(ii) The proceedings initiated by the
respondent/Bank under the SARFAESI
Act dated 29-04-2021 by seeking to
conduct e-auction, though the date of
e-auction is over, stands quashed.
(iii) Mandamus issues to the Bank to take
OTS offer as accepted by the Bank, to
its logical end.
Consequently, I.A.1/2022 stands disposed."
2. The writ petition was filed by the respondent
herein challenging the action of the appellant-Bank
notifying conduct of e-auction on 29.04.2021, further
communication dated 23.03.2021, whereby the
appellant-Bank herein withdraws One Time Settlement
('OTS' for short) that was offered. The respondent had
also sought for a direction for issuance of writ in the
nature of mandamus to accept OTS.
3. The facts to be noted are, the respondent is a
private limited company registered under the provisions
of the Companies Act, 1956. The respondent had
approached the appellant-Bank for availing credit facility.
The total loan that was availed by the respondent was
Rs.18,00,00,000/- (Rupees Eighteen Crores only). The
installments towards loan not having been made at
regular intervals as was necessary, the account of the
respondent became a non-performing asset (NPA). It is
noted that, the Bank after issuance of notice to the
respondent indicating the huge default in payment of
installments, initiated proceedings under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 ('SARFAESI
Act' for short). Notice under Section 13(4) of the
SARFAESI Act was issued on 22.03.2019 seeking a
symbolic possession of the properties of the respondent
mortgaged with the Bank.
4. It was then that the respondent and the
appellant pursuant to talks, entered into an
understanding whereby OTS was offered by the
respondent, which was accepted by the appellant-Bank.
The first offer of OTS was accepted by the Bank on
28.08.2019 indicating certain amount in the
communication. This was replied to by the respondent
accepting the terms and conditions mentioned in the
letter dated 28.08.2019 which directed the payment of
certain amount.
5. In terms of the OTS, an amount of
Rs.18,00,00,000/- (Rupees Eighteen Crores only) was
required to be paid by the respondent. There was a
delay in executing the same. It was the case of the
respondent before the learned Single Judge that with the
onset of COVID-19 pandemic, the Bank itself extended
OTS to the respondent and directed the respondent to
pay the entire amount on or before 28.02.2021. The
respondent was also permitted by the Bank to sell the
property that was mortgaged with the Bank, as the
respondent had a potential buyer of the said property.
The property was sold by the respondent and
Rs.18,90,00,000/- (Rs.18.90 Crores) was deposited with
the Bank towards the account. The outstanding amount
as claimed by the appellant was in total
Rs.19,22,00,000/- (Rs.19.22 Crores). It was the case of
the respondent that, on 28.02.2021 itself it has
deposited Rs.18,90,00,000/- (Rs.18.90 Crores). The
Bank vide its communication dated 23.03.2021 on the
ground that the respondent had not paid the entire
amount in full, withdrew the OTS and cancelled the offer
extended. The follow-up action was that, a paper
publication was made by the Bank indicating e-auction on
29.04.2021. It was at that juncture the respondent had
approached the learned Single Judge.
6. The case of the respondent before the learned
Single Judge was primarily that, it had paid an amount
more than what was required to be paid. After offering
OTS, the Bank went on increasing the amount in the garb
of interest. On every doctrine of fairness, proportionality
and legitimate expectation, the action of the appellant-
Bank is contrary to law and equity.
7. On the other hand, the case of the appellant-
Bank before the learned Single Judge was, though the
respondent had deposited Rs.18,90,00,000/- (Rs.18.90
Crores) towards OTS, it was not in full and final as
interest was yet to be paid. Therefore, exercising the
right under the conditions stipulated in OTS offer, the
Bank had withdrawn it. It was the case of the appellant-
Bank that, no fault can be found with the action of the
Bank for sale being the secured creditor. It was also
contended that, the Court cannot extend the time
stipulated in the OTS.
8. Suffice to state, the learned Single Judge has
referred to the communications exchanged between the
parties, and in paragraph No.15, the learned Single
Judge has held as under:
"15. The petitioner becomes entitled to the
prayer that is sought in the peculiar facts of this
case, as the Bank has been absolutely unfair to
the petitioner. Whether a defaulter should be
shown any indulgence would have been the
question if the petitioner had not complied with
OTS or not fulfilled any condition of OTS.
According to the petitioner, he has paid the entire
amount that was indicated in the OTS by selling
his property that he had mortgaged with the Bank
with the permission of the Bank. Therefore, the
Bank having accepted the offer of the petitioner at
every step, could not have wriggled out by
cancelling OTS at the climax and further could not
have retained the entire amount of Rs.19 crores
and again sought to e-auction the other properties
of the petitioner for realizing the alleged interest,
which according to the petitioner nothing remains
to be paid, but according to the Bank certain
amounts are due. It would have been open for the
Bank to have had a dialogue with the petitioner in
the peculiar facts rather than putting other
properties of the petitioner to sale after having
received Rs.19.52 crores towards the amount
offered in OTS."
