SUPREME COURT HOLDS HIGH COURT ERRONEOUS IN ENTERTAINING WRIT PETITION TO DECIDE COMMERCIAL DISPUTES DESPITE EXISTENCE OF ALTERNATE REMEDIES

Recently, a two Judge Bench of the Supreme Court comprising of Justice Sanjiv Khanna and Justice M.M. Sundresh passed a Judgment dated 17-04-2023 in the matter of M/S. South Indian Bank Ltd. & Ors. vs. Naveen Mathew Philip & Anr. etc. Civil Appeal No. 002861 – 002862 / 2023 and observed that the High Court erred in ignoring the existence of alternate remedies under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and wrongly exercised its discretionary power under Article 226 of the Constitution of India (Power of High Courts to issue certain writs) to resolve commercial disputes between a lender and a borrower.

Facts

(1) In the present case, the Respondents-Borrowers, Naveen Mathew Philip (R-1), Clea Jose (R-2), Mary Philip (R-3), M/S. Peege Aggregates Pvt. Ltd. (R-4), M/S. Npm Grajnites Pvt. Ltd. Rep. By Its Managing Director Naveen Mathew Philip (R-5), M/S. P.G. Rock And Concrete Products Pvt. Ltd. Rep. By Its Managing Director Naveen Mathew Philip (R-6) had obtained two Loans, namely, Housing / Kisan Credit Card (KCC) Overdraft Loan and a Business Loan from the Appellant, South Indian Bank Ltd. (Appellant-Bank).

(2) However, the Respondents’ Accounts were declared as non-performing assets (NPA) on 27-05-2021.

(3) Thereafter, the Appellant-Bank sent Notices to the Respondents-Borrowers under Section 13 (2) of SARFAESI Act (Enforcement of security interest) on 07-08-2021 and 12-08-2021.

(4) As per Section 13 (2) of the SARFAESI Act, the secured creditor may require the borrower to discharge his liabilities within 60 days of the date of the notice, failing which, the secured creditor shall be entitled to exercise its rights to recover the secured debt as per Section 13 (4) of the SARFAESI Act including taking possession of borrowers’ secured assets, taking over of borrower’s management, etc.

(5) In the present case, the Respondents-Borrowers replied to the said Notices on 28-10-2021 seeking 12 months’ time to repay the Loan.

(6) However, within 3 days of the said Reply dated 28-10-2021, the Respondents-Borrowers filed a Writ Petition (Civil) No. 23940 of 2021 before the High Court of Kerala and challenged the Demand Notices dated 07-08-2021 and 12-08-2021 sent by the Appellant-Bank.

(7) The High Court allowed the said Writ Petition, vide Order dated 02-12-2021, whereby, the Appellant-Bank was directed to consider the proposal of the Respondents for regularisation and rescheduling of the Loan i.e. to allow remittance of dues in 5 instalments instead of 12 instalments.

(8) But when the Respondents-Borrowers yet again failed to remit the dues as per their own proposal, the Appellant-Bank issued Notices dated 02-12-2021 and 20-12-2021 under Section 13 (4) of the SARFAESI Act.

(9) The Respondents-Borrowers filed Writ Petition (Civil) No. 30238 of 2021 and Writ Petition (Civil) No. 30450 of 2021 before the High Court challenging the aforesaid Notices dated 02-12-2021 and 20-12-2021.

(10) During the pendency of the said Petitions, the Hon’ble Supreme Court passed an Order dated 16-12-2021 in SLP (C) No. 10911 / 2021 and directed the concerned High Court(s) to entertain the matters falling within the jurisdiction of Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) under Article 226 of the Constitution of India, till further orders and till the Tribunals are reconstituted.

(11) However, despite reconstitution of Tribunals in March 2022, the High Court in Writ Petition (Civil) No. 30238 of 2021 and Writ Petition (Civil) No. 30450 of 2021, decided the issues itself, on merit, and vide Order dated 31-08-2022, allowed the Respondents-Borrowers to make deferred payment in 20 instalments, which was beyond the relief prayed for.

(12) Aggrieved by the High Court Order dated 31-08-2022, the Appellant-Bank filed Writ Appeal No. 1492 of 2022 and Writ Appeal No. 1497 of 2022 before the Ld. Division Bench of the High Court.

(13) The Division Bench of the High Court passed an Order dated 19-10-2022 and modified the earlier Order dated 31-08-2022, to the effect that the instalments be paid in 12 equated monthly instalments (instead of earlier 20 months instalments).

Supreme Court

Aggrieved by the High Court (Division Bench) Order dated 19-10-2022, the Appellant-Bank filed Civil Appeal No. 002861 – 002862 / 2023 before the Hon’ble Apex Court. The Supreme Court passed a Judgment dated 17-04-2023 and made the following observations in the present case:

(i) That SARFAESI Act was enacted to give wide powers to the Tribunals to set aside illegal orders, grant consequential reliefs including re-possession and payment of compensation and costs etc and to facilitate a faster and smoother mode of recovery without any interference from the Court.

(ii) That the power under Article 226 of the Constitution of India 1950 may be exercised by a High Court as follows:

(a) The High Court can exercise its discretionary power under Article 226 if the writ petition has been filed for enforcement of fundamental rights, or in case there is violation of principles of natural justice, or in the event that the order passed is without jurisdiction, or if a legislation has been challenged on the ground of being ultra vires the Constitution, etc.

(b) The High Court also has the discretion not to entertain writ petitions, say, in the event there are effective alternate remedies available to the aggrieved person.

(c) When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion.

(d) However, existence of alternate remedy itself does not divest the High Court of its powers under Article 226 in appropriate cases.

(e) In cases where there are disputed questions of fact, the High Court may decide to decline jurisdiction in a writ petition. However, if the High Court is objectively of the view that the nature of the controversy requires the exercise of its writ jurisdiction, such a view would not readily be interfered with.

(f) That the SARFAESI Act provides for (a) comprehensive procedure for recovery of dues and (b) constitution of quasi-judicial bodies such as DRT and DRAT for redressal of grievances of any aggrieved person related to debt recovery, within a fixed time schedule. Hence, the remedies available to an aggrieved person under SARFAESI Act are both expeditious and effective.

Thus, based on the aforesaid observations, the Apex Court, vide Judgment dated 17-04-2023, held that the High Court in the present case, erred in ignoring the existence of statutory remedies under SARFAESI Act and wrongly exercised its discretionary power under Article 226 of the Constitution. As a result, the Appeals filed by the Appellant-Bank were allowed and the Registry was directed to mark a copy of the said Judgment to the High Court.

Harini Daliparthy

Senior Associate

The Indian Lawyer