2009 (7) TMI 765 - SC - Companies Law

Supreme Court affirms DRT's power post-section 13(4) under SARFAESI Act, clarifies appeal jurisdiction

Authorized Officer, Indian Overseas Bank Versus Ashok Saw Mill

The Supreme Court upheld the jurisdiction of the Debts Recovery Tribunal (DRT) to adjudicate post-section 13(4) actions under the SARFAESI Act. The Court ... Whether the DRT would have jurisdiction to consider and adjudicate with regard to post section 13(4) events or whether its scope in terms of section 17 of the SARFAESI Act would be confined to the stage contemplated under section 13(4), as contended on behalf of the appellants. Whether the possession of the secured assets had been taken in accordance with the SARFAESI Act and the rules framed thereunder? Held that:- Appeal dismissed. Unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT. Issues Involved:1. Validity and jurisdiction of the Debts Recovery Tribunal (DRT) to adjudicate post-section 13(4) actions under the SARFAESI Act.2. Maintainability of the appeal against the review petition.Issue-wise Detailed Analysis:1. Validity and Jurisdiction of the DRT to Adjudicate Post-Section 13(4) Actions:The primary issue in this case concerns whether the DRT has the jurisdiction to consider and adjudicate actions taken by a secured creditor after the stage contemplated under section 13(4) of the SARFAESI Act. The respondent-firm and its sister concern defaulted on loans from the appellant-Bank, leading to the initiation of action under the SARFAESI Act. The Bank took possession of the secured assets under section 13(4) after issuing demand notices under section 13(2). The respondent challenged the Bank's actions and the vires of the SARFAESI Act through writ petitions, which were dismissed, allowing them to approach the DRT.Despite this, the respondent did not approach the DRT within the prescribed time, leading the Bank to decide to sell the secured assets. The respondent then filed a SARFAESI application before the DRT to set aside the sale notice, which led to further legal proceedings. The appellant-Bank contended that the DRT's jurisdiction is confined to actions taken under section 13(4) and cannot extend to subsequent steps, citing precedents like Mardia Chemicals Ltd. v. Union of India and Transcore v. Union of India. However, the respondent argued that amendments to section 17 post-Mardia Chemicals case allowed for a broader scope of inquiry by the DRT, including post-section 13(4) actions.The Supreme Court analyzed the amendments to sections 13 and 17, noting that the Legislature intended to provide borrowers with the opportunity to challenge any measure taken by the secured creditor under section 13(4) at any stage. The Court emphasized that section 17(3) empowers the DRT to declare actions taken under section 13(4) invalid and restore possession to the borrower, thereby affirming the DRT's jurisdiction over post-section 13(4) actions. The Court concluded that the DRT can scrutinize and set aside transactions and restore the status quo ante, rejecting the appellant's contention that the DRT's jurisdiction is limited to pre-section 13(4) actions.2. Maintainability of the Appeal Against the Review Petition:The second issue concerns the maintainability of the appeal filed by the appellant-Bank against the order passed in a review petition. The appellant argued that the appeal was not maintainable under Order 47 Rule 7 of the Code of Civil Procedure. However, the Supreme Court found this argument to be of little consequence since the appeal was filed by the appellant itself. The Court held that having invoked the jurisdiction of the Appellate Court, the appellant could not later argue that the appeal was not maintainable.Conclusion:The Supreme Court dismissed the appeal, upholding the High Court's judgment that the DRT has jurisdiction to adjudicate post-section 13(4) actions under the SARFAESI Act. The Court also dismissed the contention regarding the maintainability of the appeal against the review petition. The judgment reinforces the DRT's authority to scrutinize and potentially invalidate actions taken by secured creditors under section 13(4), providing a safeguard for borrowers against wrongful use of such powers.