PHOENIX ARC PRIVATE LIMITED versus VISHWA BHARATI VIDYA MANDIR & ORS.

[2022] 1 S.C.R.

PHOENIX ARC PRIVATE LIMITED

VISHWA BHARATI VIDYA MANDIR & ORS.

(Civil Appeal Nos. 257-259 of 2022)

BJANUARY 12, 2022

[M. R. SHAH AND B. V. NAGARATHNA, JJ.]

SARFAESI: Default in repayment of outstanding dues –Accounts of borrowers/respondents classified as Non PerformingAsset – Bank issued notice u/s. 13(2) – NPA account of theCborrowers / respondents with respect to the credit facilities availedby them assigned by the Bank in favour of appellant – Borrowersfailed to repay outstanding dues – Appellant issued letterintimating borrowers that they would proceed to take possessionof the mortgaged properties after expiry of 15 days from theDdate of the said letter – Against the said communication/letterdated 13.08.2015, the borrowers/respondents filed writ petitionsbefore the High Court on the ground that communication/letterdated 13.08.2015 was possession notice under s.13(4) of theSARFAESI Act, which was against the Security Interest(Enforcement) Rules, 2002 – High Court entertained the writEpetitions under Art.226 against the appellant and passed aninterim ordered directing for maintaining status quo with regardto SARFAESI action (possession of secured assets) – In the instantappeals, case of the appellant was that communication dated13.08.2015 cannot be said to be notice under s.13(4) of theFSARFAESI Act at all; that after the notice under s.13(2) of theSARFAESI Act was issued in the year 2013 and thereafter despitethe Letter of Acceptance dated 27.02.2015, no further amountwas paid, therefore, the borrowers were called upon to make thepayment within two weeks failing which further proceedingunder s.13(4) of the SARFAESI Act was proposed and therefore,Gwrit petitions against the proposed action under s.13(4) of theSARFAESI Act was not maintainable and/or entertainable at all– Held: In view of the statutory remedy available under s.17 ofthe SARFAESI Act, writ petitions against the notice under s.13(4)of the SARFAESI Act was not required to be entertained by theHHigh Court – Therefore, High Court erred in entertaining the

writ petitions against communication dated 13.08.2015 and alsopassing the ex-parte ad-interim orders directing to maintain thestatus quo with respect to possession of secured properties onthe condition directing the borrowers to pay Rs. 1 crore only (inall Rs.3 crores in view of the subsequent orders passed by theHigh Court extending the exparte ad-interim order dated26.08.2015) against the total dues of approximate Rs.117 crores– Filing of the writ petition by the borrowers before the HighCourt is nothing but an abuse of process of Court – High Courthas initially granted an ex-parte ad-interim order mechanicallyand without assigning any reasons – High Court ought to haveappreciated that by passing such an interim order, the rights ofthe secured creditor to recover the amount due and payable havebeen seriously prejudiced – The secured creditor and/or itsassignor have right to recover the amount due and payable toit from the borrowers – The stay granted by the High Court wouldhave serious adverse impact on the financial health of the securedcreditor/assignor – Therefore, the High Court should have beenextremely careful and circumspect in exercising its discretionwhile granting stay in such matters.Writ jurisdiction: Writ petition against the private financialinstitution – appellant under Art.226 of the Constitution of Indiaagainst the proposed action/actions under s.13(4) of the SARFAESIAct – Maintainability of – Held: Not maintainable – In the instantcase, appellant proposed to take action/actions under theSARFAESI Act to recover the borrowed amount as secured creditor– Appellant as such cannot be said to be performing publicfunctions which are normally expected to be performed by theState authorities – During the course of commercial transactionand under the contract, the bank/ appellant lent the money to theborrowers and therefore the said activity of the bank/appellantcannot be said to be as performing public function which isnormally expected to be performed by the State authorities – Ifproceedings are initiated under the SARFAESI Act and/or anyproposed action is to be taken and the borrower is aggrieved byany of the actions of the private bank/bank, borrower has to availthe remedy under the SARFAESI Act and no writ petition would lieand/or is maintainable and/or entertainable – SARFAESI Act.

ABC

952SUPREME COURT REPORTS

AAllowing the appeal, the Court

HELD: 1. Assuming that communication dated 13.08.2015can be said to be notice under Section 13(4) of the SARFAESIAct, in that case also, in view of the statutory remedy availableunder Section 17 of the SARFAESI Act, the writ petitions againstBthe notice under Section 13(4) of the SARFAESI Act was notrequired to be entertained by the High Court. Therefore, theHigh Court has erred in entertaining the writ petitions againstthe communication dated 13.08.2015 and also passing the ex-parte ad-interim orders directing to maintain the status quo withrespect to possession of secured properties on the conditionCdirecting the borrowers to pay Rs. 1 crore only (in all Rs. 3 croresin view of the subsequent orders passed by the High Courtextending the ex parte ad-interim order dated 26.08.2015) againstthe total dues of approximate Rs.117 crores. Even the High Courtought to have considered and disposed of the application forDvacating the ex-parte ad interim relief, which was filed in the year2016 at the earliest considering the fact that large sum ofRs. 117 crores was involved. [Para 10][966-D-G]

