Ker HC | Can demand notices issued under S. 13(2) of SARFAESI Act be challenged invoking writ jurisdiction of High Courts? Court considers

Kerala High Court: A.M. Badar, J., while addressing the instant matter held that, demand notices under Section 13(2) of the SARFAESI Act can be challenged before the Debt Recovery Tribunal (DRT).

The instant petition was filed by four Cashew Processing Units.

Petitioners were impugning demand notices issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to petitioners 1 to 3 directing them to repay to the secured creditor the outstanding amount of loan within the prescribed statutory period.

Petitioners Counsel argued that as Cashew Processing Units in the State were in crisis and at the verge of closure, respondent 2–State of Kerala constituted a Cashew Revival Committee.

Further, a Revival Scheme for Cashew Processing Industries came to be formulated as per the decision taken by the Government of Kerala as well as the State Level Bankers Committee. Cashew Processing Units prima facie found liable for revival were referred to concerned Banks for taking up the restructuring process.

Respondent 1-Bank failed to check stock statements, balance sheets etc. and started taking steps under SARFAESI Act by issuing notices under Section 13(2) of the said Act.

Analysis and Decision

Bench stated that a Committee was constituted by the State for assessing the viability of Cashew Processing Unit facing crisis.

It was noted that though the cases of two of the petitioners were recommended for additional finance, the duly sworn statement of respondent 1 — bank made it clear that petitioners 1 to 3 failed to produce documents necessary for viability study.

Court noted that the instant writ petition has been filed to stop SARFAESI proceedings by virtually challenging demand notices issued under Section 13(2) thereof.

Supreme Court in the decision of Authorised Officer, State Bank of Travancore v. Mathew K.C., 2018 (1) KLT 784,  held that:

“5. …….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.

In Union Bank of India v. Panchanan Subudhi, (2010) 15 SCC 552, further proceedings under Section 13(4) were stayed in the writ jurisdiction subject to deposit of Rs. 10,00,000/- leading this Court to observe as follows :

“7. In our view, the approach adopted by the High Court was clearly erroneous. When the respondent failed to abide by the terms of one-time settlement, there was no justification for the High Court to entertain the writ petition and that too by ignoring the fact that a statutory alternative remedy was available to the respondent under Section 17 of the Act.”

Concluding the decision, Court held that the petitioners have the most efficacious remedy of challenging demand notices under Section 13(2) of the SARFAESI Act before the Debt Recovery Tribunal.

Adding to the above, Court stated that, it is not case of petitioners that the Bank has not acted in accordance with the provisions of the SARFAESI Act or in defiance of the fundamental principles of judicial procedure.

Bench held that no case for breach of principles of natural justice is made out in the present case.

In view of the above, the petition was dismissed. [Sunitha Roy v. Canara Bank,  2020 SCC OnLine Ker 5120, decided on 13-11-2020]

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