05 Nov 2020

In matters involving recovery of the dues of banks and other financial institutions, 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 - Bombay High Court

Case : Radhika Rajesh Agarwal v. Union of India and Ors. Writ Petition (L) No. 3880 of 2020

Court : Bombay High Court

Bench : Justice Nitin Jamdar & Justice Milind N. Jadhav

Decided on : 05 Nov 2020

Relevant Statues

Article 226 of the Constitution of India, 1949

Sections 13 and 17 of  the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002

Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002

Brief Facts and Procedural History

1. An e-auction conducted by Respondent No. 2 Bank for the sale of two flats i.e. flat Nos. 801 and 802 situated in Shivtapi Building along with two car parking spaces on the third podium level at Gamdevi, Mumbai.

2. Respondent Nos. 3 and 4 being declared as the highest or successful bidder. Petitioner is the second-highest bidder and has filed a writ petition u/A. 226 of the Constitution of India to challenge the aforesaid sale, alleging that the bidding process was compromised by Respondent No. 2 Bank in collusion and connivance with Respondent Nos.3 and 4 resultantly denying the Petitioner an opportunity to better the highest bid.

3. The bidding process was taking place online on 15-09-2020; the system stopped functioning at 17:57 hrs. At that time, Respondent Nos.3 and 4 who had jointly bid ₹9,23,00,000/- was the highest bidder and the Petitioner who had bid ₹ 9,22,00,000/- was the second-highest bidder. Petitioner desired to better the bid of Respondent Nos.3 and 4 but because of the system malfunction, Petitioner could not do so. Oral and written complaints to Respondent No. 2 for the same yielded no result.

The Issues of the Case

Whether the remedy of the Petitioner (second highest bidder) lies in challenging the action of the secured creditor i.e., Respondent No. 2 Bank in confirming the sale in favour of Respondent Nos. 3 and 4 by filing an application under Section 17, SARFAESI Act, 2002 before the Debt Recovery Tribunal or in filing the Writ Petition u/ A. 226 of the Constitution of India to challenge the validity and legality of such action?

The Observations of the Court

1. The petition being discussed on the ground of alternate remedy, so the question of issuing Rule does not arise.

2. Section 17 provides a remedy to a person who is aggrieved by the steps taken by the secured creditor or the authorized officer of the secured creditor i.e., the Bank under Section 13(4) in relation to secured assets i.e., the two flats. Section 17(1) refers to "any person" aggrieved by any of the measures referred to in Section 13(4) taken by the secured creditor or its authorized officer and states that such person may make an application to the Debt Recovery Tribunal having jurisdiction in the matter within 45 days from the date on which such measure has been taken.

3. Section 17(2) provides that the Debt Recovery Tribunal on any such application or grievance being made under Section 17(1), shall consider whether the measures referred to and taken under Section 13(4) by the secured creditor are in accordance with the provisions of SARFAESI Act, 2002 and the Rules made thereunder. The words "any person" is of very broad amplitude and would comprise of any aggrieved person and in the present case, the Petitioner.

4. In the case of United Bank of India v. Satyavati Tondon & Ors, (2010) 8 SCC 110, the Apex Court examined in detail the provisions of the SARFAESI Act, 2002 and the question regarding the invocation of the extraordinary jurisdiction under Articles 226 or 227 in challenging the actions taken under the SARFAESI Act, 2002. It is the settled law that the High Court will ordinarily not entertain a petition under 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 the recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. 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 Thus, was held that where any person is aggrieved by any notice or action pursuant thereto under the provisions of SARFAESI Act, 2002, the only remedy available to such person would be to approach the Debt Recovery Tribunal by filing an appropriate application under the provisions of the Act.

The Decision Held by the Court

The Supreme Court rejected the writ petition on account of availability of the effective alternative statutory remedy of filing an application under Section 17(1) of the SARFAESI Act, 2002 before the Debt Recovery Tribunal, Mumbai being available to the Petitioner to challenge the action of Respondent No.2 Bank in confirming the sale of the two flats in favour of Respondent Nos. 3 and 4.

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