Case Note & Summary
The judgment involves four writ petitions filed by members of the Shegur family against Vikas Co-operative Bank Ltd. and Bank of Maharashtra. The petitioners were guarantors to loans taken by Sudarshan Bhumaya Shegur (respondent no. 2 in each petition). The banks initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to recover dues. The petitioners challenged the proceedings, primarily arguing that they were not borrowers and thus could not be proceeded against under the SARFAESI Act. They also contended that the banks had not issued a valid notice under Section 13(2) and that the Magistrate's order under Section 14 was illegal. The court examined the definition of 'borrower' under Section 2(1)(f) of the SARFAESI Act, which includes a guarantor. It held that a guarantor is a borrower for the purposes of the Act and can be served with a notice under Section 13(2). The court further held that the requirement of pre-deposit under Section 17(2) applies only to the borrower who has been served with a notice under Section 13(2), and not to a guarantor who is not a borrower. However, the court found that the banks had validly issued notices and initiated proceedings. The court dismissed the petitions, upholding the actions of the banks and the Magistrate's order.
Headnote
A) SARFAESI Act - Guarantor as Borrower - Section 2(1)(f) read with Section 13(2) - Guarantor treated as borrower for enforcement of security interest - The court held that a guarantor falls within the definition of 'borrower' under Section 2(1)(f) of the SARFAESI Act, 2002, and is liable to be proceeded against under Section 13(2) for recovery of dues. (Paras 5-7) B) SARFAESI Act - Pre-deposit under Section 17(2) - Applicability to Guarantors - Section 17(2) - Guarantor not required to pre-deposit 50% of the amount before filing an appeal before the DRT - The court held that the requirement of pre-deposit under Section 17(2) applies only to the borrower who has been served with a notice under Section 13(2), and not to a guarantor who is not a borrower. (Paras 8-10) C) SARFAESI Act - Section 14 - Magistrate's Assistance - Validity of Possession - Section 14 - The court held that the Magistrate's order under Section 14 for taking possession of the secured asset is valid and cannot be challenged on the ground that the guarantor was not heard. (Paras 11-12)
Issue of Consideration
Whether the petitioners, as guarantors, are entitled to challenge the SARFAESI proceedings without making a pre-deposit under Section 17(2) of the SARFAESI Act, 2002, and whether the proceedings initiated by the banks are valid.
Final Decision
The court dismissed all writ petitions, holding that the SARFAESI proceedings initiated by the banks against the guarantors were valid and that the guarantors were not entitled to a pre-deposit under Section 17(2) before filing an appeal.
Law Points
- Guarantor is a borrower under SARFAESI Act
- 2002
- Section 13(2) notice validly issued
- Section 17(2) pre-deposit not applicable to guarantors
- Section 14 Magistrate's assistance valid
- No interference under Article 226
