Phoenix ARC Private Limited v. Vishwa Bharati Vidya Mandir & Ors.

That the respondent No. 1 in this case, Vishwa Bharati Vidya Mandir, operates educational institutions and is a Society registered under the Karnataka Societies Registration Act, 1960, which received credit from Saraswat Co-operative Bank Limited in the amount of Rs.105,60,84,000/- (Rupees One Hundred Five Crores Sixty Lacs and Eighty Thousand Only). Similarly, St. Anns Education Society has obtained credit facilities from the aforementioned Bank in the amount of Rs.20,05,00,000/- (Rupees Twenty Crores and Five Lacs Only).

Various loans/security papers, including personal guarantees in favor of the bank, appear to have been executed by the respective respondents to secure the timely repayment of the aforementioned credit facilities. The respondents also created an equitable mortgage on the mortgaged properties by depositing title deeds over the immovable properties. It appears that the account of the borrowers/respondents was designated as a Nonperforming Asset (NPA) by the Bank in April of 2013 due to defaults by the borrowers/respondents in repayment of outstanding dues. Since the borrowers/respondents failed, the Bank issued a notice dated 01.06.2013 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 and neglected to repay the Bank's outstanding dues (hereinafter referred to as SARFAESI Act). The NPA account of the borrowers/respondents concerning the credit facilities availed by them was assigned by the Bank in favor of the appellant – Phoenix ARC Private Limited in March 2014, according to a registered Assignment Agreement dated 28.03.2014.

The borrowers addressed the appellant with a request for restructuring the repayment of outstanding dues as a result of the assignment of the NPA account in their favor. The parties signed a Letter of Acceptance on February 27, 2015, in which the borrowers/respondents acknowledged and confessed their duty to repay the whole outstanding debt. The borrowers, on the other hand, did not pay their debts by the Letter of Acceptance.

The appellant – Phoenix ARC Private Limited issued a letter dated 13.08.2015 informing the borrowers that, despite the issuance of a 13(2) notice dated 01.06.2013 and the subsequent execution of the Letter of Acceptance dated 27.02.2015, the borrowers had failed to repay the outstanding dues, and that, as a result, the appellant would be proceeding to take possession of the mortgaged properties after expropriation.

The borrowers/respondents herein filed writ petitions in the High Court against the aforementioned communication/letter dated 13.08.2015, alleging that the communication/letter dated 13.08.2015 is a possession notice under Section 13(4) of the SARFAESI Act, which violates the Security Interest (Enforcement) Rules, 2002.

It was argued on behalf of the original writ petitioners that the said possession notice under Section 13(4) of the SARFAESI Act was issued in violation of Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as Rules, 2002) and without publication of the possession notice in two major newspapers as required by Rule 8(1). (2). The High Court issued an ex-parte ad-interim decision on August 26, 2015, directing that the status quo be preserved regarding possession of the mortgaged properties, subject to the borrowers paying the appellant – Phoenix Rs. 1 crore.

The appellant filed a statement of objections to the writ petitions, alleging, among other things, that the letter dated 13.08.2015 cannot be considered a measure under Section 13(4) of the SARFAESI Act because it was just a planned action/measure to be implemented by the appellant. The writ petitions were also claimed to be unmaintainable. The appellants filed I.A. No. 01 of 2016 for the vacation of the ex-parte ad interim order dated August 26, 2015. Instead of ruling on the plea to vacate the interim injunction, the High Court extended it on February 28, 2017, on the condition that the borrowers pay an additional Rs.1 crore. Simultaneously, the appellant filed two separate original applications with the Bangalore Debt Collection Tribunal for the recovery of the outstanding dues against the borrowers. The High Court then prolonged the prior ex-parte interim decision dated 26.08.2015 by order dated 27.03.2018 on the condition that the debtors deposit a further sum of Rs. 1 crore.

Feeling aggrieved and dissatisfied with the impugned order dated 27.03.2018 issued by the High Court of Karnataka at Bengaluru in Writ Petition Nos. 35564-35566 of 2015, by which the High Court has entertained the aforesaid writ petitions under Article 226 of the Constitution of India against the appellant, an Assets Reconstructing Company, and has passed an interim order directing for the maintenance of status quo the original respondent – the Assets Reconstructing Company (ARC) – has preferred the current appeals in the SARFAESI action (ownership of the secured assets).

It is important to note that in this instance, the respondents – borrowers whose accounts were declared NPA in 2013 – have filed writ petitions in the High Court challenging the communication dated 13.08.2015 that purports to be a notice under Section 13(4) of the SARFAESI Act. It is important to note that the appellant – assignor claims that the Bank owes him roughly Rs.117 crores. The High Court has directed to maintain the status quo concerning the possession of the secured properties on the condition that the borrowers deposit Rs. 1 crore only, while passing the ex-parte interim order on 26.08.2015 and while entertaining the writ petitions against the communication dated 13.08.2015. Even though an application for vacating the ex parte ad-interim order was filed in 2016, the application for vacating the interim order has yet to be considered. The High Court, on the other hand, has prolonged the ex-parte ad-interim decision dated August 26, 2015, on the condition that the

debtors deposit an additional sum of Rs. 1 crore. As a result, all debtors have been instructed to deposit only Rs. 3 crores against dues of about Rs.117 crores.

After referring to earlier decisions of this Court in the cases of Sadhana Lodh Vs. National Insurance Co. Ltd. and Anr., (2003) 3 SCC 524; Surya Dev Rai Vs. Ram Chander Rai and Ors., (2003) 6 SCC 675; and State Bank of India Vs. Allied Chemical Laboratories and Anr., (2006) 9 SCC 252, the Supreme Court upheld the High Court's order dismissing the writ petition on the was noted that relief under Articles 226/227 of the Constitution of India is typically not available if an efficacious alternative remedy is available to any aggrieved person on the ground that an efficacious remedy is provided under Section 17 of the SARFAESI Act.

The current appeals are successful in light of the foregoing and for the reasons outlined above. The High Court has dismissed the Writ Petition Nos. 35564 to 35566 of 2015. As a result, the ex-parte ad-interim order of August 26, 2015, which was further prolonged by orders dated February 28, 2017, and March 27, 2018, has been vacated.

The present appeals are thus accepted, with costs to the appellants to be paid by the original writ petitioners in the amount of Rs.1 lakh in each case, to be paid directly to the appellant within four weeks of today. Any pending applications, if any, are likewise discarded.



This article is written by POOJA BISHT of Fairfield Institute of Management & Technology.

Recent Posts

See All

Heading – John Ryland and John Horrocks vs Thomas Fletcher Citation –John Ryland and John Horrocks vs Thomas Fletcher (1868) UKHL 1, (1868) L.R. 3 H.L. 330 Names Of Judges Involved in the Judgment – L