Submissions:
9. The submission of the learned counsel for the
appellant-Bank is that, the learned Single Judge has
clearly erred and has also failed to appreciate that the
respondent having failed to adhere to the OTS terms and
conditions, the OTS was rightly withdrawn. According to
him, the OTS was sanctioned vide letter dated
28.08.2019, which was a period before the onset of
COVID-19 and the last date for deposit of the payment
was 27.02.2020, which was also a period before the
onset of COVID-19. In any case, the extension was
granted by the Bank vide letter dated 11.12.2020 which
is in the following manner:
"1. Extension of time permitted for payment of
OTS amount from 22.02.2020 i.e., expiry
date of OTS to 31.12.2020 i.e., date of last
installment of OTS amount (313 days) in
making payment of the entire OTS amount of
Rs 1800.00, Lakh [Rs 500.00 Lacs kept in
prospective buyer's current account will be
adjusted immediately on conveying this
sanction]
2. The OTS shall carry the delayed period
interest and expenses of Rs 214.92 Lakh
[Rupees Two Crore Fourteen Lacs and Ninety
Two Thousand Only] calculated at MCLR +
1.50 (MCLR 8.20% as on 01.04.2020) i.e.,
9.70% compounded monthly for the
differential period.
3. Rs 1500.00 Lacs plus delayed period of
interest as stated above shall be paid on or
before 31.12.2020 and the secured
properties shall be released after receipt of
entire amount."
He submitted, by a further letter dated 28.01.2021, the
appellant-Bank accepted the request of the respondent
and granted extension of time upto 28.02.2021 to pay
the amount as was directed in terms of OTS dated
28.08.2019. The OTS period was subject to payment of
differential interest for the extended period in OTS
amount. It was stated that, Rs.15,90,00,000/-
(Rs.15.90 Crores) has been received by the appellant
- 10 -
and therefore, releasing of remaining securities would be
only upon receipt of the balance amount i.e., interest
amounting to Rs.1,31,60,000/-. It is an admitted
position that, the sum of Rs.1,31,60,000/- has not been
deposited by the respondent within the extended period.
It was in this background that the OTS was withdrawn
vide letter dated 12.03.2021. In fact, he also stated, the
respondent had only challenged the subsequent letter
dated 23.03.2021 which referred to the earlier letter
dated 12.03.2021. The learned Single Judge has
proceeded on the erroneous premise that the Bank
withdrew the OTS vide letter dated 23.03.2021 to arrive
at a finding that no reasons were given as to why OTS
was withdrawn. According to him, the learned Single
Judge had also proceeded on erroneous basis that the
respondent had deposited Rs.18,90,00,000/- (Rs.18.90
Crores) by 28.02.2021 and there has been no default in
OTS. On perusal of OTS extension letter dated
28.01.2021, it is noted that a sum of Rs.1,31,60,000/-
was required to be paid by 28.02.2021, which was
- 11 -
admittedly not paid. During the course of submissions,
he has also stated that till 28.02.2021, an amount of
Rs.18,90,00,000/- (Rs.18.90 Crores) was paid by the
respondent. After the deadline, an amount of
Rs.10,11,429/- was made. Thereafter, with effect from
19.03.2021 till 11.05.2021, an amount of Rs.87,05,429/-
was made. So cumulatively, the amount deposited by
the respondent was only Rs.19,77,05,429/-. According
to him, the same is not in compliance with the terms of
extension granted to the respondent till 28.02.2021. In
other words, it is his submission that, admittedly, further
amount of Rs.87,05,429/- was deposited by the
respondent after 12.03.2021 would clearly demonstrate
the complete amount was not paid on or before
28.02.2021. He also states, the learned Single Judge
clearly holds that, the respondent has substantially made
payment which surely does not include the complete
payment as is required to be made.
10. He also stated, the learned Single Judge has
failed to appreciate the contention of the appellant that
- 12 -
the learned Single Judge while exercising jurisdiction
under Article 226 of the Constitution of India, could not
have issued a mandamus directing the Bank to offer OTS
or extend OTS.
11. That apart, it was his submission that the
directions given by the learned Single Judge are at
variance with the settled position of law of the Supreme
Court in the case of Bijnor Urban Cooperative Bank
Ltd., Bijnor and Ors. -Vs.- Meenal Agarwal and Ors.
[2021 SCC OnLine SC 1255], wherein it was
categorically held that no writ of mandamus can be
issued by the High Court in exercise of powers under
Article 226 of the Constitution directing a financial
institution/Bank to positively grant the benefit of OTS to
a borrower. He has also relied upon the judgment of the
Supreme Court in the case of State Bank of India -Vs.-
Arvindra Electronics Pvt. Ltd. [2022 SCC OnLine SC
1522], wherein according to him, the Supreme Court
held that no writ of mandamus can be issued by the High
Court to extend the time to make the balance payment
- 13 -
under the OTS scheme. That apart, it is his submission
that, given the aforesaid position, even the directions of
the learned Single Judge quashing the auction sale notice
issued under the SARFAESI Act in spite of there being an
alternate and efficacious remedy available under Section
17 of the SARFAESI Act, is clearly untenable. He has
also relied upon the following judgments in support of his
contention that the conclusion drawn by the learned
Single Judge allowing the writ petition filed by the
respondent is contrary to the law and as such, the same
is liable to be set aside:
a. Judgments of the Supreme Court in the cases
of:
i) Union of India -Vs.- ABN Amro Bank
[(2013) 16 SCC 490];
ii) South Indian Bank -Vs.- Naveen Mathew
Philip -[2023 SCC OnLine SC 435];
iii) S.P.Chengalvaraya Naidu (dead) by LRs -
Vs.- Jagannath (dead) by LRs [(1994) 1
SCC 1];
b. Judgment of this Court in the case of Nitesh
Residency Hotels Pvt. Ltd. -Vs.- Union of
- 14 -
India [WP No.2004/2022, decided on
08.08.2022].
12. On the other hand, Sri. Ashok Haranahalli,
learned Senior Counsel for the respondent would justify
the impugned order of the learned Single Judge.
