null V. First Respondent and Second Respondent

WP/1116/2022

AI Insights

The case involves a Writ Petition filed by the Petitioners challenging a Sale Notice issued by the First Respondent, claiming it was contrary to the provisions of the SARFAESI Act and violated their constitutional rights. The Petitioners had availed a loan from the Second Respondent and defaulted on repayments due to the COVID-19 pandemic. The Respondents argued that proper notices were served and the Petitioners had an alternative remedy under the SARFAESI Act, which they failed to pursue. The court dismissed the petition, emphasizing the existence of an alternative legal remedy and the disputed factual nature of the case, which was not suitable for resolution under Article 226.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 692159 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 18-08-2022
• Assessment Year: misc
• Other Referred Cases: Phoenix ARC Private Limited V. Vishwa Bharati Vidya Mandir and Others, Commissioner of Income Tax and Others V. Chhabil Dass Agarwal
• Laws Referred To: Article 226 of the Constitution of India, SARFAESI Act, Security Interest (Enforcement) Rules, 2002, Arbitration and Conciliation Act
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Arbitration; E-auction; Financial Facility; Loan agreement; Non-performing asset; Sale Notice; Writ of Mandamus
• Section: 13(2); 13(4)

Judgement Text

"1 HON’BLE SRI JUSTICE C.PRAVEEN KUMAR AND HON’BLE SRI JUSTICE TARLADA RAJASEKHAR RAO WRIT PETITION No. 1116 of 2022 ORDER: (Per Hon’ble Sri Justice C. Praveen Kumar) 1) Heard learned Counsel for the Petitioners, the learned Counsel appearing for Respondents and perused the record. 2) The present Writ Petition is filed, under Article 226 of the Constitution of India, seeking the following relief: “…to issue an appropriate writ, order or direction more particularly one in the nature of Writ of Mandamus, declaring the Sale Notice, dated 09.12.2021, issued by 1st Respondent contrary to the provisions of the SARFAESI Act and Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, as illegal, arbitrary and in violation of Articles 14, 21 and 300A of the Constitution of India and grant such other relief or reliefs...” 3) The averments made in the affidavit, filed in support of the Writ Petition show that, the Petitioners herein availed loan for development of business from Second Respondent, to a tune of Rs.37,04,000/- on 02.05.2015, agreeing to repay the same in 180 monthly installments @ Rs.46,257/- per month. It is said that, due to Covid pandemic, the Petitioners could not repay the installments from the year 2020 onwards. The Petitioners requested the Second Respondent to grant sometime for repayment of installments, which was accepted by the Second Respondent. 2 4) While things stood thus, the First Respondent, who is a Trustee of the Second Respondent, issued a Notice, dated 16.12.2019, under the Arbitration and Conciliation Act, intimating about the appointment of Arbitrator and the proceedings therein. It is the case of the Petitioners that without issuing any notice under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [‘SARFAESI Act’], the First Respondent is proposing to conduct a public auction on 12.01.2022, which fact came to the knowledge of the Petitioners on 07.01.2022. It is the case of the Petitioners that, without issuing any notice under the provisions of the SARFAESI Act, the Respondents could not have proceeded further with the matter, more so, when the provisions of Arbitration Act are already invoked. In view of the above, the present Writ Petition came to be filed to declare the Sale Notice, dated 09.12.2021, as contrary to the provisions of the SARFAESI Act and Rule 8(6) of the Rules, as illegal, contrary and violative of Articles 14, 21 and 300A of the Constitution of India. 5) Counters came to be filed by both the Respondents disputing the averments made in the affidavit filed in support of the Writ Petition. 6) (i) The counter filed by the First Respondent would disclose that Petitioners availed financial facility to a tune of Rs.1,13,00,000/- vide two loan accounts and entered into a Loan Agreement with the assignor on 26.11.2015 and 02.04.2015, 3 respectively. As the Petitioners committed default in payment of installments, their accounts were classified as Non-Performing Asset [‘NPA’] on 01.01.2020. It is said that, a notice under Section 13 (2) of the Act was issued on 07.12.2020, as the Petitioners failed to make any payment or respond to the said notice. It was found that the total amount liable to be paid by the Petitioners is Rs.68,86,759.58 paise. The demand notice was also published in two newspapers, namely, Financial Express and Prajashakti on 28.01.2021. In view of the default committed by the Petitioners, the Respondents proceeded to take physical possession of the immovable property in accordance with Section 13(4) of the SARFAESI Act on 10.11.2021. Copies of the notices sent and proof of receipt of the same are filed along with the counter. (ii) It is further stated that E-auction Sale Notice was issued on 09.12.2021, which came to be published in Prajashakti and Business Standard on 11.12.2021. At that stage, the Petitioners approached this Court, wherein, an interim order came to be passed on 12.01.2022, directing the Respondents to proceed with the auction process but not to confirm the sale for a period