# PHOENIX ARC PRIVATE LIMITED v. VISHWA BHARATI VIDYA MANDIR & ORS

- **Citation:** [2022] 1 S.C.R. 950
- **Court:** Supreme Court of India
- **Decided:** 2022-01-12
- **Case number:** Civil Appeal Nos. 257-259 of 2022
- **Bench:** M. R. Shah, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/phoenix-arc-private-limited-v-vishwa-bharati-vidya-mandir-ors-35792
- **Pages:** 20

## Headnote

SARFAESI: Default in repayment of outstanding dues -
Accounts of borrowers/respondents classified as Non Performing
Asset - Bank issued notice u/s. 13(2) - NPA account of the
borrowers / respondents with respect to the credit facilities availed
by them assigned by the Bank in favour of appellant - Borrowers
failed to repay outstanding dues - Appellant issued letter
intimating borrowers that they would proceed to take possession
of the mortgaged properties after expiry of 15 days from the
date of the said letter - Against the said communication/letter
dated 13.08.2015, the borrowers/respondents filed writ petitions
before the High Court on the ground that communication/letter
dated 13.08.2015 was a possession notice under s.13(4) of the
SARFAESI Act, which was against the Security Interest
(Enforcement) Rules, 2002 - High Court entertained the writ
petitions under Art.226 against the appellant and passed an
interim ordered directing for maintaining status quo with regard
to SARFAESI action (possession of secured assets) - In the instant
appeals, case of the appellant was that communication dated
13.08.2015 cannot be said to be a notice under s.13(4) of the
SARFAESI Act at all; that after the notice under s.13(2) of the
SARFAESI Act was issued in the year 2013 and thereafter despite
the Letter of Acceptance dated 27.02.2015, no further amount
was paid, therefore, the borrowers were called upon to make the
payment within two weeks failing which a further proceeding
under s.13(4) of the SARFAESI Act was proposed and therefore,
writ petitions against the proposed action under s.13(4) of the
SARFAESI Act was not maintainable and/or entertainable at all
- Held: In view of the statutory remedy available under s.17 of
the SARFAESI Act, writ petitions against the notice under s.13(4)
of the SARFAESI Act was not required to be entertained by the
High Court - Therefore, High Court erred in entertaining the
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writ petitions against communication dated 13.08.2015 and also
passing the ex-parte ad-interim orders directing to maintain the
status quo with respect to possession of secured properties on
the condition directing the borrowers to pay Rs. 1 crore only (in
all Rs.3 crores in view of the subsequent orders passed by the
High Court extending the exparte ad-interim order dated
26.08.2015) against the total dues of approximate Rs.117 crores
- Filing of the writ petition by the borrowers before the High
Court is nothing but an abuse of process of Court - High Court
has initially granted an ex-parte ad-interim order mechanically
and without assigning any reasons - High Court ought to have
appreciated that by passing such an interim order, the rights of
the secured creditor to recover the amount due and payable have
been seriously prejudiced - The secured creditor and/or its
assignor have a right to recover the amount due and payable to
it from the borrowers - The stay granted by the High Court would
have serious adverse impact on the financial health of the secured
creditor/assignor - Therefore, the High Court should have been
extremely careful and circumspect in exercising its discretion
while granting stay in such matters.
Writ jurisdiction: Writ petition against the private financial
institution - appellant under Art.226 of the Constitution of India
against the proposed action/actions under s.13(4) of the SARFAESI
Act - Maintainability of - Held: Not maintainable - In the instant
case, appellant proposed to take action/actions under the
SARFAESI Act to recover the borrowed amount as a secured creditor
- Appellant as such cannot be said to be performing public
functions which are normally expected to be performed by the
State authorities - During the course of a commercial transaction
and under the contract, the bank/ appellant lent the money to the
borrowers and therefore the said activity of the bank/appellant
cannot be said to be as performing a public function which is
normally expected to be performed by the State a

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SUPREME COURT REPORTS
[2022] 1 S.C.R.
[2022] 1 S.C.R. 950
950
PHOENIX ARC PRIVATE LIMITED
v.
VISHWA BHARATI VIDYA MANDIR & ORS.
