# INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN CHRONICLE HOLDINGS LIMITED AND OTHERS

- **Citation:** [2018] 1 S.C.R. 1096
- **Court:** Supreme Court of India
- **Decided:** 2018-02-23
- **Case number:** Civil Appeal No. 18 of 2018
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/indiabulls-housing-finance-limited-v-m-s-deccan-chronicle-holdings-limited-and-32619
- **Pages:** 32

## Headnote

Securitisation and Reconstruction of Financial Assests and
Enforcement of Security Interest Act, 2002:
ss.2(1)(f), 2(1)(zb), 2(1)(zf) and 2(1)(zd), and 13(1) and (4)
- Loan granted to respondent (borrower) - By a non-financial
company (not covered under 2002 Act) - The company subsequently
merged with appellant-company (a financial company covered by
2002 Act) - For recovery of loan initiation of proceedings under
2002 Act - Held by High Court that the provisions of 2002 could
not be invoked because the company which had granted the loan
was not covered by 2002 Act at the time of granting loan - On
appeal, held: On sanction of the scheme of merger/amalgamation,
all loans, recoveries, security, interest, financial documents etc. in
favour of the predecessor company got transferred to and stood
vested in the appellant-company - Thus, the borrowers became the
borrowers of the appellant-company - The debt with underlying
securities was the asset of the predecessor company got it had right
to transfer/assign its assets to any person without seeking consent
of the borrower - Therefore, respondent would be treated as
'borrower'; arrangement would be classified as 'security
arrangement'; the agreements created 'security interest' and
appellant became 'secured creditor' under 2002 Act.
s.13(1) and (4) - Proceedings under - Whether barred if case
filed u/s. 9 of Arbitration Act, invoking arbitration clause - Held:
2002 Act being a special enactment and Arbitration Act being a
statute of general nature, 2002 Act will be placed on higher pedestal
- Merely because steps are taken under general law, remedy under
special stature cannot be foreclosed - Arbitration and Conciliation
Act, 1996 - s.9.
 [2018] 1 S.C.R. 1096
 1096
A
B
C
D
E
F
G
H
1097
Allowing the appeal, the Court
HELD: 1. Proceedings under the Securities and
Reconstruction of Financial Assests and Enforcement of Security
Interest Act, 2002 (SARFAESI Act) are to be placed on high
pedestal. SARFAESI Act is a special enactment which was enacted
by the Parliament to provide speedy remedy to the banks and
financial institutions without recourse to the court of law. On the
other hand, the Arbitration and Conciliation Act, in contrast, is a
statute of general nature. Merely because steps are taken under
this general law would not mean that remedy under the special
statute is foreclosed. [Para 11] [1105-A-C]
Transcore v. Union of India & Anr. [2006] 9 Suppl.
SCR 785 : (2008) 1 SCC 125 - relied on.
2.1 The loan/debts/financial assets stood vested in the
appellant pursuant to the amalgamation scheme filed by the two
companies under Sections 391 and 394 of the Companies Act,
1956 whereunder the predecessor company got amalgamated with
the appellant. On sanction of the scheme of amalgamation, all
loans, recoveries, security, interest, financial documents, etc. in
favour of the predecessor company got transferred to and stood
vested in the appellant including the loans given by the
predecessor company to respondent borrowers, debts
recoverable by the predecessor company from respondent
borrowers, security documents executed by respondent
borrowers in favour of the predecessor company, etc. On the
sanctioning of the scheme, the respondent borrowers became
the borrowers of the appellant as if the financial assistance was
granted by the appellant to the respondent borrowers. [Paras 33
and 34] [1121-E-F; 1120-G-H]
Saraswati Industrial Syndicate Ltd. v. Commissioner of
Income Tax [1990] Suppl. SCR 332 : (1990) Suppl.
SCC 675 - relied on.
2.2 The debt with underlying securities is the asset of the
predecessor company and that the predecessor company had right
to transfer/assign its assets to any person without seeking consent
of the borrower. Such transfer/assignment is recognized. [Para
35] [1121-G]
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED
A
B
C
D
E
F
G
H
1098
SUPREME COURT REPORTS
[2018] 1 S.C.R.
ICICI Bank

## Text

_Characters 0–39,966 of 74,159. This is a partial read: ask again with offset=39966 for what follows._

A
B
C
D
E
F
G
H
1096
SUPREME COURT REPORTS
[2018] 1 S.C.R.
INDIABULLS HOUSING FINANCE LIMITED
v.
