sc miffed at the delay in recovery proceeding - amendment to ubi vs satyawati tondon

8/8/2019 SC Miffed at the Delay in Recovery Proceeding - Amendment to UBI vs Satyawati Tondon

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SC miffed at the borrower’s attempts to delayrecovery procedures

Nidhi [email protected]

(This article is an amendment to SC tells courts not to interfere in NPA recovery actions – analysis of SC Ruling United Bank of India vs. Satyawati Tondon – Amended on 20 th

August, 2010)

While the report released by Fitch in August, 2010, says that the debt recovery process in Indiahas improved and the statutory legislations have provided lenders with several redressal avenuesimproving the debt recovery process and the debt recovered amount and the perception of theglobal investor towards the country. However the Supreme Court seems to be miffed with theway the defaulters are abusing the legal process to delay the recovery proceedings.

Supreme Court in spate of its recent judgments has expressed concerns over the use of judicial process by the defaulting companies to delay the recovery proceedings undertaken by thelenders.

In the recent pronouncement of Indian Bank vs M/s Blue Jaggers Estate Ltd , Supreme Court(judgment dated – 9 th August, 2010). The Supreme Court held that the borrowers are duty boundto pay. In the present case Indian Bank sanctioned a loan M/s N.S Investment and the accountwas declared as non-performing. Thereafter the assets and the liabilities of M/s N.S Investments

were taken over by M/s Blue Jaggers Estate Ltd. Then there were series of applications, pleas,appeals filed by the borrowers to prolong the recovery process. The borrowers entered into aJoint Memo of Compromise with the lending bank for full and final settlement of its dues, whichthe borrower was unable to meet. When the lender issued notice u/s 13(2) of the Sarfaesi Act, the

borrowers filed objection u/s 13(3A) of the Act and appeal u/s 17 of the Act. Thereafter theyfiled three interlocutory applications. The borrowers also filed a Writ of Mandamus before theHigh Court, appeal u/s 18 of the DRT Act, another writ petition for grant of absolute andunconditional stay over the recovery proceedings. All these actions are illustrative of how adefaulting borrower can use the court process for frustrating the action initiated by a bank under the Sarfaesi Act.

In yet another ruling of United Bank of India vs. Satyawati Tondon, Allahabad High Court(judgment dated: 26 th July, 2010) the Apex Court provided the secured creditors some relief where it held that all the alternatives available to the borrower must be exhausted before the HighCourts can interfere with the debt recovery proceedings.

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In the past several of the High Courts have ignored the Supreme Court’s views by entertainingapplications under Article 226 of the Constitution causing delay in the proceedings, defeating the

purpose of providing for an alternative remedy under the very legislation itself.

The Supreme Court has interfered with the decision of the High Court and said that –

“While expressing the aforesaid view, we are conscious that the powers conferred uponthe 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

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. 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….. Therefore,the High Court should be extremely careful and circumspect in exercising its discretionto grant stay in such matters. ”

In Assistant Collector of Central Excise, Chandan Nagar, West Bengal v. Dunlop India Ltd. andothers(1985) 1 SCC 260 it was held that

“ Article 226 is not meant to short-circuit or circumvent statutory procedures. It is onlywhere statutory remedies are entirely ill- suited to meet the demands of extraordinary situations, as for instance where the very vires of the statute is in question or where private or public wrongs are so inextricably mixed up and the prevention of public injuryand the vindication of public justice require it that recourse may be had to Article 226 of the Constitution. But then the Court must have good and sufficient reason to bypass thealternative remedy provided by statute. …. ”

In City and Industrial Development Corporation v. Dosu Aardeshir Bhiwandiwala andothers(2009) 1 SCC 168, the Court highlighted the parameters which are required to be kept in

view by the High Court while exercising jurisdiction under Article 226 of the Constitution. Itsays the Court while exercising its jurisdiction under Article 226 is duty-bound to consider whether:

(a) adjudication of writ petition involves any complex and disputed questions of facts and

whether they can be satisfactorily resolved;

(b) the petition reveals all material facts;



(c) the petitioner has any alternative or effective remedy for the resolution of the dispute;

(d) person invoking the jurisdiction is guilty of unexplained delay and laches;

(e) ex facie barred by any laws of limitation;

(f) grant of relief is against public policy or barred by any valid law; and host of other

factors.

In several such cases the Supreme Court has held that the High Courts should not neglect theavailability of statutory remedies and must take great caution, care and circumspection beforeexercising discretion in addressing such matters.

In the present case as well the Hon’ble High Court of Allahabad had stayed the recovery proceedings initiated by the United Bank of India on the plea of the guarantor of a loan. UnitedBank of India had provided for a term loan facility of Rs. 22,50,000/- to Pawan Color Lab andthe guarantor, Satyawati Tondon had provided for the guarantee of repayment of the loan by

mortgage of the property. The account became non performing and while the bank proceeded totake action against the borrower u/s 13 (2) and 13 (4) of the SARFAESI Act, the guarantor, facedwith imminent threat of losing the mortgaged property, filed a writ petition with the Hon’bleHigh Court, praying for restraining the bank to take any coercive action. In response to this the

bank directed the borrower to pursue remedial action available u/s 17 of the SARFAESI Act. TheHigh Court did not pay heed to the bank’s plea and passed an impugned order restraining the

bank from taking action u/s 13(4) of the Act. The High Court held that the bank should haveexhausted all the means of recovery against the borrower before proceeding against the guarantor and that mere notice u/s 13(2) is not enough.

DRT Act and SARFAESI are special legislations that were enacted to offload the burden of theexisting regular courts and to ensure that there is no unwarranted stumbling block in the recoveryof debt proceedings by the banks and the financial institutions, as the delay in resolution wouldaffect the financial health of these institutions and the economy as a whole. The legislation

provided for standalone powers to the secured creditors to enforce security interests and carry outrecovery proceedings without the intervention of the courts. However a lot of borrowers in the

past have been approaching the High Courts with frivolous cases, dissecting the course of action prescribed by law in an attempt to impede the recovery procedure, leaving the secured creditorsin tumultuous situation. The Supreme Court’s recent judgments are welcomed pronouncements.

sc miffed at the delay in recovery proceeding - amendment to ubi vs satyawati tondon

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