Kerala High Court Rules on SARFAESI Act Interim Orders and Article 227 Supervisory Jurisdiction

Kerala High Court Rules on SARFAESI Act Interim Orders and Article 227 Supervisory Jurisdiction

The Kerala High Court recently ruled that an order passed in an interim application under Section 18 of the SARFAESI Act is appealable to the Appellate Tribunal.

The Court then ruled that Article 227 of the Constitution cannot be used by it to interfere with a decision of the Tribunal, which had properly considered the matter before it.

Justice K. Babu stated that Article 227 of the Constitution gives the High Court the power to intervene only in cases of grave injustice or failure of justice, such as when a court or tribunal assumes jurisdiction it does not have, fails to exercise jurisdiction it does have, resulting in a failure of justice, or exercises jurisdiction in a way that exceeds its limits.

"It is trite that whenever the Tribunal has considered the matter in its proper perspective and where the impugned order shows the application of mind by the Tribunal, this Court will not entertain a petition under Article 227 merely because another view could have been taken," the Court observed.

A firm's managing partner borrowed ₹10 crore from a bank and mortgaged a property in Kottayam, Kerala, as security. After the loan became an NPA, the bank initiated proceedings under the SARFAESI Act to sell the property.

The partner challenged the recovery proceedings before the Debts Recovery Tribunal (DRT), which granted an interim stay. The DRT later dismissed the partner's plea, and the bank issued a notice under the SARFAESI Act proposing to sell the property. The bank also approached the CJM Court for the appointment of an Advocate Commissioner to take possession of the properties, which was allowed.

The partner filed a plea before the High Court seeking direction to the bank to consider his request for a one-time settlement, but later withdrew the plea and filed it before the DRT along with an interim application seeking a stay of the measures taken under the SARFAESI Act. The DRT dismissed the application.

The partner has filed the present plea under Article 227 of the Constitution, arguing that the interim order passed by the DRT is not appealable under Section 18 of the SARFAESI Act and that the Tribunal did not consider the fundamental principles of ad-interim relief. The bank has argued that the interim order is appealable and that the CJM Court satisfied the requirements of Section 14 of the SARFAESI Act while passing the order.

The Court began by reviewing Sections 17 and 18 of the SARFAESI Act and noted that any order made by the Tribunal in a proceeding under Section 17 is appealable to the Appellate Tribunal.

The Court further stated that the High Court should exercise its power under Article 227 sparingly, only to correct serious failures of duty, blatant abuses of power, or violations of fundamental principles of law or justice.

On the question of whether the Tribunal had exercised its jurisdiction properly in this case, the Court noted that the petitioners had challenged the proceedings initiated by the bank before the DRT on the grounds that the bank had not complied with the mandatory requirements of the SARFAESI Act.

The petitioners also alleged that the affidavit filed before the CJM violated Section 14 of the Act because the bank's authorised officer had not declared the total amount of financial assistance granted to the petitioners or the total claim, nor had they declared that the bank held a valid and subsisting security interest in the petitioners' properties. The petitioners further contended before the DRT that the date on which the affidavit was attested had not been mentioned.

After reviewing the facts of the case, the Court found that the inquiry conducted by the CJM under Section 14 of the SARFAESI Act did not adjudicate the parties' rights regarding the subject matter.

The Court found that the Tribunal could not have concluded that the CJM had not taken a judicial approach to verifying the affidavit and documents.

The Court dismissed the plea and ruled that the order passed by the DRT was not appealable under Article 227 of the Constitution. It also held that the Tribunal had not exercised its jurisdiction improperly.

The Court allowed the petitioners to pursue their claims in the appropriate statutory forum.