M/S. DECCAN CHRONICLE HOLDINGS LIMITED
AND OTHERS
(Civil Appeal No. 18 of 2018)
FEBRUARY 23, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Securitisation and Reconstruction of Financial Assests and
Enforcement of Security Interest Act, 2002:
ss.2(1)(f), 2(1)(zb), 2(1)(zf) and 2(1)(zd), and 13(1) and (4)
- Loan granted to respondent (borrower) - By a non-financial
company (not covered under 2002 Act) - The company subsequently
merged with appellant-company (a financial company covered by
2002 Act) - For recovery of loan initiation of proceedings under
2002 Act - Held by High Court that the provisions of 2002 could
not be invoked because the company which had granted the loan
was not covered by 2002 Act at the time of granting loan - On
appeal, held: On sanction of the scheme of merger/amalgamation,
all loans, recoveries, security, interest, financial documents etc. in
favour of the predecessor company got transferred to and stood
vested in the appellant-company - Thus, the borrowers became the
borrowers of the appellant-company - The debt with underlying
securities was the asset of the predecessor company got it had right
to transfer/assign its assets to any person without seeking consent
of the borrower - Therefore, respondent would be treated as
'borrower'; arrangement would be classified as 'security
arrangement'; the agreements created 'security interest' and
appellant became 'secured creditor' under 2002 Act.
s.13(1) and (4) - Proceedings under - Whether barred if case
filed u/s. 9 of Arbitration Act, invoking arbitration clause - Held:
2002 Act being a special enactment and Arbitration Act being a
statute of general nature, 2002 Act will be placed on higher pedestal
- Merely because steps are taken under general law, remedy under
special stature cannot be foreclosed - Arbitration and Conciliation
Act, 1996 - s.9.
 [2018] 1 S.C.R. 1096
 1096
A
B
C
D
E
F
G
H
1097
Allowing the appeal, the Court
HELD: 1. Proceedings under the Securities and
Reconstruction of Financial Assests and Enforcement of Security
Interest Act, 2002 (SARFAESI Act) are to be placed on high
pedestal. SARFAESI Act is a special enactment which was enacted
by the Parliament to provide speedy remedy to the banks and
financial institutions without recourse to the court of law. On the
other hand, the Arbitration and Conciliation Act, in contrast, is a
statute of general nature. Merely because steps are taken under
this general law would not mean that remedy under the special
statute is foreclosed. [Para 11] [1105-A-C]
Transcore v. Union of India & Anr. [2006] 9 Suppl.
SCR 785 : (2008) 1 SCC 125 - relied on.
2.1 The loan/debts/financial assets stood vested in the
appellant pursuant to the amalgamation scheme filed by the two
companies under Sections 391 and 394 of the Companies Act,
1956 whereunder the predecessor company got amalgamated with
the appellant. On sanction of the scheme of amalgamation, all
loans, recoveries, security, interest, financial documents, etc. in
favour of the predecessor company got transferred to and stood
vested in the appellant including the loans given by the
predecessor company to respondent borrowers, debts
recoverable by the predecessor company from respondent
borrowers, security documents executed by respondent
borrowers in favour of the predecessor company, etc. On the
sanctioning of the scheme, the respondent borrowers became
the borrowers of the appellant as if the financial assistance was
granted by the appellant to the respondent borrowers. [Paras 33
and 34] [1121-E-F; 1120-G-H]
Saraswati Industrial Syndicate Ltd. v. Commissioner of
Income Tax [1990] Suppl. SCR 332 : (1990) Suppl.
SCC 675 - relied on.
2.2 The debt with underlying securities is the asset of the
predecessor company and that the predecessor company had right
to transfer/assign its assets to any person without seeking consent
of the borrower. Such transfer/assignment is recognized. [Para
35] [1121-G]
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED
A
B
C
D
E
F
G
H
1098
SUPREME COURT REPORTS
[2018] 1 S.C.R.
ICICI Bank Limited v. Official Liquidator of APS Star
Industries and others [2010] 12 SCR 644 : (2010) 10
SCC 1 - relied on.
2.3 It is too farfetched to say that just to realise the dues
from the respondents, the predecessor company and the appellant
devised the plan of merger so as to attract the provisions of
SARFAESI Act. [Para 37] [1122-C]
2.4 It will also not be correct to say that if the loan is allowed
to be brought within the SARFAESI Act only because of merger
and the appellant is allowed to take recourse under the SARFAESI
Act, it would affect substantive rights of the contesting borrowers
under Sections 69 and 69A of the Transfer of Property Act. [Paras
10 and 39] [1104-E-F]
Mardia Chemicals Ltd. & Ors. v. Union of India & Ors.
[2004] 3 SCR 982 : (2004) 4 SCC 311 ; United Bank
of India v. Satyawati Tondon and Others [2010] 9 SCR
1 : (2010) 8 SCC 110 - relied on.
2.5 Therefore, respondent No.1 would be treated as
'borrower' within the meaning of Section 2(1)(f) of the SARFAESI
Act; the arrangement would be classified as 'security arrangement'
under Section 2(1)(zb); the agreements created 'security interest'
under Section 2(1)(zf); and the appellant became 'secured
creditor' within the meaning of Section 2(1)(zd) of SARFAESI
Act. [Para 43] [1127-C-D]
M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero
Fincorp Ltd. (2017) SCC Online SC 1211 - relied on.