According to him, the subject matter of the challenge
was primarily relatable to a loan which was taken by the
respondent for certain business purposes and was during
the onset of COVID-19 when the situation was not at all
conducive from the business perspective. According to
him, no doubt the OTS was accepted by the appellant-
Bank vide letter dated 28.08.2019 on certain terms and
conditions, the respondent had in deference to the
directions of the Bank, till 19.01.2021, deposited an
amount of Rs.18,90,00,000/- (Rs.18.90 Crores). It was
on 28.01.2021 that second extension was granted to the
respondent for the deposit of Rs.1,31,60,000/- on or
before 28.02.2021. The respondent had deposited a
substantial amount, unfortunately the appellant did not
give the break-up of the amount as sought to be claimed
- 15 -
from the respondent. In fact even thereafter, the
respondent had deposited an amount of Rs.87,05,429/-
till 11.05.2021. Despite the attempt of the respondent to
deposit the amount, in between on 12.03.2021, the
appellant-Bank had issued a communication withdrawing
the OTS. The said communication was never received by
the respondent herein. It was only vide letter dated
23.03.2021, the respondent came to know that the Bank
has withdrawn the OTS vide letter dated 12.03.2021 and
SARFAESI action would be continued for recovery of
residual liabilities. He submits, even thereafter, till
11.05.2021, an amount of Rs.87,05,429/- was deposited
by the respondent with the appellant-Bank. It was only
when the respondent decided to initiate action under the
SARFAESI Act, did the respondent approached the Court.
He states, it is not a case that no amount was paid by
the respondent to the appellant-Bank. He heavily relies
upon the conclusion drawn by the learned Single Judge
that substantial deposits have been accepted by the
appellant. In any case it is his submission that, the
- 16 -
appellant-Bank could not be unfair, arbitrary and
overlooking the fact that the respondent had to sell its
factory and even the house of the respondent on the
brink of being sold for which a sale notice was issued.
According to him, it was in the fitness of the things more
particularly, the facts which arise for consideration that
the learned Single Judge had observed that the Bank
does not behove its status of being a State under Article
12 of the Constitution. In support of his submissions, he
has relied upon the following judgments:
a. Judgments of this Court in:
i. Economic Transport Organisation Ltd. -
Vs.- State Bank of India and Ors. [WP
No.13226/2021, decided on 28.09.2021];
ii. State Bank of India -Vs.- Economic
Transport Organisation Ltd. And Ors.
[WA No.1196/2021, decided on
14.09.2023];
b. Judgment of Madhya Pradesh High Court in
the case of Shri Mohanlal Patidar -Vs.-
Bank of Maharashtra and Anr. [WP
No.22127/2021, decided on 21.02.2022];
- 17 -
c. Order of the Supreme Court in the case of
Bank of Maharashtra and Anr. -Vs.-
Mohanlal Patidar [Petition(s) for Special
Leave to Appeal (C) No(s).8088-
8089/2022, decided on 13.05.2022];
d. Judgment of Punjab and Haryana High Court
in the case of Hardyal Singh Cheema -Vs.-
State Bank of India and Ors.
[MANU/PH/2539/2022].
Analysis:
13. Having heard the learned counsel for the
parties, the issue which falls for consideration is in a very
narrow compass i.e., whether the learned Single Judge
was right in:
(i) allowing the writ petition filed by the respondent
and setting aside the withdrawal of the OTS
dated 23.03.2021?
(ii) quashing the proceedings initiated by the
appellant under the SARFAESI Act?
(iii) issuing mandamus to the appellant-Bank to
take OTS offer as accepted by the Bank, to its
logical end?
- 18 -
14. Suffice to state, we are not in agreement with
the conclusion drawn by the learned Single Judge. It is a
fact that in terms of the OTS, the respondent was to pay
an amount of Rs.13,00,00,000/- (Rupees Thirteen
Crores) with interest i.e., simple interest at the rate of
10.15% on reducing balance till the payment of entire
OTS amount on or before 27.02.2020. Concedingly, the
said amount was not paid by the respondent. What was
paid was only an amount of Rs.3,00,00,000/- (Rupees
Three Crores) in the year 2019. The same resulted in
the extension of OTS vide letter dated 11.12.2020 till
31.12.2020 for making payment of entire OTS amount of
Rs.18,00,00,000/- (Rupees Eighteen Crores). The said
OTS was required to carry delayed period interest and
expenses of Rs.2,14,92,000/- compounding to
Rs.15,00,00,000/- + delayed period of interest was
required to be paid on or before 31.12.2020.
Concedingly, Rs.15,50,00,000/- + Rs.40,00,000/- was
deposited with the Bank through the sale of properties
mortgaged with the appellant-Bank. It was on
- 19 -
28.01.2021 that a further extension was given to the
respondent to deposit the complete amount by
28.02.2021. The clause (4) thereof clearly stipulates, in
the event of non-compliance, OTS sanction stands
automatically withdrawn and Bank reserves the right to
proceed as it deems fit including proceeding legally for
recovery of the entire dues. Before the said date, the
total amount of OTS paid was Rs.18,90,00,000/-
(Rs.18.90 Crores). It means that the complete amount
was not paid till 28.02.2021; it also means that a further
amount was due and payable to the Bank, which in fact
the respondent had paid to the tune of Rs.87,05,429/-
(as on 11.05.2021), still further amount was due and
payable by the respondent to the appellant-Bank. As the
amount due was not paid by 28.02.2021, the OTS was
withdrawn on 12.03.2021. It is not understood as to
how after the withdrawal of the OTS, payment was
made, on which much reliance has been placed by Sri.
