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Indiabulls Housing Finance Ltd. v. M/S Deccan Chronicle Holdings Ltd

Civil Appeal · 2018 INSC 200Decided 23 Feb 2018
Civil Appeal No. 18 of 2018
Justice A.K. Sikri · Justice Ashok Bhushan

Background

Indiabulls Housing Finance Ltd. had taken action under the SARFAESI Act to recover a Rs. 100 crore loan from Deccan Chronicle Holdings Ltd. The loan was originally disbursed by Indiabulls Financial Services Ltd. (IBFSL), a sister concern that later merged into the appellant. The Andhra Pradesh High Court quashed the SARFAESI proceedings, holding that (a) the loan agreements contained arbitration clauses already invoked under Section 9 of the Arbitration Act, which barred parallel SARFAESI action, and (b) IBFSL was not a notified "financial institution" at the time the loan was disbursed, so neither it nor its successor Indiabulls could invoke SARFAESI against the borrower.

Decision Breakdown

The Supreme Court set aside the High Court's judgment and allowed the appeal, holding that once the appellant qualified as a "financial institution" and "secured creditor" under the SARFAESI Act, it was entitled to invoke the Act's recovery machinery regardless of when the original loan was disbursed, since the Act is meant to apply to pre-existing loans/non-performing assets and not merely future transactions. The Court also held that an arbitration clause in the loan agreement does not oust the specialised, expeditious remedy under the SARFAESI Act, which operates independently of ordinary contractual dispute-resolution mechanisms. Accordingly, the respondent was held to be a "borrower" and the arrangement a "security interest" within the meaning of the Act, making the appellant a valid "secured creditor." Since the main appeal was allowed, the connected contempt petitions were disposed of without separate orders.

Lesson Learnt

The SARFAESI Act's debt-recovery mechanism is available to a financial institution even for loans that predate its formal notification as such an institution, and the existence of an arbitration clause in a loan agreement does not bar a secured creditor from using SARFAESI's summary recovery procedure.

Official source (sci.gov.in)View Judgment (PDF)

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