W.P. No. 15272 of 2009. It was a case where the High Court has taken a serious view of procedural irregularities committed by the Bank using the provisions of SARFAESI Act and provided an instant relief to the aggrieved.
The reference to the legal position in the said judgment is as follows:
“The object of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is to regulate Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest and for matters connected therewith or incidental thereto and the Act came into force on 17-12-2002. The Act aims at speedy recovery of defaulting loans and to reduce the mounting levels of non-performing assets of banks and financial institutions. The Act has been passed based on the recommendations of Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms and to consider the need for changes in the legal system in respect of these areas. The provisions of the would enable the banks and financial institutions to realise long-term assets, manage problems of liquidity and asset liability mismatches and to improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.
For getting a decree in usual course before a
What the Honourable Supreme Court held in Mardia Chemicals Ltd., -Vs- Union of India reported in A.I.R. 2004 S.C.2371:(2004) 4 S.C.C.311, while upholding the validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) is as follows:
“The financial institutions, namely the lenders owe a duty to act fairly and in good faith. There has to be a fair dealing between the parties and the financing companies/institutions are not free to ignore performance of their obligation as a party to the contract. They cannot be free from it. Irrespective of the fact as to whatever may have been held in decisions of some American Courts, in view of the facts and circumstances and the terms of the contracts and other details relating to those matters, that may or may not strictly apply, nonetheless, even in absence of any such decisions or legislation, it is incumbent upon such financial institutions to act fairly and in good faith complying with their part of obligations under the contract. This is also the basic principle of concept of lender's liability. It cannot be a one-sided affair shutting out all possible and reasonable remedies to the other party, namely, borrowers and assume all drastic powers for speedier recovery of NPAs. Possessing more drastic powers calls for exercise of higher degree of good faith and fair play. The borrowers cannot be left remediless in case they have been wronged against or subjected to unfair treatment violating the terms and conditions of the contract. They can always plead in defence deficiencies on the part of the banks and financial institutions.”
The Supreme Court in Central Bank of India vs. State of Kerala and others reported in 2009 (4) SCC 94 restated the object of the Act as follows:
"44. Simultaneously, the jurisdiction of the civil courts was barred and all pending matters were transferred to the Tribunals from the date of their establishment. For some years, the new dispensation of adjudication worked well. However, with the passage of time, proceedings before the Debts Recovery Tribunals also started getting bogged down due to invoking of technicalities by the borrowers. Faced with this situation, the Government again asked the Narasimham Committee to suggest measures for expediting recovery of debts, etc. due to banks and financial institutions.
45. In its Second Report, the Narasimham Committee observed that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the Report, the Committee observed that the evaluation of legal framework has not kept pace with the changing commercial practice and financial sector reforms and as a result of this the economy has not been able to reap full benefits of the reform process.
46. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act and suggested that the existing laws should be changed not only for facilitating speedy recovery of the dues of banks, etc. but also for quick resolution of disputes arising out of the action taken for recovery of such dues.
47. The Andhyarujina Committee constituted by the Central Government for examining banking sector reforms also considered the need for changes in the legal system. Both the Narasimham and Andhyarujina Committees suggested enactment of new legislation for securitisation and empowering the banks and financial institutions to take possession of the securities and sell them without intervention of the court. "
5. The aforesaid Act clothes the authorized officer of the bank with enormous powers to deal with the secured assets to recover the outstanding amounts. Once the power is given, the Courts have held that the same has to be exercised in the way it is to be done and not otherwise. Here is a case where the first respondent/bank, contrary to the Act acted in whimsical and capricious manner and brought the property of the petitioners and sold the same to the fourth respondent in an ill-devised manner which is unknown to law.”
In the same judgment, dealing with the issue of availability of alternative remedy under the SARFAESI Act, 2002 before the Debt Recovery Tribunal, the High Court has laudably held as follows:
“With regard to alternative remedy, it is seen that there is a statutory violation by not issuing notice under Section 13(2) and 13(4) as per the Rule 3 of the Security Interest (Enforcement) Rules 2002. There is contravention of statute and violation of principles of natural justice and also violation of constitutional right to hold property as per Article 300A of the Constitution of India. It has been held by the Honourable Supreme Court in Vimala Ben Ajith Bhai Patel -Vs- Vatsala Ben Ashok Bhai Patel reported in 2008 (4) SCC 649 that the right to property can be taken away only as per law and right to hold the property has been glorified as "Human Right".