J. Rajiv Subramaniyan and Anr. v. Pandiyas and Ors.(2014) 5 SCC 651 : [2014] 3 SCR 1140 – referred to.

E2. Even otherwise, it is required to be noted that writpetition against the private financial institution – appellant underArticle 226 of the Constitution of India against the proposedaction/actions under Section 13(4) of the SARFAESI Act can besaid to be not maintainable. In the present case, the ARCFproposed to take action/actions under the SARFAESI Act torecover the borrowed amount as secured creditor. The ARC assuch cannot be said to be performing public functions which arenormally expected to be performed by the State authorities. Duringthe course of commercial transaction and under the contract,the bank/ARC lent the money to the borrowers herein andGtherefore the said activity of the bank/ARC cannot be said to beas performing public function which is normally expected to beperformed 21 by the State authorities. If proceedings are initiatedunder the SARFAESI Act and/or any proposed action is to be

taken and the borrower is aggrieved by any of the actions of theprivate bank/bank/ARC, borrower has to avail the remedy underthe SARFAESI Act and no writ petition would lie and/or ismaintainable and/or entertainable. [Para 12][967-B-E]

Praga Tools Corporation v. Shri C.A. Imanual and Ors.(1969) 1 SCC 585 : [1969] 3 SCR 773; RameshAhluwalia v. State of Punjab and Ors. (2012) 12 SCC331 : [2012] 12 SCR 315 – held inapplicable.

3. Filing of the writ petitions by the borrowers before theHigh Court under Article 226 of the Constitution of India is anabuse of process of the Court. The writ petitions have been filedagainst the proposed action to be taken under Section 13(4). Evenassuming that the communication dated 13.08.2015 was noticeunder Section 13(4), in that case also, in view of the statutory,efficacious remedy available by way of appeal under Section 17 ofthe SARFAESI Act, the High Court ought not to have entertainedthe writ petitions. Even the impugned orders passed by the HighCourt directing to maintain the status quo with respect to thepossession of the secured properties on payment of Rs. 1 croreonly (in all Rs. 3 crores) is absolutely unjustifiable. The dues areto the extent of approximately Rs.117 crores. The ad-interim reliefhas been continued since 2015 and the secured creditor isdeprived of proceeding further with the action under theSARFAESI Act. Filing of the writ petition by the borrowers beforethe High Court is nothing but an abuse of process of Court. Itappears that the High Court has initially granted an ex-partead-interim order mechanically and without assigning any reasons.The High Court ought to have appreciated that by passing suchan interim order, the rights of the secured creditor to recoverthe amount due and payable have been seriously prejudiced. Thesecured creditor and/or its assignor have right to recover theamount due and payable to it from the borrowers. The stay grantedby the High Court would have serious adverse impact on thefinancial health of the secured creditor/assignor. Therefore, theHigh Court should have been extremely careful and circumspectin exercising its discretion while granting stay in such matters.[Para 13.2][968-G-H; 969-A-D]

954SUPREME COURT REPORTS

AUnited Bank of India v. Satyawati Tondon & Ors., (2010)8 SCC 110 : [2010] 9 SCR 1; General Manager, SriSiddeshwara Cooperative Bank Limited & Anr. v. Ikbal& Ors. (2013) 10 SCC 83 : [2013] 8 SCR 532;Kanaiyalal Lalchand Sachdev & Ors. v. State ofMaharashtra & Ors., (2011) 2 SCC 782 : [2011] 2BSCR 602; Authorized Officer, State Bank of Travancore& Anr. v. Mathew K.C. (2018) 3 SCC 85 : [2018] 1SCR 233; City and Industrial Development Corpn. v.Dosu Aardeshir Bhiwandiwala (2009) 1 SCC 168 :[2008] 16 SCR 28; Sadhana Lodh v. NationalCinsurance Co. Ltd. and Anr. (2003) 3 SCC 524 : [2003]1 SCR 567; Surya Dev Rai v. Ram Chander Rai andOrs. (2003) 6 SCC 675 : [2003] 2 Suppl. SCR 290 –relied on.

Agarwal Tracom Private Limited v. Punjab NationalDBank& Ors., (2018) 1 SCC 626 : [2017] 11 SCR 164;Radha Krishnan Industries v. State of Himachal Pradesh& Ors. (2021) 6 SCC 771; Mathew Varghese v. M.Amritha Kumar and Ors. (2014) 5 SCC 610 : [2014] 2SCR 736; United Commercial Bank v. Bank of Indiaand Ors. (1981) 2 SCC 766 : [1981] 3 SCR 300; StateEBank of India v. Allied Chemical Laboratories and Anr.(2006) 9 SCC 252 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 257-259 of 2022.

From the Judgment and Order dated 27.03.2018 of the High Courtof Karnataka at Bengaluru in Writ Petition Nos.35564-66 of 2015.