(Civil Appeal Nos. 257-259 of 2022)
JANUARY 12, 2022
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
SARFAESI: Default in repayment of outstanding dues -
Accounts of borrowers/respondents classified as Non Performing
Asset - Bank issued notice u/s. 13(2) - NPA account of the
borrowers / respondents with respect to the credit facilities availed
by them assigned by the Bank in favour of appellant - Borrowers
failed to repay outstanding dues - Appellant issued letter
intimating borrowers that they would proceed to take possession
of the mortgaged properties after expiry of 15 days from the
date of the said letter - Against the said communication/letter
dated 13.08.2015, the borrowers/respondents filed writ petitions
before the High Court on the ground that communication/letter
dated 13.08.2015 was a possession notice under s.13(4) of the
SARFAESI Act, which was against the Security Interest
(Enforcement) Rules, 2002 - High Court entertained the writ
petitions under Art.226 against the appellant and passed an
interim ordered directing for maintaining status quo with regard
to SARFAESI action (possession of secured assets) - In the instant
appeals, case of the appellant was that communication dated
13.08.2015 cannot be said to be a notice under s.13(4) of the
SARFAESI Act at all; that after the notice under s.13(2) of the
SARFAESI Act was issued in the year 2013 and thereafter despite
the Letter of Acceptance dated 27.02.2015, no further amount
was paid, therefore, the borrowers were called upon to make the
payment within two weeks failing which a further proceeding
under s.13(4) of the SARFAESI Act was proposed and therefore,
writ petitions against the proposed action under s.13(4) of the
SARFAESI Act was not maintainable and/or entertainable at all
- Held: In view of the statutory remedy available under s.17 of
the SARFAESI Act, writ petitions against the notice under s.13(4)
of the SARFAESI Act was not required to be entertained by the
High Court - Therefore, High Court erred in entertaining the
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writ petitions against communication dated 13.08.2015 and also
passing the ex-parte ad-interim orders directing to maintain the
status quo with respect to possession of secured properties on
the condition directing the borrowers to pay Rs. 1 crore only (in
all Rs.3 crores in view of the subsequent orders passed by the
High Court extending the exparte ad-interim order dated
26.08.2015) against the total dues of approximate Rs.117 crores
- Filing of the writ petition by the borrowers before the High
Court is nothing but an abuse of process of Court - High Court
has initially granted an ex-parte ad-interim order mechanically
and without assigning any reasons - High Court ought to have
appreciated that by passing such an interim order, the rights of
the secured creditor to recover the amount due and payable have
been seriously prejudiced - The secured creditor and/or its
assignor have a right to recover the amount due and payable to
it from the borrowers - The stay granted by the High Court would
have serious adverse impact on the financial health of the secured
creditor/assignor - Therefore, the High Court should have been
extremely careful and circumspect in exercising its discretion
while granting stay in such matters.
Writ jurisdiction: Writ petition against the private financial
institution - appellant under Art.226 of the Constitution of India
against the proposed action/actions under s.13(4) of the SARFAESI
Act - Maintainability of - Held: Not maintainable - In the instant
case, appellant proposed to take action/actions under the
SARFAESI Act to recover the borrowed amount as a secured creditor
- Appellant as such cannot be said to be performing public
functions which are normally expected to be performed by the
State authorities - During the course of a commercial transaction
and under the contract, the bank/ appellant lent the money to the
borrowers and therefore the said activity of the bank/appellant
cannot be said to be as performing a public function which is
normally expected to be performed by the State authorities - If
proceedings are initiated under the SARFAESI Act and/or any
proposed action is to be taken and the borrower is aggrieved by
any of the actions of the private bank/bank, borrower has to avail
the remedy under the SARFAESI Act and no writ petition would lie
and/or is maintainable and/or entertainable - SARFAESI Act.
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
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Allowing the appeal, the Court
HELD: 1. Assuming that communication dated 13.08.2015
can be said to be a notice under Section 13(4) of the SARFAESI
Act, in that case also, in view of the statutory remedy available
under Section 17 of the SARFAESI Act, the writ petitions against
the notice under Section 13(4) of the SARFAESI Act was not
required to be entertained by the High Court. Therefore, the
High Court has erred in entertaining the writ petitions against
the communication dated 13.08.2015 and also passing the exparte ad-interim orders directing to maintain the status quo with
respect to possession of secured properties on the condition
directing the borrowers to pay Rs. 1 crore only (in all Rs. 3 crores
in view of the subsequent orders passed by the High Court
extending the ex parte ad-interim order dated 26.08.2015) against
the total dues of approximate Rs.117 crores. Even the High Court
ought to have considered and disposed of the application for
vacating the ex-parte ad interim relief, which was filed in the year
2016 at the earliest considering the fact that a large sum of
Rs. 117 crores was involved. [Para 10][966-D-G]
J. Rajiv Subramaniyan and Anr. v. Pandiyas and Ors.
(2014) 5 SCC 651 : [2014] 3 SCR 1140 - referred to.
