SC: Article 226 can’t be Invoked if Alternate Statutory Remedies are Available

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January 31, 2018

Case name: Authorized Officer, State Bank of Travancore and Another v. Mathew K.C.

Date of Judgment: January 30, 2018

In this recent case, the Supreme Court has categorically stated to settled principles that:

  • When a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation
  • In financial matters grant of ex-parte interim orders can have a deleterious effect

In this case, the appeal challenged High Court’s order staying further proceedings at the stage of Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’), on deposit of Rs.3,50,000/-within two weeks. An appeal against the same was dismissed by the Division Bench observing that counter affidavit having been filed, it would be open for the Appellant Bank to seek clarification/modification/variation of the interim order.

The Appellants in the case contended that the loan account of the Respondent was declared a Non-Performing Asset (NPA) and the outstanding dues of the Respondent on the date of the institution of the writ petition was Rs.41,82,560/-. Despite repeated notices, the Respondent failed to pay the dues. Accordingly statutory notice under Section 13(2) of the SARFAESI Act  was issued to the Respondent. Thereafter, Possession notice was then issued under Section 13(4) of the SARFAESI Act.

The Supreme Court’s Two-Judge Bench while allowing the appeal made following notable observations pertaining to SARFAESI Act:

  • That the SARFAESI Act is a complete code by itself, providing for expeditious recovery of dues arising out of loans granted by financial institutions, the remedy of appeal by the aggrieved under Section 17 (right to appeal) before the Debt Recovery Tribunal, followed by a right to appeal before the Appellate Tribunal under Section 18.
  • That the High Court ought not to have entertained the writ petition in view of the adequate alternate statutory remedies available to the Respondent. The interim order was passed on the very first date, without an opportunity to the Appellant to file a reply. The writ petition ought to have been dismissed at the threshold on the ground of maintainability.
  • That 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 Commissioner of Income Tax and Others vs. Chhabil Dass Agarwal[1]. In this case, the Apex Court held that:

Thus, while it can be said that this Court has recognized 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 passed in total violation of the principles of natural justice…. 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. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.

  • With reference to the instant case, the Supreme Court noted that the grievances did not fall within any of the exceptions as enumerated by the Apex Court in Chhabil Das case.
  • The Court in the case also took the opportunity to expound the object of the SARFAESI Act as under:

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. The Narasimhan Committee I and II as also the Andhyarujina Committee constituted by the Central Government Act had suggested enactment of new legislation for securitisation and empowering banks and financial 8 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 due to Banks and Financial Institutions 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.

  • That 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.
  • That Loans by financial institutions are granted from public money generated at the tax payer’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 circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same.

Read the entire case here.

 

[1] 2014 (1) SCC 603