Auction Dispute: Supreme Court Upholds SARFAESI Tribunal's Jurisdiction Over Forfeiture Claims

The Supreme Court of India recently ruled on a significant legal dispute in the case of Agarwal Tracom Pvt. Ltd. vs. Punjab National Bank & Ors.. The case centered on whether an auction purchaser challenging the forfeiture of their deposit by a bank under the SARFAESI Act, 2002, must approach the Debts Recovery Tribunal (DRT) instead of filing a writ petition before the High Court.

The judgment clarifies the scope of the SARFAESI Act and reinforces the principle that statutory remedies must be exhausted before invoking writ jurisdiction under Article 226 of the Constitution.

Background of the Case

The case arose from an auction conducted by Punjab National Bank (PNB) to recover outstanding dues from a borrower, M/s India Iron & Steel Corporation Limited. The bank had extended credit facilities to the borrower, which were secured by assets, including land, factory buildings, plant, and machinery located in Bijnor, Uttar Pradesh. When the borrower defaulted, PNB invoked its powers under Section 13(4) of the SARFAESI Act and issued a public sale notice for the auction of the secured assets.

Agarwal Tracom Pvt. Ltd. was the highest bidder in the auction held on June 17, 2014. Following the bid acceptance, a memorandum of understanding (MoU) was executed between the auction purchaser and PNB, confirming the sale.

Dispute Over Forfeiture of Deposit

The dispute arose when Agarwal Tracom failed to pay the sale installments on time and requested an extension. This led to multiple legal proceedings:

PNB, citing breach of the payment schedule, forfeited the deposit of Agarwal Tracom.
The auction purchaser sought a refund and approached the Debt Recovery Tribunal (DRT), Lucknow, which issued an order restraining the removal of assets from the site.
After adverse decisions at the DRT and the Debt Recovery Appellate Tribunal (DRAT), the petitioner approached the Delhi High Court by filing a writ petition challenging PNB’s decision to forfeit the deposit.

The Single Judge of the Delhi High Court dismissed the writ petition, holding that an alternative statutory remedy existed under Section 17 of the SARFAESI Act, requiring the petitioner to approach the DRT. The petitioner’s appeal to the Division Bench of the Delhi High Court was also dismissed on the same grounds.

Petitioner’s Arguments (Agarwal Tracom Pvt. Ltd.)

The auction purchaser contended:

The forfeiture of the deposit by PNB was not a measure under Section 13(4) of the SARFAESI Act and thus did not fall within the jurisdiction of the DRT.
The SARFAESI Act only provides a remedy for borrowers and secured creditors, not for auction purchasers.
The High Court should have entertained the writ petition as there was no statutory remedy available under the SARFAESI Act to challenge the forfeiture.
The dispute was purely contractual in nature and should be adjudicated through writ jurisdiction under Article 226 of the Constitution.

Respondent’s Arguments (Punjab National Bank)

PNB countered with the following arguments:

The SARFAESI Act provides a comprehensive mechanism to deal with disputes related to enforcement of security interests, including auction sales.
The auction purchaser had an alternative remedy under Section 17 of the Act to challenge any action taken by the secured creditor, including forfeiture.
Since the forfeiture was carried out under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, it constituted a measure under Section 13(4) of the SARFAESI Act, bringing it within the jurisdiction of the DRT.
Courts have consistently held that when an alternative remedy is available, writ petitions should not be entertained.

Supreme Court’s Judgment

The Supreme Court dismissed the appeal, upholding the High Court’s ruling that the auction purchaser must first approach the Debt Recovery Tribunal (DRT) instead of filing a writ petition.

Key observations of the Court:

“An action of the secured creditor in forfeiting the deposit made by the auction purchaser is a part of the measures taken under Section 13(4).”
“Section 17 of the SARFAESI Act provides a remedy for ‘any person’ aggrieved by the measures taken under Section 13(4), including auction purchasers.”
“The Tribunal has jurisdiction to examine all steps taken by the secured creditor, including those under Rule 9 of the Security Interest (Enforcement) Rules, 2002.”
“The High Court was justified in dismissing the writ petition, as the appellant had not exhausted the alternative remedy available under the SARFAESI Act.”

The Court further granted the appellant liberty to file an application before the DRT within 45 days to challenge the forfeiture.

Key Takeaways

Forfeiture of an auction deposit by a secured creditor is considered a measure under Section 13(4) of the SARFAESI Act.
Auction purchasers fall within the category of persons who can file an application under Section 17 before the DRT.
Writ jurisdiction should not be invoked when an alternative remedy exists under a statutory framework.
This ruling reinforces the SARFAESI Act’s objective of providing a speedy and specialized mechanism for resolving disputes.

Conclusion

The Supreme Court’s decision in this case establishes a clear precedent that auction purchasers challenging forfeiture must first seek redress through the DRT under Section 17 of the SARFAESI Act. This judgment upholds the principle of exhausting statutory remedies before invoking writ jurisdiction and ensures that financial disputes are resolved within the framework established by the SARFAESI Act.

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Download Judgment: Agarwal Tracom Pvt. vs Punjab National Bank Supreme Court of India Judgment Dated 27-11-2017.pdf

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