# 9 S.C.R. 1 UNITED BANK OF INDIA v. SATYAWATI TONDON AND OTHERS

- **Citation:** [2010] 9 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 2010-07-26
- **Case number:** Civil Appeal No. 5990 of 2010
- **Bench:** G.S. Singhvi, Asok Kumar Ganguly
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/9-s-c-r-1-united-bank-of-india-v-satyawati-tondon-and-others-26857
- **Pages:** 32

## Headnote

A
B
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - ss.13(2), 13(4)
and 14 - Entitlement of bank to recover outstanding dues from C
the guarantor without proceeding against the borrower -
Appellant-bank issued notices to the guarantor u/s. 13(2) and
13( 4) and filed application uls. 14 without first initiating action
against the borrower for recovery of the outstanding dues -
Held: The action taken by the appellant cannot be faulted on D
any legally permissible ground - The High Court completely
misdirected itself in assuming that the appellant could not
have initiated action against the guarantor without making
efforts for recovery of its dues from the borrower- Banks/
Banking.
E
Constitution of India, 1950:
Article 136 - Interference with interim order passed by
High Court -
Scope - Appellant-bank initiated action for
recovery of outstanding dues in terms of the provisions of the
F
SARFAESI Act - Interim order by High Court restraining the
bank from proceeding under the Act - Challenge to - Held:
Normally the Supreme Court does not interfere with the
discretion exercised by High Court to pass an interim order
in a pending matter - However, on facts, an exception is G
required to be made out as the order under challenge had the .
effect of defeating the very object of the said legislation to
ensure that there were no unwarranted impediments in the
recovery of tlle debts, etc. due to banks, other financial
1
H
2
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A institutions and secured creditors -
Securitization and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002.
Article 226 - Cases relating to recovery of dues of banks,
8
financial institutions and secured creditors - Exercise of power
under Article 226 - Rules of self-imposed restraint to be kept
in mind by the High Courts - The High Courts should be
extremely careful and circumspect in exercising its discretion
to grant stay in such matters - The High Courts should not
ignore the availability of statutory remedies under the ORT
C Act and 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.
D
Article 226 - Writ petition bypassing alternative statutory
remedy - Maintainability of - Appellant-bank initiated action
for recovery of outstanding dues in terms of the provisions of
the SARFAESI Act - Writ petition filed challenging the action
initiated by bank - Held:. The writ petition was liable to be
E dismissed because an effective alternative remedy was
available to the writ petitioner uls. 17 of the SARFAESI Act,
which contained a detailed mechanism for redressal of his
grievance - Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 -
F
Remedy - Alternative remedy.
Words and Phrases- "any person" (used in s.17(1) of the
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002) - Meaning of
G
Respondent no.2 obtained a term loan from
appellant-bank for opening a colour lab. Respondent no.1
gave guarantee for repayment of the loan; she mortgaged
her property and executed an agreement of guarantee
making herself liable for repayment of the loan amount
H with interest.
UNITED BANK OF INDIA v. SATYAWATI TONDON
3
AND ORS.
Respondent no.1, however, failed to repay the loan A
amount, whereupon thd appellant issued notice against
respondent nos.1 and 2 under s.13(2) of the Securitization
and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI Act) asking them
to pay the outstanding dues alongwith future interest and
B
incidental expenses. Upon receipt of the notice,
respondent no.1 offered to settle the loan account, but the
appellant did not accept the offer and filed an application
under Section 14 of the SARFAESI Act, which was
allowed by t

## Text

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[201 O] 9 S.C.R. 1
UNITED BANK OF INDIA
v.
SATYAWATI TONDON AND OTHERS
(Civil Appeal No. 5990 of 2010)
JULY 26, 2010
[G.S. SINGHVI AND ASOK KUMAR GANGULY, JJ.]
A
B
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - ss.13(2), 13(4)
and 14 - Entitlement of bank to recover outstanding dues from C
the guarantor without proceeding against the borrower -
Appellant-bank issued notices to the guarantor u/s. 13(2) and
13( 4) and filed application uls. 14 without first initiating action
against the borrower for recovery of the outstanding dues -
Held: The action taken by the appellant cannot be faulted on D
any legally permissible ground - The High Court completely
misdirected itself in assuming that the appellant could not
have initiated action against the guarantor without making
efforts for recovery of its dues from the borrower- Banks/
Banking.
