Case Note & Summary
The petitioner, ASREC (India) Ltd., an Asset Reconstruction Company, challenged the order of the Debt Recovery Tribunal (DRT) dated 2 June 2022 granting ad-interim relief to the respondents, Fastgrowth Hospitality LLP and others, restraining the petitioner from taking any steps in respect of the secured assets. The DRT's order was upheld by the Debt Recovery Appellate Tribunal (DRAT) on 2 December 2022. The dispute arose from a loan of approximately Rs. 20 crores sanctioned by IIFL Wealth Finance Ltd. to the respondents on 29 December 2017, which was subsequently enhanced to Rs. 23 crores. After default, IIFL issued a notice on 25 June 2020. The debt was assigned to the petitioner by two agreements dated 25 December 2020 and 12 February 2021. The respondents filed a securitisation application under Section 17 of the SARFAESI Act, 2002, before the DRT, which granted ad-interim relief without considering the validity of the assignment. The High Court held that the DRT and DRAT failed to consider the assignment and the balance of convenience, and set aside the impugned orders, allowing the petitioner to proceed with the recovery.
Headnote
A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Assignment of Debt - Section 5 - The court examined whether the assignment of debt by IIFL to the petitioner, an Asset Reconstruction Company, was valid and whether the DRT could grant interim relief without considering the assignment's validity. Held that the DRT and DRAT failed to consider the assignment and the balance of convenience, and the interim relief was set aside. (Paras 2-10)
B) Debt Recovery Tribunal - Interim Relief - Section 17, Section 18 - The court considered the scope of interim relief under the SARFAESI Act, 2002, and held that the DRT must consider the validity of the assignment and the balance of convenience before granting ad-interim relief. Held that the impugned orders were unsustainable. (Paras 2-10)
Issue of Consideration
Whether the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal erred in granting ad-interim relief restraining the petitioner-assignee from taking steps in respect of secured assets under the SARFAESI Act, 2002, without considering the validity of the assignment and the balance of convenience.
Final Decision
The High Court allowed the writ petition, set aside the orders of the DRT dated 2 June 2022 and the DRAT dated 2 December 2022, and directed that the petitioner be permitted to proceed with the recovery of the assigned debt in accordance with law.
Law Points
- Assignment of debt
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act
- 2002
- Section 13
- Section 17
- Section 18
- Debt Recovery Tribunal
- interim relief
- balance of convenience
- prima facie case
Case Details
2023 LawText (BOM) (01) 153
Writ Petition (Lodg.) No. 39107 of 2022
Nitin Jamdar, Abhay Ahuja
Mr. Venkatesh Dhond, Senior Advocate with Mr. Kunal Mehta and Ms. Jinelle Gogri and Ms. Shreya Bhagnari i/b. Negandhi Shah Himayatullah for the Petitioner; Mr. Mukesh Vashi, Senior Advocate with Mr. Sean Wassoodew, Mr. Viren Vashi, Ms. Vijaya Ingule and Mr. Rupesh Mandhare for the Respondents
Fastgrowth Hospitality LLP, Diagrams Realty LLP, Miten Parikh, Bhaven Parikh
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Nature of Litigation
Writ petition challenging orders of Debt Recovery Tribunal and Debt Recovery Appellate Tribunal granting ad-interim relief restraining the petitioner from taking steps in respect of secured assets under the SARFAESI Act, 2002.
Remedy Sought
The petitioner sought quashing of the DRT order dated 2 June 2022 and the DRAT order dated 2 December 2022, and to allow it to proceed with recovery of the assigned debt.
Filing Reason
The petitioner, an assignee of debt from IIFL, was restrained by the DRT from taking any steps in respect of the secured assets, despite the assignment being valid.
Previous Decisions
The DRT granted ad-interim relief on 2 June 2022, which was upheld by the DRAT on 2 December 2022.
Issues
Whether the DRT and DRAT erred in granting ad-interim relief without considering the validity of the assignment of debt?
Whether the balance of convenience favored the petitioner or the respondents?
Submissions/Arguments
The petitioner argued that the assignment of debt was valid and the DRT failed to consider it, and that the balance of convenience was in favor of the petitioner as a secured creditor.
The respondents argued that the assignment was not valid and that the DRT correctly granted interim relief to protect their interests.
Ratio Decidendi
The DRT and DRAT failed to consider the validity of the assignment of debt and the balance of convenience, and therefore the interim relief granted was unsustainable. The assignee of a debt under the SARFAESI Act is entitled to enforce the security interest without being restrained by interim orders that do not consider the assignment's validity.
Judgment Excerpts
The Petitioner has challenged the order passed by the Debt Recovery Tribunal dated 2 June 2022 granting ad-interim relief to the Respondents to restrain the Petitioner in any manner taking any steps in respect of the secured assets, and the order passed by the Debt Recovery Appellate Tribunal dated 2 December 2022 dismissing the Petitioners appeal.
IIFL Wealth Finance Ltd. (IIFL), the Respondent's secured creditor, has assigned the debt to the Petitioner, an Asset Reconstruction Company.
Procedural History
The respondents filed a securitisation application under Section 17 of the SARFAESI Act before the DRT, which granted ad-interim relief on 2 June 2022. The petitioner appealed to the DRAT, which dismissed the appeal on 2 December 2022. The petitioner then filed the present writ petition before the Bombay High Court, which was allowed on 18 January 2023.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 5, Section 13, Section 17, Section 18