2. Even otherwise, it is required to be noted that a writ
petition against the private financial institution - appellant under
Article 226 of the Constitution of India against the proposed
action/actions under Section 13(4) of the SARFAESI Act can be
said to be not maintainable. In the present case, the ARC
proposed to take action/actions under the SARFAESI Act to
recover the borrowed amount as a secured creditor. The ARC as
such cannot be said to be performing public functions which are
normally expected to be performed by the State authorities. During
the course of a commercial transaction and under the contract,
the bank/ARC lent the money to the borrowers herein and
therefore the said activity of the bank/ARC cannot be said to be
as performing a public function which is normally expected to be
performed 21 by the State authorities. If proceedings are initiated
under the SARFAESI Act and/or any proposed action is to be
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taken and the borrower is aggrieved by any of the actions of the
private bank/bank/ARC, borrower has to avail the remedy under
the SARFAESI Act and no writ petition would lie and/or is
maintainable and/or entertainable. [Para 12][967-B-E]
Praga Tools Corporation v. Shri C.A. Imanual and Ors.
(1969) 1 SCC 585 : [1969] 3 SCR 773; Ramesh
Ahluwalia v. State of Punjab and Ors. (2012) 12 SCC
331 : [2012] 12 SCR 315 - held inapplicable.
3. Filing of the writ petitions by the borrowers before the
High Court under Article 226 of the Constitution of India is an
abuse of process of the Court. The writ petitions have been filed
against the proposed action to be taken under Section 13(4). Even
assuming that the communication dated 13.08.2015 was a notice
under Section 13(4), in that case also, in view of the statutory,
efficacious remedy available by way of appeal under Section 17 of
the SARFAESI Act, the High Court ought not to have entertained
the writ petitions. Even the impugned orders passed by the High
Court directing to maintain the status quo with respect to the
possession of the secured properties on payment of Rs. 1 crore
only (in all Rs. 3 crores) is absolutely unjustifiable. The dues are
to the extent of approximately Rs.117 crores. The ad-interim relief
has been continued since 2015 and the secured creditor is
deprived of proceeding further with the action under the
SARFAESI Act. Filing of the writ petition by the borrowers before
the High Court is nothing but an abuse of process of Court. It
appears that the High Court has initially granted an ex-parte
ad-interim order mechanically and without assigning any reasons.
The High Court ought to have appreciated that by passing such
an interim order, the rights of the secured creditor to recover
the amount due and payable have been seriously prejudiced. The
secured creditor and/or its assignor have a right to recover the
amount due and payable to it from the borrowers. The stay granted
by the High Court would have serious adverse impact on the
financial health of the secured creditor/assignor. Therefore, the
High Court should have been extremely careful and circumspect
in exercising its discretion while granting stay in such matters.
[Para 13.2][968-G-H; 969-A-D]
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
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United Bank of India v. Satyawati Tondon & Ors., (2010)
8 SCC 110 : [2010] 9 SCR 1; General Manager, Sri
Siddeshwara Cooperative Bank Limited & Anr. v. Ikbal
& Ors. (2013) 10 SCC 83 : [2013] 8 SCR 532;
Kanaiyalal Lalchand Sachdev & Ors. v. State of
Maharashtra & Ors., (2011) 2 SCC 782 : [2011] 2
SCR 602; Authorized Officer, State Bank of Travancore
& Anr. v. Mathew K.C. (2018) 3 SCC 85 : [2018] 1
SCR 233; City and Industrial Development Corpn. v.
Dosu Aardeshir Bhiwandiwala (2009) 1 SCC 168 :
[2008] 16 SCR 28; Sadhana Lodh v. National
insurance Co. Ltd. and Anr. (2003) 3 SCC 524 : [2003]
1 SCR 567; Surya Dev Rai v. Ram Chander Rai and
Ors. (2003) 6 SCC 675 : [2003] 2 Suppl. SCR 290 -
relied on.
Agarwal Tracom Private Limited v. Punjab National
Bank& Ors., (2018) 1 SCC 626 : [2017] 11 SCR 164;
Radha Krishnan Industries v. State of Himachal Pradesh
& Ors. (2021) 6 SCC 771; Mathew Varghese v. M.
Amritha Kumar and Ors. (2014) 5 SCC 610 : [2014] 2
SCR 736; United Commercial Bank v. Bank of India
and Ors. (1981) 2 SCC 766 : [1981] 3 SCR 300; State
Bank of India v. Allied Chemical Laboratories and Anr.
(2006) 9 SCC 252 - referred to.
Case Law Reference
[2010] 9 SCR 1
relied on
Para 4.5
[2011] 2 SCR 602
referred to
Para 4.5
[2013] 8 SCR 532
relied on
Para 4.5
[2017] 11 SCR 164
referred to
Para 4.5
[2018] 1 SCR 233
relied on
Para 4.5
(2021) 6 SCC 771
referred to
Para 4.5
[2014] 3 SCR 1140
referred to
Para 5.1
[1969] 3 SCR 773
held inapplicable
Para 5.2
[2012] 12 SCR 315
held inapplicable
Para 5.2
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[2014] 2 SCR 736
referred to
Para 5.5
[1981] 3 SCR 300
referred to
Para 5.7
[2008] 16 SCR 28
relied on
Para 7.4
[2003] 1 SCR 567
relied on
Para 7.5
[2003] 2 Suppl. SCR 290
relied on
Para 7.5
(2006) 9 SCC 252
relied on
Para 7.5
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 257259 of 2022.