That apart, it is well settled law that availability of an alternative remedy is not an absolute bar for exercising the writ jurisdiction and it is only a self-imposed restraint on its power. This has been held so in the judgment in State of Uttar Pradesh -Vs- Mohammad Nooh reported in AIR 1958 SC 86, in Whirlpool Corporation -Vs- Registrar of Trade Marks, Mumbai and others reported in AIR 1999 SC 22, and in Mariamma Roy -Vs- Indian Bank and others reported in 2009 AIR SCW 654. Therefore the plea of availability of alternate remedy miserably fails. The petitioners cannot approach the Tribunal, as the measures taken by the Bank were belatedly known to the petitioners and by that time the time prescribed under the Act was over. The Judgement in Hongo India (P) Ltd relied upon by Mr.K.M.Vijayan, in fact, justifies the contention of the petitioners. As per the judgement, Courts cannot extend the time limit prescribed by the Statute. As such the only remedy for the petitioners is to file a writ petition which has been rightly done by them.
The Tribunal is not competent to look into violation of fundamental rights and constitutional rights and this Court being a custodian of Constitutional rights is entitled to examine the matter. A Constitution Bench of the Honourable Supreme Court in its judgment in State of West Bengal and others -Vs- The Committee For Protection of Democratic Rights, West Bengal and others reported in 2010(2) Scale 467 held that Article 226 of the Constitution of India can be exercised for enforcing any legal right conferred by a statute and it is further held that under Article 226 of the Constitution of India, the High Court has got more wider power than the Honourable Supreme Court. In Secretary Cannanore Muslim Educational Association,
In many cases, despite having a clear case, the aggrieved may hesitate to approach the High Court under Article 226 or 227 of Constitution of India looking at the ‘principle of availability of alternative remedy’, however, the Hon’ble High Court has deal with the issue elaborately in the judgment under reference and I am sure that the observation can not be overruled in my opinion.
Not only dealing with the law and laying down a guiding principle with regard entertaining Writ Petitions in respect of “SARFAESI Act” cases, the High Court has provided an effective remedy to the Petitioner and the relevant portion of the judgment is as follows:
”46. In this case the action of the bank officials resulted in loss to bank as well as to the guarantor, as the property ex-facie was allegedly sold for a very low price. It is common knowledge that it is very difficult to get a ground in and around Chennai for a price lesser than Rs.50 lakhs where as in this case a property measuring about 3168 ¾ sq. ft. in Ayanavaram was allegedly sold palpably at a very low price of Rs.33,50,000/-. As stated above, this Court orders high level inquiry to go into every aspect about the transaction involving bank officials, P.Md. Thahir and the bidders. Given facts and circumstances of the case, this court is prima facie convinced that violations were made with the connivance of Bank Officials the Bidders and P.Md.Thahir son of Sheik Mohammed, 309 "D" Block,
47. For non-compliance of mandatory provisions of the Act, fraud, lack of fair play, bonafides etc., the entire proceedings initiated by respondent bank in favour of the fourth respondent gets vitiated and is hereby set aside. In view of the same, the fourth respondent is directed to hand over the possession of the property to the petitioner within 15 days from the date of receipt of a copy of this order.
48. There will be an order of exemplary cost of Rs.50,000/- (Rupees fifty Thousand only) payable by the respondents bank 1 to 3 to the petitioners within 15 days from the date of the receipt of a copy of this order. Consequently, connected M.P.No.1 of 2009 is closed.”
It is true that there can be inevitable complications in an Appeal before the Debt Recovery Tribunal and it is so where the property belongs to Company and many proceedings were pending against the Company. There can be liquidation in respect of the Company and in such cases; the Official Liquidator should defend the rights of the Company before the Tribunal. There can be a scheme pending for consideration before the High Court in respect of a Company and these issues complicates the cases before Debt Recovery Tribunal at times. But, in other cases, there can not be any complications and there should effective remedy available to the aggrieved if there is merit in the contention and I do strongly feel that the High Court is required to entertain Writ Petitions even in respect of “SARFAESI Act” if required and in exceptional cases. We know that there can be people to approach the High Court with ulterior motives and such cases can easily be dealtwith. But, there should be effective remedy to the innocent owners and the innocent owners should not get troubled with the irregularities committed by the Bank or committed by individuals with the involvement of Bank either directly or indirectly.