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SARFAESI Bulletin- SARFAESI and RDB Act,
1993 Case Laws Digest
1st Jan., 2023 to 15th Jan., 2023
Supreme Court
1. Whether while calculating the amount of ‘debt due’, the
amount deposited by auction purchaser is required to be
adjusted towards the amount of pre-deposit to be deposited
by borrower under Section 18 of the SARFAESI Act?
Case Name: M/s Sidha Neelkanth Paper Industries Pvt. Ltd. & Another Vs. Prudent ARC Ltd. &
Others
Case Citation: (2023) ibclaw.in 04 SC
In this case, the short question which is posed for the consideration is, “whether, while
calculating the amount to be deposited as pre-deposit under Section 18 of the SARFAESI Act,
50% of which amount the borrower is required to deposit as pre-deposit and whether while
calculating the amount of “debt due”, the amount deposited by the auction purchaser on
purchase of the secured assets is required to be adjusted and/or appropriated towards the
amount of pre-deposit to be deposited by the borrower under Section 18 of the SARFAESI Act?”
Another question would be, “whether the “debt due” under Section 18 of the SARFAESI Act
would include the liability + interest?
2. Once secured property is put as a security by way of
mortgage, the same will not be treated as agricultural land
and burden is upon borrower to prove that secured
properties are agricultural lands and actually being used
as agricultural lands and/or agricultural activities are
going on
Case Name: K. Sreedhar Vs. M/s Raus Constructions Pvt. Ltd. & Ors.
Case Citation: (2023) ibclaw.in 06 SC
In this landmark judgment, Hon’ble Supreme Court held that once the secured property is put
as a security by way of mortgage etc. meaning thereby the same was not treated as agricultural
land, such properties cannot be said to be exempted from the provisions of the SARFAESI Act
under Section 31(i) of the SARFAESI Act. The Hon’ble Court set aside impugned order of High
Court holding that the High Court has shifted the burden upon the secured creditor to prove
that the properties are non-agricultural lands. When it was the case on behalf of the borrowers
that in view of Section 31(i) of the SARFAESI Act, the properties were agricultural lands, the
same were being exempted from the provisions of the SARFAESI Act, the burden was upon the
borrower to prove that the secured properties were agricultural lands and actually being used
as agricultural lands and/or agricultural activities were going on.
3. Whether the MSMED Act, 2006 would prevail over the
SARFAESI Act, 2002?
Case Name: Kotak Mahindra Bank Ltd. Vs. Girnar Corrugators Pvt. Ltd. & Ors.
Case Citation: (2023) ibclaw.in 05 SC
In this case, Division Bench of the High Court has allowed an appeal and has quashed and set
aside the judgment passed by the learned Single Judge and has observed that MSMED Act will
prevail over SARFAESI Act, 2002. Hon’ble Supreme Court held that Section 26E of the SARFAESI
Act which is inserted in 2016 is also having a non-obstante clause. As per the settle position of
law, if the legislature confers the later enactment with a non-obstante clause, it means the
legislature wanted the subsequent/later enactment to prevail. Thus, a priority conferred /
provided under Section 26E of the SARFAESI Act would prevail over the recovery mechanism
of the MSMED Act. The aforesaid is to be considered along with the fact that under provisions
of the MSMED Act, more particularly Sections 15 to 23, no priority is provided with respect to
the dues under the MSMED Act, like Section 26E of the SARFAESI Act. It also held that while
exercising power under Section 14 of the SARFAESI Act, even the District Magistrate has no
jurisdiction and/or District Magistrate and/or even the Chief Metropolitan Magistrate has no
jurisdiction to adjudicate the dispute between secured creditor and debtor.
High Court
1. In case if sale consideration has not been deposited and
the purchaser has been found to be in default, the property
shall be sold again as has been referred under Rule 9 of the
Security Interest (Enforcement) Rules, 2002
Case Name: Raj Kumari Kanoi Vs. Chairman-cum-Managing Director, Allahabad Bank and
Ors.
