The Kerala High Court has intervened to prevent coercive enforcement under the SARFAESI Act by granting a structured repayment plan to a defaulting borrower, balancing the bank’s right to recovery with the borrower’s right to due process. This order sets a pragmatic precedent for courts to facilitate repayment over immediate asset seizure in cases where the borrower demonstrates willingness to settle.
Background & Facts
The Dispute
The petitioner, Zainudheen, a 60-year-old individual from Malappuram district, defaulted on a loan availed from the Ponani Co-operative Urban Bank Ltd. The bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), leading to the issuance of a possession notice and subsequent coercive steps including the appointment of an Advocate Commissioner for asset management.
Key Facts
- The loan account became non-performing as of 30.05.2019, as per Exhibit-P2, the account statement covering the period up to 18.02.2026
- The total outstanding amount as of the date of the judgment (06.04.2026) was Rs.1,39,88,097/- (Rupees One Crore Thirty Nine Lakhs Eighty Eight Thousand Ninety Seven only)
- The bank issued a demand notice under Section 13(2) of the SARFAESI Act on 11.09.2024 (Exhibit-P1)
- On 10.02.2026, the Chief Judicial Magistrate Court, Manjeri, passed an order under Section 14 of the SARFAESI Act authorizing the bank to take possession of the secured asset (Exhibit-P3)
- On 17.02.2026, an Advocate Commissioner was appointed to take physical possession and manage the secured property (Exhibit-P4)
- The petitioner had not filed any written response to the SARFAESI notices prior to filing this writ petition
Procedural History
- 11.09.2024: Bank issued notice under Section 13(2) of the SARFAESI Act
- 30.05.2019: Loan account classified as NPA
- 10.02.2026: CJM, Manjeri, passed order under Section 14 authorizing possession
- 17.02.2026: Advocate Commissioner appointed to take possession
- 06.04.2026: Writ Petition (WP(C) No.12313 of 2026) filed before the Kerala High Court seeking stay on coercive action
Relief Sought
The petitioner sought quashing of the SARFAESI proceedings, stay on possession and sale of the secured asset, and an opportunity to repay the outstanding amount in a structured manner.
The Legal Issue
The central question was whether the High Court, in exercise of its writ jurisdiction under Article 226 of the Constitution, can permit a borrower to repay a SARFAESI debt through a court-monitored installment plan to avoid coercive recovery, even after possession has been taken under Section 14.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that the borrower was not in wilful default and had been attempting to negotiate repayment. He emphasized the petitioner’s age, lack of alternative income sources, and the disproportionate nature of immediate asset dispossession. He relied on the principle of proportionality and the court’s inherent power to prevent abuse of process under the SARFAESI Act.
For the Respondent
The Standing Counsel for the bank conceded that the bank had no objection to a structured repayment plan, provided the entire outstanding amount, including interest, costs, and charges, was cleared. The bank’s position was purely commercial: recovery of the full dues was the objective, and coercive action was a last resort. The bank confirmed the outstanding amount as Rs.1,39,88,097/- as of the date of hearing.
The Court's Analysis
The Court acknowledged that while the SARFAESI Act empowers banks to enforce security interests without court intervention, the High Court retains the authority under Article 226 to intervene where the exercise of such power is arbitrary, oppressive, or disproportionate. The Court noted that the bank had not opposed a repayment plan and had, in fact, expressed willingness to accept installments.
"The object of the SARFAESI Act is not to deprive a borrower of his property at all costs, but to ensure timely recovery of dues in a manner that is fair and reasonable. Where the borrower is willing to repay and the secured creditor is agreeable, the Court may, in the interests of justice, permit a structured repayment plan."
The Court emphasized that the bank’s consent to installment repayment removed any element of arbitrariness from the proposed arrangement. It further held that the petitioner’s compliance with the ordered schedule would constitute sufficient assurance of repayment, rendering coercive action unnecessary.
The Court also observed that the petitioner had not challenged the validity of the loan or the amount due, and had not raised any procedural irregularity in the bank’s actions under the SARFAESI Act. The focus, therefore, was not on the legality of the bank’s steps, but on the equitable resolution of the dispute.
The Verdict
The writ petition was disposed of with the following directions: (1) The petitioner shall pay Rs.15,00,000/- (Rupees Fifteen Lakhs only) on or before 30.04.2026; (2) The balance outstanding amount of Rs.1,24,88,097/-, along with accrued interest, costs and charges, shall be paid in 15 equal monthly installments commencing May 2026, with each installment due by the last day of the respective month; (3) If the petitioner complies with the above schedule, no coercive steps under the SARFAESI Act shall be taken by the bank; (4) In the event of default in any single installment, the bank shall be at liberty to resume all coercive actions already initiated under the SARFAESI Act.
What This Means For Similar Cases
Judicial Discretion Can Override Automatic Enforcement
- Practitioners may now cite this judgment to seek interim relief under Article 226 where borrowers demonstrate genuine willingness to repay, even after possession has been taken
- Courts may consider installment plans as an alternative to asset sale, particularly where the borrower is not a wilful defaulter
- The bank’s consent is not mandatory for the court to impose such a plan, but its cooperation significantly strengthens the petitioner’s case
Proportionality Over Rigidity in SARFAESI Enforcement
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The judgment reinforces that the SARFAESI Act must be applied proportionally, not mechanically
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Courts may weigh factors such as the borrower’s age, financial hardship, and the nature of the secured asset (e.g., residential property)
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This ruling discourages banks from treating SARFAESI as a tool for immediate liquidation without exploring settlement options
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Always document the borrower’s attempts at negotiation prior to filing a writ petition
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Where the bank is open to repayment, file a writ petition early to prevent irreversible dispossession
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Draft proposed repayment schedules with clear timelines, amounts, and consequences of default to facilitate judicial approval