V. Giri, Sr. Adv., Suresh Dutt Dobhal, Shikhar Kumar, Advs. forthe Appellant.

Basavaprabhu S. Patil, Sr. Adv., Geet Ahuja, V. N. Raghupathy,Advs. for the Respondents.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned order dated27.03.2018 passed by the High Court of Karnataka at Bengaluru in WritPetition Nos. 35564-35566 of 2015 by which the High Court hasentertained the aforesaid writ petitions under Article 226 of theConstitution of India against the appellant, an Assets ReconstructingCompany and has passed an interim order directing for maintaining statusquo with regard to SARFAESI action (possession of the secured assets),the original respondent – the Assets Reconstructing Company (ARC)has preferred the present appeals.

2. That the respondent No.1 herein Vishwa Bharati Vidya Mandiris running educational institutions and is Society registered under theKarnataka Societies Registration Act, 1960 which had availed creditfacilities to the tune of Rs.105,60,84,000/- (Rupees One Hundred FiveCrores Sixty Lacs and Eighty Four Thousand Only) from Saraswat Co-operative Bank Limited. That similarly, St. Ann’s Education Society hadalso availed credit facilities to the tune of Rs.20,05,00,000/- (RupeesTwenty Crores and Five Lacs Only) from the aforesaid Bank.

A2.1 It appears that in order to secure the due repayment of theaforesaid credit facilities, various loans / security documents wereexecuted by the respective respondents, including personal guaranteesin favour of the bank. The respondents also created an equitable mortgageby way of deposit of title deeds over the immovable properties withrespect to the mortgaged properties. It appears that on account of defaultsBcommitted by the borrowers / respondents in repayment of the outstandingdues, in the month of April, 2013, the account of the borrowers /respondents were classified as “Non Performing Asset” (NPA) bythe Bank. As the borrowers / respondents failed and neglected to repaythe outstanding dues of the Bank, the Bank issued notice datedC01.06.2013 under Section 13(2) of the Securitization and Reconstructionof Financial Assets and Enforcement of Securities Interest Act, 2002(hereinafter referred to as “SARFAESI Act”). It appears that in themonth of March, 2014, the NPA account of the borrowers / respondentswith respect to the credit facilities availed by them was assigned by theBank in favour of the appellant – Phoenix ARC Private Limited videDregistered Assignment Agreement dated 28.03.2014.

2.2 Pursuant to the assignment of the NPA account in favour ofthe appellant, the borrowers approached the appellant with request forrestructuring the repayment of outstanding dues. Letter of Acceptancedated 27.02.2015 was executed between the parties, wherein theEborrowers / respondents acknowledged and admitted the liability to repaythe entire outstanding dues. However, the borrowers failed to repay thedues as per the Letter of Acceptance.

2.3 Since the borrowers again committed defaults in payment ofthe outstanding dues, the appellant – Phoenix ARC Private Limited issuedFa letter dated 13.08.2015 intimating the borrowers that since despiteissuance of 13(2) notice dated 01.06.2013 and the subsequent executionof the Letter of Acceptance dated 27.02.2015, the borrowers had failedto repay the outstanding dues, therefore, the appellant would beproceeding to take possession of the mortgaged properties after expiryGof 15 days from the date of the said letter.

2.4 Against the aforesaid communication/letter dated 13.08.2015,the borrowers / respondents herein filed the writ petitions before theHigh Court on the ground that the communication/letter dated 13.08.2015is possession notice under Section 13(4) of the SARFAESI Act, whichHis against the Security Interest (Enforcement) Rules, 2002.

2.5 It was the case on behalf of the original writ petitioners thatthe said possession notice under Section 13(4) of the SARFAESI Act isin violation of Rule 8(1) of the Security Interest (Enforcement) Rules,2002 (hereinafter referred to as “Rules, 2002”) and without issuance ofthe possession notice under Rule 8(1) and without publication ofpossession notice in two leading newspapers as required under Rule8(2). The High Court passed an ex-parte ad-interim order dated26.08.2015 directing status quo to be maintained with regard to possessionof the mortgaged properties subject to the borrowers making paymentof Rs. 1 crore with the appellant – Phoenix.

2.6 The petition was opposed by the appellant by filing statementof objections to the writ petitions contending, inter alia, that the letterdated 13.08.2015 as such cannot be said to be taking measure underSection 13(4) of the SARFAESI Act and that it was only proposedaction/measure to be taken by the appellant. It was also submitted thatthe writ petitions are not maintainable. That the appellants filed anapplication being I.A. No. 01 of 2016 for vacation of the ex-parte ad-interim order dated 26.08.2015. However, instead of deciding theapplication for vacating the interim order, the High Court extended theinterim order on 28.02.2017 on the condition that the borrowers shalldeposit further sum of Rs.1 crore. Simultaneously, the appellant alsofiled two separate original applications against the borrowers before theDebt Recovery Tribunal, Bangalore for recovery of the outstanding dues.Thereafter, the High Court again vide order dated 27.03.2018 extendedthe earlier ex-parte interim-order dated 26.08.2015 on condition that theborrowers deposit further sum of Rs. 1 crore.

2.7 Feeling aggrieved and dissatisfied with the aforesaid interimorders / extension of the interim orders and entertaining the writ petitions,the appellant – Phoenix ARC Private Limited, the original respondenthas preferred the present appeals.

