Recently, in a significant ruling examining the limits of judicial interference under Article 226 of the Constitution, the Kerala High Court addressed whether a borrower, aggrieved by recovery proceedings initiated under the SARFAESI Act, could bypass the statutory remedy before the Debts Recovery Tribunal and seek relief through a writ petition. Read on to uncover how the Court interpreted the interplay between statutory procedure and constitutional jurisdiction in the realm of secured debt recovery.
Brief Facts:
The case stemmed from a writ petition filed by a borrower who had availed a business loan from a co-operative bank by mortgaging his property. Upon default, the bank initiated recovery proceedings under the SARFAESI Act. The borrower sought permission to clear the dues in easy instalments after waiver of interest and penal charges, along with release of possession of the mortgaged property and a stay on recovery.
The Single Judge initially granted interim relief, directing partial payment within a stipulated period. At the final hearing, the petitioner limited his plea to repayment in instalments and regularisation of the loan account. The court disposed of the matter by allowing repayment of the overdue amount in instalments, subject to conditions, payment of a fixed sum for restoration of possession, an undertaking to vacate on default, and regular payment of future instalments. Aggrieved, the bank and its authorised officer filed a writ appeal.
Contentions of the Appellant:
The Appellants contended that the Single Judge’s direction to restore possession of the secured asset to the borrower upon partial payment was legally unsustainable. They argued that the bank had already offered a One Time Settlement (OTS) to the borrower and co-obligant as per earlier court directions, but they failed to comply. Consequently, the bank lawfully proceeded under the SARFAESI Act and took possession of the asset prior to the writ petition. Since the loan had been recalled, the bank could not be compelled to return possession without full repayment, as it would cause serious prejudice. It was further argued that the borrower’s proper remedy lay before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, and not through a writ petition, which was therefore not maintainable.
Contentions of the Respondent:
The Respondent submitted that the Single Judge had only granted an opportunity to clear the overdue amount in instalments and that adequate safeguards were imposed to protect the bank’s interests. It was pointed out that the direction to return possession of the property was conditional upon payment of a specified sum and the furnishing of an undertaking to vacate the property unconditionally in case of default. The respondent argued that the order permitted the bank to resume recovery proceedings in the event of any breach, thereby ensuring no prejudice was caused to the creditor. Hence, the judgment was fair, reasonable, and did not warrant interference in the appeal.
Observation of the Court:
The Court observed that the borrower, who had availed a business loan by mortgaging his property, had earlier been granted the benefit of a One Time Settlement Scheme by the bank pursuant to earlier directions of the Court, but failed to comply with the stipulated terms. Consequently, the bank proceeded with recovery under the SARFAESI Act and took possession of the secured asset much before the filing of the writ petition.
Referring to the case South Indian Bank Ltd. v. Naveen Mathew Philip, the Court reiterated the settled principle that interference by the High Court under Article 226 of the Constitution in matters arising under the SARFAESI Act is limited, as the statute provides an effective alternative remedy before the Debts Recovery Tribunal. The Court quoted that “a writ of certiorari is to be issued over a decision when the court finds that the process does not conform to the law or the statute. In other words, courts are not expected to substitute themselves with the decision-making authority while finding fault with the process along with the reasons assigned.”
The Court emphasised that “when a statute prescribes a particular mode, an attempt to circumvent that mode shall not be encouraged by a writ court.” The Apex Court in South Indian Bank Ltd. v. Naveen Mathew Philip had also frowned upon the practice of borrowers approaching the High Court for consideration of offers, reiterating that “more circumspection is required in a financial transaction, particularly when one of the parties would not come within the purview of Article 12 of the Constitution of India.”
Further, the Court observed that the borrowers, if aggrieved by the proceedings initiated under the SARFAESI Act, “should have invoked the statutory remedy provided under Section 17 of the said Act by approaching the Debts Recovery Tribunal, instead of invoking the writ jurisdiction of this Court under Article 226 of the Constitution of India.” The Court noted that neither the possession notice issued under Section 13(4) of the SARFAESI Act nor the order of the Chief Judicial Magistrate under Section 14 of the SARFAESI Act was challenged before the Tribunal.
The Court held that since the bank had already taken possession of the secured asset prior to the filing of the writ petition, and as the loan account had been recalled, stating, “without clearing the entire overdue amount together, the Bank cannot be directed to return possession of the secured asset to the debtor.” It found that the Single Judge erred in directing restoration of possession upon partial payment when the borrower had not availed the statutory remedy.
The decision of the Court:
Under the light of the foregoing discussion, the Court found no reason to sustain the order of the Single Judge. The writ appeal was allowed, and the impugned judgment was set aside. The writ petition was dismissed as not maintainable, however, without prejudice to the right of the petitioner to invoke the statutory remedy under Section 17 of the SARFAESI Act against the coercive steps initiated by the bank.
Case Title: Kerala Bank and Anr. Vs. Jishith Kumar
Case No: W.A.No.2036 of 2025
Coram: Hon’ble Mr. Justice Anil K. Narendran, Hon’ble Mr. Justice Muralee Krishna S.
Advocate for Appellant: Adv. P. C. Sasidharan
Advocate for Respondent: Adv. Anil kumar V.
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