Haranahalli. He has also raised an issue of non-receipt of
letter dated 12.03.2021. In any case, in a subsequent
- 20 -
communication dated 23.03.2021, the withdrawal of the
OTS has been referred to, which communication has
been received by the respondent. In that sense, no
prejudice is caused for non-receipt of letter dated
12.03.2021. Further, the communication dated
23.03.2021 has been challenged in the writ petition. So
it follows, still a substantial amount was due and payable
by the respondent to the appellant-Bank, even after the
payment of Rs.87,05,429/- that has been made by the
respondent after 12.03.2021/23.03.2021, which is much
less than what is required to be paid. The learned
counsel for the appellant is justified in contending that
the learned Single Judge could not have, only on a
finding that a substantial amount has been paid, allowed
the writ petition in the manner he has done in terms of
the directions in paragraph No.16 of the impugned order.
Unless complete payment is made, the NOC could not
have been given for the loan in question. Surely if the
terms of the OTS have not been followed, the Bank is
within its right to withdraw the same and then proceed in
- 21 -
accordance with law, including under the SARFAESI Act.
The law is well settled in terms of the judgment of the
Supreme Court in the case of Bijnor Urban
Cooperative Bank Ltd. (supra), wherein in paragraphs
No.12 to 15, the Supreme Court has held as under:
"12. Even otherwise, as observed
hereinabove, no borrower can, as a matter of
right, pray for grant of benefit of one-time
settlement scheme. In a given case, it may
happen that a person would borrow a huge
amount, for example, Rs 100 crores. After availing
the loan, he may deliberately not pay any amount
towards instalments, though able to make the
payment. He would wait for the OTS scheme and
then pray for grant of benefit under the OTS
scheme under which, always a lesser amount than
the amount due and payable under the loan
account will have to be paid. This, despite there
being all possibility for recovery of the entire loan
amount which can be realised by selling the
mortgaged/secured properties. If it is held that the
borrower can still, as a matter of right, pray for
benefit under the OTS scheme, in that case, it
would be giving a premium to a dishonest
borrower, who, despite the fact that he is able to
make the payment and the fact that the bank is
able to recover the entire loan amount even by
- 22 -
selling the mortgaged/secured properties, either
from the borrower and/or guarantor. This is
because under the OTS scheme a debtor has to
pay a lesser amount than the actual amount due
and payable under the loan account. Such cannot
be the intention of the bank while offering OTS
scheme and that cannot be the purpose of the
scheme which may encourage such a dishonesty.
13. If a prayer is entertained on the part of
the defaulting unit/person to compel or direct the
financial corporation/bank to enter into a one-time
settlement on the terms proposed by it/him, then
every defaulting unit/person which/who is capable
of paying its/his dues as per the terms of the
agreement entered into by it/him would like to get
one-time settlement in its/his favour. Who would
not like to get his liability reduced and pay lesser
amount than the amount he/she is liable to pay
under the loan account? In the present case, it is
noted that the original writ petitioner and her
husband are making the payments regularly in two
other loan accounts and those accounts are
regularised. Meaning thereby, they have the
capacity to make the payment even with respect
to the present loan account and despite the said
fact, not a single amount/instalment has been paid
in the present loan account for which original
petitioner is praying for the benefit under the OTS
Scheme.
- 23 -
14. The sum and substance of the aforesaid
discussion would be that no writ of mandamus can
be issued by the High Court in exercise of powers
under Article 226 of the Constitution of India,
directing a financial institution/bank to positively
grant the benefit of OTS to a borrower. The grant
of benefit under the OTS is always subject to the
eligibility criteria mentioned under the OTS
scheme and the guidelines issued from time-to-
time. If the bank/financial institution is of the
opinion that the loanee has the capacity to make
the payment and/or that the bank/financial
institution is able to recover the entire loan
amount even by auctioning the mortgaged
property/secured property, either from the loanee
and/or guarantor, the bank would be justified in
refusing to grant the benefit under the OTS
scheme. Ultimately, such a decision should be left
to the commercial wisdom of the bank whose
amount is involved and it is always to be
presumed that the financial institution/bank shall
take a prudent decision whether to grant the
benefit or not under the OTS scheme, having
regard to the public interest involved and having
regard to the factors which are narrated
hereinabove.
15. In view of the aforesaid discussion and
for the reasons stated above, we are of the firm
opinion that the High Court, in the present case,
- 24 -
has materially erred and has exceeded in its
jurisdiction in issuing a writ of mandamus in
exercise of its powers under Article 226 of the
Constitution of India by directing the appellant
Bank to positively consider/grant the benefit of
OTS to the original writ petitioner. The impugned
judgment and order [Meenal Agarwal v. State of
U.P., 2021 SCC OnLine All 989] passed by the
High Court is hence unsustainable and deserves to
be quashed and set aside and is accordingly
quashed and set aside."
(Emphasis supplied)
15. In the case of Arvindra Electronics Pvt. Ltd.
(supra), the Supreme Court has, in paragraphs No.22
and 23, held as under:
"22. Even otherwise as rightly submitted on
behalf of the Bank directing the Bank to
reschedule the payment under OTS would
tantamount to modification of the contract which
can be done by mutual consent under Section 62
of the Contract Act. By the impugned judgment
and order rescheduling the payment under the
OTS Scheme and granting extension of time would
tantamount to rewriting the contract which is not
permissible while exercising the powers under
Article 226 of the Constitution of India.