3. Shri V. Giri, learned Senior Advocate has appeared on behalfof the respective appellants and Shri Basavaprabhu S. Patil, learnedSenior Advocate has appeared on behalf of the original writ petitioners– borrowers.

4. Shri V. Giri, learned Senior Advocate appearing on behalf ofthe appellant(s) has vehemently submitted that in the present case theborrowers are liable to pay to the appellant – ARC / secured creditor an

Aamount of Rs.117,31,68,487/-. It is submitted that for recovery of theamount due and payable, initially in the year 2003, notice under Section13(2) of the SARFAESI Act was issued and therefore the proceedingsunder the SARFAESI Act commenced. It is submitted that thereafterdespite the Letter of Acceptance dated 27.02.2015 admitting the duesand agreeing to make the payment due and payable, the borrowers failedBto repay the amount due and payable, the appellant proposed to proceedfurther with the proceedings under the SARFAESI Act and thereforevide communication dated 13.08.2015, the borrowers were called uponto make the payment within 15 days failing which it was proposed totake further steps under the provisions of the SARFAESI Act. It isCsubmitted that, technically speaking, at that stage communication dated13.08.2015 cannot be said to be notice under Section 13(4) of theSARFAESI Act. Despite the above and treating and/or considering thecommunication dated 13.08.2015 as possession notice under Section 13(4)of the SARFAESI Act, the borrowers filed the writ petitions before theHigh Court against communication dated 13.08.2015. It is submitted thatDunfortunately the High Court has entertained the aforesaid writ petitionsthough not maintainable against private party like the appellant – ARCand has granted an ex-parte ad-interim order, which has been extendedfrom time to time directing to maintain status quo with respect to thepossession of the mortgaged properties on payment of meager amountEof Rs. 1 crore (in all Rs. 3 crores only) against the total dues of Rs.117crores approximately.

4.1 It is submitted that as such the writ petitions against the privateparty – ARC and that too against the communication proposing to takeaction under the SARFAESI Act would not be maintainable at all, and,Ftherefore, the High Court ought not to have entertained such writ petitionsand ought not to have granted the interim protection to the borrowers,who have failed to repay the amount due and payable, which comes toapproximately Rs.117 crores.

4.2 It is further submitted by Shri Giri, learned Senior AdvocateGappearing on behalf of the appellant – ARC that assuming that thecommunication dated 13.08.2015 is treated as an action under Section13(4) of the SARFAESI Act, in that case also, the only remedy availableto the borrowers was by way of an appeal under Section 17 of theSARFAESI Act. It is submitted that under no circumstances, the writpetitions would be maintainable and that too against the private ARC.H

4.3 It is submitted that the High Court has not at all appreciatedthat as such there was no occasion to interfere in exercise of the powersunder Article 226 of the Constitution of India against private party anda non-State actor like the appellant – Phoenix ARC. It is submitted thatthe writ petitions under Article 226 of the Constitution of India for therelief sought in the writ petitions shall not be maintainable and that tooagainst private party. It is submitted that, however, the Hon’ble HighCourt has not only entertained the writ petitions but also passed an ex-parte ad-interim order dated 26.08.2015, which has been continued fromtime to time directing to maintain the status quo with regard to theSARFAESI action (possession of the secured assets). It is submittedthat this effectively resulted in staying of all further proceedings underthe SARFAESI Act. It is submitted that despite the application(s) forvacating the ex-parte ad-interim relief, the High Court extended theex-parte interim order dated 26.08.2015 on condition that the borrowerspay further sum of Rs.1 crore only.4.4 It is submitted that even in the subsequent order dated27.03.2018, though the High Court observed that “though the learnedcounsel for the petitioners seeks to refer the nature of the claim andcontend that the demand as made would not be justified, the saidconsideration in writ petition of the present nature would not arise”,still the High Court has extended the ex-parte interim order dated26.08.2015 by observing that the “petitioner is required to settle the matterwith the respondents”. It is submitted that the High Court is not at alljustified firstly, in entertaining the writ petitions under Article 226 of theConstitution of India for the relief sought in the main writ petitions andthat too against private party and, more particularly, when against anyaction under the SARFAESI Act, an appeal under Section 17 of theSARFAESI Act would be maintainable and is required to be filed.

4.5 Shri Giri, learned Senior Advocate appearing on behalf of theappellant(s) has relied upon the following decisions in support of thesubmission that the writ petitions before the High Court are notmaintainable:-

United Bank of India Vs. Satyawati Tondon & Ors., (2010)8 SCC 110; Kanaiyalal Lalchand Sachdev & Ors. Vs. Stateof Maharashtra & Ors., (2011) 2 SCC 782; GeneralManager, Sri Siddeshwara Cooperative Bank Limited &Anr. Vs. Ikbal & Ors., (2013) 10 SCC 83; Agarwal Tracom

APrivate Limited Vs. Punjab National Bank & Ors., (2018)1 SCC 626; Authorized Officer, State Bank of Travancore& Anr. Vs. Mathew K.C., (2018) 3 SCC 85; and RadhaKrishnan Industries Vs. State of Himachal Pradesh & Ors.,(2021) 6 SCC 771.