From the Judgment and Order dated 27.03.2018 of the High Court
of Karnataka at Bengaluru in Writ Petition Nos.35564-66 of 2015.
V. Giri, Sr. Adv., Suresh Dutt Dobhal, Shikhar Kumar, Advs. for
the Appellant.
Basavaprabhu S. Patil, Sr. Adv., Geet Ahuja, V. N. Raghupathy,
Advs. for the Respondents.
The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned order dated
27.03.2018 passed by the High Court of Karnataka at Bengaluru in Writ
Petition Nos. 35564-35566 of 2015 by which the High Court has
entertained the aforesaid writ petitions under Article 226 of the
Constitution of India against the appellant, an Assets Reconstructing
Company and has passed an interim order directing for maintaining status
quo with regard to SARFAESI action (possession of the secured assets),
the original respondent - the Assets Reconstructing Company (ARC)
has preferred the present appeals.
2. That the respondent No.1 herein Vishwa Bharati Vidya Mandir
is running educational institutions and is a Society registered under the
Karnataka Societies Registration Act, 1960 which had availed credit
facilities to the tune of Rs.105,60,84,000/- (Rupees One Hundred Five
Crores Sixty Lacs and Eighty Four Thousand Only) from Saraswat Cooperative Bank Limited. That similarly, St. Ann's Education Society had
also availed credit facilities to the tune of Rs.20,05,00,000/- (Rupees
Twenty Crores and Five Lacs Only) from the aforesaid Bank.
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
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2.1 It appears that in order to secure the due repayment of the
aforesaid credit facilities, various loans / security documents were
executed by the respective respondents, including personal guarantees
in favour of the bank. The respondents also created an equitable mortgage
by way of deposit of title deeds over the immovable properties with
respect to the mortgaged properties. It appears that on account of defaults
committed by the borrowers / respondents in repayment of the outstanding
dues, in the month of April, 2013, the account of the borrowers /
respondents were classified as a "Non Performing Asset" (NPA) by
the Bank. As the borrowers / respondents failed and neglected to repay
the outstanding dues of the Bank, the Bank issued a notice dated
01.06.2013 under Section 13(2) of the Securitization and Reconstruction
of Financial Assets and Enforcement of Securities Interest Act, 2002
(hereinafter referred to as "SARFAESI Act"). It appears that in the
month of March, 2014, the NPA account of the borrowers / respondents
with respect to the credit facilities availed by them was assigned by the
Bank in favour of the appellant - Phoenix ARC Private Limited vide
registered Assignment Agreement dated 28.03.2014.
2.2 Pursuant to the assignment of the NPA account in favour of
the appellant, the borrowers approached the appellant with a request for
restructuring the repayment of outstanding dues. A Letter of Acceptance
dated 27.02.2015 was executed between the parties, wherein the
borrowers / respondents acknowledged and admitted the liability to repay
the entire outstanding dues. However, the borrowers failed to repay the
dues as per the Letter of Acceptance.
2.3 Since the borrowers again committed defaults in payment of
the outstanding dues, the appellant - Phoenix ARC Private Limited issued
a letter dated 13.08.2015 intimating the borrowers that since despite
issuance of 13(2) notice dated 01.06.2013 and the subsequent execution
of the Letter of Acceptance dated 27.02.2015, the borrowers had failed
to repay the outstanding dues, therefore, the appellant would be
proceeding to take possession of the mortgaged properties after expiry
of 15 days from the date of the said letter.
2.4 Against the aforesaid communication/letter dated 13.08.2015,
the borrowers / respondents herein filed the writ petitions before the
High Court on the ground that the communication/letter dated 13.08.2015
is a possession notice under Section 13(4) of the SARFAESI Act, which
is against the Security Interest (Enforcement) Rules, 2002.
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2.5 It was the case on behalf of the original writ petitioners that
the said possession notice under Section 13(4) of the SARFAESI Act is
in violation of Rule 8(1) of the Security Interest (Enforcement) Rules,
2002 (hereinafter referred to as "Rules, 2002") and without issuance of
the possession notice under Rule 8(1) and without publication of
possession notice in two leading newspapers as required under Rule
8(2). The High Court passed an ex-parte ad-interim order dated
26.08.2015 directing status quo to be maintained with regard to possession
of the mortgaged properties subject to the borrowers making a payment
of Rs. 1 crore with the appellant - Phoenix.
