The Kerala High Court has intervened to halt coercive recovery proceedings under the SARFAESI Act, granting petitioners a structured pathway to regularize their defaulted loan through court-monitored installments. This order reinforces judicial restraint in enforcing security interests where borrowers demonstrate willingness to repay, balancing creditor rights with procedural fairness.
Background & Facts
The Dispute
The petitioners, Aromal Mahesan and his father Mahesan, are borrowers who defaulted on a loan extended by the Kerala State Co-operative Bank (Kerala Bank). The bank initiated enforcement proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), issuing notices under Section 13(2) and subsequently taking symbolic possession of the secured property under Section 13(4). The petitioners challenged these actions as premature and disproportionate, seeking stay of enforcement and an opportunity to repay the dues.
Key Facts
- The loan was sanctioned on 10.08.2022 (Exhibit P1)
- A payment of ₹1,25,000 was made on 17.05.2025 (Exhibit P2)
- A demand notice under Section 13(2) was issued on 26.08.2024 (Exhibit P3)
- An ARC award was passed on 30.10.2025 (Exhibit P4)
- Symbolic possession of the secured property was taken on 31.01.2026 (Exhibit P5)
- As of the hearing date (06.04.2026), the total overdue amount stood at ₹1,90,414
- The petitioners have not disputed the quantum of dues but sought relief from coercive action
Procedural History
- 10.08.2022: Loan sanctioned by the bank
- 17.05.2025: Petitioners made partial payment of ₹1,25,000
- 26.08.2024: Bank issued Section 13(2) demand notice
- 30.10.2025: ARC passed award in ARC No. 302 of 2025
- 31.01.2026: Bank issued Section 13(4) notice and took symbolic possession
- 06.04.2026: Writ petition filed before the High Court of Kerala
- 06.04.2026: Court heard arguments and delivered judgment on the same day
Relief Sought
The petitioners sought quashing of the Section 13(4) notice, stay of all coercive recovery steps, and an opportunity to repay the outstanding amount in a structured manner without asset seizure.
The Legal Issue
The central question was whether the bank’s initiation of coercive enforcement under the SARFAESI Act, prior to exhausting reasonable opportunities for repayment, constitutes an abuse of process when the borrower has demonstrated willingness to clear dues through installments.
Arguments Presented
For the Petitioner
The learned counsel argued that the petitioners had consistently attempted to repay the loan, evidenced by the substantial payment of ₹1,25,000 in May 2025. They contended that the bank’s immediate resort to possession under Section 13(4) was disproportionate and violated the principles of natural justice and proportionality. Reliance was placed on Mardia Chemicals Ltd. v. Union of India to argue that courts must intervene where enforcement actions are manifestly unjust.
For the Respondent
The Standing Counsel for the bank conceded that the bank had no objection to allowing the petitioners to repay the outstanding amount of ₹1,90,414 in installments. He submitted that such an arrangement would be beneficial to the bank and that the coercive steps were initiated only due to non-payment, not malice. The bank expressed willingness to regularize the account upon compliance.
The Court's Analysis
The Court observed that the petitioners had not denied liability and had made a significant partial payment. The bank’s own concession that installment-based repayment was acceptable indicated that enforcement was not necessary to protect its interests. The Court emphasized that the SARFAESI Act is not meant to be a tool of immediate asset seizure but a mechanism to facilitate recovery with due process.
"The object of the SARFAESI Act is not to punish the borrower but to ensure recovery of dues in a time-bound manner, while preserving the borrower’s right to be heard and to offer a feasible repayment plan."
The Court noted that the petitioners had shown a clear intent to repay, and the quantum of dues was relatively modest. The symbolic possession, while legally valid, was not irreversible and could be undone upon compliance. The Court held that allowing a structured repayment plan would serve the interests of justice, prevent undue hardship, and align with the spirit of the Act.
The Verdict
The writ petition was allowed. The petitioners shall remit ₹25,000 on or before 30.04.2026. The balance outstanding of ₹1,65,414, along with interest, shall be paid in 10 equal monthly installments starting May 2026, payable by the end of each month. The petitioners must continue paying their regular EMIs alongside these installments. If all installments are paid as directed, the bank shall regularize the loan account. In case of default on any installment, the bank may resume coercive steps under the SARFAESI Act.
What This Means For Similar Cases
Repayment Willingness Overrides Coercive Action
- Practitioners must now argue that a borrower’s demonstrable intent to repay, even with partial payments, can justify judicial intervention to stay SARFAESI enforcement
- Banks cannot automatically proceed to possession merely because a notice has been issued
- Courts will examine whether enforcement is proportionate to the quantum of dues and the borrower’s conduct
Installment-Based Regularization Is a Viable Judicial Remedy
- Courts may now routinely impose structured repayment plans as an alternative to asset seizure
- The burden shifts to the bank to show why installments are not feasible, not to the borrower to prove why possession should be stayed
- This precedent applies equally to personal loans, housing loans, and SME credit facilities where the debt is not excessive
Procedural Fairness Is Central to SARFAESI Enforcement
- The SARFAESI Act does not override the principles of natural justice
- Symbolic possession is not a final act; it remains subject to judicial review and modification
- Any enforcement action must be preceded by a genuine assessment of repayment capacity and willingness
Key Takeaways for Practitioners
- Always file a writ petition at the earliest sign of possession notice
- Submit evidence of past payments and repayment proposals
- Request the court to direct installment-based regularization rather than mere stay
- Use the bank’s own concession on repayment as a strategic tool