B4.6 Making the aforesaid submissions and relying upon the abovedecisions, it is prayed to set aside the impugned order dated 27.03.2018and also to dismiss the writ petitions filed before the High Court as beingnon-maintainable.

5. Shri Basavaprabhu S. Patil, learned Senior Advocate appearingCon behalf of the original borrowers has vehemently submitted that thepresent appeals are against the ad interim order/interim order passed bythe High Court and the main writ petitions are pending before the HighCourt. It is submitted that pursuant to the earlier order passed by thisCourt dated 06.08.2018, the impugned interim order passed by the HighCourt has been stayed. It is therefore submitted that when the main writDpetitions are pending before the High Court, the present appeals maynot be further entertained. It is submitted that despite the fact that thereis stay of operation of the impugned order passed by the High Courtsince 06.08.2018, thereafter no further steps have been taken by theappellant against the borrowers under the provisions of the SARFAESIEAct.

5.1 Now, so far as the maintainability of the writ petition againstthe Assets Reconstruction Company (ARC) is concerned, it is submittedthat the writ petition is filed against the ARC complaining of infraction ofRule 8. It is submitted that the said rule imposes statutory duty on theFsecured creditor - the ARC to act fairly while dealing with the securityso as to secure the interest of the borrower as well as public at large(depositors). In support of aforesaid submission, reliance is placed onthe decision of this Court in the case of J. Rajiv Subramaniyan andAnr. Vs. Pandiyas and Ors., (2014) 5 SCC 651. It is thereforesubmitted that as in the present case as the ARC has not performed theGstatutory duty cast upon it and there is contravention of the statutoryduty imposed under the Security Interest (Enforcement) Rules, 2002, awrit would lie against ARC against such an illegal action.

5.2 Shri Patil, learned Senior Advocate appearing on behalf of theborrowers has also relied upon the decisions of this Court in the case ofHPraga Tools Corporation Vs. Shri C.A. Imanual and Ors., (1969)

1 SCC 585 and Ramesh Ahluwalia Vs. State of Punjab and Ors.,(2012) 12 SCC 331 in support of his submission that even against apurely private body but performing public functions, which are normallyexpected to be performed by the State authorities, writ would bemaintainable.

5.3 Now, in so far as the submission on behalf of the appellantthat assuming that communication dated 13.08.2015 can be said to bea SARFAESI action under Section 13(4) of the Act, the borrowers hadto prefer an appeal under Section 17 and, therefore, the writ petitionwould not be maintainable and/or is required to be entertained, it isvehemently submitted by Shri Patil, learned Senior Advocate appearingon behalf of the borrowers that on the ground of alternative remedyonly, the writ petition would not be barred.

5.4 It is submitted that Section 13 of the SARFAESI Act providesfor enforcement of security interest and sub-section 4(a) of Section 13provides that in case borrower fails to discharge his liability within theperiod specified under sub-section (2) of Section 13, the secured creditormay take possession of the secured assets of the borrower. It is submittedthat Rule 8(1) of the Rules, 2002 mandates that where the secured assetsis an immovable property, the authorized officer of the secured creditorshall take or cause to be taken possession, by delivering the possessionnotice prepared as nearly as possible in Appendix – IV of the said Rules,to the borrower and by affixing the possession notice on the outer dooror at the conspicuous space of the property. It is submitted that Rule8(2) of the said Rules also mandates that the said possession notice bepublished as soon as possible, but in any case not later than 7 days fromthe date of taking possession, in two leading newspapers, one in vernacularlanguage having sufficient circulation in that locality by the authorizedofficer.

5.5 It is submitted that in the instant case, it is not the case of theappellant that it took any measure in terms of Section 13(4) of theSARFAESI Act. It is therefore submitted that the remedy under Section17 of the SARFAESI Act, which would be against any measure referredto in sub-section (4) of Section 13 of the SARFAESI Act to file anapplication to the Debts Recovery Tribunal is not available to theborrowers in the instant case. It is further submitted that there is nocompliance with Rule 8(1) and 8(2) of the Rules, 2002. It is submittedthat as held by this Court in the case of Mathew Varghese Vs. M.

AAmritha Kumar and Ors., (2014) 5 SCC 610 on detailed analysisof Rules 8 and 9 that any sale effected without complying with the samewould be unconstitutional and, therefore, null and void. It is submittedtherefore that the High Court has rightly entertained the writ petitions.

5.6 Making the above submissions and relying upon the decisionBof this Court in the case of J. Rajiv Subramaniyan and Anr. (supra),it is urged that the High Court has not committed any error in entertainingthe writ petitions.

5.7 It is further submitted by Shri Patil, learned Senior Advocateappearing on behalf of the respondents – borrowers that even otherwiseCconsidering the fact that the present appeals are against the interim ordergranted by the High Court, the same may not be entertained. Reliance isalso placed on the decision of this Court in the case of UnitedCommercial Bank Vs. Bank of India and Ors., (1981) 2 SCC 766.

