Exhaustion of SARFAESI Act Remedies Mandatory Before Writ Petition Under Article 226 : Allahabad HC

The Allahabad High Court has reaffirmed the principle that aggrieved parties must exhaust statutory remedies under the SARFAESI Act, 2002 before invoking writ jurisdiction under Article 226 of the Constitution. The Court dismissed a writ petition seeking return of original title deeds and compensation for delay, holding that disputed factual issues must be adjudicated by the Debts Recovery Tribunal (DRT) or Debts Recovery Appellate Tribunal (DRAT) rather than the High Court.

Background & Facts

The Dispute

The petitioners, M/S R.S. Contractors And Engineers (a partnership firm) and its partners, availed a financial facility of Rs. 70 lakhs from Canara Bank. Petitioner No. 3 mortgaged his property (Plot No. 46, Khasra No. 1581, Gopal Vihar, Meerut) by depositing the original title deed with the Bank. Upon default, the Bank initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and published a sale notice for the mortgaged property.

Key Facts

• 15.03.2016: Petitioner No. 3 mortgaged property by depositing original title deed with Canara Bank
• Financial Facility: Rs. 70 lakhs sanctioned; later bifurcated into four loan accounts:
  • OCC Loan Account No. 4207261000033 (Rs. 20 lakhs)
  • WCTL Loan Account No. 4207746000001 (Rs. 50 lakhs)
  • FITL Loan Account No. 4207747000023 (Rs. 4 lakhs)
  • Covid FITL Loan Account No. 4207710000039 (Rs. 1,53,581)
• Default: Petitioners failed to service the loan; Bank initiated SARFAESI proceedings
• Sale Notice: Bank published sale notice for mortgaged property
• Section 14 Order: Bank obtained order under Section 14 of the SARFAESI Act for physical possession

Procedural History

• Securitization Application No. 443 of 2022: Petitioners filed before DRT, Lucknow under Section 17 of the SARFAESI Act challenging Bank’s actions
• 27.07.2023: DRT directed petitioners to deposit Rs. 20 lakhs within one week and Rs. 50 lakhs by 26.09.2023 for settlement
• 27.07.2023 (Post-Lunch Order): DRT modified order, directing payment of additional interest on 25% deposit made by auction purchaser
• 22.09.2023: Petitioners deposited Rs. 22,50,000
• 11.10.2023: Petitioners deposited final installment of Rs. 28,50,000 and Rs. 5,000 towards interest
• Bank’s Response: Restored physical possession of property but refused to release title deed
• Writ Petitions by Bank:
  • Matters Under Article 227 No. 5154 of 2023: Dismissed as not pressed (11.10.2023)
  • Writ-C No. 9217 of 2023: Dismissed on ground of alternative remedy (19.10.2023)
• 23.01.2024: Petitioners sent representation to Bank for return of title deed and compensation under RBI Circular dated 13.09.2023
• 22.06.2024: Follow-up reminder sent; no response from Bank
• 29.07.2024: Present writ petition filed; notice issued to Bank
• Counter Affidavit: Bank alleged fraudulent concealment of facts, disputed settlement of all loan accounts, and misinterpretation of DRT orders

Relief Sought

The petitioners sought:

• Direction to Canara Bank to return the original title deed
• Issuance of No Dues Certificate
• Compensation of Rs. 5,000 per day from 11.11.2023 until release of title deed, as per RBI Circular dated 13.09.2023

The Legal Issue

The central question was whether the High Court could entertain a writ petition under Article 226 seeking return of title deeds and compensation for delay, when:

1. The dispute involved factual controversies (quantum of interest, legality of DRT’s extension order)
2. An efficacious statutory remedy was available before the DRT/DRAT under the SARFAESI Act and Recovery of Debts and Bankruptcy Act, 1993 (RDB Act)
3. The Bank had already filed an appeal before the DRAT challenging the DRT’s settlement order.