E
Constitution of India, 1950:
Article 136 - Interference with interim order passed by
High Court -
Scope - Appellant-bank initiated action for
recovery of outstanding dues in terms of the provisions of the
F
SARFAESI Act - Interim order by High Court restraining the
bank from proceeding under the Act - Challenge to - Held:
Normally the Supreme Court does not interfere with the
discretion exercised by High Court to pass an interim order
in a pending matter - However, on facts, an exception is G
required to be made out as the order under challenge had the .
effect of defeating the very object of the said legislation to
ensure that there were no unwarranted impediments in the
recovery of tlle debts, etc. due to banks, other financial
1
H
2
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A institutions and secured creditors -
Securitization and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002.
Article 226 - Cases relating to recovery of dues of banks,
8
financial institutions and secured creditors - Exercise of power
under Article 226 - Rules of self-imposed restraint to be kept
in mind by the High Courts - The High Courts should be
extremely careful and circumspect in exercising its discretion
to grant stay in such matters - The High Courts should not
ignore the availability of statutory remedies under the ORT
C Act and 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.
D
Article 226 - Writ petition bypassing alternative statutory
remedy - Maintainability of - Appellant-bank initiated action
for recovery of outstanding dues in terms of the provisions of
the SARFAESI Act - Writ petition filed challenging the action
initiated by bank - Held:. The writ petition was liable to be
E dismissed because an effective alternative remedy was
available to the writ petitioner uls. 17 of the SARFAESI Act,
which contained a detailed mechanism for redressal of his
grievance - Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 -
F
Remedy - Alternative remedy.
Words and Phrases- "any person" (used in s.17(1) of the
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002) - Meaning of
G
Respondent no.2 obtained a term loan from
appellant-bank for opening a colour lab. Respondent no.1
gave guarantee for repayment of the loan; she mortgaged
her property and executed an agreement of guarantee
making herself liable for repayment of the loan amount
H with interest.
UNITED BANK OF INDIA v. SATYAWATI TONDON
3
AND ORS.
Respondent no.1, however, failed to repay the loan A
amount, whereupon thd appellant issued notice against
respondent nos.1 and 2 under s.13(2) of the Securitization
and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI Act) asking them
to pay the outstanding dues alongwith future interest and
B
incidental expenses. Upon receipt of the notice,
respondent no.1 offered to settle the loan account, but the
appellant did not accept the offer and filed an application
under Section 14 of the SARFAESI Act, which was
allowed by the District Magistrate/Collector. Thereafter the c
appellant issued notice to respondent nos.1 and 2 under
Section 13(4) of the SARFAESI Act.
Respondent no.1 filed writ petition and prayed that
the appellant be restrained from taking coercive action in
pursuance of the notices issued under Sections 13(2) D
and 13(4) and the order passed by the District Magistrate/
Collector. Respondent no.1 contended that the notices
issued by the appellant for recovery of the outstanding
due were ex facie illegal and liable to be quashed because
no action had been taken against the borrower i.e.
E
respondent no.2 for recovery of the outstanding dues.
The appellant, on the other hand, pleaded that the
action initiated against respondent no.1 was consistent
with the provisions of SARFAESI Act; that respondent
F
no.1 was bound to discharge her obligations to pay the
outstanding dues and that the writ petition was liable to
be dismissed because an alternative remedy was
available to respondent no.1 under Section 17 of the
SARFAESI Act.
The High Court passed an interim order restraining
the appellant from taking action in furtherance of the
notice issued under Section 13(4) of the SARFAESI Act.
G
H
4
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A
In the instant appeal, the question which arose for
consideration was whether the appellant could have
issued notices to respondent no.1 under Section 13(2)
and (4) of the SARFAESI Act and filed an application
under Section 14 without first initiating action against the
B borrower i.e., respondent no.2, for recovery of the
outstanding dues.
Allowing the appeal, the Court
HELD:1. Normally, this Court does not interfere with
C the discretion exercised by the High Court to pass an
interim order in a pending matter but, having carefully
examined the matter, this Court feels persuaded to make
an exception in this case because the order under
challenge has the effect of defeating the very object of
D the legislation enacted by Parliament for ensuring that
there are no unwarranted impediments in the recovery of
the debts, etc. due to banks, other financial institutions
and secured creditors. [Para 13] [21-D-E]
E
2.1. In the present case, the High Court completely
misdirected itself in assuming that the appellant could not
have initiated action against respondent no.1 without
making efforts for recovery of its dues from the borrowerrespondent no.2. The High Court was not at all justified
in injuncting the appellant from taking action in
F furtherance of notice issued under Section 13(4) of the
Act. [Paras 15, 28] [22-G-H; 32-C]
2.2. Even after receipt of notices under Section 13(2)
and (4) and order passed under Section 14 of the
G SARFAESI Act, respondent Nos.1 and 2 did not bother to
pay the outstanding dues. Therefore, the action taken by
the appellant for recovery of its dues by issuing notices
under Section 13(2) and 13(4) and by filing an application
under Section 14 cannot be faulted on any legally
H
UNITED BANK OF INDIA v. SATYAWATI TONDON
5
AND ORS.