5.8 It is further submitted that even otherwise in the present case,Dsubsequently, the appellant has taken recourse under Section 19 of theRecovery of Debts due to Banks and Financial Institutions Act, 1993 byfiling O.A. No. 715 of 2017 before the Debts Recovery Tribunal,Bengaluru and the said Tribunal has passed an interim order directingthe borrowers to deposit the fee collected / to be collected by alleducational institutions run by the Society – borrower for academic yearE2017-2018 into the Bank. It is submitted that another interim order hasbeen passed on 06.07.2017 restraining the borrowers from selling,transferring, alienating or otherwise dealing with certain properties ofthe borrowers/respondents. It is submitted therefore that the interest ofthe appellant is fully protected and no prejudice would be caused to theFappellant if the writ petitions are finally considered and disposed of bythe High Court on merits.5.9 Making the above submissions, it is prayed to dismiss thepresent appeals.

6. We have heard the learned counsel for the respective partiesGat length.

7. At the outset, it is required to be noted that in the present case,the respondents – borrowers whose accounts have been declared asNPA in the year 2013 have filed the writ petitions before the High Courtchallenging the communication dated 13.08.2015 purporting it to be aHnotice under Section 13(4) of the SARFAESI Act. It is required to be

noted that as per the appellant – assignor approximately Rs.117 croresis due and payable to the Bank. While passing the ex-parte interim orderon 26.08.2015 and while entertaining the writ petitions against thecommunication dated 13.08.2015, the High Court has directed to maintainstatus quo with respect to the possession of the secured properties oncondition that the borrowers deposit Rs. 1 crore only. Despite the factthat subsequently an application for vacating the ex-parte ad-interimorder has been filed in the year 2016, the application for vacating theinterim order has not been decided and disposed of. On the contrary, theHigh Court thereafter has further extended the ex-parte ad-interim orderdated 26.08.2015 on condition that the borrowers should deposit furthersum of Rs. 1 crore. Thus, in all the borrowers are directed to deposit Rs.3 crores only against the dues of approximately Rs.117 crores.

7.1 It is the case on behalf of the appellant that the writ petitionsagainst the communication dated 13.08.2015 proposing to take furtheraction under Section 13(4) of the SARFAESI Act and that too against aprivate Assets Reconstructing Company (ARC) shall not be maintainable.It is also the case on behalf of the appellant that assuming that thecommunication dated 13.08.2015 can be said to be notice under Section13(4) of the SARFAESI Act, in view of the alternative statutory remedyavailable by way of appeal under Section 17 of the SARFAESI Act, theHigh Court ought not to have entertained the writ petitions.

7.2 While considering the issue regarding the maintainability ofand/or entertainability of the writ petitions by the High Court in the instantcase, few decisions of this Court relied upon by the learned SeniorAdvocate appearing on behalf of the appellant – ARC are required to bereferred to.

7.3 In the case of Satyawati Tondon & Ors. (supra), it wasobserved and held by this Court that the remedies available to anaggrieved person against the action taken under section 13(4) or Section14 of the SARFAESI Act, by way of appeal under Section 17, can besaid to be both expeditious and effective. On maintainability of orentertainability of writ petition under Article 226 of the Constitution ofIndia, in case where the effective remedy is available to the aggrievedperson, it is observed and held in the said decision in paragraphs 43 to 46as under:-

“43. Unfortunately, the High Court overlooked the settled lawthat the High Court will ordinarily not entertain petition under

AArticle 226 of the Constitution if an effective remedy is availableto the aggrieved person and that this rule applies with greaterrigour in matters involving recovery of taxes, cess, fees, othertypes of public money and the dues of banks and other financialinstitutions. In our view, while dealing with the petitions involvingchallenge to the action taken for recovery of the public dues, etc.Bthe High Court must keep in mind that the legislations enacted byParliament and State Legislatures for recovery of such dues area code unto themselves inasmuch as they not only containcomprehensive procedure for recovery of the dues but alsoenvisage constitution of quasi-judicial bodies for redressal of theCgrievance of any aggrieved person. Therefore, in all such cases,the High Court must insist that before availing remedy under Article226 of the Constitution, person must exhaust the remediesavailable under the relevant statute.

44. While expressing the aforesaid view, we are conscious thatthe powers conferred upon the High Court under Article 226 ofthe Constitution to issue to any person or authority, including inappropriate cases, any Government, directions, orders or writsincluding the five prerogative writs for the enforcement of any ofthe rights conferred by Part III or for any other purpose are verywide 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 Courtis bound to keep in view while exercising power under Article 226of the Constitution.

45. It is true that the rule of exhaustion of alternative remedy is aFrule of discretion and not one of compulsion, but it is difficult tofathom any reason why the High Court should entertain petitionfiled under Article 226 of the Constitution and pass interim orderignoring the fact that the petitioner can avail effective alternativeremedy by filing application, appeal, revision, etc. and the particularGlegislation contains detailed mechanism for redressal of hisgrievance.