P.K. Unni v. Nirmala Industries & Others [1990] 1 SCR
483 : (1990) 2 SCC 378 ; Union of India v. Elphin
Stone Spinning and Weaving Company Limited & Others
[2001] 1 SCR 221 : (2001) 4 SCC 139 ; Delhi Financial
Corporation and another v. Rajiv Anand and others
(2004) 11 SCC 625 ; Rishabh Agro Industries Limited
v. P.N.B. Service Limited [2000] 1 Suppl. SCR 38 :
(2000) 5 SCC 515 ; Padma Sundara Rao v. State of
Tamil Nadu (2002) 3 SCC 533 - held inapplicable.
A
B
C
D
E
F
G
H
1099
Sarthak Builders Pvt. Ltd., Chinta, Arunodaya Market,
Cuttack & Another v. Orissa Rural Development
Corporation Limited, Station Square, Bhubaneswar &
5 Ors. (2014) SCC Online Ori 75 ; Trimbak Damodhar
Raipurkar v. Assaram Hiraman Patil, [1962] 1 Suppl.
SCR 700 - referred to.
West v. Gwynne, 1911 2 Ch 1 at pp. 11, 12 ; In re
Athlumney. Ex parte Wilson, (1898) 2 Q.B. 547 -
referred to.
Case Law Reference
[2006] 9 Suppl. SCR 785
relied on
Para 11
(2017) SCC Online SC 1211 relied on
Para 14
[1962] 1 Suppl SCR 700
referred to
Para 20
[1990] 1 SCR 483
held inapplicable
Para 23
[2001] 1 SCR 221
held inapplicable
Para 23
(2004) 11 SCC 625
held inapplicable
Para 23
[2000] 1 Suppl. SCR 38
held inapplicable
Para 27
(2002) 3 SCC 533
held inapplicable
Para 28
[2010] 12 SCR 644
relied on
Para 35
[1990] Suppl. SCR 332
relied on
Para 33
(2014) SCC Online Ori 75
referred to
Para 38
[2004] 3 SCR 982
relied on
Para 40
[2010] 9 SCR 1
relied on
Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 18 of
2018.
From the Judgment and Order dated 04.02.2014 of the High Court
of Judicature of Andhra Pradesh at Hyderabad in Writ Petition No. 37381
of 2013
WITH
Contempt Petition (Civil) Nos. 756 and 1693 of 2017.
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED
A
B
C
D
E
F
G
H
1100
SUPREME COURT REPORTS
[2018] 1 S.C.R.
Dr. A.M. Singhvi, Shyam Divan, Sr. Advs, Rishi Agrawala, Ankur
Saigal, Rishabh Parikh, Nishant Rao, E. C. Agrawala, Advs for the
Appellant.
M/S. Ap & J Chambers, Kuldeep S. Parihar, H. S. Parihar,
C. Mukund, M. B. Elakkumanan, Bijoy Kumar Jain, Ms. Pooja Dhar,
Rahul Pratap, Jay Kumar Bhardwaj, Damyanti Juneja, Sudhansu P., Advs
for the Respondents.
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. This appeal preferred by Indiabulls Housing
Finance Limited, in which the main contesting parties are M/s. Deccan
Chronicle Holdings Limited and its Directors (other respondents are the
proforma parties), questions the correctness and legality of the judgment
and order dated February 04, 2014 passed by the High Court of Judicature
of Andhra Pradesh at Hyderabad. The impugned judgment is passed by
the High Court in the writ petition which was filed by the contesting
respondents questioning the validity of actions taken by the appellant
against the contesting respondents under the provisions of the
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (hereinafter referred to as the 'SARFAESI
Act') for recovery of the loan amounts, along with interest, which are
payable by the contesting respondents to the appellant.
2. The High Court has accepted the challenge laid by the
contesting respondents holding that:
(a) loan agreements contained arbitration clauses which were
invoked by the appellant with the filing of cases under Section
9 of the Arbitration and Conciliation Act, 1996. In view
thereof, initiation of any other proceedings under the
SARFAESI Act are impermissible in law; and
(b) the loan was initially given by M/s. Indiabulls Financial Services
Limited (for short, 'IBFSL') on December 08, 2011 and
January 05, 2012 in the sum of Rs.50 crores each. IBFSL
was not a banking company or financial institution within the
meaning of Section 2(d) and (m) of the SARFAESI Act and,
therefore, it had no jurisdiction to take any steps by invoking
the provisions of this Act. However, IBFSL got merged with
the appellant company. No doubt, the appellant is a financial
A
B
C
D
E
F
G
H
1101
institution under the SARFAESI Act. However, since IBFSL
had no right to initiate any action under the said Act, as a
successor-in-interest, the appellant steps into the shoes of
IBFSL and, therefore, it also cannot initiate any action under
the SARFAESI Act. If that is allowed, held the High Court,
substantive rights of the contesting respondents which accrued
to them under Sections 69 and 69A of the Transfer of Property
Act, 1882 would be adversely affected, which cannot be
countenanced.
3. Having given the glimpse of the transaction which was entered
into between the parties and also that of the basis of the impugned
judgment of the High Court, we proceed to discuss the details on which
the lis is founded.