permissible ground and, the High Court committed A
serious error by entertaining the writ petition of
respondent No.1. [Para 16] [23-A-C]
Bank of Bihar Ltd. v. Damodar Prasad (1969) 1 SCR 620;
State Bank of India v. Mis. lndexport Registered and others 8
(1992) 3 SCC 159 and Industrial Investment Bank of India
Limited v. Biswanath Jhunjhunwala (2009) 9 SCC 478 ~relied
on.
3.1. There is another reason why the impugned order
should be set aside. If respondent No.1 had any tangible C
grievance against the notice issued under Section 13(4)
or action taken under Section 14, then she could have
availed remedy by filing an application under Section
17(1). The expression 'any person' used in Section 17(1)
is of wide import. It takes within its fold, not only the D
borrower but also guarantor or any other person who
may be affected by the action taken under Section 13(4)
or Section 14. Both, the Tribunal and the Appellate
Tribunal, are empowered to pass interim orders under
Sections 17 and 18 and are required to decide the matters E
within a fixed time schedule. It is thus evident that the
remedies available to an aggrieved person under the
SARFAESI Act are both expeditious and effective. The
High Court overlooked the settled law that ordinarily a
petition under Article 226 of the Constitution will not be
F
entertained if an effective remedy is available to the
aggrieved person and that this rule applies with greater
rigour in matters involving recovery of taxes, cess, fees,
other types of public money and the dues of banks and
other financial institutions. [Para 17] [23-D-H]
3.2. 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
G
H
6
. SUPREME COURT REPORTS
[2010] 9 S.C.R.
A legislations enacted by Parliament and State Legislatures
for recovery of such dues are 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
B grievance of any aggrieved person. Therefore, in all such
cases, the High Court must insist that before availing
remedy under Article 226 of the Constitution, a person
must exhaust the remedies available under the relevant
statute. [Para 17) [23-H; 24-A-B]
c
3.3. The powers conferred upon the 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
D conferred by Part Ill or for any other purpose are very
wide and there is no express limitation on exercise of that
power but, at the same time, one 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
E exercising the powers 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
F 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. The stay of an
G action initiated by the State and/or its agencies/
instrumentalities for recovery of taxes, cess, fees, etc.
seriously impedes execution of projects of public
importance and disables them from discharging their
constitutional and legal obligations towards the citizens.
H
UNITED BANK OF INDIA v. SATYAWATI TONDON
7
AND ORS.
In cases relating to recovery of the dues of banks,
A
financial institutions and secured creditors, stay granted
by the High Court would have serious adverse impact on
the financial health of such bodies/institutions, which
ultimately prove detrimental to the economy of the nation.
Therefore, the High Court should be extremely careful
B
and circumspect in exercising its discretion to grant stay
in such matters. Of course, if the petitioner is able to show
that its case falls within any exception, then the High
Court may, after considering all the relevant parameters
and public interest, pass appropriate interim order. [Para
C
18] (24-C-H; 25-A-B]
3.4. It is a matter of serious concern that despite
repeated pronouncements of this Court, the High Courts
continue to ignore the availability of statutory remedies
under the ORT Act and SARFAESI Act and exercise D
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. It is
hoped that in future the High Courts will exercise their
discretion in such matters with greater caution, care and
E
circumspection. [Para 27] (31-H; 32-A-8]
Thansingh Nathma/ v. Superintendent of Taxes (1964)
F
6 SCR 654; Titaghur Paper Mills Co. Ltd. v. State of Orissa
(1983) 2 SCC 433; Assistant Collector of Central Excise,
Chandan Nagar, West Bengal v. Dunlop India Ltd. and others
(1985) 1 SCC 260; Punjab National Bank v. O.C. Krishnan
and others (2001) 6 sec 569; CCT, Orissa and others v.
Indian Explosives Ltd. (2008) 3 SCC 688; City and Industrial
Development Corporation v. Dosu Aardeshir Bhiwandiwala
G
and others (2009) 1 SCC 168; Raj Kumar Shivhare v.
Assistant Director, Directorate of Enforcement and another
(2010) 4 SCC 772 and Modem Industries v. Steel Authority
of India Limited (2010) 5 SCC 44 - relied on.
Baburam Prakash Chandra Maheshwari v. Antarim Zila
H
8
SUPREME COURT REPORTS
[2J10] 9 S.C.R.