- 25 -
23. It is required to be noted that under the
OTS Scheme which was originally sanctioned in
the year 2017 the borrower was required to pay
Rs 10,53,75,069.74 against the outstanding of Rs
13,99,89,273.99. Therefore, under the original
sanctioned OTS Scheme the borrower was getting
the substantial relief of approximately Rs 3 crores.
The Bank agreed and accepted the OTS offer on
the terms and conditions mentioned in the letter
dated 21-11-2017. In the sanctioned letter dated
21-11-2017 it was specifically mentioned in Clause
(iv) that the entire payment under the OTS
Scheme was to be made by 21-5-2018, otherwise
OTS would be rendered infructuous. Therefore, the
borrowers were bound to make the payment as
per the sanctioned OTS Scheme. Therefore, the
High Court ought not to have granted further
extension dehors the sanctioned OTS Scheme
while exercising the powers under Article 226 of
the Constitution of India."
(Emphasis supplied)
16. We also agree with the submission made by the
learned counsel for the appellant that challenge to the
sale notice can only before the DRT when the
proceedings have been initiated under the SARFAESI Act,
as such, petition before the learned Single Judge was not
- 26 -
at all maintainable. In this regard, we may refer to the
judgment in the case of Naveen Mathew Philip
(supra), wherein in paragraphs No.17 and 18, the
Supreme Court has held as under:
"17. We shall reiterate the position of law
regarding the interference of the High Courts in
matters pertaining to the SARFAESI Act by quoting
a few of the earlier decisions of this Court wherein
the said practice has been deprecated while
requesting the High Courts not to entertain such
cases.
• Federal Bank Ltd. v. Sagar Thomas, (2003)
10 SCC 733,
"18. From the decisions referred to
above, the position that emerges is that a
writ petition under Article 226 of
the Constitution of India may be
maintainable against (i) the State
(Government); (ii) an authority; (iii) a
statutory body; (iv) an instrumentality or
agency of the State; (v.) a company
which is financed and owned by the
State; (vi) a private body run
substantially on State funding; (vii) a
private body discharging public duty or
positive obligation of public nature; and
(viii) a person or a body under liability to
discharge any function under any statute,
to compel it to perform such a statutory
function.
xxxxxxxxx
- 27 -
26. A company registered under the
Companies Act for the purposes of
carrying on any trade or business is a
private enterprise to earn livelihood and
to make profits out of such activities.
Banking is also a kind of profession and a
commercial activity, the primary motive
behind it can well be said to earn returns
and profits. Since time immemorial, such
activities have been carried on by
individuals generally. It is a private affair
of the company though the case of
nationalized banks stands on a different
footing. There may well be companies, in
which majority of the share capital may
be contributed out of the State funds and
in that view of the matter there may be
more participation or dominant
participation of the State in managing the
affairs of the company. But in the present
case we are concerned with a banking
company which has its own resources to
raise its funds without any contribution or
shareholding by the State. It has its own
Board of Directors elected by its
shareholders. It works like any other
private company in the banking business
having no monopoly status at all. Any
company carrying on banking business
with a capital of five lakhs will become a
scheduled bank. All the same, banking
activity as a whole carried on by various
banks undoubtedly has an impact and
effect on the economy of the country in
general. Money of the shareholders and
the depositors is with such companies,
carrying on banking activity. The banks
finance the borrowers on any given rate
- 28 -
of interest at a particular time. They
advance loans as against securities.
Therefore, it is obviously necessary to
have regulatory check over such activities
in the interest of the company itself, the
shareholders, the depositors as well as to
maintain the proper financial equilibrium
of the national economy. The banking
companies have not been set up for the
purposes of building the economy of the
State; on the other hand such private
companies have been voluntarily
established for their own purposes and
interest but their activities are kept under
check so that their activities may not go
wayward and harm the economy in
general. A private banking company with
all freedom that it has, has to act in a
manner that it may not be in conflict with
or against the fiscal policies of the State
and for such purposes, guidelines are
provided by Reserve Bank so that a
proper fiscal discipline, to conduct its
affairs in carrying on its business, is
maintained. So as to ensure adherence to
such fiscal discipline, if need be, at times
even the management of the company
can be taken over. Nonetheless, as
observed earlier, these are all regulatory
measures to keep a check and provide
guidelines and not a participatory
dominance or control over the affairs of
the company. For other companies in
general carrying on other business
activities, maybe manufacturing, other
industries or any business, such checks
are provided under the provisions of the
Companies Act, as indicated earlier.
- 29 -
There also, the main consideration is that
the company itself may not sink because
of its own mismanagement or the interest
of the shareholders or people generally
may not be jeopardized for that reason.
Besides taking care of such interest as
indicated above, there is no other interest
of the State, to control the affairs and
management of the private companies.
Care is taken in regard to the industries
covered under the Industries
(Development and Regulation) Act,
1951 that their production, which is
important for the economy, may not go
down, yet the business activity is carried
on by such companies or corporations
which only remains a private activity of
the entrepreneurs/companies.