2.6 The petition was opposed by the appellant by filing statement
of objections to the writ petitions contending, inter alia, that the letter
dated 13.08.2015 as such cannot be said to be taking a measure under
Section 13(4) of the SARFAESI Act and that it was only a proposed
action/measure to be taken by the appellant. It was also submitted that
the writ petitions are not maintainable. That the appellants filed an
application being I.A. No. 01 of 2016 for vacation of the ex-parte adinterim order dated 26.08.2015. However, instead of deciding the
application for vacating the interim order, the High Court extended the
interim order on 28.02.2017 on the condition that the borrowers shall
deposit a further sum of Rs.1 crore. Simultaneously, the appellant also
filed two separate original applications against the borrowers before the
Debt Recovery Tribunal, Bangalore for recovery of the outstanding dues.
Thereafter, the High Court again vide order dated 27.03.2018 extended
the earlier ex-parte interim-order dated 26.08.2015 on condition that the
borrowers deposit a further sum of Rs. 1 crore.
2.7 Feeling aggrieved and dissatisfied with the aforesaid interim
orders / extension of the interim orders and entertaining the writ petitions,
the appellant - Phoenix ARC Private Limited, the original respondent
has preferred the present appeals.
3. Shri V. Giri, learned Senior Advocate has appeared on behalf
of the respective appellants and Shri Basavaprabhu S. Patil, learned
Senior Advocate has appeared on behalf of the original writ petitioners
- borrowers.
4. Shri V. Giri, learned Senior Advocate appearing on behalf of
the appellant(s) has vehemently submitted that in the present case the
borrowers are liable to pay to the appellant - ARC / secured creditor an
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
[M. R. SHAH, J.]
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amount of Rs.117,31,68,487/-. It is submitted that for recovery of the
amount due and payable, initially in the year 2003, notice under Section
13(2) of the SARFAESI Act was issued and therefore the proceedings
under the SARFAESI Act commenced. It is submitted that thereafter
despite the Letter of Acceptance dated 27.02.2015 admitting the dues
and agreeing to make the payment due and payable, the borrowers failed
to repay the amount due and payable, the appellant proposed to proceed
further with the proceedings under the SARFAESI Act and therefore
vide communication dated 13.08.2015, the borrowers were called upon
to make the payment within 15 days failing which it was proposed to
take further steps under the provisions of the SARFAESI Act. It is
submitted that, technically speaking, at that stage communication dated
13.08.2015 cannot be said to be notice under Section 13(4) of the
SARFAESI Act. Despite the above and treating and/or considering the
communication dated 13.08.2015 as possession notice under Section 13(4)
of the SARFAESI Act, the borrowers filed the writ petitions before the
High Court against communication dated 13.08.2015. It is submitted that
unfortunately the High Court has entertained the aforesaid writ petitions
though not maintainable against a private party like the appellant - ARC
and has granted an ex-parte ad-interim order, which has been extended
from time to time directing to maintain status quo with respect to the
possession of the mortgaged properties on payment of meager amount
of Rs. 1 crore (in all Rs. 3 crores only) against the total dues of Rs.117
crores approximately.
4.1 It is submitted that as such the writ petitions against the private
party - ARC and that too against the communication proposing to take
action under the SARFAESI Act would not be maintainable at all, and,
therefore, the High Court ought not to have entertained such writ petitions
and ought not to have granted the interim protection to the borrowers,
who have failed to repay the amount due and payable, which comes to
approximately Rs.117 crores.
4.2 It is further submitted by Shri Giri, learned Senior Advocate
appearing on behalf of the appellant - ARC that assuming that the
communication dated 13.08.2015 is treated as an action under Section
13(4) of the SARFAESI Act, in that case also, the only remedy available
to the borrowers was by way of an appeal under Section 17 of the
SARFAESI Act. It is submitted that under no circumstances, the writ
petitions would be maintainable and that too against the private ARC.
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4.3 It is submitted that the High Court has not at all appreciated
that as such there was no occasion to interfere in exercise of the powers
under Article 226 of the Constitution of India against a private party and
a non-State actor like the appellant - Phoenix ARC. It is submitted that
the writ petitions under Article 226 of the Constitution of India for the
relief sought in the writ petitions shall not be maintainable and that too
against a private party. It is submitted that, however, the Hon'ble High
Court has not only entertained the writ petitions but also passed an exparte ad-interim order dated 26.08.2015, which has been continued from
time to time directing to maintain the status quo with regard to the
SARFAESI action (possession of the secured assets). It is submitted
that this effectively resulted in staying of all further proceedings under
the SARFAESI Act. It is submitted that despite the application(s) for
vacating the ex-parte ad-interim relief, the High Court extended the
ex-parte interim order dated 26.08.2015 on condition that the borrowers
pay further sum of Rs.1 crore only.