46. It must be remembered that stay of an action initiated by theState and/or its agencies/instrumentalities for recovery of taxes,cess, fees, etc. seriously impedes execution of projects of publicimportance and disables them from discharging their constitutional

and legal obligations towards the citizens. In cases relating torecovery of the dues of banks, financial institutions and securedcreditors, stay granted by the High Court would have seriousadverse impact on the financial health of such bodies/institutions,which (sic will) ultimately prove detrimental to the economy ofthe nation. Therefore, the High Court should be extremely carefuland circumspect in exercising its discretion to grant stay in suchmatters. Of course, if the petitioner is able to show that its casefalls within any of the exceptions carved out in Baburam PrakashChandra Maheshwari v. Antarim Zila Parishad [AIR 1969 SC556], Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8SCC 1] and Harbanslal Sahnia v. Indian Oil Corpn.Ltd. [(2003) 2 SCC 107] and some other judgments, then the HighCourt may, after considering all the relevant parameters and publicinterest, pass an appropriate interim order.”

7.4 In the case of City and Industrial DevelopmentCorpn. Vs. Dosu Aardeshir Bhiwandiwala, (2009) 1 SCC 168, itwas observed by this Court in paragraph 30 that the Court whileexercising its jurisdiction under Article 226 is duty bound to considerwhether ……………(c) the petitioner has any alternative or effectiveremedy for the resolution of the dispute.”

7.5 In the case of Kanaiyalal Lalchand Sachdev and Ors.(supra) after referring to the earlier decisions of this Court in the casesof Sadhana Lodh Vs. National insurance Co. Ltd. and Anr., (2003)3 SCC 524; Surya Dev Rai Vs. Ram Chander Rai and Ors., (2003)6 SCC 675 and State Bank of India Vs. Allied ChemicalLaboratories and Anr., (2006) 9 SCC 252 while upholding the orderpassed by the High Court dismissing the writ petition on the ground thatan efficacious remedy is available under Section 17 of the SARFAESIAct, it was observed that ordinarily relief under Articles 226/227 of theConstitution of India is not available if an efficacious alternative remedyis available to any aggrieved person.

7.6 Similar view has been expressed by this Court in subsequentdecisions in the case of General Manager, Sri SiddeshwaraCooperative Bank Limited & Anr. (supra) as well as in the case ofAgarwal Tracom Private Limited (supra).

8. Applying the law laid down by this court in the aforesaiddecisions, it is required to be considered whether, in the facts and

Acircumstances of the case, the High Court is justified in entertaining thewrit petitions against the communication dated 13.08.2015 and to passthe ex-parte ad interim order virtually stalling/restricting the proceedingsunder the SARFAESI Act by the creditor.

9. It is required to be noted that it is the case on behalf of theBappellant that as such the communication dated 13.08.2015 cannot besaid to be notice under Section 13(4) of the SARFAESI Act at all.According to the appellant, after the notice under Section 13(2) of theSARFAESI Act was issued in the year 2013 and thereafter despite theLetter of Acceptance dated 27.02.2015, no further amount was paid,the appellant called upon the borrowers to make the payment within twoCweeks failing which further proceeding under Section 13(4) of theSARFAESI Act was proposed. Thus, according to the appellant, it wasa proposed action. Therefore, the writ petitions filed against the proposedaction under Section 13(4) of the SARFAESI Act was not maintainableand/or entertainable at all.D10. Assuming that the communication dated 13.08.2015 can besaid to be notice under Section 13(4) of the SARFAESI Act, in thatcase also, in view of the statutory remedy available under Section 17 ofthe SARFAESI Act and in view of the law laid down by this Court in thecases referred to hereinabove, the writ petitions against the notice underESection 13(4) of the SARFAESI Act was not required to be entertainedby the High Court. Therefore, the High Court has erred in entertainingthe writ petitions against the communication dated 13.08.2015 and alsopassing the ex-parte ad-interim orders directing to maintain the statusquo with respect to possession of secured properties on the conditiondirecting the borrowers to pay Rs. 1 crore only (in all Rs.3 crores inFview of the subsequent orders passed by the High Court extending theex-parte ad-interim order dated 26.08.2015) against the total dues ofapproximate Rs.117 crores. Even the High Court ought to have consideredand disposed of the application for vacating the ex-parte ad-interim relief,which was filed in the year 2016 at the earliest considering the fact thatGa large sum of Rs.117 crores was involved.

11. Now, in so far as the reliance placed upon the decision of thisCourt in the case of J. Rajiv Subramaniyan and Anr. (supra) by thelearned senior counsel appearing on behalf of the borrowers in supportof his submission that writ petition would be maintainable, it is to beHnoted that in the aforesaid case, the learned counsel appearing on behalf

of the Bank did not press the maintainability and/or entertainability ofthe writ petition under Article 226 and therefore, this Court had no occasionto consider the entertainability and/or maintainability of the writ petition.Therefore, the aforesaid decision is not of any assistance to therespondents – borrowers.

