Supreme Court Limits High Court Interference in SARFAESI Auctions Under Article 226

SC restricts High Court interference in SARFAESI Act auctions, upholds bank rights. Case: PHR Invent Educational Society v. UCO Bank & Others.

Observing that the High Court should exercise due care and caution while entertaining the petitions under Article 226 of the constitution even when there exists an alternative statutory remedy, the Supreme Court on Wednesday (April 10) deprecated the High Court's interference in the auction sale proceedings completed by the Bank at the instance of the borrower despite having statutory remedy of appeal under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act").

"'It has however been clarified 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,' the Bench comprising Justices BR Gavai, Rajesh Bindal, and Sandeep Mehta said."

Challenging the Debt Recovery Tribunal's (DRT) order of auction sale by the Bank under the SARFAESI Act, the borrower filed a writ petition under Article 226 of the constitution before the High Court. The High Court allowed the borrower's application and set aside the auction sale order of the DRT.

Deprecating such interference by the High Court, the Judgment authored by Justice BR Gavai observed that the present case doesn't fall in the set of exceptions that required the High Court's interference.

"'In our view, the High Court ought to have taken into consideration that the confirmed auction sale could have been interfered with only when there was a fraud or collusion. The present case was not a case of fraud or collusion. The effect of the order of the High Court would be again reopening the issues which have achieved finality,' the court observed."

Exceptions When The Petition Under Article 226 of the Constitution Can Be Entertained Despite Of Availability of Alternative Remedy

However, the court has carved out exceptions when a petition under Article 226 of the Constitution could be entertained in spite of the availability of an alternative remedy. Some of them are thus:

"'(i) where the statutory authority has not acted in accordance with the provisions of the enactment in question;

(ii) it has acted in defiance of the fundamental principles of judicial procedure;

(iii) it has resorted to invoke the provisions which are repealed; and

(iv) when an order has been passed in total violation of the principles of natural justice.'"

Interference By High Courts Under Article 226 Adversely Impacts Rights of Banks and Financial Institutions To Recover Dues

Observing that High Courts have been entertaining petitions arising out of the DRT Act and the SARFAESI Act in spite of the availability of an effective alternative remedy, the court stated that the High Courts shall be reminded of the following words of this Court in the case of United Bank of India v. Satyawati Tondon and Others.

"'The Court clearly observed that, 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,' the court observed while referring to Satyawati Tandon.

'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 such matters with greater caution, care and circumspection,' the court added in the Satyawati Tandon case."

Based on the above premise, the appeal was allowed by setting aside the order of the High Court. Moreover, a cost of Rs. 1 Lakh was imposed upon the borrower.

For Petitioner(s) Mr. R. Basant, Sr. Adv. Mr. Khalid M.s, Adv. Mr. A. Karthik, AOR Mr. Manu Krishnan, Adv. Ms. Gunjan Rathore, Adv. Mr. Kavinesh R M, Adv.

For Respondent(s) Mr. Partha Sil, AOR Mr. Sanjiv Kr. Saxena, Adv. Mr. Chirag Joshi, Adv. Ms. Sayani Bhattacharya, Adv. Mr. Abhiraj Chaudhary, Adv. Mr. Jayant Bhushan, Sr. Adv. Mr. Venkateswara Rao Anumolu, AOR Mr. Sunny Kumar, Adv. Mr. Puneet Aggarwal, Adv.