Supreme Court of India · 2010
United Bank of India v. Satyawati Tondon & Ors.
(2010) 8 SCC 110 · AIR 2010 SC 3413
Court
Supreme Court of India
Bench
2-Judge Bench (G.S. Singhvi & Asok Kumar Ganguly JJ.)
Subject
Writ Jurisdiction vs DRT Remedy
Date
26 July 2010
Background
United Bank of India sanctioned a term loan of Rs.22,50,000 to a proprietorship concern. Satyawati Tondon (respondent No.1) stood guarantor and mortgaged her house in Allahabad. After the account was classified as an NPA, the bank issued notices under Sections 13(2) and 13(4) of the SARFAESI Act and obtained an order under Section 14 from the District Magistrate. Instead of applying to the DRT under Section 17, the guarantor filed a writ petition under Article 226 before the Allahabad High Court.
The bank pleaded that the writ petition should be dismissed because an alternative remedy was available under Section 17. Without adverting to that plea, a Division Bench of the High Court passed an interim order restraining the bank from proceeding under Section 13(4) against the guarantor's property, reasoning that the bank should first have exhausted its remedies against the borrower. The Supreme Court held that the High Court had “completely misdirected itself” on that point, since a creditor may proceed against the guarantor without first proceeding against the borrower (paras 14–15), and then turned to the writ jurisdiction question.
Key Holding
Principal Rule — Exhaust the SARFAESI Remedies First
The expression “any person” in Section 17(1) takes within its fold not only the borrower but also a guarantor or any other person affected by action under Section 13(4) or Section 14, and the remedies under the Act are “both expeditious and effective” (para 17). The High Court will ordinarily not entertain a petition under Article 226 if an effective remedy is available, and this rule applies with greater rigour to the recovery of public dues and the dues of banks and financial institutions; in such cases the High Court must insist that the statutory remedies are exhausted before Article 226 is invoked (para 17). The Court acknowledged that exhaustion of alternative remedy is a rule of discretion and not one of compulsion (para 18).
Exceptions — When High Court Can Intervene
The Court did not list its own exceptions. It held that if the petitioner shows that the case falls within an exception carved out in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, Whirlpool Corporation v. Registrar of Trade Marks, Harbanslal Sahnia v. Indian Oil Corporation and some other judgments, the High Court may, after considering all relevant parameters and public interest, pass an appropriate interim order — while remaining “extremely careful and circumspect” in granting stay in bank-recovery matters (para 18).
Practical Significance
The Court recorded its “serious concern” that, despite repeated pronouncements, High Courts continued to ignore the statutory remedies under the DRT Act and the SARFAESI Act and to pass orders under Article 226 with serious adverse impact on the right of banks and financial institutions to recover their dues, and hoped that in future the High Courts would exercise their discretion with greater caution, care and circumspection (para 27).
For creditors facing writ petitions in High Courts challenging their SARFAESI enforcement, this judgment supports the objection that the petitioner — borrower or guarantor — has an effective remedy under Section 17. Because the rule is one of discretion, the objection should be taken at the first hearing, and any interim stay should be met with an application for its vacation.
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