Arguments Presented

For the Petitioners

• Settlement of Loan: Petitioners deposited Rs. 71,50,000 (including Rs. 1,50,000 extra) in settlement of all four loan accounts, as directed by DRT
• DRT Order Finality: Bank’s writ petitions against DRT’s order were dismissed, and no appeal was filed, rendering the order final
• RBI Circular Compliance: Bank was statutorily bound to return title deeds within 15 days of loan settlement under RBI Circular dated 13.09.2023
• Misleading Conduct: Bank misrepresented facts by alleging non-settlement of all accounts despite accepting full payment
• Alternative Remedy Inapplicable: Relief sought (return of title deeds and compensation) was not under SARFAESI Act but under general law and RBI guidelines

For the Respondent (Canara Bank)

• Disputed Settlement: Petitioners failed to settle all four loan accounts; only one account (OCC Loan) was cleared
• DRT’s Lack of Authority: DRT exceeded its jurisdiction by unilaterally extending settlement timeline and modifying interest terms
• No Direction for Title Release: DRT’s order did not explicitly direct release of title deeds
• Pending Appeal: Bank’s appeal before DRAT challenging DRT’s order was pending, making writ petition premature
• Fraudulent Concealment: Petitioners misled the Court by concealing existence of three unsettled loan accounts

The Court's Analysis

The Court relied on the Supreme Court’s decision in United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, which held that High Courts must insist on exhaustion of statutory remedies before entertaining writ petitions under Article 226, especially in matters involving recovery of public dues. The Court observed:

"43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions... Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute."

The Court further noted that this principle was reiterated in subsequent judgments, including South Indian Bank Ltd. v. Naveen Mathew Philip (2023) 17 SCC 311 and Celir LLP v. Bafna Motors (Mumbai) (P) Ltd. (2024) 2 SCC 1, where the Supreme Court expressed concern over High Courts bypassing statutory remedies under the RDB Act and SARFAESI Act.

The Court rejected the petitioners’ argument that the relief sought (return of title deeds and compensation) fell outside the SARFAESI Act, holding:

1. Factual Disputes Exist: The parties disagreed on:

   • Whether all four loan accounts were settled
   • Legality of DRT’s extension of settlement timeline
   • Quantum of interest payable

2. DRT/DRAT is the Proper Forum: The SARFAESI Act and RDB Act empower the DRT to adjudicate such disputes. Section 17(7) of the SARFAESI Act makes all provisions of the RDB Act applicable to DRT proceedings, including Section 19(25), which grants residuary powers to the Tribunal to "secure the ends of justice."

"25. The Tribunal may made such orders and give such directions as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice."

1. No NOC or Admission by Bank: The Bank had not issued a No Objection Certificate (NOC) or admitted settlement, taking a contrary stand in its counter affidavit.

2. Pending Appeal: The Bank’s appeal before the DRAT challenging the DRT’s order was pending, making the writ petition premature.

The Court emphasized that it could not adjudicate disputed questions of fact while exercising writ jurisdiction, especially when an efficacious alternative remedy was available.

The Verdict

The writ petition was dismissed with the following directions:

• Petitioners were granted liberty to file an appropriate application before the DRT for release of title deeds
• The DRT was directed to decide any such application on merits, uninfluenced by observations in this judgment
• No order as to costs was passed

What This Means For Similar Cases

Exhaustion of Statutory Remedies is Non-Negotiable

• High Courts will not entertain writ petitions under Article 226 if an efficacious statutory remedy is available under the SARFAESI Act or RDB Act
• Practitioners must first approach the DRT/DRAT before invoking writ jurisdiction, even for reliefs like return of title deeds or compensation under RBI guidelines
• Pending appeals before DRAT will further bar writ petitions, as the appellate forum is deemed capable of adjudicating all related disputes

DRT’s Residuary Powers Under Section 19(25) RDB Act

• DRT is empowered to pass any order necessary to secure justice, including directions for release of title deeds or compensation
• Section 17(7) SARFAESI Act incorporates all provisions of the RDB Act, making the DRT the primary forum for all disputes arising from SARFAESI proceedings
• Practitioners should frame applications under Section 19(25) for reliefs not explicitly covered under the SARFAESI Act

RBI Circular Compliance is Subject to Adjudication

• Banks cannot unilaterally deny compliance with RBI Circulars (e.g., return of title deeds within 15 days) if factual disputes exist
• DRT must adjudicate whether the borrower has fulfilled settlement terms before ordering release of title deeds
• Compensation claims under RBI Circulars must be raised before the DRT, not the High Court, if the Bank disputes settlement terms