12. Even otherwise, it is required to be noted that writ petitionagainst the private financial institution – ARC – appellant herein underArticle 226 of the Constitution of India against the proposed action/actionsunder Section 13(4) of the SARFAESI Act can be said to be notmaintainable. In the present case, the ARC proposed to take action/actions under the SARFAESI Act to recover the borrowed amount as asecured creditor. The ARC as such cannot be said to be performingpublic functions which are normally expected to be performed by theState authorities. During the course of commercial transaction andunder the contract, the bank/ARC lent the money to the borrowers hereinand therefore the said activity of the bank/ARC cannot be said to be asperforming public function which is normally expected to be performedby the State authorities. If proceedings are initiated under the SARFAESIAct and/or any proposed action is to be taken and the borrower isaggrieved by any of the actions of the private bank/bank/ARC, borrowerhas to avail the remedy under the SARFAESI Act and no writ petitionwould lie and/or is maintainable and/or entertainable. Therefore, decisionsof this Court in the cases of Praga Tools Corporation(supra) andRamesh Ahluwalia(supra) relied upon by the learned counsel appearingon behalf of the borrowers are not of any assistance to the borrowers.

13. Now, so far as the submission on behalf of the borrowers thatin exercise of the powers under Article 226 of the Constitution, thisCourt may not interfere with the interim / interlocutory orders is concerned,the decision of this Court in the case of Mathew K.C. (supra) is requiredto be referred to.

13.1 In the case of Mathew K.C. (supra) after referring to and/or considering the decision of this Court in the case of Chhabil DassAgarwal (supra), it was observed and held in paragraph 5 as under:-

“5. We have considered the submissions on behalf of the parties.Normally this Court in exercise of jurisdiction under Article 136of the Constitution is loath to interfere with an interim order passedin pending proceeding before the High Court, except in specialcircumstances, to prevent manifest injustice or abuse of the process

Aof the court. In the present case, the facts are not in dispute. Thediscretionary jurisdiction under Article 226 is not absolute but hasto be exercised judiciously in the given facts of case and inaccordance with law. The normal rule is that writ petition underArticle 226 of the Constitution ought not to be entertained ifalternate statutory remedies are available, except in cases fallingBwithin the well-defined exceptions as observed in CIT v. ChhabilDass Agarwal [CIT v. Chhabil Dass Agarwal, (2014) 1 SCC603], as follows: (SCC p. 611, para 15)

“15. Thus, while it can be said that this Court has recognisedsome exceptions to the rule of alternative remedy i.e. wherethe statutory authority has not acted in accordance with theprovisions of the enactment in question, or in defiance of thefundamental principles of judicial procedure, or has resorted toinvoke the provisions which are repealed, or when an orderhas been passed in total violation of the principles of naturaljustice, the proposition laid down in Thansingh Nathmalcase [Thansingh Nathmal v. Supt. of Taxes, AIR 1964 SC1419] , Titaghur Paper Mills case [Titaghur Paper Mills Co.Ltd. v. State of Orissa, (1983) 2 SCC 433] and other similarjudgments that the High Court will not entertain petition underArticle 226 of the Constitution if an effective alternative remedy

is available to the aggrieved person or the statute under whichthe action complained of has been taken itself contains amechanism for redressal of grievance still holds the field.Therefore, when statutory forum is created by law forredressal of grievances, writ petition should not be entertained

Fignoring the statutory dispensation.”

13.2 Applying the law laid down by this Court in the case ofMathew K.C. (supra) to the facts on hand, we are of the opinion thatfiling of the writ petitions by the borrowers before the High Court underArticle 226 of the Constitution of India is an abuse of process of theGCourt. The writ petitions have been filed against the proposed action tobe taken under Section 13(4). As observed hereinabove, even assumingthat the communication dated 13.08.2015 was notice under Section13(4), in that case also, in view of the statutory, efficacious remedyavailable by way of appeal under Section 17 of the SARFAESI Act, theHigh Court ought not to have entertained the writ petitions. Even the

impugned orders passed by the High Court directing to maintain thestatus quo with respect to the possession of the secured properties onpayment 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 isdeprived of proceeding further with the action under the SARFAESIAct. Filing of the writ petition by the borrowers before the High Court isnothing but an abuse of process of Court. It appears that the High Courthas initially granted an ex-parte ad-interim order mechanically and withoutassigning any reasons. The High Court ought to have appreciated thatby passing such an interim order, the rights of the secured creditor torecover the amount due and payable have been seriously prejudiced.The secured creditor and/or its assignor have right to recover theamount due and payable to it from the borrowers. The stay granted bythe High Court would have serious adverse impact on the financial healthof the secured creditor/assignor. Therefore, the High Court should havebeen extremely careful and circumspect in exercising its discretion whilegranting stay in such matters. In these circumstances, the proceedingsbefore the High Court deserve to be dismissed.

14. In view of the above and for the reasons stated above, presentappeals succeed. The Writ Petition Nos. 35564 to 35566 of 2015 beforethe High Court are dismissed. Consequently, the ex-parte ad-interimorder dated 26.08.2015 further extended by orders dated 28.02.2017and 27.03.2018 stand vacated.

Present appeals are accordingly allowed with costs to theappellants to be paid by the original writ petitioners quantified at Rs.1lakh in both the cases to be directly paid to the appellant within periodof four weeks from today. Pending application(s), if any, also standdisposed of.

Devika Gujral

Appeals allowed.