4.4 It is submitted that even in the subsequent order dated
27.03.2018, though the High Court observed that "though the learned
counsel for the petitioners seeks to refer the nature of the claim and
contend that the demand as made would not be justified, the said
consideration in a writ petition of the present nature would not arise",
still the High Court has extended the ex-parte interim order dated
26.08.2015 by observing that the "petitioner is required to settle the matter
with the respondents". It is submitted that the High Court is not at all
justified firstly, in entertaining the writ petitions under Article 226 of the
Constitution of India for the relief sought in the main writ petitions and
that too against a private party and, more particularly, when against any
action under the SARFAESI Act, an appeal under Section 17 of the
SARFAESI Act would be maintainable and is required to be filed.
4.5 Shri Giri, learned Senior Advocate appearing on behalf of the
appellant(s) has relied upon the following decisions in support of the
submission that the writ petitions before the High Court are not
maintainable:-
United Bank of India Vs. Satyawati Tondon & Ors., (2010)
8 SCC 110; Kanaiyalal Lalchand Sachdev & Ors. Vs. State
of Maharashtra & Ors., (2011) 2 SCC 782; General
Manager, Sri Siddeshwara Cooperative Bank Limited &
Anr. Vs. Ikbal & Ors., (2013) 10 SCC 83; Agarwal Tracom
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
[M. R. SHAH, J.]
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Private Limited Vs. Punjab National Bank & Ors., (2018)
1 SCC 626; Authorized Officer, State Bank of Travancore
& Anr. Vs. Mathew K.C., (2018) 3 SCC 85; and Radha
Krishnan Industries Vs. State of Himachal Pradesh & Ors.,
(2021) 6 SCC 771.
4.6 Making the aforesaid submissions and relying upon the above
decisions, it is prayed to set aside the impugned order dated 27.03.2018
and also to dismiss the writ petitions filed before the High Court as being
non-maintainable.
5. Shri Basavaprabhu S. Patil, learned Senior Advocate appearing
on behalf of the original borrowers has vehemently submitted that the
present appeals are against the ad interim order/interim order passed by
the High Court and the main writ petitions are pending before the High
Court. It is submitted that pursuant to the earlier order passed by this
Court dated 06.08.2018, the impugned interim order passed by the High
Court has been stayed. It is therefore submitted that when the main writ
petitions are pending before the High Court, the present appeals may
not be further entertained. It is submitted that despite the fact that there
is a stay of operation of the impugned order passed by the High Court
since 06.08.2018, thereafter no further steps have been taken by the
appellant against the borrowers under the provisions of the SARFAESI
Act.
5.1 Now, so far as the maintainability of the writ petition against
the Assets Reconstruction Company (ARC) is concerned, it is submitted
that the writ petition is filed against the ARC complaining of infraction of
Rule 8. It is submitted that the said rule imposes a statutory duty on the
secured creditor - the ARC to act fairly while dealing with the security
so as to secure the interest of the borrower as well as public at large
(depositors). In support of aforesaid submission, reliance is placed on
the decision of this Court in the case of J. Rajiv Subramaniyan and
Anr. Vs. Pandiyas and Ors., (2014) 5 SCC 651. It is therefore
submitted that as in the present case as the ARC has not performed the
statutory duty cast upon it and there is a contravention of the statutory
duty imposed under the Security Interest (Enforcement) Rules, 2002, a
writ would lie against ARC against such an illegal action.
5.2 Shri Patil, learned Senior Advocate appearing on behalf of the
borrowers has also relied upon the decisions of this Court in the case of
Praga Tools Corporation Vs. Shri C.A. Imanual and Ors., (1969)
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1 SCC 585 and Ramesh Ahluwalia Vs. State of Punjab and Ors.,
(2012) 12 SCC 331 in support of his submission that even against a
purely private body but performing public functions, which are normally
expected to be performed by the State authorities, a writ would be
maintainable.
5.3 Now, in so far as the submission on behalf of the appellant
that assuming that a communication dated 13.08.2015 can be said to be
a SARFAESI action under Section 13(4) of the Act, the borrowers had
to prefer an appeal under Section 17 and, therefore, the writ petition
would not be maintainable and/or is required to be entertained, it is
vehemently submitted by Shri Patil, learned Senior Advocate appearing
on behalf of the borrowers that on the ground of alternative remedy
only, the writ petition would not be barred.
5.4 It is submitted that Section 13 of the SARFAESI Act provides
for enforcement of security interest and sub-section 4(a) of Section 13
provides that in case a borrower fails to discharge his liability within the
period specified under sub-section (2) of Section 13, the secured creditor
may take possession of the secured assets of the borrower. It is submitted
that Rule 8(1) of the Rules, 2002 mandates that where the secured assets
is an immovable property, the authorized officer of the secured creditor
shall take or cause to be taken possession, by delivering the possession
notice prepared as nearly as possible in Appendix - IV of the said Rules,
to the borrower and by affixing the possession notice on the outer door
or at the conspicuous space of the property. It is submitted that Rule
8(2) of the said Rules also mandates that the said possession notice be
published as soon as possible, but in any case not later than 7 days from
the date of taking possession, in two leading newspapers, one in vernacular
language having sufficient circulation in that locality by the authorized
officer.