of two months. Pursuant thereto, auction was conducted and one Sanapathi Syamala was declared as a highest bidder. (iii) Insofar as pendency of arbitration proceedings are concerned, it is stated that, issuance of notice under Section 13(2) of the Act, does not bar the proceedings under the SARFAESI Act. Having regard to the circumstances stated above, it is stated that, the Writ 4 Petition may be dismissed, more so, when the Petitioners have an alternative remedy under Section 17 of the Act. 7) (i) A Counter came to be filed by the Second Respondent disputing the averments made in the affidavit filed in support of the Writ Petition. It is pleaded that this Court ought not to have entertained the Writ Petition in view of the Judgment of this Court in Phoenix ARC Private Limited V. Vishwa Bharati Vidya Mandir and Others 1. It is further stated that, no Writ lies against the answering respondent and the proper course for the Petitioners, is to avail the remedy under Section 17 of the SARFAESI Act, more so, when it is now functioning. (ii) It is further stated that, Second Respondent has entrusted the recovery process to First Respondent and, as such, Second Respondent has nothing to do with the grievances of the Petitioners and the remedy lies only against First Respondent. For the aforesaid reasons, it is pleaded that the Writ Petition is liable to be dismissed. 8) The learned Counsel appearing for Petitioners would contend that the Petitioners could not pay the installments due to Covid outbreak and if some reasonable time is given, the Petitioners will pay the amount due. Insofar as continuation of proceedings in respect of invoking the provisions of the Arbitration Act, he fairly submits that there is no bar for initiating proceedings under SARFAESI Act. 1 (2022) 5 SCC 345 5 9) Coming to the maintainability of the Writ Petition, he would submit that, since, there is no Presiding Officer at the Tribunal; the Petitioners were forced to approach this Court. He reiterates his contention that no notice under the provisions of the SARFAESI Act, was served on the Petitioners, and as the same is in violation of the principles of natural justice. Hence, a Writ Petition would lie and the same has to be allowed, on that score. 10) Learned Counsel appearing for the Respondents disputes the same. The Counsel took us through the documents to show that notices issued were in-fact served on the Petitioners. In the absence of any response from the Petitioners, to the notices issued, the Respondents proceeded further in accordance with law, which culminated into issuing an e-auction notice and, accordingly, auction was held on the schedule date. 11) The point that arises for consideration is, whether the request of the Petitioners, namely, to declare the sale notice, dated 09.12.2021, as illegal and incorrect, can be accepted? 12) The main ground taken by the learned Counsel for the Petitioners is that, no notice, as contemplated under the provisions of the SARFAESI Act, was served on the Petitioners. This, in our view, appears to be incorrect, for the reason that, the documents placed before us would prima facie indicate that notice under Section 13(2) was issued on 07.12.2020 and, thereafter, the notice under Section 13(4) on 10.11.2021. Both these notices were published in 6 local dailies on 28.01.2021 and 16.11.2021. The acknowledgments filed prima facie indicate proof of service of notices, which as said earlier, is disputed by the learned Counsel for the Petitioners. An E- auction notice, dated 09.12.2021, came to be published on 11.12.2021 proposing to conduct auction on 12.01.2022. Pursuant to the interim order passed by this Court, auction was conducted but the same is not finalized till date. However, it is said that, one Sanapathi Syamala was declared as highest bidder in the said auction. 13) In view of the facts stated above and since the auction purchaser is not before this Court, it may not be proper for this Court to adjudicate the matter on merits, more so, when a dispute has been raised with regard to service of notice under Section 13(2) and 13(4) of the SARFAESI Act, which goes to the root of the matter. These disputed facts, in our view, cannot be gone into in an application filed under Article 226 of the Constitution of India. 14) At this stage, learned Counsel for the Respondents also placed before this Court the judgments of the Hon’ble Supreme Court in Phoenix ARC Private Limited [1st cited supra] and Commissioner of Income Tax and Others V. Chhabil Dass Agarwal, stating that when there is an alternative remedy available, the Petitioners have to avail the same. 7 15) Having regard to the disputed factual aspects involved and since alternative remedy is available to the Petitioners, the Writ Petition is dismissed giving liberty to the Petitioners to approach the Tribunal under Section 17 of the SARFAESI Act, in which event, the Tribunal may deal with the same in accordance with law uninfluenced by the observations, if any, made in the order. No order as to costs. 16) As a sequel, interlocutory applications, if any, pending shall stand closed. _________________________ C. PRAVEEN KUMAR, J __________________________________ TARLADA RAJASEKHAR RAO, J Date: 18.08.2022 SM… 8 HON’BLE SRI JUSTICE C.PRAVEEN KUMAR AND HON’BLE SRI JUSTICE TARLADA RAJASEKHAR RAO WRIT PETITION No. 1116 of 2022 (Per Hon’ble Sri Justice C. Praveen Kumar) Dt. 18.08.2022 SM "