SUPREME COURT CLARIFIES CIRCUMSTANCES WHEN A PETITION UNDER ARTICLE 226 CAN BE ENTERTAINED DESPITE AN ALTERNATE REMEDY

A three Judge Bench of the Supreme Court comprising of Justice B.R. Gavai, Justice Rajesh Bindal and Justice Sandeep Mehta passed a judgement in PHR Invent Educational Society v. UCO Bank and Ors. SLP(C) No. 8867 of 2022 wherein the Hon’ble Supreme Court quashed and set aside the Order of the Telangana High Court stating that High Courts shall not intercede in all the matters under Article 226 if other efficacious remedy is available to the Party.

Facts

Dr. M.V. Ramana Rao (Borrower) secured a loan from the UCO Bank (Respondent Bank) by mortgaging four properties in Vijayawada, Andhra Pradesh as collateral. The Borrower failed to repay the loan, prompting the Respondent Bank to take legal action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Thereafter, the Respondent Bank issued an Auction Sale Notice dated 02.09.2017 for auctioning off the four scheduled properties.

Aggrieved by the Auction Sale Notice, the Borrower filed a Securitization Application (S.A) bearing S.A. no. 1476 of 2017 under Section 17 of the SARFAESI Act (Application against measures to recover secured debts) before the Debt Recovery Tribunal (DRT), thereby praying for setting aside of the Auction.

The Auction was conducted on 14.12.2017 where the PHR Invent Educational Society emerged as the highest bidder having a bid of Rs.5,72,22,200/- and submitted 25% of the bid amount on the same day as per the terms.

Pursuant to this, the Borrower had filed an Interlocutory Application (IA) bearing no. I.A. No. 3446 of 2017 in DRT, thereby praying for stay of further proceedings qua the auction of the scheduled properties, wherein DRT directed the Respondent-Bank not to confirm the sale of the scheduled properties till the Borrower deposited 30% of the outstanding dues as claimed for in the Auction Sale Notice in two equal installments.

DRT passed an Order dated 21.09.2020 whereby S.A No.1476 of 2017 was withdrawn by the Borrower on the ground that the matter has been settled out of Court between him and the Respondent Bank. However, the Respondent Bank issued a Memo of Non-Settlement before DRT thereby informing that no such out of Court settlement has been reached between them. Later, the Borrower filed a Miscellaneous Application bearing no. M.A. 97 of 2020 requesting for restoration of the S.A bearing no. 1476 of 2017.  However, the DRT dismissed the application vide Order dated 02.02.2021.

Aggrieved by the Order dated 02.02.2021, the Borrower filed a Writ Petition bearing no. 5275 of 2021 before the High Court of Telangana. The Hon’ble High Court set aside the impugned Order of the DRT and allowed the Miscellaneous Application filed by the Borrower for the restoration of the Application filed by him.

Thus, being aggrieved by the Hon’ble High Court’s Order, the Auction Purchaser (Appellant) filed the appeal in the Supreme Court of India.

Issues

Whether the High Court committed an error while adjudging the case under Article 226 when alternative remedy was available to the Appellant?

Decision by the Supreme Court

Counsel appearing for the Appellant submitted that the High Court has grossly erred in entertaining the Writ Petition filed by the Borrower when an efficacious alternative remedy of statutory appeal was available to the Borrower under the SARFAESI Act.

The Supreme Court was of the view that the High Court ought to have taken into consideration that if the matter was not related to fraud or collusion, then it is the duty of the Courts to not to pry into such matters. The interference by the High Court can lead to reopening of issues which have achieved finality in the lower Courts or Tribunals.

The Apex Court also observed that, the High Court shall ordinarily not entertain a petition under Article 226 of the Constitution (Power of High Courts to issue certain writs) if an effective alternative remedy is available to the aggrieved person. Moreover, the Hon’ble Supreme Court condemned the High Court’s intervention in the bank’s duly completed auction sale proceedings, emphasizing the importance of exercising due care and caution. The Court emphasized that the existence of legislative remedies, such as appeals under the SARFAESI Act, should dissuade High Courts from hearing Article 226 petitions unless unusual circumstances need such action.

The Supreme Court relied on the judgement of Varimadugu OBI Reddy v. B. Sreenivasulu and Others (2023) 2 SCC 168: 2022 INSC 1205 wherein the Apex Court observed as thus:

“34. The order of the Tribunal dated 1-8-2019 was an appealable order under Section 18 of the SARFAESI Act, 2002 and in the ordinary course of business, the borrowers/person aggrieved was supposed to avail the statutory remedy of appeal which the law provides under Section 18 of the SARFAESI Act, 2002. In the absence of efficacious alternative remedy being availed, there was no reasonable justification tendered by the respondent borrowers in approaching the High Court and filing writ application assailing order of the Tribunal dated 1-8-2019 under its jurisdiction under Article 226 of the Constitution without exhausting the statutory right of appeal available at its command.”

The Apex Court concluded by providing that such interference by the High Courts shall be limited to the cases of fraud, collusion, when principles of judicial procedure are not followed, or when orders are passed in total violation of natural justice. Thus, the Supreme Court allowed the Appeal and also dismissed the Writ Petition filed in the High Court by imposing cost of Rs. 1,00,000/- upon the Borrower.

ARJAV JAIN

ASSOCIATE

The Indian Lawyer

 

Editor’s Comments

The general law is that a High Court should not entertain a petition under Article 226 if there is an alternate efficacious remedy available to the litigant. Superior Courts have time and again ruled that a High Court shall not exercise its powers under Article 226 in the event that the litigant has a statutory appeal or remedy. This is for 2 reasons- the first being to reduce the burden of the High Court in Writ matters and secondly to ensure that the remedy available should be first exhausted before approaching the Writ Court.

The Apex Court by this judgement has once again reiterated the notion of availability of legislative remedies that plays an important role in determining the scope of the High Court’s jurisdiction under Article 226. It further emphasizes the importance of judicial restraint and conformity to established legal frameworks, particularly in cases involving banks’ and financial institutions’ rights to recover their dues. The Apex Court also cautions High Courts to ensure a balance while entertaining a Writ Petition when the statutory remedies are available for the parties.

 

Sushila Ram Varma

Chief Consultant

The Indian Lawyer & Allied Services