5.5 It is submitted that in the instant case, it is not the case of the
appellant that it took any measure in terms of Section 13(4) of the
SARFAESI Act. It is therefore submitted that the remedy under Section
17 of the SARFAESI Act, which would be against any measure referred
to in sub-section (4) of Section 13 of the SARFAESI Act to file an
application to the Debts Recovery Tribunal is not available to the
borrowers in the instant case. It is further submitted that there is no
compliance with Rule 8(1) and 8(2) of the Rules, 2002. It is submitted
that as held by this Court in the case of Mathew Varghese Vs. M.
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
[M. R. SHAH, J.]
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Amritha Kumar and Ors., (2014) 5 SCC 610 on a detailed analysis
of Rules 8 and 9 that any sale effected without complying with the same
would be unconstitutional and, therefore, null and void. It is submitted
therefore that the High Court has rightly entertained the writ petitions.
5.6 Making the above submissions and relying upon the decision
of this Court in the case of J. Rajiv Subramaniyan and Anr. (supra),
it is urged that the High Court has not committed any error in entertaining
the writ petitions.
5.7 It is further submitted by Shri Patil, learned Senior Advocate
appearing on behalf of the respondents - borrowers that even otherwise
considering the fact that the present appeals are against the interim order
granted by the High Court, the same may not be entertained. Reliance is
also placed on the decision of this Court in the case of United
Commercial Bank Vs. Bank of India and Ors., (1981) 2 SCC 766.
5.8 It is further submitted that even otherwise in the present case,
subsequently, the appellant has taken recourse under Section 19 of the
Recovery of Debts due to Banks and Financial Institutions Act, 1993 by
filing O.A. No. 715 of 2017 before the Debts Recovery Tribunal,
Bengaluru and the said Tribunal has passed an interim order directing
the borrowers to deposit the fee collected / to be collected by all
educational institutions run by the Society - borrower for academic year
2017-2018 into the Bank. It is submitted that another interim order has
been passed on 06.07.2017 restraining the borrowers from selling,
transferring, alienating or otherwise dealing with certain properties of
the borrowers/respondents. It is submitted therefore that the interest of
the appellant is fully protected and no prejudice would be caused to the
appellant if the writ petitions are finally considered and disposed of by
the High Court on merits.
5.9 Making the above submissions, it is prayed to dismiss the
present appeals.
6. We have heard the learned counsel for the respective parties
at length.
7. At the outset, it is required to be noted that in the present case,
the respondents - borrowers whose accounts have been declared as
NPA in the year 2013 have filed the writ petitions before the High Court
challenging the communication dated 13.08.2015 purporting it to be a
notice under Section 13(4) of the SARFAESI Act. It is required to be
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noted that as per the appellant - assignor approximately Rs.117 crores
is due and payable to the Bank. While passing the ex-parte interim order
on 26.08.2015 and while entertaining the writ petitions against the
communication dated 13.08.2015, the High Court has directed to maintain
status quo with respect to the possession of the secured properties on
condition that the borrowers deposit Rs. 1 crore only. Despite the fact
that subsequently an application for vacating the ex-parte ad-interim
order has been filed in the year 2016, the application for vacating the
interim order has not been decided and disposed of. On the contrary, the
High Court thereafter has further extended the ex-parte ad-interim order
dated 26.08.2015 on condition that the borrowers should deposit a further
sum of Rs. 1 crore. Thus, in all the borrowers are directed to deposit Rs.
3 crores only against the dues of approximately Rs.117 crores.
7.1 It is the case on behalf of the appellant that the writ petitions
against the communication dated 13.08.2015 proposing to take further
action under Section 13(4) of the SARFAESI Act and that too against a
private Assets Reconstructing Company (ARC) shall not be maintainable.
It is also the case on behalf of the appellant that assuming that the
communication dated 13.08.2015 can be said to be a notice under Section
13(4) of the SARFAESI Act, in view of the alternative statutory remedy
available by way of appeal under Section 17 of the SARFAESI Act, the
High Court ought not to have entertained the writ petitions.
7.2 While considering the issue regarding the maintainability of
and/or entertainability of the writ petitions by the High Court in the instant
case, a few decisions of this Court relied upon by the learned Senior
Advocate appearing on behalf of the appellant - ARC are required to be
referred to.
