015 and to pass the ex-parte ad interim order virtually stalling/restricting the proceedings under the SARFAESI Act by the creditor.
Whether the Supreme Court can interfere with the interim/interlocutory orders passed by the High Court in the exercise of the powers under Article 226 of the Constitution.
Concerning the first issue, i.e., the maintainability of the Writ Petition, the Supreme Court held that the ARC’s action under the SARFAESI Act to recover the borrowed amount is not a public function—typically performed by the State authorities. Accordingly, if a private bank/bank/ARC initiates a proceeding under the SARFAESI Act or any proposed action is taken, the aggrieved borrower has the only remedy under the SARFAESI Act and no writ petition would be maintainable. The Supreme Court in support of the above conclusion relied upon its earlier judgments in the United Bank of India Vs. Satyawati Tondon & Ors., (2010) 8 SCC 110 and Kanaiyalal Lalchand Sachdev & Ors. Vs. State of Maharashtra & Ors., (2011) 2 SCC 782; General Manager, Sri Siddeshwara Cooperative Bank Limited & Anr. Vs. Ikbal & Ors., (2013) 10 SCC 83 and Agarwal Tracom Private Limited Vs. Punjab National Bank & Ors., (2018) 1 SCC 626.
Regarding the second issue, the Supreme Court held that given the statutory remedy available under Section 17 of the SARFAESI Act and the law laid down in Satyawati Tondon and Kanaiyalal Lalchand (supra), the High Court was not correct to entertain the writ petitions against the notice under Section 13(4) of the SARFAESI Act. The Supreme Court further held that the High Court erred in entertaining the writ petitions against the communication dated 13.08.2015 and also passing the ex-parte ad-interim orders directing to maintain the status quo with respect to possession of secured properties on the condition requiring the Respondents to pay in all Rs.3 crores against the total dues of approximate Rs.117 crores. The High Court ought to have considered and disposed of the application for vacating the ex-parte ad interim relief, which was filed in 2016 at the earliest because of a large sum of Rs.117 crores, observed the Supreme Court.
While deciding the third issue, the Supreme Court held that by filing the writ petitions against a notice under Section 13(4) of the Act, the Respondents/borrowers abused the process of the Court. The Court further held that in view of the statutory, efficacious remedy available by way of appeal under Section 17 of the SARFAESI Act, the High Court ought not to have entertained the writ petitions. Even the impugned orders passed by the High Court directing to maintain the status quo concerning the possession of the secured properties on payment of Rs.1 crore only (in all Rs.3 crores) is absolutely unjustifiable, noted the Supreme Court.
The Supreme Court set aside the interim orders passed by the High Court and dismissed the Writ Petitions pending before the High Court. While setting aside the interim orders and dismissing the Writ Petitions, the Supreme Court remarked that the High Court ought to have appreciated that by passing such an interim order, the secured creditor's rights 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, and the stay granted by the High Court would have a severe adverse impact on the financial health of the secured creditor/assignor.
Comments
The Supreme has rightly interjected the tendency of the High Courts to entertain Writ Petitions against all and sundry actions of private banks despite the borrowers having efficacious alternative remedies. The Supreme Court has also rightly displayed its displeasure to the High Court extending the interim orders on deposit of paltry sum against the huge outstanding of the Bank and not disposing of the Bank’s application for vacating the ex-parte status quo order for several years. This Supreme Court judgment will curtail the practice of borrowers running to the High Court against any proceedings taken by the Banks under the SARFAESI Act and the High Courts entertaining them.
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