A Parishad AIR 1969 SC 556; Whirlpool Corporation v.
Registrar of Trade Marks, Mumbai (1998) 8 SCC 1;
Harbanslal Sahnia and another v. Indian Oil Corporation Ltd.
and others (2003) 2 sec 107 - referred to.
B
Case Law Reference:
(1969) 1 SCR 620
relied on
Para 14
(1992) 3 sec 159
relied on
Para 14
(2009) 9 sec 478
relied on
Para 14
c
AIR 1969 SC 556
referred to
Para 18
(1998) 8 sec 1
referred to
Para 18
(2003) 2 sec 101
referred to
Para 18
D
(1964) 6 SCR 654
relied on
Para 19
(1983) 2 sec 433
relied on
Para 20
(1985) 1 sec 260
relied on
Para 21
E
(2001) 6 sec 569
relied on
Para 22
(2008) 3 sec 688
relied on
Para 23
(2009) 1 sec 168
relied on
Para 24
(201 O) 4 sec 112
relied on
Para 25
F
(2010) s sec 44
relied on
Para 2
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5990 of 2010.
G
From the Judgment & Order dated 28.10.2009 of the High
Court of Judicature at Allahabad in Civil Misc. Writ Petition No.
55375 of 2009.
Yashraj Singh Deora, Rajesh Gautam, Shiv Mitter (for
H Mitter & Mitter Co.) for the Appellant.
UNITED BANK OF INDIA v. SATYAWATI TONDON
9
AND ORS.
The following Judgment of the Court was delivered
A
1. Leave granted.
B
2. With a view to give impetus to the industrial
development of the country, the Central and State Governments
encouraged the banks and other financial institutions to
formulate liberal policies for grant of loans and other financial
facilities to those who wanted to set up new industrial units or
expand the existing units. Many hundred thousand took
advantage of easy financing by the banks and other financial
institutions but a large number of them did not repay the amount
C
of loan, etc. Not only this, they instituted frivolous cases and
succeeded in persuading the Civil Courts to pass orders of
injunction against the steps taken by banks and financial
institutions to recover their dues. Due to lack of adequate
infrastructure and non-availability of manpower, the regular
D
Courts could not accomplish the task of expeditiously
adjudicating the cases instituted by banks and other financial
institutions for recovery of their dues. As a result, several
hundred crores of public money got blocked in unproductive
ventures. In order to redeem the situation, the Government of
E
India constituted a committee under the chairmanship of Shri
T. Tiwari to examine the legal and other difficulties faced by
banks and financial institutions in the recovery of their dues and
suggest remedial measures. The Tiwari Committee noted that
the existing procedure for recovery was very cumbersome and
suggested that special tribunals be set up for recovery of the
dues of banks and financial institutions by following a summary
procedure. The Tiwari Committee also prepared a draft of the
proposed legislation which contained a provision for disposal
F
of cases in three months and conferment of power upon the
G
Recovery Officer for expeditious execution of orders made by
adjudicating bodies. The issue was further examined by the
Committee on the Financial System headed by Shri M.
Narasimham. In its First Report, the Narasimham Committee
also suggested setting up of special tribunals with special
H
10
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A powers for adjudication of cases involving the dues of banks
and financial institutions.
After considering the reports of the two Committees and
taking cognizance of the fact that as on 30-9-1990 more than
8
15 lakh cases filed by public sector banks and 304 cases filed
by financial institutions were pending in various Courts for
recovery of debts, etc. amounting to Rs.6000 crores, the
Parliament enacted the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (for short, 'the ORT Act'). The
new legislation facilitated creation of specialised forums i.e., the
C Debts Recovery Tribunals and the Debts Recovery Appellate
Tribunals for expeditious adjudication of disputes relating to
recovery of the debts due to banks and financial institutions.
Simultaneously, the jurisdiction of the Civil Courts was barred
and all pending matters were transferred to the Tribunals from
D the date of their establishment.
An analysis of the provisions of the ORT Act shows that
primary object of that Act was to facilitate creation of special
machinery for speedy recovery of the dues of banks and
E financial institutions. This is the reason why the ORT Act not only
provides for establishment of the Tribunals and the Appellate
Tribunals with the jurisdiction, powers and authority to make
summary adjudication of applications made by banks or
financial institutions and specifies the modes of recovery of the
F amount determined by the Tribunal or the Appellate Tribunal but
also bars the jurisdiction of all courts except the Supreme Court
and the High Courts in relation to the matters specified in
Section 17. The Tribunals and the Appellate Tribunals have also
been freed from the shackles of procedure contained in the
Code of Civil Procedure. To put it differently, the ORT Act has
G not only brought into existence special procedural mechanism
for speedy recovery of the dues of banks and financial
institutions, but also made provision for ensuring that defaulting
borrowers are not able to invoke the jurisdiction of Civil Courts
H
UNITED BANK OF INDIA v. SATYAWATI TONDON
11
AND ORS.
for frustrating the proceedings initiated by the banks and other
A
financial institutions.
