Despite the effort made by the legislature to keep the recovery of debts by the Bank very simple and clear when the debt is secured, there exist few complications in law dealing with the recovery of secured debt under SARFAESI Act, 2002. The constitutional validity of the provisions of the SARFAESI Act were challenged before the Constitutional Courts and the courts have made it very clear that SARFAESI Act, 2002 is constitutionally valid though certain provisions required a re-look. Initially, when the act came to force, many writ petitions were filed challenging the action initiated by the Bank under the provisions of SARFAESI Act, 2002 and even a notice under section 13 (2) of the Act was challenged before the High Court in many cases. But, slowly, the practice has changed and the constitutional courts now exercise restraint when a writ petition is filed challenging the action initiated by the Bank under SARFAESI Act, 2002.
Despite the dismissal of many writ petitions pertaining to SARFAESI proceedings on the ground of alternative remedy before the Debt Recovery Tribunals, we used to see the High Court coming so heavily on the Bank at times commenting upon their illegality in proceeding against the borrower using the provisions of SARFAESI Act, 2002. I have personally seen some cases where the borrower is left with no effective remedy before the Debt Recovery Tribunal compelling the borrower to approach the High Court under Article 227 of the Constitution of India more often and under Article 226 of the Constitution of India at times. Obviously, the SARFAESI Act is meant to provide for speedy recovery of debt and even the adjudication of debt is conferred on the Bank or Bank officials unusually. The only justification, in my opinion, justifying the tough provisions under SARFAESI Act, 2002 in favour of the Bank is the delay and technicalities before the Civil Courts.
Nobody can support an action by the borrower to evade the payment to the Bank or to delay the payment unreasonably. But, at the same time, the Bank can be reasonable to the borrower in recovering the due, but, it is seen at times where the Bank scrupulously follow the technicalities in classifying the account of the borrower as NPA. The strict action by the Bank while recovering the debt despite knowing the commercial realities and the bonafides of the borrower at times, leads the borrower to find ways to technically attack the Bank and to litigate the issue. I personally support the provisions of SARFAESI Act, 2002 as it can be useful for the Bank to effectively deal with the borrowers with malafide intention. It can never be said that the Bank is always right though it can be right in most of the times. As the Bank is also run by human beings, they tend to make mistakes and there can also be malafides on the part of the Bank or the Bank officials. In many cases, there were serious allegations on the Bank or the Bank officials while dealing with the secured asset and many feel that the Bank officials at times, side with the real estate people or the investors.
There are so many complicated issues in a SARFAESI proceeding. It is very difficult to adjudicate the correctness of the debt and the Bank will have an upper hand when it comes to adjudication. There were cases where the Bank attempts to take physical possession of the secured asset by approaching the concerned court under section 14 of the SARFAESI Act, 2002 even without issuing a notice under section 13 (4) of the Act. I don’t understand as to why the Bank or the Bank officials should find ways to misuse the provisions of the SARFAESI Act, 2002 completely ignoring the need of fairness. In most of the cases, it is very difficult for the borrower to question the validity of the action taken by the Bank under the provisions of SARFAESI Act, 2002. The borrower may have to take lot of risk while challenging the action taken by the Bank under section 13 (4) of the Act or the further steps. The challenge to the Bank action before the Debt Recovery Tribunal is costly for the borrower and it is usual to see the Tribunal impose a condition to deposit some money while granting stay. It is also alleged that the borrower is not heard effectively by the Tribunal or by the Appellate Tribunal. I have interestingly observed some cases before the Debt Recovery Appellate Tribunal where it is claimed by the borrower that they had to pay the entire debt amount to the Bank through deposits or the statutory deposits and it speaks volumes about the cost involved in challenging the action initiated by the Bank under the provisions of SARFAESI Act, 2002.
I had to focus so much on section 14 of the SARFAESI Act, 2002 which provides that the Bank can seek the assistance of the concerned officials in taking physical possession of the secured asset. If the permission is granted by the Magistrate under section 14, then, the Bank will immediately take physical possession of the property. A proceeding under section 14 is considered ministerial and the Magistrate need to do an inquiry though it has to look as to whether the Bank has issued a notice under section 13 (2) etc. Again, the Magistrate dealing with an application by the Bank under section 14 of SARFAESI Act, 2002 need not even give a notice to the borrower. This is an interesting provision in my opinion. In my opinion, a proceeding under section 14 is in the nature of an execution proceeding before the Civil Court which follows Civil Procedure Code. In an ordinary Civil Suit, the filing of an execution petition need to provide many details to the Court and especially it has to convey to the Court that the judgment-debtor did not file an appeal; the limitation for filing statutory appeal has expired etc. There is no such requirement under section 14 of the SARFAESI Act, 2002 which in my opinion requires a change really. Again, there is a specific bar that the no court or the authority should entertain a challenge to the order of the Magistrate under section 14 of the Act. It is really confusing as to where to go when the order of the Magistrate under sect6ion 14 is wrong on the face of it.
I have seen a case in the recent past. The Debt Recovery Tribunal has granted an unconditional stay in favour of the borrower and the stay was vacated by the Tribunal suo motu and the borrower wanted to challenge the order of the Debt Recovery Tribunal before the Debt Recovery Appellate Tribunal. Practically, the filing of appeal before the Debt Recovery Appellate Tribunal may consume some time and what if the Bank gets an order under section 14 in the meanwhile while the borrower is entitled to prefer an appeal and the limitation to file an appeal doesn’t expire. This is only an example. In another case, the Debt Recovery Appellate Tribunal keeps adjourning the Appeal and the application seeking stay and in the meanwhile the Bank proceeds further. This situation compels the borrower to move the High Court under section 227 seeking for a direction and in my opinion, it is unavoidable.
Thus, it is very clear that though the object of SARFAESI Act, 2002 is laudable, still, the act requires a re-look from the angle of providing a reasonable and effective remedy to the borrower. Given the complications and the rights of the borrower, in my personal opinion, the High Court may feel it reasonable to entertain a writ petition in respect of a SARFAESI proceeding though it exercises the writ jurisdiction in respect of SARFAESI proceedings sparingly. I have seen the trend where the High Court had entertained writ petitions in respect of a SARFAESI proceeding, seen the trend where the High Court dismissed the writ petitions in respect of SARFAESI proceeding on the ground of alternative remedy, and in my opinion, now the law is settled. It is very difficult to lay a proposition that the High Court can not entertain a writ petition in respect of a SARFAESI proceeding under all circumstances. Situations may warrant the High Court to deal with a SARFAESI proceeding at times though the writ jurisdiction is to be exercised by the High Court in respect of SARFAESI proceedings sparingly.
Note: the views expressed are my personal and no intention to insult the system.