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Supreme Court says petitions filed in HC by aggrieved borrowers under Article 226 not maintainable

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The Supreme Court has held that writ petitions filed by aggrieved borrowers under Article 226 of the Constitution of India before the High Court is not maintainable against the notice under Section 13(4) of the SARFAESI Act issued by a private financial institution. 

“If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or maintainable and/or entertainable,” said the bench of Justices M.R. Shah and B.V. Nagarathna. 

The Apex Court pronounced its order on an appeal filed by Phoenix ARC Private Limited, an Assets Reconstructing Company, aggrieved by the interim order passed by the High Court putting a status quo on a proposed action to be undertaken by it against the borrower, Vishwa Bharati Vidya Mandir & Ors, under SARFAESI Act for the recovery of Rs 117 crore dues. 

“Applying the law laid down in the Case of Mathew K.C., we are of the opinion that filing of the writ petitions by the borrowers before the High Court under Article 226 of the Constitution of India is an abuse of process of the Court. The writ petitions have been filed against the proposed action to be taken under Section 13(4). Even assuming, that communication dated 13.08.2015 was notice under Section 13(4), in that case also, in view of the statutory, efficacious remedy available by way of appeal under Section 17 of the SARFAESI Act, the High Court ought not to have entertained the writ petitions.”

“Even the impugned orders passed by the High Court directing to maintain the status quo with respect to the possession of the secured properties on payment of Rs 1 crore only (in all Rs 3 crore) is absolutely unjustifiable. The dues are to the extent of approx. Rs 117 crore. The ad-interim relief has been continued since 2015 and the secured creditor is deprived of proceeding further with the action under the SARFAESI Act,” it added. 

“The stay granted by the High Court would have serious adverse impact on the financial health of the secured creditor/assignor. Therefore, the High Court should have been extremely careful and circumspect in exercising its discretion while granting stay in such matters. In these circumstances, the proceedings before the High Court deserve to be dismissed,” the Court held. 

The Supreme Court also imposed a cost of Rs 1 lakh on each of the writ petitioners before the High Court and directed them to pay the amount to appellant Phoenix ARC Private Limited within four weeks. 

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