7.3 In the case of Satyawati Tondon & Ors. (supra), it was
observed and held by this Court that the remedies available to an
aggrieved person against the action taken under section 13(4) or Section
14 of the SARFAESI Act, by way of appeal under Section 17, can be
said to be both expeditious and effective. On maintainability of or
entertainability of a writ petition under Article 226 of the Constitution of
India, in a case where the effective remedy is available to the aggrieved
person, it is observed and held in the said decision in paragraphs 43 to 46
as under:-
"43. Unfortunately, the High Court overlooked the settled law
that the High Court will ordinarily not entertain a petition under
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
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Article 226 of the Constitution 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. In our view, while dealing with the petitions involving
challenge to the action taken for recovery of the public dues, etc.
the High Court must keep in mind that the legislations enacted by
Parliament and State Legislatures for recovery of such dues are
a code unto themselves inasmuch as they not only contain
comprehensive procedure for recovery of the dues but also
envisage constitution of quasi-judicial bodies for redressal of the
grievance of any aggrieved person. 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.
44. While expressing the aforesaid view, we are conscious that
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 conferred by Part III or for any other purpose are very
wide and there is no express limitation on exercise of that power
but, at the same time, we cannot be oblivious of the rules of selfimposed restraint evolved by this Court, which every High Court
is bound to keep in view while exercising power under Article 226
of the Constitution.
45. 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 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.
46. It must be remembered that stay of an 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
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and legal obligations towards the citizens. In cases relating to
recovery of the dues of banks, 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 (sic will) ultimately prove detrimental to the economy of
the nation. Therefore, the High Court should be extremely careful
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 of the exceptions carved out in Baburam Prakash
Chandra Maheshwari v. Antarim Zila Parishad [AIR 1969 SC
556], Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8
SCC 1] and Harbanslal Sahnia v. Indian Oil Corpn.
Ltd. [(2003) 2 SCC 107] and some other judgments, then the High
Court may, after considering all the relevant parameters and public
interest, pass an appropriate interim order."
7.4 In the case of City and Industrial Development
Corpn. Vs. Dosu Aardeshir Bhiwandiwala, (2009) 1 SCC 168, it
was observed by this Court in paragraph 30 that the Court while
exercising its jurisdiction under Article 226 is duty bound to consider
whether ...............(c) the petitioner has any alternative or effective
remedy for the resolution of the dispute."
7.5 In the case of Kanaiyalal Lalchand Sachdev and Ors.
(supra) after referring to the earlier decisions of this Court in the cases
of Sadhana Lodh Vs. National insurance Co. Ltd. and Anr., (2003)
3 SCC 524; Surya Dev Rai Vs. Ram Chander Rai and Ors., (2003)
6 SCC 675 and State Bank of India Vs. Allied Chemical
Laboratories and Anr., (2006) 9 SCC 252 while upholding the order
passed by the High Court dismissing the writ petition on the ground that
an efficacious remedy is available under Section 17 of the SARFAESI
Act, it was observed that ordinarily relief under Articles 226/227 of the
Constitution of India is not available if an efficacious alternative remedy
is available to any aggrieved person.
7.6 Similar view has been expressed by this Court in subsequent
decisions in the case of General Manager, Sri Siddeshwara
Cooperative Bank Limited & Anr. (supra) as well as in the case of
Agarwal Tracom Private Limited (supra).
8. Applying the law laid down by this court in the aforesaid
decisions, it is required to be considered whether, in the facts and
PHOENIX ARC PVT. LTD. v. VISHWA BHARATI VIDYA MANDIR
[M. R. SHAH, J.]
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circumstances of the case, the High Court is justified in entertaining the
writ petitions against the communication dated 13.08.2015 and to pass
the ex-parte ad interim order virtually stalling/restricting the proceedings
under the SARFAESI Act by the creditor.
9. It is required to be noted that it is the case on behalf of the
appellant that as such the communication dated 13.08.2015 cannot be
said to be a notice under Section 13(4) of the SARFAESI Act at all.
According to the appellant, after the notice under Section 13(2) of the
SARFAESI Act was issued in the year 2013 and thereafter despite the
Letter of Acceptance dated 27.02.2015, no further amount was paid,
the appellant called upon the borrowers to make the payment within two
weeks failing which a further proceeding under Section 13(4) of the
SARFAESI Act was proposed. Thus, according to the appellant, it was
a proposed action. Therefore, the writ petitions filed against the proposed
action under Section 13(4) of the SARFAESI Act was not maintainable
and/or entertainable at all.
10. Assuming that the communication dated 13.08.2015 can be
said to be a notice under Section 13(4) of the SARFAESI Act, in that
case also, in view of the statutory remedy available under Section 17 of
the SARFAESI Act and in view of the law laid down by this Court in the
cases referred to hereinabove, the writ petitions against the notice under
Section 13(4) of the SARFAESI Act was not required to be entertained
by the High Court. Therefore, the High Court has erred in entertaining
the writ petitions against the communication dated 13.08.2015 and also
passing the ex-parte ad-interim orders directing to maintain the status
quo with respect to possession of secured properties on the condition
directing the borrowers to pay Rs.