BRIEF FACTS

Parasaadilal Tursiram Sheetgrah Private Limited (“Company”) had availed certain credit facilities from Bank of Baroda (“Bank”). The credit facilities were secured by way of an equitable mortgage over certain immovable property owned by the Company and the personal guarantees issued by the directors of the Company. On the due date, the Company defaulted in repayment of the credit facilities availed from the Bank. In furtherance thereof, the Bank issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”), demanding payment of the outstanding amounts from the Company and its directors. Since the Company and its directors defaulted in making the payment of the outstanding amounts, the Bank issued a notice under Section 13(4) of the SARFAESI Act, demanding actual physical possession of the mortgaged property.

The Company filed a civil writ petition before the High Court of Allahabad (“HC”) to challenge the notices issued by the Bank under Section 13(2) and Section 13(4) of the SARFAESI Act and sought a writ of mandamus to restrain the Bank from taking any coercive action for recovery of the outstanding amounts. The HC disposed the writ petition filed by the Company, directing it to make the payment of the outstanding amounts to the Bank in 4 (four) equal installments within a prescribed period. Further, the HC authorized the Bank to proceed against the Company and, or its directors in accordance with law, if the Company fails to pay the outstanding amounts within the prescribed period. The Company and the directors failed to comply with the revised repayment schedule determined by the HC. Accordingly, the Bank proceeded under the provisions of the SARFAESI Act and sold the mortgaged property to the successful bidder.

The Company and its directors (with 1 (one) deceased director of the Company being represented by his legal representative) challenged the Bank’s sale of the mortgaged property by filing an application under Section 17 of the SARFAESI Act, before the Debts Recovery Tribunal (“DRT”). However, the DRT dismissed the application on the ground that it was filed beyond the statutory limitation period of 45 (forty five) days (“DRT Order”) set out under Section 17(1) of the SARFAESI Act. The Company and its directors filed a review application against the DRT Order. The DRT vide its order dated August 08, 2016 allowed the review on the ground that 1 (one) of the directors had expired before the auction had taken place and that his legal representative was not issued the notice of sale of the mortgaged property (“DRT Review Order”). The Bank challenged the DRT Review Order before the Debts Recovery Appellate Tribunal (“DRAT”) vide Appeal No. 210/ 2016. The DRAT vide order dated December 02, 2016 allowed the appeal on the ground that there was apparent error for the DRT to exercise its review jurisdiction (“DRAT Order”). Aggrieved by the DRAT Order, the Company and its directors filed a writ petition before the HC (“Writ Petition”). The HC admitted the Writ Petition and pursuant to an interim order dated December 19, 2016 held that until further orders of the HC, the DRT should proceed with the securitization application, and the operation and implementation of the DRAT Order should remain stayed (“HC Interim Order”). In light of the above, the Bank challenged the HC Interim Order before the Supreme Court of India (“SC”).

THE SC JUDGMENT

The SC held that to grant or refuse to grant an interim order, it was sufficient for the HC to rely on the observations made in the DRAT Order, wherein the DRAT had held that the DRT Order was passed after a detailed consideration and that there is no justifiable ground for the DRT to invoke its review jurisdiction to pass the DRT Review Order. Further, the SC also held that the rationale for providing a limitation period of 45 (forty five) days for filing an application under Section 17 may be inferred from the purpose and object of the SARFAESI Act. It relied on Transcore vs. Union of India and Anr.[1], wherein the SC had held that the SARFAESI Act was enacted for quick enforcement of the security. In the present case, the SC however held that it was rather unfortunate that the proceedings where a property had been brought to sale and certain third party rights were created under the provisions of the SARFAESI Act have remained inconclusive even after a decade thereof.

Therefore, the SC held that the HC was not justified in staying the operation of the DRAT Order. Accordingly, the SC allowed the appeal and set aside the impugned HC Interim Order. Further, it requested the HC to dispose the Writ Petition expeditiously, preferably within a period of 3 (three) months from the date of receipt of the order.

THE WAY AHEAD

The SC judgment will refrain the DRT from exercising its jurisdiction in an application, which is barred by the statutory limitation period of 45 (forty five) days prescribed under Section 17(1) of the SARFAESI Act. This would benefit the secured creditors as it would ensure speedy conclusion of the enforcement process prescribed under the SARFAESI Act. Accordingly, the SC judgment may be viewed as a positive step to achieve the purpose and object of the SARFAESI Act.

Footnote:

[1] Transcore vs. Union of India and Anr., (2008) 1 SCC 125.