Supreme Court rejects writ proceedings when alternative statutory remedy available - International Law Office

International Law Office

Litigation - India

Supreme Court rejects writ proceedings when alternative statutory remedy available

September 21 2010

Facts
Decision
Comment


Facts


In United Bank of India v Satyawati Tondon(1) the Supreme Court considered whether the alternative statutory remedy available to a borrower under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 can be bypassed and writ jurisdiction of the High Court under Article 226 of the Constitution be invoked instead, in order to restrain a bank from taking coercive action against the borrower's properties in the event of payment default. In determining the question, the court was specifically concerned with the issue of whether the bank could have issued notices to the loan guarantor under Sections 13(2) and (4) of the act for recovery of its secured debt, without first initiating any action against the borrower.

The bank had approved a term loan in favour of the borrower, which was guaranteed by a guarantor who mortgaged her property and deposited the title deeds with the bank. By virtue of this guarantee agreement, the guarantor was made liable for repayment of the loan amount with interest.

On account of highly irregular repayments, the borrower's loan account was classified as a non-performing asset as per the terms of the act. The bank issued notices to both the borrower and guarantor requiring them to deposit the outstanding dues. Due to continued non-payment, the bank issued notices to both the borrower and guarantor under Section 13(2) of the act requiring them to pay the amount, along with future interest, within 60 days. The bank did not accept the guarantor's offer to pay a part of the amount as settlement of its dues, and initiated an application under Section 14 of the act before the district magistrate to take possession of the guarantor's property located within its jurisdiction. The bank's application was allowed, and it issued notice to both the borrower and guarantor under Section 13(4) of the act to initiate recovery of its secured debt.

Faced with the imminent threat of losing the mortgaged property, the guarantor filed a writ petition before the High Court under Article 226 of the Constitution, seeking to restrain the bank from taking coercive action in pursuance of its notices issued under Sections 13(2) and (4); the order was passed by the district magistrate. Before the High Court, the bank argued that its actions of recovery were consistent with the provisions of the act, and that there was no merit in the guarantor's challenge to the notices issued under Sections 13(2) and (4). It further pleaded that the writ petition was liable to be dismissed because an alternative remedy by way of filing an application before the tribunal was available to the petitioner under Section 17 of the act. The division bench of the High Court did not agree with the bank's plea that the writ petition should not be entertained in view of an effective alternative remedy available, and passed the impugned interim order restraining the bank from taking action in furtherance of notice issued under Section 13(4) of the act.

Decision

The Supreme Court observed that the High Court had overlooked the settled law, which stipulates that a court will ordinarily not entertain a petition under Article 226 of the Constitution if any effective alternative remedy is available to the aggrieved person, and further, that such a rule applies with greater rigour in matters involving recovery of dues for banks and other financial institutions. The court remarked that despite its repeated pronouncements, the High Court continued to ignore the availability of statutory remedies available under the act (such as the Section 17 alternative) and exercised jurisdiction under Article 226 for passing orders which created adverse impacts on the rights of banks and other financial institutions to recover their dues. The court held that in the circumstances, the High Court was accordingly not at all justified in injuncting the bank from taking action in furtherance of the notice issued under Section 13(4) of the act, and was required to be more circumspect in entertaining writ petitions at the risk of foreclosing an alternative efficacious statutory remedy.

On consideration of various case laws, the court also observed that the liability of the guarantor and principal debtor is co-extensive, and that the creditor is entitled to proceed against either for recovery of dues. The court accordingly held that the High Court had completely misdirected itself in assuming that the bank could not have initiated action against the guarantor without first making efforts for recovery of its dues from the borrower.

Comment

In arriving at its decision, the Supreme Court noted that the act had been passed with a view to provide a special procedure for recovery of debts due to banks and financial institutions, and that there was a specific mechanism of appeal provided for in the enactment itself. The court observed that even though a provision under an enactment cannot expressly oust the jurisdiction of the courts under Articles 226 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the courts refrain from exercising jurisdiction.

The court has thus reaffirmed the principle of law settled in earlier cases such as Om Prakash v Jagdish Lal Marwaha(2) and Committee of Management v Vice Chancellor,(3) in which exercise of writ jurisdiction was not warranted where there was an equally efficacious alternative remedy available. This is not to say, however, that availability of an alternative remedy by itself may never be a ground for the High Court to refuse to exercise jurisdiction. The court has merely reiterated that when an order has been passed in accordance with the principles of natural justice and by an authority that has the lawful jurisdiction to pass such an order, the superior courts may consider exercising discretion in matters of writ jurisdiction with greater circumspection.

For further information on this topic please contact Manu Nair or Saanjh Purohit at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 2692 0500) or by fax (+ 91 11 2692 4900) or by email (manu.nair@amarchand.com or saanjh.purohit@amarchand.com).

Endnotes

(1) 2010 (7) Scale 696.

(2) 2009 AIR SCW 654.

(3) 2009 AIR SCW 398.


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