Court’s Decision
The Gujarat High Court dismissed the writ petition filed under Article 226 of the Constitution, holding that once an efficacious statutory remedy under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) is available, the High Court will not exercise its extraordinary jurisdiction. The Court emphasized that “when a special statute creates a forum and a remedy, writ jurisdiction cannot be invoked to bypass it.” The petition was accordingly rejected with liberty to the petitioner to avail remedies under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal (DRT).
Facts
The petitioner challenged the action of the secured creditor (bank) in initiating measures under Section 13(4) of the SARFAESI Act, alleging that the bank’s action was arbitrary, without notice, and violative of natural justice. The grievance was that the property was being taken possession of without affording an opportunity of hearing and that the classification of the account as Non-Performing Asset (NPA) itself was improper.
The bank opposed the petition, submitting that the borrower had repeatedly defaulted despite sufficient opportunities and notices. The bank claimed that it had acted strictly within the provisions of SARFAESI and that the petitioner could only challenge the measures before the DRT.
Issues
- Whether the High Court can exercise its writ jurisdiction under Article 226 to interfere with SARFAESI proceedings despite the availability of a statutory remedy under Section 17.
- Whether the petitioner was justified in alleging violation of natural justice in the bank’s measures.
- Whether classification of the loan account as NPA can be challenged in writ proceedings.
Petitioner’s Arguments
The petitioner argued that the classification of the loan account as NPA was arbitrary and contrary to Reserve Bank of India (RBI) guidelines. It was submitted that possession of the secured asset without hearing violated principles of natural justice and Article 14 of the Constitution. The petitioner further argued that the DRT remedy was not adequate as it came into play only after possession was taken, leaving the borrower remediless in the interim.
Respondent’s Arguments
The bank/respondent contended that the writ petition was not maintainable since Section 17 of SARFAESI provided a complete remedy. The bank submitted that all notices under Section 13(2) and Section 13(4) had been duly issued, and the borrower had failed to comply. It argued that the scope of judicial review under writ jurisdiction in SARFAESI matters was extremely limited, citing the principle that High Courts should not interfere where statutory forums exist.
Analysis of the Law
The Court analyzed the scheme of SARFAESI, particularly Sections 13 and 17, which provide for enforcement of security interest and a forum for redressal before the DRT. It reiterated that the Act is a complete code, balancing the rights of creditors and borrowers. The Court held that writ jurisdiction cannot be used to circumvent the remedies under SARFAESI unless exceptional circumstances such as lack of jurisdiction or violation of fundamental rights are established.
Precedent Analysis
The Court referred to several landmark cases:
- Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311 – where the Supreme Court upheld the constitutional validity of SARFAESI but emphasized that borrowers have a remedy under Section 17.
- United Bank of India v. Satyawati Tondon (2010) 8 SCC 110 – where the Supreme Court cautioned High Courts against entertaining writ petitions in SARFAESI matters given the availability of an alternate statutory remedy.
- Phoenix ARC Pvt. Ltd. v. Vishwa Bharati Vidya Mandir (2022) 5 SCC 345 – reiterating that High Courts must exercise restraint and not entertain writ petitions where remedies exist under SARFAESI.
These authorities were applied to reinforce that the petition was barred by availability of alternate remedy.
Court’s Reasoning
The Court reasoned that the petitioner had not demonstrated any exceptional circumstance such as lack of jurisdiction or breach of fundamental rights that would justify exercise of writ jurisdiction. It observed that “mere allegation of violation of natural justice does not permit bypassing the statutory forum.” The classification of account as NPA, being a commercial decision regulated by RBI norms, cannot be re-examined in writ jurisdiction. The Court stressed judicial discipline, stating that entertaining such petitions would undermine the legislative intent of SARFAESI to provide an expeditious recovery mechanism.
Conclusion
The writ petition was dismissed as not maintainable. The Court held that the petitioner must approach the DRT under Section 17 of the SARFAESI Act for redressal. It emphasized: “The High Court cannot become an appellate authority over actions taken under SARFAESI. The statutory remedy is sufficient and binding.”
Implications
This ruling reaffirms the principle that writ jurisdiction under Article 226 is limited in financial and debt recovery matters where a complete statutory mechanism exists. Borrowers cannot challenge SARFAESI actions directly before High Courts, except in rare cases of jurisdictional error or blatant violation of fundamental rights. The judgment strengthens the hands of secured creditors and underscores the finality of SARFAESI remedies, compelling borrowers to approach DRT as the first forum.
Cases Referred and Their Relevance
- Mardia Chemicals Ltd. v. Union of India – Upheld SARFAESI’s constitutionality, provided borrowers remedy under Section 17.
- United Bank of India v. Satyawati Tondon – Directed High Courts not to entertain writ petitions in SARFAESI matters due to alternative remedies.
- Phoenix ARC Pvt. Ltd. v. Vishwa Bharati Vidya Mandir – Reiterated judicial restraint in writ petitions involving SARFAESI.
FAQs
Q1. Can borrowers directly file writ petitions against SARFAESI proceedings?
No, the High Court reiterated that writ petitions are not maintainable when statutory remedies under Section 17 SARFAESI are available, except in rare cases of jurisdictional error or violation of fundamental rights.
Q2. Is classification of an account as NPA challengeable in writ jurisdiction?
No, classification as NPA is a commercial decision and cannot be reopened in writ jurisdiction. Borrowers must challenge it before the DRT under SARFAESI.
Q3. What did the Gujarat High Court emphasize in this ruling?
The Court emphasized that “once the statutory bar applies, no writ jurisdiction can override it,” reiterating judicial restraint where alternate statutory forums exist.