Case Citation: (2022) ibclaw.in 436 HC
Hon’ble High Court observed that it is the specific case of the Bank that as yet the physical
possession of the property is not with the Bank and at present the total bank dues outstanding
in the said NPA account is amounting to Rs.10,68,964/-. This Court has posed a pin pointed
question upon the Bank that when there is a law to be followed then why the Bank has not
followed the Rule which mandates that in case if the amount has not been deposited and the
purchaser has been found to be in default, the property shall be sold again as has been
referred under sub-rule (3) of Rule 9 of the Rules, 2002 coupled with the provision made under
sub-rule (5) thereof. This Court, therefore, wants some answer from the higher authority at
least of the rank of General Manager of the concerned Bank that what action is being taken
against the erring officials after conducting an enquiry by casting liability so that said instance
may not be repeated in future and the very object and aim of the Act, 2002 be achieved in strict
sense.
2. A bare perusal of Sections 17, 18, 19(19), 31 and 34 of
Recovery of Debts & Bankruptcy Act, 1993 shows that the
DRT is having exclusive jurisdiction to deal with the
recovery of the secured creditors and is having an
overriding effect over all other laws
Case Name: The Specified Undertaking of The Unit Trust of India Vs. M/s Derby Textiles Ltd.
Case Citation: (2022) ibclaw.in 426 HC
Hon’ble High Court referred various judgments of Apex Court and held that the Recovery
Officer is not required to take any prior permission of the Company Court before disbursing
the amount except the rider provided under Section 19 (19) of the Act of 1993 and Sections 529
and 529A of the Companies Act, 1956.
3. By including a clause of ‘as is where is’ it would not be
sufficient for a Bank from disclosing encumbrances or
handing over the property to Auction Purchaser
Case Name: S. K. Bakshi Vs. Punjab National Bank and others
Case Citation: (2022) ibclaw.in 390 HC
Hon’ble High Court held that in terms of SARFASI Act, an application under Section 17 can be
made to DRT by “any person” including borrower to challenge any of the measures referred to
in Section 13(4) once taken by the secured creditor. But, in present case, the petitioner who is
the auction purchaser of the property and has been promised by the Bank that the delivery of
the property is free from all encumbrances cannot proceed under Section 17 as it does not
envisages any of the grounds enumerated in Section 13(4). Thus, the judgment relied (Agarwal
Tracom Pvt. Ltd. vs. Punjab National Bank and others [2017] ibclaw.in 15 SC arguing that
petition is not maintainable as the only remedy is available to the petitioner is under Section
17 of the SARFAESI Act) upon is not applicable to the facts of this case.
4. Bank having accepted the offer of the petitioner at every
step, could not have wriggled out by cancelling OTS at the
climax and further could not have retained the entire
amount
Case Name: M/s. Rima Transformers and Conductors Pvt. Ltd. Vs. Canara Bank
Case Citation: (2022) ibclaw.in 391 HC
In State Bank of India Vs. Arvindra Electronics Pvt. Ltd. (2022) ibclaw.in 125 SC, the Apex Court
holds that Courts exercising jurisdiction under Article 226 of the Constitution cannot direct
extension of OTS. Hon’ble High Court held that but, the facts obtaining in the case at hand are
entirely different. The petitioner’s offer of OTS was accepted by the Bank with certain
conditions. The petitioner accepts the terms and conditions. Before the deadline fixed by the
Bank as 28-02-2021 for compliance of OTS conditions, the petitioner had deposited Rs.18.90
crores. and the Bank later unilaterally withdraws OTS. It is in these facts the judgment of the
Apex Court would not become applicable.
5. High Court sitting under Article 226 cannot investigate
upon factual matters, which require evidence
Case Name: The Lakshmi Vilas Bank Ltd. Vs. The Reserve Bank of India
Case Citation: (2022) ibclaw.in 328 HC
In this case, the petitioner has filed an original application before the DRT, seeking recovery
against its borrowers. Hon’ble High Court held that it is open to the petitioner to establish its
claim before the DRT and this Court sitting under Article 226 cannot investigate upon factual
matters, which require evidence. This Writ Petition is disposed of with liberty to the petitioner
to make its claim before the Debt Recovery Tribunal.
6. Once an ARC has become the new pledgee of shares,
having acquired by way of a Debt Assignment Deed, its
right to deal with these pledged shares is absolute, and is
required to be recognised by all third parties, including
statutory authorities like the National Depository
Case Name: UV Assest Reconstruction Company Ltd. Vs. Union of India & Ors.