4. We may start with the narration of brief facts of the case,
which are as follows:
On April 18, 2005, IBFSL was granted a certificate under Section
45-I(a) of the Reserve Bank of India Act, 1934 to operate as a NonBanking Financial Company and, thus, act as a financial institution under
the said Act. The appellant was incorporated on May 10, 2005. The
appellant and IBFSL were sister concerns. The appellant was granted
a registration certificate dated December 28, 2005 to commence the
business of housing finance institution. The Central Government, vide
Notification dated September 19, 2007, issued under Section 2(1)(m) of
SARFAESI Act, specified the petitioner as a 'financial institution' for
the purposes of the said Act. IBFSL disbursed a loan amount of Rs.50
crores to the respondent borrowers vide Loan Agreement dated
December 08, 2011. The loan facility was secured by the respondent
borrowers by creating equitable mortgage over various properties. IBFSL
also disbursed a further amount of Rs.50 crores to the respondent
borrowers vide Loan Agreement dated January 05, 2012. The loan
facility was security by the respondent borrowers again by creating
equitable mortgage over various properties.
5. Sometime in the year 2012, it was proposed that IBFSL gets
merged with the appellant. After completing the formalities of informing
the National Housing Bank as well as the Reserve Bank of India about
the aforesaid proposal and furnishing them copies of the scheme of
merger, the appellant filed a petition under sections 391-394 of the Indian
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED [A. K. SIKRI, J.]
A
B
C
D
E
F
G
H
1102
SUPREME COURT REPORTS
[2018] 1 S.C.R.
Companies Act, 1956 in the High Court of Delhi for merger of IBFSL
with the appellant. The High Court, after taking various steps under the
provisions of the Companies Act, ultimately sanctioned the scheme of
arrangement between IBFSL and the appellant vide orders dated
December 12, 2012. With the sanction of the aforesaid merger, the assets
and liabilities of IBFSL stood vested in the appellant, with IBFSL being
dissolved without winding up on its amalgamation with the appellant.
Pursuant to the said merger, the borrowers of IBFSL, including the
respondent borrowers, became the borrowers of the appellant.
6. Insofar as respondent borrowers are concerned, they had
committed default in repaying the loans advanced to them by IBFSL
and, therefore, even before the merger, IBFSL had issued loan recall
notice dated September 18, 2012 to the respondent borrowers. On March
04, 2013, the loan accounts of the contesting respondents and other coborrowers were classified as Non Performing Assets (NPA) by IBFSL.
On March 06, 2013, IBFSL filed a petition under Section 9 of the
Arbitration Act, being O.P. No. 377 and 378 of 2013, before III Addl.
Chief Judge, City Civil Court, Hyderabad for securing the amount payable
by the respondent borrowers. An ad-interim injunction restraining the
respondent borrowers and other co-borrowers therein from alienating
the scheduled properties to third parties in any manner was passed. The
scheme of arrangement as approved by the order dated April 12, 2013
was filed with the Registrar of Companies on March 08, 2013 making
the same effective. The appellant, having stepped into the shoes of
IBFSL in respect of the debts owed to IBFSL, issued notice dated March
08, 2013 under Section 13(2) of SARFAESI Act to the respondent
borrowers and other co-borrowers. This was followed by notice dated
May 29, 2013 issued under Section 13(4) of SARFAESI Act in respect
of taking over symbolic possession of the mortgaged properties.
7. The respondents herein, on July 17, 2013, filed SA No. 182 of
2013 before the Debts Recovery Tribunal, Chandigarh under Section 17
of SARFAESI Act challenging the action of the appellant invoking the
measures under Section 13(4) of SARFAESI Act. Within few days
thereafter, i.e. on July 30, 2013, respondent No.1 also field Writ Petition
No. 22688 of 2013 challenging, inter alia, the declaration of the account
as NPA and passing of orders by the Chief Metropolitan Magistrate
under Section 14 of the SARFAESI Act. Similar writ petitions, being
A
B
C
D
E
F
G
H
1103
Writ Petition Nos. 22689 and 22934 of 2013 were filed by respondent
No.1's employee union and respondent No.4 respectively. On September
04, 2013, the respondents herein unconditionally withdrew SA No. 182
of 2013 filed before the Debts Recovery Tribunal, Chandigarh. The
appellant issued an auction notice dated November 21, 2013 informing
the respondent borrowers that auction of the Banjara Hill properties of
the respondent borrowers would be conducted on December 24, 2013.
At this juncture, on December 19, 2013, respondent Nos.1 to 5 filed Writ
Petition No. 37381 of 2012 before the High Court.
8. In the aforesaid writ petition, the High Court passed interim
orders dated December 20, 2013, directing the parties to maintain status
quo. Another interim order dated December 23, 2013 was passed
directing the appellant not to finalise the auction though it was permitted
to receive bids. However, the said auction could not fructify as, according
to the appellant, some miscreants belonging to the contesting respondents
came on the spot and threatened the intending purchasers and even
tried to beat the representatives of the respondents and, therefore, the
auction had to be cancelled. The appellant thereafter issued another
auction notice dated December 28, 2013 fixing the auction dates as 3rd
and 4th February 2014 in respect of Banjara Hills and Raj Bhavan Road
properties respectively. Auction in respect of Banjara Hills properties
took place on February 03, 2014 as per the date fixed. However, the
sale was not finalised on account f the interim orders passed by the High
Court. On February 04, 2014, when the next property was to be auctioned,
the High Court gave the judgment in Writ Petition No. 37381 of 2013
filed by the contesting respondents allowing the said writ petition and
setting aside the entire invocation of the SARFAESI Act by the appellant.
