December 24, 2020 In Uncategorized


The #DelhiHighCourt has in a recent case of Reena Gambhir Vs Central Bank of India and Ors. (W.P.(C) 10276/2020 & W.P.(C) 10325/2020) passed a Judgement dated 22.12.2020 upholding the decision of #Debt Recovery Appellate Tribunal (#DRAT) and stating that the Banks have the power to initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (#SARFAESI Act) and take over possession of the #property if the dues are not duly paid.

The Respondent No. 2 and 3 (Debtor) herein had taken financial assistance from the Respondent No. 1- Central Bank against collateral security/mortgage of two of their properties – a Residential Flat and a piece of Land located at Kartarpur, Rajasthan (Mortgaged Properties), the title of which was to be perfected. The Petitioner-Guarantor gave an unconditional guarantee for the said Loan. The Debtor intended to use the former Property, i.e. the Flat as an “interim security” till the other Property, i.e. the Land was perfected. On this representation, a sanction of Rs. 20.6 Crore (Loan) was extended to the Debtor and a time limit of up to 30.11.2013 was granted to perfect their Land.

Thereafter, the Debtor’s account turned into a non-performing asset (NPA) and the Respondent issued a notice under Section 13(4) of SARFAESI Act and initiated further steps to take over possession of the Mortgaged Properties under Section 14 of SARFAESI Act.

The Respondent-Bank filed an Application before the Debt Recovery Tribunal (DRT) III, Delhi, which was dismissed. Then a second Application was filed by the Respondent-Bank at DRT II, Delhi which held that the securities offered by the Debtor was only a stopgap arrangement till the mortgaged Land was perfected. The Bank challenged the DRT Order before DRAT, which held as follows:

  • The Guarantee Deed given by the Debtor did not contain any clause stating that the guarantee was only given as a stopgap arrangement.
  • The DRAT also held that there is nothing on record to show that any sort of assurance was given by the Respondent-Bank to the Debtor that the security given was only a stopgap arrangement.
  • The DRAT further held that when the notice under Section 13(2) and 13(4) of the SARFAESI Act was issued by the Respondent-Bank and when O.A. 157/2018 was filed for recovery of debt, the securities given by the Respondents No. 2 and 3 had not been perfected. Thus, there was nothing to show that the Respondent No 1-Bank had agreed to replace the Mortgaged Properties with any other security.

Challenging the said DRAT Order, a writ petition was filed before the Delhi High Court.

The Delhi High Court while taking cognizance of the facts of the case held that:

  • There is nothing in the guarantee given by the Petitioner which indicates that such guarantee was offered only as an interim arrangement only .The defects were not rectified and nor were the securities perfected before the stipulated deadline given by the Respondent-Bank.
  • Notice under Section 13(2) was given but the Debtor did not clear the dues of the Respondent-Bank. The Respondent-Bank, therefore, cannot be faulted for taking over possession of the Petitioner’s properties. The fact that the security was perfected after proceedings were initiated before DRT-III, cannot absolve the Petitioner of her liability.
  • The purpose of legislating the SARFAESI Act is to enable banks and financial institutions to recover the money due to them by exercising the powers to take over possession of securities, sell them and reduce the NPAs by adopting measures for recovery and reconstruction. The Respondent-Bank cannot be faulted for taking further steps to auction the property given by the Petitioner as a security. In any event, the Petitioner has given an unqualified guarantee to repay the amount taken by the Debtor and the said guarantee is co-extensive to the liability of the principal borrower.
  • It cannot be said that the orders of the DRAT is so perverse that it would warrant interference under Article 227 of the Constitution of India. The High Court elicited the well settled principle  that the supervisory jurisdiction under Article 227 of Constitution of India is exercised to keep the subordinate courts within the bounds of the jurisdiction. It is not available to correct errors of facts or law unless it can be shown that the error is manifest and apparent on the face of the proceedings. It is equally settled that the High Court in exercise of its supervisory jurisdiction under Article 227, cannot convert itself into a court of appeal and indulge in re-appreciation or re-evaluation of the evidence or correct the errors in drawing inferences.

Thus, the Delhi High Court upheld the DRAT Order and the auction-sale of the Petitioner-Guarantor’s properties.

Pooja Singh


The Indian Lawyer

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