Supreme Court Upholds Bank’s Right to Recover Loan Under SARFAESI Act
The Supreme Court of India has ruled in favor of Kotak Mahindra Bank Limited in a long-standing financial dispute regarding the recovery of outstanding loan dues. The case, Kotak Mahindra Bank Ltd. vs. Narendra Jayantilal Trivedi & Anr., involved a legal battle over the enforcement of security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The Court set aside the Gujarat High Court’s Division Bench order that had granted relief to the borrower while dismissing various claims made to delay the recovery process.
Background of the Case
The case involved a loan facility initially extended by the State Bank of India to a proprietorship firm, M/s Aromatics Intermediates and Chemicals, owned by respondent Narendra Jayantilal Trivedi. The loan, which was secured by mortgaging a property, was later assigned to Kotak Mahindra Bank. Due to non-repayment, the bank initiated recovery proceedings, leading to a prolonged legal dispute.
The timeline of key events:
- 1986: State Bank of India filed a civil suit for recovery of outstanding dues.
- 1993: The case was transferred to the Debts Recovery Tribunal (DRT) following the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
- 2000: The DRT decreed in favor of the bank, directing the borrower and guarantors to pay Rs. 44,01,159.47.
- 2011: Kotak Mahindra Bank issued a demand notice under Section 13(2) of the SARFAESI Act for Rs. 27.35 crore.
- 2015: The bank took symbolic possession of the mortgaged property.
- 2016: Borrower challenged the possession notice before the DRT, which dismissed the objections.
- 2017: The borrower filed a writ petition before the Gujarat High Court.
- 2021: The Single Judge of the High Court dismissed the petition with exemplary costs of Rs. 1,00,000.
- 2022: The Division Bench granted interim relief, staying dispossession of the property.
- May 13, 2022: The Supreme Court quashed the High Court order and upheld the bank’s right to recover dues.
Key Legal Issues
- Whether the borrower could challenge the SARFAESI proceedings without exhausting alternative remedies under the Act.
- Whether the High Court’s intervention in the SARFAESI proceedings was justified.
- Whether repeated litigation by the borrower was an abuse of the legal process.
Arguments by the Petitioner (Kotak Mahindra Bank)
The bank contended that:
- The borrower had deliberately prolonged litigation for over three decades to evade repayment.
- The SARFAESI Act provides a specific mechanism for challenging possession notices, which the borrower ignored.
- The High Court had wrongly granted relief in a matter where the borrower had multiple alternative remedies.
- The borrower’s conduct amounted to abuse of legal process.
Counterarguments by the Respondent (Borrower)
The borrower argued that:
- The demand notice was defective as it included references to properties already sold.
- The bank had failed to follow due process under SARFAESI before taking possession of the property.
- The High Court was correct in intervening to prevent an unjust dispossession.
- The matter involved complex legal issues warranting High Court oversight.
Supreme Court’s Observations
1. Writ Jurisdiction Cannot Be Used to Circumvent SARFAESI Remedies
“The proceedings before the High Court initiated by respondent No. 1 in the year 2017, as such, were nothing but an abuse of court process and only with a view to delay the proceedings under the SARFAESI Act, initiated by the appellant–bank.”
The Court held that borrowers must first exhaust SARFAESI Act remedies before approaching the High Court.
2. Repeated Litigation to Stall Recovery Proceedings
“The borrower has successfully avoided repayment for 21 years despite a decree passed by the DRT. Such conduct should not be encouraged.”
The Court criticized the borrower’s persistent attempts to stall recovery.
3. High Court’s Intervention Was Unwarranted
“By granting an ad-interim order, the Division Bench of the High Court has virtually stalled the proceedings under the SARFAESI Act.”
The Court ruled that the High Court overstepped its jurisdiction.
Final Judgment
The Supreme Court ruled:
- The Division Bench’s order was quashed and set aside.
- The interim relief preventing dispossession of the property was vacated.
- The borrower was directed to deposit Rs. 1,00,000 with the Gujarat High Court Legal Services Committee.
- The bank was allowed to proceed with recovery under SARFAESI without further obstruction.
Impact of the Judgment
This ruling has significant implications:
- Enforcement of SARFAESI Act: Strengthens banks’ ability to recover defaulted loans without unnecessary judicial interference.
- Prevention of Legal Misuse: Discourages borrowers from using repeated litigation to delay repayment.
- Judicial Clarity: Reaffirms that High Courts should not intervene in SARFAESI matters unless alternative remedies are exhausted.
- Strengthened Banking Sector: Ensures that financial institutions can efficiently recover dues, improving economic stability.
The Supreme Court’s decision reinforces the SARFAESI Act’s authority and ensures that banks are not unduly obstructed in their recovery proceedings.
Petitioner Name: Kotak Mahindra Bank Limited.Respondent Name: Narendra Jayantilal Trivedi & Anr..Judgment By: Justice M.R. Shah, Justice B.V. Nagarathna.Place Of Incident: Ahmedabad, Gujarat.Judgment Date: 13-05-2022.
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