9. As already pointed out above, the High Court is swayed by the
fact that after IBFSL had invoked the provisions of Section 9 of the
Arbitration Act and filed petitions in this behalf, having regard to the
arbitration agreement between the parties, it was not open to the appellant
to take recourse to the provisions of SARFAESI Act. This aspect is
concluded in the following manner:
"The two O.Ps. i.e. 377 and 378 of 2013 have already been filed
in the name of IBFSL, under Section 9 of the Arbitration Act.
The arbitration clause that existed in the agreements has been
extracted in the preceding paragraphs. Section 8 of the Arbitration
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
1104
SUPREME COURT REPORTS
[2018] 1 S.C.R.
Act makes it amply clear that if the agreement between the parties
contains an arbitration clause, institution of other proceedings is
prohibited. When a suit cannot be instituted by a party to an
agreement, which contains an arbitration clause, the initiation of
proceedings before other fora becomes equally untenable. The
proceedings under the SARFAESI Act cannot be placed on a
higher pedestal. The borrower of a secured financial institution,
as defined under Section 2(f) of the SARFAESI Act cannot be
treated as a super Court, to be kept on a higher pedestal in the
context of Section 8 of the Arbitration Act. When arbitration
proceedings have already been initiated, the 4th respondent cannot
be permitted, ignore them and proceed against the security."
10. The High Court noted that the contesting respondents had not
borrowed any amount from the appellant. The loan was taken from
IBFSL, which was not under the purview of SARFAESI Act. Therefore,
at the time of taking the loan, the respondent borrowers knew that IBFSL
would not be in a position to take recourse to the SARFAESI Act. With
the merger of IBFSL with the appellant, ruled the High Court, the loan
transaction which was outside the purview of the SARFAESI Act, could
not be brought under its purview without the consent of the borrower.
According to the High Court, SARFAESI Act prescribes a new legal
regime and if the loan is allowed to be brought within the SARFAESI
Act only because of merger and the appellant is allowed to take recourse
under the SARFAESI Act, it would affect substantive rights of the
contesting borrowers under Sections 69 and 69A of the Transfer of
Property Act. In the process, the High Court has noted that the views
of the Uttarakhand High Court and the Allahabad High Court are contrary
to the aforesaid view. However, it chose to agree with the view taken
by the Division Bench of the Orissa High Court in deciding that provisions
of SARFAESI Act will not be applicable. Pertinently, Full Bench of the
Orissa High Court itself has overruled its Division Bench judgment.
11. We may record at this stage that the main ground on which
notice issued under SARFAESI Act had been quashed is the
impermissibility of invoking the provisions of the Act by the appellant
herein who took over the assets and liabilities of IBFSL on merger.
Insofar as the other issue, namely, provisions of SARFAESI Act could
not be invoked as IBFSL had already invoked the machinery under the
Arbitration Act by filing petitions under Section 9 thereof is concerned,
A
B
C
D
E
F
G
H
1105
this is decided as the subsidiary issue. Insofar as this subsidiary question
is concerned, learned counsel for the respondent did not press this ground
seriously and it was virtually conceded that merely because IBFSL had
filed applications under Section 9 of the Arbitration Act, would not create
a bar for proceeding under the SARFAESI Act. Even otherwise, we
find that the High Court was in error in deciding this issue. It is not
correct to say that proceedings under the SARFAESI Act cannot be
placed on high pedestal. We find that SARFAESI Act is a special
enactment which was enacted by the Parliament to provide speedy
remedy to the banks and financial institutions without recourse to the
court of law. On the other hand, the Arbitration and Conciliation Act, in
contrast, is a statute of general nature. Merely because steps are taken
under this general law would not mean that remedy under the special
statute is foreclosed. If at all, legal position is just the reverse. Matter is
no more res integra and is covered by a judgment of this Court in
Transcore v. Union of India & Anr.1 In that case, after analysing the
provisions of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993, the Court summed up the position as under:
"18. On analysing the above provisions of the DRT Act, we find
that the said Act is a complete code by itself as far as recovery of
debt is concerned. It provides for various modes of recovery. It
incorporates even the provisions of the Second and Third
Schedules to the Income Tax Act, 1961. Therefore, the debt due
under the recovery certificate can be recovered in various ways.
The remedies mentioned therein are complementary to each other.
