Secured Creditor cannot Proceed under SARFAESI Act Following Dismissal of Civil Suit for Recovery on Merits: Kerala HC [Read Order]

In a recent decision, the Kerala High Court observed that the secured creditor cannot proceed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) following dismissal of civil suit for recovery on merits.

The petitioner availed a car loan for an amount of Rs.9,00,000/-. The petitioner executed necessary documents towards security. As per the terms and conditions of sanction of the loan was accepted by the petitioner. Thereafter, by an agreement of hypothecation was also executed on 14.7.2010. The petitioner claims that she has paid the entire amount due under the loan account. But, the notice under Section 13(2) of the SARFAESI Act, was issued for an amount of Rs.1,73,138/-.

The petitioner raised her objection and while so, the respondent-Bank again issued a fresh notice on 11.1.2008 under Section 13(2) of the Securitisation Act. The petitioner's objection that she is not liable to pay any amount under the loan agreement was not accepted by the respondent-Bank.

The counsel for the petitioner submitted that the respondent Bank cannot proceed further with the recovery measures under the Securitisation Act and accordingly prayed that the Court may pass appropriate orders on the writ petition taking note of the subsequent events.

The Senior Counsel T.Sethumadavan appearing for the respondent Bank submitted that the measures under the Securitisation Act and filing of the civil suit being entirely different and whereas the secured creditor is entitled to take parallel proceedings for recovery of its dues, there cannot be any interdiction on the measures under the Securitisation Act.

A Single Bench of Justice Easwaran S observed that “It may be noticed that secured creditor had no compulsion to institute the suit. However, it chose to proceed with the same and invited an adverse order. Alternatively, it was open to it to have independently prosecute its claim under the Securitisation Act, which it did not chose to do so and in such event, this Court would have necessarily relegated the petitioner to an adjudicatory mechanism under Section 17 of the Securitisation Act.”

“Therefore, it becomes imperative for this Court to hold that since the measures now initiated and continued are without jurisdiction, the petitioner need not be relegated to the alternative remedy before the Debt Recovery Tribunal under Section 17 of the Securitisation Act. Hence, this Court is inclined to exercise its discretionary jurisdiction vested in it under Article 226 of the Constitution of India” the Court held.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates