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Banking & Debt Recovery LawSupreme Court of India

Authorized Officer, State Bank of Travancore v. Mathew K.C.

Civil Appeal · 2018 INSC 71Decided 30 Jan 2018
Civil Appeal No. 1281 of 2018
Justice Rohinton Fali Nariman · Justice Navin Sinha

Background

A borrower's loan account was declared a Non-Performing Asset, and after statutory notices under the SARFAESI Act, the bank issued a possession notice under Section 13(4) to recover outstanding dues of over Rs. 41 lakh. Instead of approaching the Debt Recovery Tribunal (the statutory remedy under the SARFAESI Act), the borrower filed a writ petition before the Kerala High Court, which granted an interim stay on the bank's recovery proceedings on the very first hearing date, without giving the bank an opportunity to respond. The bank's appeal against that interim order was also dismissed by a Division Bench of the High Court, leading the bank to approach the Supreme Court.

Decision Breakdown

The Supreme Court held that the SARFAESI Act is a complete code providing an adequate alternate statutory remedy (appeal to the Debt Recovery Tribunal and then the Appellate Tribunal), and that High Courts should be extremely cautious about entertaining writ petitions or granting stays in such matters except in narrow, well-established exceptions. It found that the High Court erred in granting an interim stay without hearing the bank and without any special reasons, and criticized the Division Bench for treating the subsequent filing of a counter-affidavit as sufficient justification to let the stay continue. The Court set aside both the interim stay order and the Division Bench's order, and allowed the bank's appeal, while leaving all questions of law and fact open for the borrower to raise before the proper statutory forum (the Debt Recovery Tribunal).

Lesson Learnt

When a specialised law like the SARFAESI Act provides its own appeal mechanism for disputes with banks, courts will generally insist that a person use that mechanism rather than bypass it by going straight to a writ petition, and any interim relief granted without hearing the other side and without special reasons is vulnerable to being overturned.

Authorized Officer, State Bank of Travancore v. Mathew K.C. – Legal Case Shots | LegalAware