27. Such private companies would
normally not be amenable to the writ
jurisdiction under Article 226 of
the Constitution. But in certain
circumstances a writ may issue to such
private bodies or persons as there may
be statutes which need to be complied
with by all concerned including the
private companies. For example, there
are certain legislations like the Industrial
Disputes Act, the Minimum Wages Act,
the Factories Act or for maintaining
proper environment, say the Air
(Prevention and Control of Pollution) Act,
1981 or the Water (Prevention and
Control of Pollution) Act, 1974 etc. or
statutes of the like nature which fasten
certain duties and responsibilities
statutorily upon such private bodies which
they are bound to comply with. If they
- 30 -
violate such a statutory provision a writ
would certainly be issued for compliance
with those provisions. For instance, if a
private employer dispenses with the
service of its employee in violation of the
provisions contained under the Industrial
Disputes Act, in innumerable cases the
High Court interfered and has issued the
writ to the private bodies and the
companies in that regard. But the
difficulty in issuing a writ may arise
where there may not be any non-
compliance with or violation of any
statutory provision by the private body.
In that event a writ may not be issued at
all. Other remedies, as may be available,
may have to be resorted to."
• United Bank of India v. Satyawati
Tondon, (2010) 8 SCC 110,
"42. There is another reason why
the impugned order should be set aside.
If Respondent 1 had any tangible
grievance against the notice issued under
Section 13(4) or action taken under
Section 14, then she could have availed
remedy by filing an application under
Section 17(1). The expression "any
person" used in Section 17(1) is of wide
import. It takes within its fold, not only
the borrower but also the guarantor or
any other person who may be affected by
the action taken under Section 13(4) or
Section 14. Both, the Tribunal and the
Appellate Tribunal are empowered to pass
interim orders under Sections 17 and 18
and are required to decide the matters
within a fixed time schedule. It is thus
- 31 -
evident that the remedies available to an
aggrieved person under the SARFAESI
Act are both expeditious and effective.
43. Unfortunately, the High Court
overlooked the settled law that the High
Court will ordinarily not entertain a
petition under Article 226 of
the Constitution if an effective remedy is
available to the aggrieved person and
that this rule applies with greater rigour
in matters involving recovery of taxes,
cess, fees, other types of public money
and the dues of banks and other financial
institutions. In our view, while dealing
with the petitions involving challenge to
the action taken for recovery of the public
dues, etc. the High Court must keep in
mind that the legislations enacted by
Parliament and State Legislatures for
recovery of such dues are a code unto
themselves inasmuch as they not only
contain comprehensive procedure for
recovery of the dues but also envisage
constitution of quasi-judicial bodies for
redressal of the grievance of any
aggrieved person. Therefore, in all such
cases, the High Court must insist that
before availing remedy under
Article 226 of the Constitution, a person
must exhaust the remedies available
under the relevant statute.
44. While expressing the aforesaid
view, we are conscious that the powers
conferred upon the High Court under
Article 226 of the Constitution to issue to
any person or authority, including in
appropriate cases, any Government,
directions, orders or writs including the
- 32 -
five prerogative writs for the enforcement
of any of the rights conferred by Part III
or for any other purpose are very wide
and there is no express limitation on
exercise of that power but, at the same
time, we cannot be oblivious of the rules
of self-imposed restraint evolved by this
Court, which every High Court is bound to
keep in view while exercising power
under Article 226 of the Constitution.
45. It is true that the rule of
exhaustion of alternative remedy is a rule
of discretion and not one of compulsion,
but it is difficult to fathom any reason
why the High Court should entertain a
petition filed under Article 226 of
the Constitution and pass interim order
ignoring the fact that the petitioner can
avail effective alternative remedy by filing
application, appeal, revision, etc. and the
particular legislation contains a detailed
mechanism for redressal of his grievance.
xxxxxxxxx
55. It is a matter of serious concern
that despite repeated pronouncement of
this Court, the High Courts continue to
ignore the availability of statutory
remedies under the DRT Act and
the SARFAESI Act and exercise
jurisdiction under Article 226 for passing
orders which have serious adverse impact
on the right of banks and other financial
institutions to recover their dues. We
hope and trust that in future the High
Courts will exercise their discretion in
- 33 -
such matters with greater caution, care
and circumspection."
• State Bank of Travancore v. Mathew
K.C., (2018) 3 SCC 85,
"5. We have considered the
submissions on behalf of the parties.
Normally this Court in exercise of
jurisdiction under Article 136 of
the Constitution is loath to interfere with
an interim order passed in a pending
proceeding before the High Court, except
in special circumstances, to prevent
manifest injustice or abuse of the process
of the court. In the present case, the
facts are not in dispute. The discretionary
jurisdiction under Article 226 is not
absolute but has to be exercised
judiciously in the given facts of a case
and in accordance with law. The normal
rule is that a writ petition under
Article 226 of the Constitution ought not
to be entertained if alternate statutory
remedies are available, except in cases
falling within the well-defined exceptions
as observed in CIT v. Chhabil Dass
Agarwal [(2014) 1 SCC 603], as follows :
(SCC p. 611, para 15)
"15. Thus, while it can be said that
this Court has recognised some
exceptions to the rule of alternative
remedy i.e. where the statutory authority
has not acted in accordance with the
provisions of the enactment in question,
or in defiance of the fundamental
principles of judicial procedure, or has
resorted to invoke the provisions which
are repealed, or when an order has been
- 34 -
passed in total violation of the principles
of natural justice, the proposition laid
down in Thansingh Nathmal v. Supt. of
Taxes [AIR 1964 SC 1419], Titaghur
Paper Mills Co. Ltd. v. State of
Orissa [(1983) 2 SCC 433 : 1983 SCC
(Tax) 131] and other similar judgments
that the High Court will not entertain a
petition under Article 226 of the
Constitution if an effective alternative
remedy is available to the aggrieved
person or the statute under which the
action complained of has been taken itself
contains a mechanism for redressal of
grievance still holds the field. Therefore,
when a statutory forum is created by law
for redressal of grievances, a writ petition
should not be entertained ignoring the
statutory dispensation."
xxxxxxxxx
8. The Statement of Objects and
Reasons of the SARFAESI Act states that
the banking and financial sector in the
country was felt not to have a level
playing field in comparison to other
participants in the financial markets in
the world. The financial institutions in
India did not have the power to take
possession of securities and sell them.