For few years, the new dispensation worked well and the
officers appointed to man the Tribunals worked with great zeal
for ensuring that cases involving recovery of the dues of banks
B
and financial institutions are decided expeditiously. However,
with the passage of time, the proceedings before the Tribunals
became synonymous with those of the regular Courts and the
lawyers representing the borrowers and defaulters used every
possible mechanism and dilatory tactics to impede the
expeditious adjudication of such cases. The flawed
C
appointment procedure adopted by the Government greatly
contributed to the malaise of delay in disposal of the cases
instituted before the Tribunals.
The survey conducted by the Ministry of Finance,
D
Government of India revealed that as in 2001, a sum of more
than Rs.1,20,000/- crores was due to the banks and financial
institutions and this was adversely affecting the economy of the
country. Therefore, the Government of India asked the
Narasimham Committee to suggest measures for expediting
E
the recovery of debts due to banks and financial institutions. In
its Second Report, the Narasimham Committee noted that the
non-performing assets of most of the public sector banks were
abnormally high and the existing mechanism for recovery of the
1same was wholly insufficient. In Chapter VIII of the Report, the
i Committee noted that the evaluation of legal framework has not
F
kept pace with the changing commercial practice and financial
sector reforms and as a result of that the economy could not
reap full benefits of the reform process. The Committee made
various suggestions for bringing about radical changes in the
G
existing adjudicatory mechanism. By way of illustration, the
Committee referred to the scheme of mortgage under the
Transfer of Property Act and suggested that the existing laws
should be changed not only for facilitating speedy recovery of
the dues of banks, etc. but also for quick resolution of disputes
H
12
SUPREME COURT REPORTS
[201 O] 9 S.C.R.
A arising out of the action taken for recovery of such dues. The
Andhyarujina Committee constituted by the Central
Government for examining banking sector reforms also
considered the need for changes in the legal system. Both, the
Narasimham and Andhyarujina Committees suggested
B enactment of new legislation for securitisation and empowering
the banks and financial institutions to take possession of the
securities and sell them without intervention of the court. The
Government of India accepted the recommendations of the two
committees and that led to enactment of the Securitization and
c Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for short 'the SARFAESI Act'), which (:an
be termed as one of the most radical legislative measures
taken by the Parliament for ensuring that dues of secured
creditors including banks, financial institutions are recovered
0 from the defaulting borrowers without any obstruction. For the
first time, the secured creditors have been empowered to take
steps for recovery of their dues without intervention of the Courts
or Tribunals.
3. Section 13 of the SARFAESI Act contains detailed
E mechanism for enforcement of security interest. Sub-section ( 1)
thereof lays down that notwithstanding anything contained in
Sections 69 or 69-A of the Transfer of Property Act, any security
interest created in favour of any secured creditor may be
enforced, without the intervention of the court or tribunal, by such
F creditor in accordance with the provisions of this Act. Subsection (2) of Section 13 enumerates first of many steps
neede!d to be taken by the secured creditor for enforcement of
security interest. This sub-section provides that if a borrower,
who is under a liability to a secured creditor, makes any default
G in repayment of secured debt and his account in respect of such
debt is classified as non-performing asset, then the secured
creditor may require the borrower by notice in writing to
discharge his liabilities within sixty days from the date of the
notice with an indication that if he fails to do so, the secured
H creditor shdll be entitled to exercise all or any of its rights in
UNITED BANK OF INDIA v. SATYAWATI TONDON
13
AND ORS.
terms of Section 13(4). Sub-section (3) of Section 13 lays down
that notice issued under Section 13(2) shall contain details of
the amount payable by the borrower as also the details of the
secured assets intended to be enforced by the bank or financial
institution. Sub-section (3-A) of Section 13 lays down that the
borrower may make a representation in response to the notice
issued under Section 13(2) and challenge the classification of
A
B
his account as non-performing asset as also the quantum of
amount specified in the notice. If the bank or financial institution
comes to the conclusion that the representation/objection of the
borrower is not acceptable, then reasons for non-acceptance c
are required to be communicated within one week. Sub-section
(4) of Section 13 specifies various modes which can be
adopted by the secured creditor for recovery of secured debt.