The DRT Act provides for adjudication. It provides for adjudication
of disputes as far as the debt due is concerned. It covers secured
as well as unsecured debts. However, it does not rule out
applicability of the provisions of the TP Act, in particular Sections
69 and 69-A of that Act. Further, in cases where the debt is secured
by pledge of shares or immovable properties, with the passage of
time and delay in the DRT proceedings, the value of the pledged
assets or mortgaged properties invariably falls. On account of
inflation, value of the assets in the hands of the bank/FI invariably
depletes which, in turn, leads to asset-liability mismatch. These
contingencies are not taken care of by the DRT Act and, therefore,
Parliament had to enact the NPA Act, 2002."
1(2008) 1 SCC 125
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
1106
SUPREME COURT REPORTS
[2018] 1 S.C.R.
12. Thereafter, the Court analysed the provisions of SARFAESI
Act and then noted, in paragraph 37 of the judgment, three points of
determination which arose for consideration. We are concerned with
point No.1 formulated therein, which reads as under:
"(i) Whether the banks or financial institutions having elected to
seek their remedy in terms of the DRT Act, 1993 can still invoke
the NPA Act, 2002 for realising the secured assets without
withdrawing or abandoning the OA filed before DRT under the
DRT Act."
13. After detailed discussion on this question, the Court rejected
the applicability of the doctrine of election by holding that simply because
remedy under the provisions of the DRT Act was availed would not
mean that the financial institution was precluded from taking steps under
SARFAESI Act. Thus, answering the question in the affirmative, essence
of the discussion can be captured in the following paragraphs:
"64. In the light of the above discussion, we now examine the
doctrine of election. There are three elements of election, namely,
existence of two or more remedies; inconsistencies between such
remedies and a choice of one of them. If any one of the three
elements is not there, the doctrine will not apply. According to
American Jurisprudence, 2d, Vol. 25, p. 652, if in truth there is
only one remedy, then the doctrine of election does not apply. In
the present case, as stated above, the NPA Act is an additional
remedy to the DRT Act. Together they constitute one remedy
and, therefore, the doctrine of election does not apply. Even
according to Snell's Principles of Equity (31st Edn., p. 119), the
doctrine of election of remedies is applicable only when there are
two or more co-existent remedies available to the litigants at the
time of election which are repugnant and inconsistent. In any event,
there is no repugnancy nor inconsistency between the two
remedies, therefore, the doctrine of election has no application.
65. In our view, the judgments of the High Courts which have
taken the view that the doctrine of election is applicable are
erroneous and liable to be set aside.
66. We have already analysed the scheme of both the Acts.
Basically, the NPA Act is enacted to enforce the interest in the
A
B
C
D
E
F
G
H
1107
financial assets which belongs to the bank/FI by virtue of the
contract between the parties or by operation of common law
principles or by law. The very object of Section 13 of the NPA
Act is recovery by non-adjudicatory process. A secured asset
under the NPA Act is an asset in which interest is created by the
borrower in favour of the bank/FI and on that basis alone the
NPA Act seeks to enforce the security interest by non-adjudicatory
process. Essentially, the NPA Act deals with the rights of the
secured creditor. The NPA Act proceeds on the basis that the
debtor has failed not only to repay the debt, but he has also failed
to maintain the level of margin and to maintain value of the security
at a level is the other obligation of the debtor. It is this other
obligation which invites applicability of the NPA Act. It is for this
reason, that Sections 13(1) and 13(2) of the NPA Act proceed on
the basis that security interest in the bank/FI needs to be enforced
expeditiously without the intervention of the court/tribunal; that
liability of the borrower has accrued and on account of default in
repayment, the account of the borrower in the books of the bank
has become non-performing. For the above reasons, the NPA
Act states that the enforcement could take place by nonadjudicatory process and that the said Act removes all fetters
under the above circumstances on the rights of the secured
creditor."
14. With this, we now address the central issue on which detailed
arguments were advanced by both the parties. We may note that our
discussion is not on a virgin field as the terrain has already been covered
by this Court in M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero
Fincorp Ltd.2 The learned senior counsel appearing for the appellant
had submitted that this case, which is directly on point, not only lays
down the proposition that even successor-in-interest (like the appellant
herein) would be authorised to invoke the provisions of SARFAESI Act
even if the original lender was not a financial institution covered by the
Act, it has specifically overruled the judgment of the Andhra Pradesh
High Court, which is the subject matter of appeal at hand. On that basis,
it was submitted that it was not even necessary to have further probe in
the matter.
2(2017) SCC Online SC 1211
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
1108
SUPREME COURT REPORTS
[2018] 1 S.C.R.
15. Learned counsel for the appellant is factually correct in pointing
out that the impugned judgment of the Andhra Pradesh High Court is
specifically noted and overruled by this Court in M.D. Frozen Foods.
Therefore, it would be apt to discuss the said judgment in the first instance.