The existing legal framework relating to
commercial transactions had not kept
pace with changing commercial practices
and financial sector reforms resulting in
tardy recovery of defaulting loans and
mounting non-performing assets of banks
and financial institutions. Narasimhan
Committee I and II as also the
- 35 -
Andhyarujina Committee constituted by
the Central Government Act had
suggested enactment of new legislation
for securitisation and empowering banks
and financial institutions to take
possession of securities and sell them
without court intervention which would
enable them to realise long-term assets,
manage problems of liquidity, asset
liability mismatches and improve
recovery. The proceedings under
the Recovery of Debts and Bankruptcy
Act, 1993 (hereinafter referred to as "the
DRT Act") with passage of time, had
become synonymous with those before
regular courts affecting expeditious
adjudication. All these aspects have not
been kept in mind and considered before
passing the impugned order.
9. Even prior to the SARFAESI Act,
considering the alternate remedy
available under the DRT Act it was held
in Punjab National Bank v. O.C.
Krishnan [(2001) 6 SCC 569] that : (SCC
p. 570, para 6)
"6. The Act has been enacted with a
view to provide a special procedure for
recovery of debts due to the banks and
the financial institutions. There is a
hierarchy of appeal provided in the Act,
namely, filing of an appeal under Section
20 and this fast-track procedure cannot
be allowed to be derailed either by taking
recourse to proceedings under
Articles 226 and 227 of
the Constitution or by filing a civil suit,
which is expressly barred. Even though a
- 36 -
provision under an Act cannot expressly
oust the jurisdiction of the court under
Articles 226 and 227 of the Constitution,
nevertheless, when there is an alternative
remedy available, judicial prudence
demands that the Court refrains from
exercising its jurisdiction under the said
constitutional provisions. This was a case
where the High Court should not have
entertained the petition under
Article 227 of the Constitution and should
have directed the respondent to take
recourse to the appeal mechanism
provided by the Act."
xxxxxxxxx
15. It is the solemn duty of the
court to apply the correct law without
waiting for an objection to be raised by a
party, especially when the law stands well
settled. Any departure, if permissible, has
to be for reasons discussed, of the case
falling under a defined exception, duly
discussed after noticing the relevant law.
In financial matters grant of ex parte
interim orders can have a deleterious
effect and it is not sufficient to say that
the aggrieved has the remedy to move
for vacating the interim order. Loans by
financial institutions are granted from
public money generated at the taxpayer's
expense. Such loan does not become the
property of the person taking the loan,
but retains its character of public money
given in a fiduciary capacity as
entrustment by the public. Timely
repayment also ensures liquidity to
facilitate loan to another in need, by
- 37 -
circulation of the money and cannot be
permitted to be blocked by frivolous
litigation by those who can afford the
luxury of the same. The caution required,
as expressed in United Bank of
India v. Satyawati Tondon [(2010) 8 SCC
110 : (2010) 3 SCC (Civ) 260], has also
not been kept in mind before passing the
impugned interim order : (SCC pp. 123-
24, para 46)
"46. It must be remembered that
stay of an action initiated by the State
and/or its agencies/instrumentalities for
recovery of taxes, cess, fees, etc.
seriously impedes execution of projects of
public importance and disables them from
discharging their constitutional and legal
obligations towards the citizens. In cases
relating to recovery of the dues of banks,
financial institutions and secured
creditors, stay granted by the High Court
would have serious adverse impact on the
financial health of such
bodies/institutions, which (sic will)
ultimately prove detrimental to the
economy of the nation. Therefore, the
High Court should be extremely careful
and circumspect in exercising its
discretion to grant stay in such matters.
Of course, if the petitioner is able to show
that its case falls within any of the
exceptions carved out in Baburam
Prakash Chandra Maheshwari v. Antarim
Zila Parishad [AIR 1969 SC
556], Whirlpool Corpn. v. Registrar of
Trade Marks [(1998) 8 SCC 1]
and Harbanslal Sahnia v. Indian Oil
Corpn. Ltd. [(2003) 2 SCC 107] and some
- 38 -
other judgments, then the High Court
may, after considering all the relevant
parameters and public interest, pass an
appropriate interim order."
• Phoenix ARC (P) Ltd. v. Vishwa Bharati
Vidya Mandir, (2022) 5 SCC 345,
"18. Even otherwise, it is required
to be noted that a writ petition against
the private financial institution - ARC -
the appellant herein under Article 226 of
the Constitution of India against the
proposed action/actions under
Section 13(4) of the SARFAESI Act can be
said to be not maintainable. In the
present case, the ARC proposed to take
action/actions under the SARFAESI Act to
recover the borrowed amount as a
secured creditor. The ARC as such cannot
be said to be performing public functions
which are normally expected to be
performed by the State authorities.
During the course of a commercial
transaction and under the contract, the
bank/ARC lent the money to the
borrowers herein and therefore the said
activity of the bank/ARC cannot be said to
be as performing a public function which
is normally expected to be performed by
the State authorities. 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 is maintainable and/or
entertainable. Therefore, decisions of this
- 39 -
Court in Praga Tools Corpn. v. C.A.