The secured creditor can take possession of the secured
assets of the borrower and transfer the same by way of lease,
D
assignment or sale for realising the secured assets. This is
subject to the condition that the right to transfer by way of lease,
etc. shall be exercised only where substantial part of the
business of the borrower is held as secured debt. If the
management of whole or part of the business is severable, then
the secured creditor can take over management only of such
business of the borrower which is relatable to security. The
secured creditor can appoint any person to manage the
secured asset, the possession of which has been taken over.
The secured creditor can also, by notice in writing, call upon a
person who has acquired any of the secured assets from the
borrower to pay the money, which may be sufficient to discharge
E
F
the liability of the borrower. Sub-section (7) of Section 13 lays
down that where any action has been taken against a borrower
under sub-section (4), all costs, charges and expenses properly
incurred by the secured creditor or any expenses incidental
G
thereto can be recovered from the borrower. The money which
is received by the secured creditor is required to be held by
him in trust and applied, in the first instance, for such costs,
charges and expenses and then in discharge of dues of the
secured. creditor. Residue of the money is payable to the
H
14
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A
person entitled thereto according to his rights and interest. Subsection (8) of Section 13 imposes a restriction on the sale or
transfer of the secured asset if the amount due to the secured
creditor together with costs, charges and expenses incurred by
him are tendered at any time before the time fixed for such sale
B or transfer. Sub-section (9) of Section 13 deals with the
situation in which more than one secured creditor has stakes
in the secured assets and lays down that in the case of
financing a financial asset by more than one secured creditor
or joint financing of a financial asset by secured creditors, no
C individual secured creditor shall be entitled to exercise any or
all of the rights under sub-section (4) unless all of them 2~ree
for such a course. There are five unnumbered provisos to
Section 13(9) which deal with pari passu charge of the workers
of a company in liquidation. The first of these provisos lays
down that in the case of a company in liquidation, the amount
D realised from the sale of secured assets shall be distributed in
accordance with the provisions of Section 529-A of the
Companies Act, 1956. The second proviso deals with the case
of a company being wound up on or after the commencement
of this Act. If the secured creditor of such company opts to
E realise its security instead of relinquishing the same and proving
its debt under Section 529(1) of the Companies Act, then it can
retain sale proceeds after depositing the workmen's dues with
the liquidator in accordance with Section 529-A. The third
proviso requires the liquidator to inform the secured creditor
F
about the dues payable to the workmen in terms of Section
529-A. If the amount payable to the workmen is not certain, then
the liquidator has to intimate the estimated amount to the
secured creditor. The fourth proviso lays down that in case the
secured creditor deposits the estimated amount of the
G workmen's dues, then such creditor shall be liable to pay the
balance of the workmen's dues or entitled to receive the
excess amount, if any, deposited with the liquidator. In terms
of the fifth proviso, the secured creditor is required to give an
undertaking to the liquidator to pay the balance of the
H workmen's dues, if any. Sub-section (10) of Section 13 lays
UNITED BANK OF INDIA v. SATYAWATI TONDON
15
AND ORS.
down that where dues of the secured creditor are not fully
A
satisfied by the sale proceeds of the secured assets, the
secured creditor may file an application before the Tribunal
under Section 17 for reco,1ery of balance amount from the
borrower. Sub-section (11) states that without prejudice to the
rights conferred on the secured creditor under or by this section,
B
it shall be entitled to proceed against the guaranto;s or sell the
pledged assets without resorting to the measures specified in
clauses (a) to (d) of sub-section (4) in relation to the secured
assets. Sub-section (12) of Section 13 lays down that rights
available to the secured creditor under the Act may be c
exercised by one or more of its officers authorised in this
behalf. Sub-section (13) lays down that after receipt of notice
under sub-section (2), the borrower shall not transfer by way of
sale, lease or otherwise (other than in the ordinary course of
his business) any of his secured assets referred to in the notice
D
without prior written consent of the secured creditor. In terms
of Section 14, the secured creditor can file an application
before the Chief Metropolitan Magistrate or the District
Magistrate, within whose jurisdiction the secured asset or other
documents relating thereto are found for taking possession
thereof. If any such request is made, the Chief Metropolitan
Magistrate or the District Magistrate, as the case may be, is
obliged to take possession of such asset or document and
forward the same to the secured creditor.