16. In M.D. Frozen Foods the appellants had borrowed monies
for their business from the respondents against security of immovable
properties by creating an equitable mortgage. Loan agreement contained
an arbitration clause. Since the appellant defaulted in making the payment
and the account became NPA, the respondent invoked the arbitration
clause on November 16, 2016. However, three months before this
invocation, a notification was issued on August 05, 2016 specifying certain
Non-Financial Banking Companies (NFBCs) covered under clause (f)
of Section 45-I of the RBI Act, with assets of more than Rs. 500 crores
and above, as financial institutions and directing that the provisions of
SARFAESI Act shall apply to such financial institutions with the
exceptions of provisions of Sections 13 to 19 of that Act. Sections 13 to
19 were made applicable, as per the notification, only to such security
interest which is obtained for securing repayment of secured debt with
principal amount of Rs.1 crore and above. The respondent was
specifically covered by the said notification which was issued in exercise
of powers conferred under sub-clause (iv) of clause (m) of sub-section
(1) of Section 2 read with Section 31A of the SARFAESI Act. In view
of the aforesaid notification, the respondent issued a notice under Section
13(2) of SARFAESI Act on November 24, 2016 for one of the seven
properties mortgaged to it against the aforesaid loan which was advanced
to the appellants.
17. Having regard to the aforesaid facts in M.D. Frozen Foods,
the Court formulated following three questions which had arisen for
consideration:
"A. Whether the arbitration proceedings initiated by the respondent
can be carried on along with the SARFAESI proceedings
simultaneously?
B. Whether resort can be had to Section 13 of the SARFAESI
Act in respect of debts which have arisen out of a loan agreement/
mortgage created prior to the application of the SARFAESI Act
to the respondent?
A
B
C
D
E
F
G
H
1109
C. A linked question to question (ii), whether the lender can invoke
the SARFAESI Act provision where its notification as financial
institution under Section 2(1)(m) has been issued after the account
became an NPA under Section 2(1)(o) of the said Act?"
These questions amply demonstrate that the instant case is virtually
on the same footing.
18. Insofar as question 'A' is concerned, the Court categorically
held that merely because remedy under the Arbitration Act was invoked
was no ground to debar the respondent from taking recourse to the
SARFAESI Act. The discussion from that judgment is reproduced below:
"26. A claim by a bank or a financial institution, before the specified
laws came into force, would ordinarily have been filed in the Civil
Court having the pecuniary jurisdiction. The setting up of the Debt
Recovery Tribunal under the RDDB Act resulted in this specialised
Tribunal entertaining such claims by the banks and financial
institutions. In fact, suits from the civil jurisdiction were transferred
to the Debt Recovery Tribunal. The Tribunal was, thus, an
alternative to a Civil Court recovery proceedings.
27. On the SARFAESI Act being brought into force seeking to
recover debts against security interest, a question was raised
whether parallel proceedings could go on under the RDDB Act
and the SARFAESI Act. This issue was clearly answered in favour
of such simultaneous proceedings in Transcore v. Union of India.
A later judgment in Mathew Varghese v. M. Amritha Kumar
also discussed this issue in the following terms:
"45. A close reading of Section 37 shows that the provisions of
the SARFAESI Act or the Rules framed thereunder will be in
addition to the provisions of the RDDB Act. Section 35 of the
SARFAESI Act states that the provisions of the SARFAESI Act
will have overriding effect notwithstanding anything inconsistent
contained in any other law for the time being in force. Therefore,
reading Sections 35 and 37 together, it will have to be held that in
the event of any of the provisions of the RDDB Act not being
inconsistent with the provisions of the SARFAESI Act, the
application of both the Acts, namely, the SARFAESI Act and the
RDDB Act, would be complementary to each other. In this context,
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
1110
SUPREME COURT REPORTS
[2018] 1 S.C.R.
reliance can be placed upon the decision in Transcore v. Union
of India [(2008) 1 SCC 125 : (2008) 1 SCC (Civ) 116]. In para 64
it is stated as under after referring to Section 37 of the SARFAESI
Act: (SCC p. 162)
"64. ... According to American Jurisprudence, 2d, Vol. 25, p. 652,
if in truth there is only one remedy, then the doctrine of election
does not apply. In the present case, as stated above, the NPA Act
is an additional remedy to the DRT Act. Together they constitute
one remedy and, therefore, the doctrine of election does not apply.
Even according to Snell's Principles of Equity (31st Edn., p. 119),
the doctrine of election of remedies is applicable only when there
are two or more co-existent remedies available to the litigants at
the time of election which are repugnant and inconsistent. In any
event, there is no repugnancy nor inconsistency between the two
remedies, therefore, the doctrine of election has no application."
 (emphasis added)
46. A reading of Section 37 discloses that the application of the
SARFAESI Act will be in addition to and not in derogation of the
provisions of the RDDB Act. In other words, it will not in any
way nullify or annul or impair the effect of the provisions of the
RDDB Act. We are also fortified by our above statement of law
as the heading of the said section also makes the position clear
that application of other laws are not barred. The effect of Section
37 would, therefore, be that in addition to the provisions contained
under the SARFAESI Act, in respect of proceedings initiated under
the said Act, it will be in order for a party to fall back upon the
provisions of the other Acts mentioned in Section 37, namely, the
Companies Act, 1956, the Securities Contracts (Regulation) Act,
1956, the Securities and Exchange Board of India Act, 1992, the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993, or any other law for the time being in force."
