DRT & SARFAESI: Approaching High Court and Civil Court may prove to be costly in SARFAESI matters?

The jurisdiction of High Court and the Civil Courts in respect of action initiated by the Bank under the provisions of SARFAESI Act, 2002 is almost settled now. There should be a careful understanding and interpretation of the legal position in this regard. There are judgments of Supreme Court and High Courts emphasizing the need of exercising due care while entertaining Writ Petitions under Article 226 of Constitution of India in respect of SARFAESI cases. However, it doesn’t mean that the High Courts should not entertain any Writ Petition under Article 226 of Constitution of India in respect of SARFAESI cases. Depending upon the facts of each and every case, the High Court may come to a conclusion as to whether to entertain a Writ Petition or not in respect of SARFAESI cases. There was a practice of filing Writ Petitions earlier in respect of SARFAESI cases and even High Courts used to entertain such Petitions. However, there is a consistency in this regard now and the High Court will normally hesitate to entertain Writ Petitions in respect of SARFAESI matters under Article 226 of Constitution of India in view of clear alternative remedy under section 17 of SARFAESI Act, 2002 before the Debt Recovery Tribunal. The issue as to whether the remedy before Debt Recovery Tribunal is effective or not is a different issue altogether. In many cases, the borrower or litigant used to get an interim stay of SARFAESI action in his Writ Petition under Article 226 of Constitution of India, however, the Writ Petition will soon gets dismissed. This is what happening now when a litigant/borrower approaches the High Court challenging the action initiated by the Bank under the provisions of SARFAESI Act, 2002. It is settled legal proposition that a Writ Petition under Article 226 of Constitution of India is not maintainable where there is an efficacious alternative remedy. Cleverly, in all cases, it may be contended that though there is an alternative remedy, the same is not efficacious. These contentions are not accepted normally except in exceptional cases warranting the High Court to exercise its extraordinary jurisdiction under Article 226 of Constitution of India. Why litigants approach the High Courts frequently in respect of SARFAESI matters is that it is not costly filing a Writ Petition and there is a need to pay a Court Fee when a borrower/litigant approaches the Debt Recovery Tribunal under section 17 of SARFAESI Act, 2002. Again, there will be lot of work pressure in High Court and if once a Writ Petition is entertained or admitted, it will take lot of time to look at the matter again and to dispose of the case. However, the practice is different now in respect of SARFAESI matters and even the Bank takes due precaution in defending Writ Petitions challenging the Bank’s action under the provisions of SARFAESI Act, 2002.

On the same footing, the litigants/borrowers do approach Civil Courts challenging the action initiated by the Bank under the provisions of SARFAESI Act, 2002 despite the clear bar under Section 34. There is confusion and there are complications in this regard. The jurisdiction of Civil Court is not completely overruled in respect of SARFAESI matters and limited jurisdiction is upheld even in the land-mark Mardia Chemicals case. Despite ruling in favour of limited jurisdiction of Civil Courts, it is really difficult to maintain a Civil Suit before a Civil Court in respect of SARFAESI cases. Again it is very difficult to rule against the Civil Court’s jurisdiction based on the Bank’s reference to the provisions of SARFAESI Act, 2002. It all depends upon the facts and circumstances of the case.

The borrower/litigants may not be able to get an effective remedy under the provisions of SARFAESI Act, 2002 before the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal. There may be lot of work pressure before the DRT and DRAT, they may not understand the seriousness at the grievance of the borrower in some cases and it may be attributed to the work pressure in most of the cases. That is why; many Writ Petitions and Petitions under Article 227 of Constitution of India were filed even in respect of cases which are pending before the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal under the provisions of SARFAESI Act, 2002. When the litigant/borrower approaches the right forum as provided in the statute and then approaches the High Court on the ground that the remedy is really not efficacious, then, the High Court may give directions to the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal. It can not be said that the borrower/litigant is always wrong and Bank is always right. There are serious allegations against the Bank Officials too in many cases and there are allegations at the manner in which the Bank conducts the auctions or sells the ‘secured asset’ through Private Treaty.

The litigants/borrowers may not be aware of the legal position and technicalities. Many feel that the Bank will be automatically restrained if the borrower approaches the High Court by filing a Writ Petition or files Civil Suit before a Civil Court. Its not at all true and the borrowers may actually be prejudiced by approaching the High Court and Civil Court without approaching the Debt Recovery Tribunal or Debt Recovery Appellate Tribunal when they have a grievance at the Bank’s action under the provisions of SARFAESI Act, 2002. For example, the litigant/borrower may have a very good case against the Bank and despite having good case; the borrower might have chosen to file Writ Petitions and Civil Suit. The Bank proceeds under the provisions of SARFAESI Act, 2002 despite the pendency of Writ Petitions and Civil Suit unless there is a specific restraint order. There may be a finding in the Writ Petition or the Civil Suit against the borrower that he approaches the High Court with wrong intention despite having clear alternative remedy under section 17 of SARFAESI Act, 2002. All this attitude of the litigant/borrower may work against the litigant/borrower despite the fact that he has a genuine grievance against the Bank. This is what happening in most of the cases today. The litigant/borrower keep on approaching High Court or the Civil Court and in the meanwhile the Bank proceeds with completion of the procedure in proceeding against the ‘Secured Asset’ under the provisions of SARFAESI Act, 2002. Then, it would be difficult for the litigant/borrower to turn the clock back and to explain as to why he did not approach the Debt Recovery Tribunal under Section 17. The litigant/borrower may also plead at the professional advice and may claim that he has acted as per the professional advice, but, those issues are not considered at all by the Courts except in exceptional cases.

Thus, the borrower should be very careful in raising his grievance against the Bank and a wrong approach may really cost him a lot.

Note: the views expressed are my personal and a view point only.