Court’s Decision
The Patna High Court dismissed a writ petition challenging various notices issued under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), including a possession notice and auction sale notice of the petitioner’s mortgaged dwelling house. The Court held that since the SARFAESI Act provides a comprehensive statutory mechanism, including remedies before the Debts Recovery Tribunal (DRT), a writ petition under Article 226 of the Constitution is not maintainable. The Court reiterated that High Courts must refrain from interfering when effective alternative remedies are available
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Facts
The petitioner, proprietor of M/s Maa Jagdamba Synthetic, had mortgaged his dwelling house to Bihar Gramin Bank to secure a loan. Due to default, the bank initiated recovery proceedings under the SARFAESI Act.
- On 27.03.2017, the bank issued a notice under Section 13(2) of the SARFAESI Act demanding repayment.
- On 17.06.2017, a possession notice was issued under Section 13(4) read with Rule 8 of the SARFAESI Rules, 2002.
- On 19.10.2018, the bank issued a sale notice scheduling auction of the mortgaged house on 27.12.2018, which was advertised in newspapers on 18.11.2018.
The petitioner approached the High Court seeking to quash these notices, alleging fraud by the bank in loan disbursement and adjustment of accounts. He also prayed for a stay on the auction sale
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Issues
- Whether the writ petition under Article 226 challenging SARFAESI proceedings is maintainable despite the availability of alternative remedies under the statute.
- Whether allegations of fraud in loan disbursement justify invoking writ jurisdiction bypassing the statutory mechanism.
- Whether the bank’s actions under Sections 13(2) and 13(4) of the SARFAESI Act could be directly quashed by the High Court.
Petitioner’s Arguments
The petitioner contended that the bank had acted fraudulently in disbursing the loan and adjusting his account, and that his mortgaged dwelling house was being wrongfully auctioned. He argued that the possession and sale notices were illegal and that the auction would cause irreparable harm. He sought the Court’s intervention to quash the SARFAESI notices and restrain the bank from proceeding with the auction
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Respondent’s Arguments
The bank and the State opposed the petition, submitting that the SARFAESI Act provides an adequate and efficacious remedy before the DRT under Section 17. They argued that the High Court cannot interfere in SARFAESI proceedings when a borrower has a clear statutory appellate forum to challenge the bank’s actions. They relied on binding precedents of the Supreme Court, which caution High Courts against entertaining writ petitions in such matters
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Analysis of the Law
The Court emphasized that the SARFAESI Act is a self-contained code, providing a complete framework for recovery of secured debts, including detailed procedures for possession, auction, and borrower remedies.
- Section 13(2): Enables secured creditors to issue demand notice for repayment.
- Section 13(4): Permits banks to take possession and sell secured assets in case of default.
- Section 17: Provides borrowers with a right to appeal before the DRT against any such measures.
The Court reiterated that writ jurisdiction cannot be exercised when the statute provides an equally efficacious remedy. In matters of recovery of bank dues, writ interference is further restricted, as financial legislations are treated as codes unto themselves.
Precedent Analysis
The Court relied on the following Supreme Court rulings:
- United Bank of India v. Satyawati Tondon (2010) 8 SCC 110 — Held that High Courts should not entertain writ petitions when remedies under SARFAESI Act are available, applying with greater force in recovery of bank dues.
- Celir LLP v. Bafna Motors (Mumbai) (P) Ltd. (2024) 2 SCC 1 — Reiterated that writ petitions under Article 226 are not maintainable where statutory remedies under SARFAESI exist.
- PHR Invent Educational Society v. UCO Bank (2024 INSC 297) — Restated the principle that borrowers must exhaust SARFAESI remedies before approaching High Courts
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These precedents firmly established the principle of exhaustion of remedies, leaving no scope for writ interference in the present case.
Court’s Reasoning
The Court reasoned that since the petitioner had an effective remedy before the DRT under Section 17, the writ petition was not maintainable. It observed that allegations of fraud or irregularities in loan disbursement do not automatically justify bypassing statutory remedies, especially in financial matters.
The Court underscored:
“The High Court will ordinarily not entertain a petition under Article 226 if an effective remedy is available to the aggrieved person, and this rule applies with greater rigour in matters involving recovery of dues of banks and financial institutions.”
Accordingly, the Court declined to interfere with the SARFAESI proceedings.
Conclusion
The writ petition was dismissed as not maintainable. However, the Court granted liberty to the petitioner to approach the appropriate forum under the SARFAESI Act to challenge the bank’s measures. It also directed that the concerned authority consider limitation if the petitioner chooses to avail statutory remedies.
Implications
This judgment reinforces the principle that writ jurisdiction is not a substitute for statutory remedies under financial legislations. It provides clarity that borrowers aggrieved by SARFAESI measures must approach the DRT rather than invoke Article 226. The ruling strengthens the efficiency of SARFAESI proceedings by reducing delays caused by writ petitions, thereby securing the financial interests of banks while ensuring borrowers are not left remediless.
FAQs
Q1. Can a borrower directly approach the High Court against SARFAESI proceedings?
No. The Court reiterated that writ petitions are not maintainable when remedies under Section 17 before the DRT exist.
Q2. What remedy does a borrower have against SARFAESI notices?
A borrower can file an application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal challenging the bank’s actions.
Q3. Do allegations of fraud allow bypassing statutory remedies?
Not ordinarily. Even allegations of fraud must be pursued before the statutory forum unless there are exceptional circumstances.
