SARFAESI Act | HC to decide on ‘efficacious’ remedy to borrowers

Srinagar, April 12: The High Court of J&K and Ladakh has entertained a batch of at least 46 pleas as “maintainable’ and would decide these on merits to rule whether its intervention is necessary for “efficacious” remedy available to borrowers and the guarantors under “Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

In these pleas the actions of the Banks, Financial Institutions and Secured Creditors initiated under Sections 13 and 14 of SARFAESI Act have been questioned by the borrowers, guarantors and aggrieved persons on the plea, amongst others, that though there is a statutory remedy available, it is of a limited nature and not efficacious and hence, they have been compelled to approach the Court by invoking jurisdiction under Article 226 of the Constitution of India.

The Banks and other Financial Institutions opposed the plea with the contention that the statutory remedy available was indeed efficacious and hence the petitions were not maintainable.

“Unless the adjudicating forum is readily, easily and regularly available, it can prejudicially affect their right to easy access to justice which appears to be in the position in the present cases where a large number of petitioners have approached this Court alleging irregular/malafide/illegal acts on the part of the Banks/financial institutions by violating provisions of the SARFEASI Act,” said a 69 page judgment delivered by a bench of Chief Justice N. Kotiswar Singh and Justice Wasim Sadiq Nargal which declared the pleas as “maintainable’

“Since we have only decided on the preliminary issue as the issue of maintainability of these petitions, we will have required to decide on the merit of each case as to whether our intervention under Article 226 of the Constitution would be necessary for which we will take up these writ petitions individually and consider the pleas taken therein separately,” the bench said.

It ordered that all the pleas be listed again after a month and directed the authorities to file their respective affidavits.

The court held that an endeavour will be made to dispose of the writ petitions individually as expeditiously as possible considering the fact that the interim orders passed by it will have huge financial implications as the Banks may feel that they have been denied speedy recovery of the secured debts.

“ Though the grounds of challenge made by the debtors ultimately may be found to be without merit, yet if such challenges are genuine and valid and if no effective redressal mechanism is readily, regularly and easily available, it can cause grave prejudices and injustices to such borrowers/debtors”, the court said.

The court observed that it is mindful of the fact that SARFAESI Act is a stringent piece of legislation enacted “to protect the interest of the creditors and for better management of the economy of the nation where a large number of borrowers default in making timely payment, rendering the accounts and assets non-performing which has a cascading effect on the economy of the country.

In fact, the court said, there may be occasions where the financial institutions/Banks may not have proceeded strictly in accordance with provisions of SARFAESI Act which may lead to challenges by the borrowers/guarantors or the aggrieved persons.

“Under the circumstances, because of the stringent provisions of the Act, it is incumbent upon the authorities to provide equally efficacious
redressal forum which is readily, easily and regularly available which will provide relief in a speedy and convenient manner, so that the borrowers and such aggrieved parties can promptly, without undue difficulties, challenge those acts which would have the effect of dispossessing their properties,”

“Therefore, providing a redressal forum which is easily, readily and regularly available to the borrowers/aggrieved persons is sine qua non for effective and just implementation of SARFAESI Act.”

“If the redressal forum is not effective, efficacious and readily available, sometimes grave injustice can be caused to the borrowers and debtors, in which event, this High Court can step into prevent injustice by invoking extraordinary jurisdiction under Article 226”.