E
4. Section 17 speaks of the remedies available to any
F
person including borrower who may have grievance against the
action taken by the secured creditor under sub-section (4) of
Section 13. Such an aggrieved person can make an application
to the Tribunal within 45 days from the date on which action is
taken under that sub-section. By way of abundant caution, an
G
Explanation has been added to Section 17(1) and it has been
clarified that the communication of reasons to the borrower in
terms of Section 13(3-A) shall not constitute a ground for filing
application under Section 17(1 ). Sub-section (2) of Section 17
casts a duty on the Tribunal to consider whether the measures
H
(
16
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A taken by the secured creditor for enforcement of security interest
are in accordance with the provisions of the Act and the Rules
made thereunder. If the Tribunal, after examining the facts and
circumstances of the case and evidence produced by the
parties, comes to the conclusion that the measures taken by
B the secured creditor are not in consonance with sub-section (4)
of Section 13, then it can direct the secured creditor to restore
management of the business or possession of the secured
assets to the borrower. On the other hand, if the Tribunal finds
that the recourse taken by the secured creditor under subC section (4) of Section 13 is in accordance with the provisions
of the Act and the Rules made thereunder, then, notwithstanding
anything contained in any other law for the time being in force,
the secured creditor can take recourse to one or more of the
measures specified in Section 13(4) for recovery of its secured
0 debt. Sub-section (5) of Section 17 prescribes the time-limit
of sixty days within which an application made under Section
17 is required to be disposed of. The proviso to this sub-section
envisages extension of time, but the outer limit for adjudication
of an application is four months. If the Tribunal fails to decide
E the application within a maximum period of four months, then
either party can move the Appellate Tribunal for issue of a
direction to the Tribunal to dispose of tha application
expeditiously. Section 18 provides for an appeal to the
Appellate Tribunal.
F
5. Section 34 lays down that no Civil Court shall have
jurisdiction to entertain any suit or proceeding in respect of any
matter which a Tribunal or Appellate Tribunal is empowered to
determine. It further lays down that no injunction shall be granted
by any Court or other authority in respect of any action taken
G or to be taken under the SARFAESI Act or the ORT Act. Section
35 of the SARFAESI Act is substantially similar to Section 34(1)
of the ORT Act. It declares that the provisions of this Act shall
have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or any
H instrument having effect by virtue of any such law.
UNITED BANK OF INDIA v. SATYAWATI TONDON
17
AND ORS.
6. However, effective implementation of the SARFAESI
Act was delayed by more than two years because several writ
petitions were filed in the High Courts and this Court
questioning its vires. The matter was finally decided by this
Court in Mardia Chemicals v. Union of India (2004) 4 SCC
311 and the validity of the SARFAESI Act was upheld except
the condition of deposit of 75% amount enshrined in Section
17(2). The Court referred to the recommendations of the
Narasimham and Andhyarujina Committees on the issue of
constitution of special tribunals to deal with cases relating to
recovery of the dues of banks etc. and observed:
A
B
c
"One of the measures recommended in the circumstances
was to vest the financial institutions through,special
statutes, the power of sale of the assets without
intervention of the court and for reconstruction of assets. It
D
is thus to be seen that the question of non-recoverable or
delayed recovery of debts advanced by the banks or
financial institutions has been attracting attention and the
matter was considered in depth by the Committees
::.pecially constituted consisting of the experts in the field.
E
In the prevalent situation where the amounts of dues are
huge and hope of early recovery is less, it cannot be said
that a more effective legislation for the purpose was
uncalled for or that it could not be resorted to. It is again
to be noted that after the Report of the Narasimham
Committee, yet another Committee was constituted
headed by Mr. Andhyarujina for bringing about the needed
steps within the legal framework. We are, therefore, unable
to find much substance in the submission made on behalf
F
of the petitioners that while the Recovery of Debts Due to
Banks and Financial Institutions Act was in operation it was
G
uncalled for to have yet another legislation for the recovery
of the mounting dues. Considering the totality of
circumstances and the financial climate world over, if it
was thought as a matter of policy to have yet speedier
legal method to recover the dues, such a policy decision
H
18
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A
cannot be faulted with nor is it a matter to be gone into
by the courts to test the legitimacy of such a measure
relating to financial policy."
(emphasis supplied)
8
This Court then held that the borrower can challenge the
action taken under Section 13(4) by filing an application under
Section 17 of the SARFAESI Act and a civil suit can be filed
within the narrow scope and on the limited grounds on which
they are permissible in the matters relating to an English
C mortgage enforceable without intervention of the Court. In
paragraph 31 of the judgment, the Court observed as under:
D
E
F
"In view of the discussion held in the judgment and the
findings and directions contained in the preceding
paragraphs, we hold that the borrowers would get a
reasonably fair deal and opportunity to get the matter
adjudicated upon before the Debts Recovery Tribunal. The
effect of some of the provisions may be a bit harsh for
some of the borrowers but on that ground the impugned
provisions of the Act cannot be said to be unconstitutional
in view of the fact that the object of the Act is to achieve
speedier recovery of the dues declared as NPAs and
better availability of capital liquidity and resources to help
in growth of the economy of the country and welfare of
the people in general which would subserve the public
interest."
