The Supreme Court on Monday agreed to examine whether a High Court can exercise its writ jurisdiction when an alternative remedy under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) is available [South Indian Bank v Naveen Mathew Phillip].
A bench comprising Justices Sanjiv Khanna and MM Sundresh issued notice on a plea by South Indian Bank challenging a judgment of the Kerala High Court which had allowed deferred payment schedules for bank borrowers even when proceedings under the SARFAESI Act had been initiated by the bank.
while agreeing to hear the appeal noted that the law was well settled.
The petitioner-bank in the case was aggrieved that High Court had entertained writ petitions filed by borrowers despite there being a specific mechanism available before Debt Recovery Tribunals (DRTs) in such cases.
The petition filed through advocate A Karthik claimed that the High Court in its October 19 judgement approved the respondent’s “dilatory tactic” by allowing him an extended payment schedule over a period of 12 months for the defaulted amount.
The petitioner alleged that in doing so the High Court has overridden the specific procedure under the SARFAESI Act which was in place for speedy recovery, even though recovery proceedings had already been initiated by the bank.
During the hearing, Senior advocate KV Viswanathan, appearing for the South Indian Bank, argued that despite the DRT becoming fully functional in March 2022, the High Court went ahead and exercised its writ jurisdiction in about 185 cases pertaining to the South Indian Bank for total dues amounting to ₹927 crores.
This has a huge impact on the financial stability of the bank since provisioning has to be made in the balance sheet as per the Reserve Bank of India (RBI) norms, said the senior counsel.
Viswanathan also requested the top court to ask the high court to consider the issue of maintainability in such writ petitions before orders are passed.
In this regard, the petition claimed that interference by a constitutional court in its extraordinary jurisdiction to decide on private contractual disputes between lenders and borrowers seriously prejudiced the banks in the State of Kerala.
“As a result of the interference, the petitioner is forced to continue the account as an NPA in its books for an extended period, without income. Provision for the same has also to be made in the balance sheet, which affects the financial soundness of the banks. While benefit of extended payment schedules is provided to the borrowers, the banks are not even given a stay on the provisioning requirements,” the plea said.
Constitutional Courts cannot be permitted to be converted into One Time Settlement courts, the petition further stated.
Pertinently, it was submitted that the judgement under challenge is not a one-off case, but forms part of a long line of cases, in which the High Court has interfered in its writ jurisdiction and allowed a protracted payment.
Therefore, it was prayed that a direction be made to the Kerala High Court to refrain from interfering mechanically in matters involving recovery by banks through proceedings under the SARFAESI Act.
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