2018 (10) TMI 710 - HC - Customs

Court dismisses writ challenging SARFAESI notice, upholds loan agreement validity, emphasizes alternative remedy principle.

The court dismissed the writ petition challenging the notice issued under Section 13(4) of the SARFAESI Act, 2002, directing the petitioner to pursue the ... Maintainability of application before DRT - Demand of possession of the secured assets from the borrower/petitioner - default in repayment of loan - Section 13(4)(a) of SARFAESI Act, 2002 - violation of principles of natural justice - customs duty exemption against Export Promotion Capital Goods (EPCG) License - It is the contention of the petitioner that the 1st respondent does not come with the secured creditors under Section 2(zd), there is no security agreement under Section 2(zb), there is no secured debt under Section 2(ze) and there is no security interest under Section 2(zf) and therefore, the proceedings under SARFAESI Act could not be initiated. Held that:- All these contentions can be taken when an application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. Time and again, the Hon'ble Supreme Court as well as this Court has held that when there is an effective and alternative remedy, ordinarily writ jurisdiction should not be invoked and on the facts and circumstances of this case, we do not find that there is any extraordinary / exceptional circumstances, invoking the jurisdiction of this Court under Article 226 of the Constitution of India. In Satyawati Tondon's case, [2010 (7) TMI 829 - SUPREME COURT] the Hon'ble Supreme Court has held that the tribunals constituted under the SARFAESI Act, 2002, is competent to decide all questions of law and fact - Grounds raised in this instant writ petition, can always be urged before the tribunal. Petition dismissed. Issues Involved:1. Jurisdiction and authority of the notice issued under Section 13(4) of SARFAESI Act, 2002.2. Validity of the loan agreement between the petitioner and the 1st respondent.3. Availability and appropriateness of alternative remedies under the SARFAESI Act.Issue-wise Detailed Analysis:1. Jurisdiction and Authority of the Notice Issued Under Section 13(4) of SARFAESI Act, 2002:The petitioner challenged the notice dated 23.07.2018 issued by the 1st respondent under Section 13(4)(a) of the SARFAESI Act, 2002, demanding possession of secured assets. The petitioner argued that the notice was issued without jurisdiction and contrary to the provisions of the SARFAESI Act, violating principles of natural justice. The petitioner contended that the 1st respondent does not qualify as a secured creditor under Section 2(zd) of the Act, and there was no security agreement, secured debt, or security interest as defined under Sections 2(zb), 2(ze), and 2(zf) respectively. Thus, the proceedings under SARFAESI Act were deemed to be initiated without proper jurisdiction.2. Validity of the Loan Agreement Between the Petitioner and the 1st Respondent:The petitioner, a partnership firm, entered into a negotiation for the purchase of imported machinery financed by the 1st respondent. The petitioner claimed that the 1st respondent failed to mention the customs duty liability in the agreement and later agreed to remit the customs duty within three months. Despite prompt EMI payments by the petitioner, the 1st respondent initiated proceedings under SARFAESI Act by declaring the petitioner's account as NPA and issued a notice under Section 13(2) of the Act. The petitioner argued that there was no loan agreement for the purchase of the machines, and hence, the action under SARFAESI Act was without jurisdiction. However, the court found that a term loan-cum-hypothecation agreement dated 16.06.2016 existed between the petitioner and the 1st respondent, describing the petitioner as a borrower and confirming the loan agreement for purchasing the asset and discharging liabilities.3. Availability and Appropriateness of Alternative Remedies Under the SARFAESI Act:The court emphasized that the petitioner has an effective alternative remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal (DRT). The court cited several precedents, including Precision Fastenings v. State Bank of Mysore and Union Bank of India v. Satyawati Tondon, underscoring that when an effective and alternative remedy is available, writ jurisdiction should not be invoked. The court held that the DRT is competent to decide all questions of law and fact, and the grounds raised in the writ petition could be urged before the tribunal. Consequently, the court dismissed the writ petition, reiterating the principle that High Courts should exercise discretion with caution and circumspection, especially in matters involving recovery of dues by banks and financial institutions.Conclusion:The writ petition was dismissed, with the court directing the petitioner to avail the alternative remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. The court found no extraordinary or exceptional circumstances to invoke its jurisdiction under Article 226 of the Constitution of India. The connected miscellaneous petition was also closed, with no order as to costs.