(emphasis supplied)
7. In the light of the above, we shall now consider whether
G the Division Bench of the High Court was justified in restraining
the appellant from proceeding under Section 13(4) of the
SARFAESI Act against the property of respondent No.1.
H
8. A perusal of the record shows that the appellant
sanctioned a term loan of Rs.22,50,000/- in favour cf Mis.
UNITED BANK OF INDIA v. SATYAWATI TONDON
19
AND ORS.
Pawan Color Lab [through its proprietor Pawan Singh
A
(respondent No.2)] some time in November, 2004. Respondent
No.1 gave guarantee for repayment of the loan and mortgaged
her property bearing House No. 752/062, Bakshi Khurd,
Daraganj, Pargana and Tehsil Sadar, District Allahabad by
deposit of title deeds. She also submitted an affidavit dated
B
28.12.2004 and executed agreement of guarantee dated
29.12.2004 making herself liable for repayment of the loan
amount with interest.
9. After one year and six months, the appellant sent letter
dated 6.5.2006 to respondent Nos.1 and 2 pointing out that
C
repayment of loan was highly irregular. After another one year,
the account of respondent No.2 was classified as NonPerforming Asset. On 19.7.2007, the appellant sent separate
letters to respondent Nos. 1 and 2 requiring them to deposit
the outstanding dues amounting to Rs.23,78,478/-. Thereupon,
D
respondent No.1 deposited a sum of Rs.50,000/- and gave
written undertaking to pay the balance amount in instalments.
However, she did not fulfil her promise to repay the remaining
amount. This compelled the appellant to issue notice to
respondent Nos.1 and 2 under Section 13(2) requiring them to
E
pay Rs.23,22,972/- along with future interest and incidental
expenses within 60 days. Upon receipt of the notice,
respondent No.1 offered to pay a sum of Rs.18 lakhs for
settlement of the loan account, but the appellant did not accept
the offer and filed an application under Section 14 of the
F
SARFAESI Act, which was allowed by District Magistrate/
Collector, Allahabad vide his order dated 25.8.2008.
Thereafter, the appellant issued notice dated 21.1.2009 to
respondent Nos.1 and 2 under Section 13(4) of the SARFAESI
M.
G
10. Faced with the imminent threat of losing the mortgaged
property, respondent No.1 filed C.M.W.P. No.55375 of 2009
and prayed that the appellant herein may be restrained from
taking coercive action in pursuance of the notices issued under
H
20
SUPREME COURT REPORTS
[2010] 9 S.C.R.
A Section 13(2) and (4) and order dated 25.8.2008 passed by
District Magistrate/Collector, Allahabad. She pleaded that the
notices issued by the appellant for recovery of the outstanding
dues are ex facie illegal and liable to be quashed because no
action had been taken against the borrower i.e., respondent
B No.2 for recovery of the outstanding dues.
11. In the counter affidavit filed on behalf of the appellant,
it was pleaded that action initiated against respondent No.1
was consistent with the provisions of SARFAESI Act and writ
C petitioner (respondent No.1 herein) was bound to discharge her
obligations to pay the outstanding dues and there was no merit
in her challenge to the notices issued under Section 13(2) and
13(4) or the order passed under Section 14. It was further
pleaded that the writ petition is liable to be dismissed because
an alternative remedy is available to the petitioner under
D Section 17 of the SARFAESI Act.
12. The Division Bench of the High Court did not even
advert to the appellant's plea that the writ petition should not
be entertained because an effective alternative remedy was
E available to the writ petitioner under Section 17 of the
SARFAESI Act and passed the impugned order restraining the
appellant from taking action in furtherance of notice issued
under Section 13(4) of the SARFAESI Act. The reason which
prompted the High Court to pass the impugned interim order
F and operative portion thereof are extracted below:
"Learned counsel for the petitioner has urged that the loan
was taken by respondent No.4 for opening a colour lab at
50/43, Raj Complex, K.P. Kakkar Road, Allahabad, but the
loan has not been repaid by respondent No.4 and the bank
G
is proceeding against the petitioner who is the guarantor
of the loan. It is not clear from the documents produced
by learned counsel for the bank as to what steps have
been taken by the bank against the borrower of the loan
and merely issuance of notice under section 13(2) of the
H
UNITED BANK OF INDIA v. SATYAWATI TONDON
21
AND ORS.
Securitization and Reconstruction of Financial Assets and
A
Enforcement of Security Interest Act, 2002 against the
borrower is not sufficient.