Imanual, [(1969) 1 SCC 585]
and Ramesh Ahluwalia v. State of Punjab,
[(2012) 12 SCC 331 : (2013) 3 SCC
(L&S) 45 : 4 SCEC 715] relied upon by
the learned counsel appearing on behalf
of the borrowers are not of any
assistance to the borrowers.
xxxxxxxxx
21. Applying the law laid down by
this Court in State Bank of
Travancore v. Mathew K.C., [(2018) 3
SCC 85 : (2018) 2 SCC (Civ) 41] to the
facts on hand, 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). As observed hereinabove,
even assuming that the communication
dated 13-8-2015 was a 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 crores) is absolutely unjustifiable. The
dues are to the extent of approximately
Rs. 117 crores. The ad interim relief has
been continued since 2015 and the
secured creditor is deprived of proceeding
- 40 -
further with the action under
the SARFAESI Act. Filing of the writ
petition by the borrowers before the High
Court is nothing but an abuse of process
of court. It appears that the High Court
has initially granted an ex parte ad
interim order mechanically and without
assigning any reasons. The High Court
ought to have appreciated that by
passing such an interim order, the rights
of the secured creditor to recover the
amount due and payable have been
seriously prejudiced. The secured creditor
and/or its assignor have a right to
recover the amount due and payable to it
from the borrowers. 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."
• Varimadugu Obi Reddy v. B.
Sreenivasulu, (2023) 2 SCC 168,
"36. In the instant case, although
the respondent borrowers initially
approached the Debts Recovery Tribunal
by filing an application under
Section 17 of the SARFAESI Act, 2002,
but the order of the Tribunal indeed was
appealable under Section 18 of the Act
subject to the compliance of condition of
pre-deposit and without exhausting the
statutory remedy of appeal, the
- 41 -
respondent borrowers approached the
High Court by filing the writ application
under Article 226 of the Constitution. We
deprecate such practice of entertaining
the writ application by the High Court in
exercise of jurisdiction under
Article 226 of the Constitution without
exhausting the alternative statutory
remedy available under the law. This
circuitous route appears to have been
adopted to avoid the condition of pre-
deposit contemplated under 2nd proviso
to Section 18 of the 2002 Act."
18. While doing so, we are
conscious of the fact that the powers
conferred under Article 226 of
the Constitution of India are rather wide
but are required to be exercised only in
extraordinary circumstances in matters
pertaining to proceedings and
adjudicatory scheme qua a statute, more
so in commercial matters involving a
lender and a borrower, when the
legislature has provided for a specific
mechanism for appropriate redressal." "
17. Similarly, the counsel is also justified in relying
upon the judgment of this Court in the case of Nitesh
Residency Hotels Pvt. Ltd. (supra), wherein this Court
has, in paragraphs No.4(E)(ii), held as under:
"4. xx xx xx xx xx
- 42 -
E. AS TO EMERGENCY CREDIT LOAN
GUARANTEE SCHEME AND BANKER'S
PREROGATIVE:
(i) xx xx xx xx xx
(ii) The Apex Court in PRADEEP KUMAR vs.
POST MASTER GENERAL [CIVIL APPEAL
NOS.8775-8776 OF 2016 disposed off on
07.02.2022] after referring to the English Court's
decision in TAI HING COTTON MILL LTD vs. LIU
CHONG HING BANK [(1985) AII ER 947] at
paragraph 34 observed as under:
"On the aspect of civil obligation of
a customer in terms of banking contract
and in tort law, this decision approves the
following observations made by the Privy
Council in Tai Hing Cotton Mill Ltd. v. Liu
Chong Hing Bank Ltd. and Others: "37.
Then the Privy Council proceeded to
consider the weightier submissions
advanced by the bank (1) a wider duty on
the part of the customer to act with
diligence which must be implied into the
contract and alternatively that such a
duty arises in tort from the relationship
between banker and customer. The Privy
Council parted company with the
observation by the Court of Appeal here
and repelled the plea that it was
necessary to imply into a contract
between a banker and the customer a
wider duty and that it was not a
necessary incident of banker/customer
relationship that the customer should owe
his banker a wider duty of care. This duty
- 43 -
is in the form of an undertaking by the
customer to exercise reasonable care in
executing his written orders so as not to
mislead the bank or to facilitate forgery.
The Privy Council accepted that an
obligation should be read into the
contract as the nature of this contract
implicitly requires. In other words "the
term sought to be implied must be one
without which the whole transaction
would become futile and inefficacious" "
(Emphasis supplied)
18. Insofar as the judgments relied upon by
Sri. Haranahalli are concerned, we have seen the
judgments. Suffice to state, the said judgments were in
the facts of the case and all the judgments which have
been referred to by Sri. Haranahalli were prior to the
judgments which have been referred to by the learned
counsel for the appellant and hence, are clearly
distinguishable to be held to be confined to the facts of
those cases. In fact in the appeal against the judgment
in the case of Shri Mohanlal Patidar (supra), the
Supreme Court has left the question of law open.
19. In view of our discussion above, we are of the
view that the learned Single Judge has clearly erred in
- 44 -
allowing the writ petition in the manner he has done in
paragraph No.16. Accordingly, we proceed to decide the
appeal with the following directions:
i. Writ appeal is allowed;
ii. Impugned order dated 14.12.2022
passed by the learned Single Judge
in WP No.8576/2021 is set aside.
No costs.
In view of the order in the appeal, pending
application(s), if any, shall stand disposed of.
Sd/-
(V KAMESWAR RAO)
JUDGE
Sd/-
(T.M.NADAF)
JUDGE
PA