28. These observations, thus, leave no manner of doubt and the
issue is no more res integra, especially keeping in mind the
provisions of Sections 35 and 37 of the SARFAESI Act, which
read as under:
"35. The provisions of this Act to override other laws. -
The provisions of this Act shall have effect, notwithstanding
A
B
C
D
E
F
G
H
1111
anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue
of any such law."
 ...
 ....
....
.....
"37. Application of other laws not barred. - The provisions
of this Act or the rules made thereunder shall be in addition to,
and not in derogation of, the Companies Act, 1956 (1 of 1956),
the Securities Contracts (Regulation) Act, 1956 (42 of 1956),
the Securities and Exchange Board of India Act, 1992 (15 of
1992), the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (51 of 1993) or any other law for the
time being in force."
29. The aforesaid two Acts are, thus, complimentary to each other
and it is not a case of election of remedy.
xx xx
 xx
33. SARFAESI proceedings are in the nature of enforcement
proceedings, while arbitration is an adjudicatory process. In the
event that the secured assets are insufficient to satisfy the debts,
the secured creditor can proceed against other assets in execution
against the debtor, after determination of the pending outstanding
amount by a competent forum.
34. We are, thus, unequivocally of the view that the judgments of
the Full Bench of the Orissa High Court in Sarthak Builders
Pvt. Ltd. v. Orissa Rural Development Corporation Limited,
the Full Bench of the Delhi High Court in HDFC Bank Limited v.
Satpal Singh Bakshi (supra) and the Division Bench of the
Allahabad High Court in Pradeep Kumar Gupta v. State of U.P.
lay down the correct proposition of law and the view expressed
by the Andhra Pradesh High Court in Deccan Chronicles
Holdings Limited v. Union of India following the overruled
decision of the Orissa High Court in Subash Chandra Panda v.
State of Orissa does not set forth the correct position in law.
SARFAESI proceedings and arbitration proceedings, thus, can
go hand in hand."
19. Insofar as questions 'B' and 'C' are concerned, the Court
again referred to the conflicting opinion of different High Courts and
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
1112
SUPREME COURT REPORTS
[2018] 1 S.C.R.
after discussion held that the SARFAESI Act was retroactive in nature
and, therefore, once this Act came into force, the respondent in the said
case had right to invoke the provisions of the Act even if loan agreement
was entered into and mortgage created prior to the coming into force
the SARFAESI Act. Paragraphs 36 to 38 of the judgment need to be
reproduced in this behalf, which are to the following effect:
"36. The SARFAESI Act was brought into force to solve the
problem of recovery of large debts in NPAs. Thus, the very
rationale for the said Act to be brought into force was to provide
an expeditious procedure where there was a security interest. It
certainly did not apply retrospectively from the date when it came
into force. The question is whether, the Act being applicable to
the respondent at a subsequent date and thereby allowing the
respondent to utilize its provisions with regards to a past debt,
would make any difference to this principle. We are of the view
that the answer to the same is in the negative.
37. The Act applies to all the claims which would be alive at the
time when it was brought into force. Thus, qua the respondent or
other NBFCs, it would be applicable similarly from the date when
it was so made applicable to them.
38. The Full Bench of the Orissa High Court in Sarthak Builders
Pvt. Ltd. v. Orissa Rural Development Corporation Limited
(supra) has, in fact, succinctly sets out this aspect. No doubt, till
the respondent was not a 'financial institution' within the meaning
of Section 2(1)(m)(iv) of the SARFAESI Act, it was not a 'secured
creditor' as defined under Section 2(1)(zd) of the SARFAESI
Act and, thus, could not invoke the provisions of the SARFAESI
Act. However, the right to proceed under the SARFAESI Act
accrued once the Notification was issued. The Full Bench referred
to a Division Bench judgment of the Uttarakhand High Court in
Unique Engineering Works v. Union of India which dealt with
the issue of retrospectivity and retroactivity. In case of retroactivity,
the Parliament takes note of the existing conditions and promulgates
the remedial measures to rectify those conditions. In fact the
SARFAESI Act, in our view, was to remedy such a position and
provide a measure against secured interests. The scheme of the
SARFAESI Act, is really to provide a procedural remedy against
security interest already created. Therefore, an existing borrower,
A
B
C
D
E
F
G
H
1113
who had been granted financial assistance was covered under
Section 2(f) of the said Act as a 'borrower'. Not only this
expression, the definition clauses dealing with 'debt securities',
'financial assistance', 'financial assets', etc., clearly convey the
legislative intent that the SARFAESI Act applies to all existing
agreements irrespective of the fact whether the lender was a
notified 'financial institution' on the date of the execution of the
agreement with the borrower or not. The scheme of the
SARFAESI Act sets out an expeditious, procedural methodology,
enabling the bank to take possession of the property for nonpayment of dues, without intervention of the court. The mere fact
that a more expeditious remedy is provided under the SARFAESI
Act does not mean that it is substantive in character or has created
an altogether new right. To accept the argument of the appellants
would imply that they have an inherent right to delay the
enforcement against the security interest!"
20. The Court also referred to certain judgments laying down
distinction between retroactive and retrospective operation of a particular
statute3..
21.