Case Note & Summary
The petitioner, Tushar P. Shah, a director and guarantor of respondent no. 2 (M/s. Air Coils Manufacturing Co. Pvt. Ltd.), filed a writ petition challenging a possession notice dated 20.04.2012 issued by respondent no. 1, International Asset Reconstruction Co. P. Ltd., a securitisation company registered under the Companies Act, 1956 and assignee of the original lender Bank of Baroda. The Bank of Baroda had filed a suit (Suit No. 5568 of 1998) against the borrower and guarantors for recovery of dues. During the pendency of the suit, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB & FI Act) came into force, and the suit was transferred to the Debts Recovery Tribunal (DRT). The Bank of Baroda assigned the debt to respondent no. 1 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Respondent no. 1 issued a notice under Section 13(2) of the SARFAESI Act calling upon the borrower and guarantors to pay the outstanding amount, and subsequently issued a possession notice under Section 13(4) read with Rule 8(1) of the Security Interest (Enforcement) Rules, 2002. The petitioner challenged the possession notice on the grounds that the assignment was invalid, the notice was not affixed on the property, and the petitioner was not given an opportunity of hearing. The court held that the respondent no. 1 is a financial institution under the SARFAESI Act and the assignment of debt is valid under Section 5 of the Act. The possession notice was served by registered post on the borrower and guarantors, which complies with Rule 8(1) as the property was in possession of the borrower. The court also noted that the SARFAESI Act provides an efficacious alternative remedy under Section 17 by way of appeal before the DRT, and therefore the writ petition was not maintainable. The petition was dismissed with liberty to the petitioner to avail the remedy under Section 17.
Headnote
A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Validity of Possession Notice - Section 13(4) and Rule 8(1) of Security Interest (Enforcement) Rules, 2002 - Possession notice served by registered post on the borrower and guarantor is valid even if not affixed on the property, as Rule 8(1) requires affixation only if the property is not in possession of the borrower - Held that the notice complied with the requirements (Paras 8-10). B) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Assignment of Debt - Section 5 - A securitisation company registered under the Act can acquire financial assets from banks, and the assignment is valid - Held that the respondent no. 1 is a financial institution and the assignment from Bank of Baroda is valid (Paras 5-7). C) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Maintainability of Writ Petition - Alternative Remedy - Section 17 - When the SARFAESI Act provides an efficacious alternative remedy by way of appeal before the Debts Recovery Tribunal, a writ petition under Article 226 is not maintainable - Held that the petitioner should avail the remedy under Section 17 (Para 11).
Issue of Consideration
Whether the possession notice issued by the respondent no. 1 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is valid and whether the petitioner, a guarantor, can challenge the same in writ jurisdiction.
Final Decision
The writ petition is dismissed. The petitioner is at liberty to avail the remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. Civil Application No. 1602 of 2012 also stands disposed of.
Law Points
- Securitisation company is a financial institution under SARFAESI Act
- Assignment of debt is valid under Section 5 of SARFAESI Act
- Possession notice under Rule 8(1) is valid even if not affixed on property if served by registered post
- Guarantor can be proceeded against under SARFAESI Act
- Writ petition not maintainable if alternative remedy available under Section 17 of SARFAESI Act.