Case Citation: (2022) ibclaw.in 306 HC
In the present case, UVARCL has, in accordance with Section 5 of the SARFAESI Act, purchased
the NPA account of BCL from SBI, alongwith all assets, including the pledged shares. However,
National Depository denied to substitute its name in the record maintained by National
Depository in respect of the pledged shares of the BCL Hon’ble High Court held that once the
original pledgee, with whom the shares were pledged by the BCL for availing certain loans, has
issued specific instructions to the National Depository to substitute the name of the petitioner
in its place, there is no justification for the National Depository to deny the petitioner’s request.
Merely because the Depositories Act, 1996 or the SEBI (Depositories and Participant)
Regulations, 2018 do not lay down any procedure for making such a substitution, does not
imply that the National Depository can refuse to incorporate changes in the ownership of the
pledged shares, which already stand vested with the petitioners by way of Section 5(2) and (3)
of the SARFAESI Act.
7. OTS entered between Banks and parties is purely a
contract and a borrower cannot ask for alterations of the
same by filing petitions under Article 226 of the
Constitution of India
Case Name: Supertech Realtors Pvt. Ltd. Vs. Bank of Maharashtra
Case Citation: (2022) ibclaw.in 285 HC
Hon’ble High Court held that as rightly observed by the learned Single Judge, that the writ
petition was an attempt for renovation of contract which cannot be permitted in a writ
petition. It is settled law that High Courts while exercising jurisdiction under Article 226 of the
Constitution of India cannot rewrite the contract entered into between the parties. The One-
Time Settlement which has been entered into between the consortium of Banks and the parties
is purely a contract and a borrower cannot ask for alterations of the same by filing petitions
under Article 226 of the Constitution of India. The terms can be altered only through mutual
consent between the parties.
8. No prior notice is required to be issued before classifying
the account of a person as NPA and Classifying an account
of Borrower as NPA does not give him any cause of action
to file a writ petition
Case Name: M/s Neelam Beverages Vs. State of Madhya Pradesh
Case Citation: (2022) ibclaw.in 276 HC
Hon’ble High Court held that no prior notice is required to be issued before classifying the
account of a person as NPA. However, the case of M/s Amar Alloys Pvt. Limited (Regd.) Vs. State
Bank of India, on which learned counsel for the petitioner has placed reliance is under
pending adjudication before the Supreme Court and even otherwise, I am not convinced with
observation made by the Division Bench of Punjab and Haryana High Court in the aforesaid
case rather the view taken by the Jharkhand High Court in the case of Partitran Trust is more
appropriate. Further, it held that mere issuance of notice under Section 13(2) of the Act, 2002,
does not give any cause of action to the petitioner to file a writ petition under Article 226 of the
Constitution of India before High Court.
9. Recovery of debt advanced by bank under the UP State
sponsored scheme is not covered as ‘debt’ u/s 2(g) of RDB
Act, 1993, for the recovery of such debt, the specific mode is
provided under the U.P. Agricultural Credit Act, 1973
Case Name: Agriserve Producer Company Ltd. and Another Vs. Union of India and 4 Others
Case Citation: (2022) ibclaw.in 274 HC
The Division bench of the Court held that the fact that the bank has initially proceeded to seek
recovery by taking recourse of Section 19 of the RDB Act, 1993, will not have any bearing on
the proceedings initiated by the bank for recovery under the U.P Agricultural Credit Act, 1973.
To clarify, the recovery of debt advanced by the bank under the State sponsored scheme is not
covered as ‘debt’ under Section 2(g) of the RDB Act, 1993 being not a transaction during the
ordinary course of any business activity undertaken by the bank or the financial institution,
for the recovery of such debt, the specific mode provided under the U.P. Act of 1973, has rightly
been availed by the bank. The plea of the learned counsel for the petitioners to challenge the
recovery citation on the ground that the bank has already approached the Debt Recovery
Tribunal for recovery of the ‘debt’, in question, and as such it cannot proceed under the Act of
1973 to recover it as arrears of land revenue, therefore, is liable to be turned down. There is,
thus, no merit in the challenge to the recovery citation issued by the Tehsildar.
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Print Date: January 28, 2025 1|1
