Case Note & Summary
The petitioner, Mahesh S/o Hemadreppa Sajjanaar, filed a writ petition challenging a possession notice dated 06.03.2017 issued by the Authorized Officer/Deputy General Manager of IDBI Bank Ltd., Gadag, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The petitioner was a guarantor for loans contracted by the 3rd respondent, M/s. Hemagirish Traders, a proprietorship concern of Smt. Mahadevi (since deceased, represented by legal heirs). The bank sought to take possession of the petitioner's property to enforce the guarantee for repayment of a debt of Rs. 44,59,815/-. The petitioner argued that the bank had not exhausted remedies against the principal borrower before proceeding against the guarantor. The court, after hearing arguments, held that the bank must first proceed against the principal borrower before taking action against the guarantor's property. The possession notice was quashed, and the bank was directed to exhaust all remedies against the 3rd respondent borrower to recover the due amount.
Headnote
A) Banking Law - SARFAESI Act - Guarantor's Liability - Section 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The court considered whether a possession notice against a guarantor's property is valid when the bank has not exhausted remedies against the principal borrower. The court held that the bank must first proceed against the principal borrower before taking action against the guarantor's property. The possession notice was quashed. (Paras 1-3)
Issue of Consideration
Whether the possession notice issued under the SARFAESI Act against the guarantor's property is valid when the bank has not exhausted remedies against the principal borrower.
Final Decision
The writ petition is allowed. The impugned possession notice dated 06.03.2017 issued by the 1st respondent is quashed. The respondents 1 and 2 are directed to exhaust all the remedies against respondent No.3 who is the borrower to recover the due amount of Rs.44,59,815/-.
Law Points
- Guarantor's liability is co-extensive but bank must first proceed against principal borrower
- Possession notice under SARFAESI Act against guarantor without exhausting remedies against borrower is premature
- Section 13(2) SARFAESI Act requires demand notice to borrower before action against guarantor
Case Details
2018 LawText (KAR) (04) 20
Writ Petition No.102826 of 2017 (GM-RES)
Sri. R.H. Angadi for petitioner, Sri. Ravi S. Mattur for respondents 1-2, Sri. Prashant Hosamani for respondents 3(A-E)
Mahesh S/o Hemadreppa Sajjanaar
Authorized Officer/Deputy General Manager, IDBI Bank Ltd., The Branch Manager, IDBI Bank Ltd., M/s. Hemagirish Traders (by its legal heirs)
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Nature of Litigation
Writ petition challenging possession notice under SARFAESI Act against guarantor's property.
Remedy Sought
Quashing of possession notice dated 06.03.2017 and direction to bank to exhaust remedies against borrower.
Filing Reason
Bank issued possession notice against guarantor's property without first proceeding against principal borrower.
Issues
Whether the possession notice against the guarantor is valid when the bank has not exhausted remedies against the principal borrower.
Submissions/Arguments
Petitioner argued that bank must first proceed against principal borrower before taking action against guarantor.
Bank argued that guarantor's liability is co-extensive and they can proceed against guarantor directly.
Ratio Decidendi
Under Section 13(2) of the SARFAESI Act, the bank must first proceed against the principal borrower before taking action against the guarantor's property. The possession notice against the guarantor without exhausting remedies against the borrower is premature and liable to be quashed.
Judgment Excerpts
In this Writ Petition, Petitioner has laid a challenge to the possession notice dated 06.03.2017 issued by the 1st Respondent Authorized Office/Deputy General Manager of IDBI Bank Ltd., Gadag, whereby the possession of the Petitioner’s property is sought to be taken by way of enforcing guaranty for the repayment of Bank debt.
Brief facts stated are; Petitioner happens to be the guarantor for the repayment of the loans contracted by 3rd Respondent M/s.Hemagirish Traders...
Procedural History
The petitioner filed a writ petition under Articles 226 and 227 of the Constitution of India before the High Court of Karnataka, Dharwad Bench, challenging the possession notice dated 06.03.2017. The court heard arguments and delivered judgment on 12.04.2018.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 13(2)
- Constitution of India: Articles 226, 227
