Case Note & Summary
The appellant, M/s. International Asset Reconstruction Company Limited, a secured creditor, issued a possession notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against the respondents, who were borrowers and guarantors. The respondents challenged the possession notice by filing a writ petition before a Single Judge of the High Court of Karnataka, which quashed the notice on the ground that the appellant had not served a valid notice under Section 13(2) of the SARFAESI Act and had not considered the respondents' objections under Section 13(3A). The appellant appealed against this order. The Division Bench, comprising the Chief Justice and Justice T.G. Shivashankare Gowda, heard the appeal. The court examined the procedural requirements under the SARFAESI Act, particularly Sections 13(2) and 13(3A), and the Security Interest (Enforcement) Rules, 2002. The court found that the appellant had failed to prove service of the Section 13(2) notice on the respondents and had not considered the respondents' reply to the notice. The court held that strict compliance with the statutory procedure is mandatory before taking possession of secured assets. The court also held that a writ petition is maintainable against an illegal possession notice despite the availability of an alternative remedy under Section 17 of the Act. The Division Bench dismissed the appeal, upholding the Single Judge's order. The court directed the appellant to follow the proper procedure if it wished to proceed further.
Headnote
A) SARFAESI Act - Section 13(2) Notice - Service of Notice - The secured creditor must serve a valid notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 upon the borrower before taking any enforcement action. Failure to serve such notice renders subsequent proceedings invalid. (Paras 10-15) B) SARFAESI Act - Section 13(3A) - Consideration of Representation - The secured creditor is obligated to consider any representation or objection made by the borrower under Section 13(3A) and communicate the reasons for non-acceptance. Non-compliance with this requirement vitiates the possession notice. (Paras 16-20) C) SARFAESI Act - Possession Notice - Rule 8(1) of Security Interest (Enforcement) Rules, 2002 - The possession notice under Rule 8(1) must be issued only after the expiry of the period specified in Section 13(2) and after complying with Section 13(3A). Issuance without such compliance is illegal. (Paras 21-25) D) Writ Jurisdiction - Maintainability - A writ petition under Article 226 of the Constitution of India is maintainable against a possession notice issued under the SARFAESI Act if the notice is patently illegal or without jurisdiction. The alternative remedy under Section 17 of the Act is not an absolute bar. (Paras 26-30)
Issue of Consideration
Whether the possession notice issued by the appellant under the SARFAESI Act was valid when the underlying Section 13(2) notice was not served on the borrowers and the reply to the objection under Section 13(3A) was not considered.
Final Decision
The Division Bench dismissed the appeal, upholding the Single Judge's order quashing the possession notice. The court held that the appellant failed to comply with the mandatory requirements of Section 13(2) and 13(3A) of the SARFAESI Act.
Law Points
- Strict compliance with SARFAESI Act procedure
- Section 13(2) notice must be served
- Section 13(3A) reply consideration mandatory
- Possession notice under Rule 8(1) of Security Interest (Enforcement) Rules
- 2002 must follow statutory timeline
- Writ petition maintainable against illegal possession notice
