Bank can enforce security interest without civil suit restraint under SARFAESI Act Section 13

The Bombay HC dismissed an appeal challenging a lower court's refusal to restrain secured creditors from enforcing security interest in disputed property. The court found no prima facie evidence of fraud or collusion between defendants and bank officials in purchasing the property at undervalued prices. The bank was unaware of the MOU between parties and followed proper SARFAESI Act procedures. Allegations of secret understanding were deemed vague without sufficient particulars. The court held that security enforcement measures under Section 13 of SARFAESI Act could not be challenged in civil suit absent evidence of collusion.

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Issues Involved:
1. Jurisdiction of Civil Court under SARFAESI Act.
2. Validity and enforceability of the Memorandum of Understanding (MOU) under SARFAESI Act.
3. Allegations of fraud and collusion between defendants and bank officers.
4. Measures taken by the bank under Section 13 of the SARFAESI Act.
5. Remedies available to plaintiffs for alleged breach of MOU.

Issue-wise Detailed Analysis:

1. Jurisdiction of Civil Court under SARFAESI Act:
The court referenced Section 13 of the SARFAESI Act, which allows enforcement of security interest without court intervention. It cited the Supreme Court's decision in *Jagdish Singh v. Hiralal* (2014) which held that grievances against measures taken under Section 13(4) should be addressed to the Debts Recovery Tribunal (DRT) and not civil courts. Consequently, the trial court declined to restrain secured creditors from enforcing security interest, and this decision was challenged under Order 43 Rule 1(r) read with 104 of the Civil Procedure Code, 1908.

2. Validity and Enforceability of the Memorandum of Understanding (MOU) under SARFAESI Act:
The plaintiffs executed an MOU with defendants on 11th February 2021, agreeing to sell the suit property. However, the court noted that this MOU was executed in defiance of Section 13(13) of the SARFAESI Act, which prohibits borrowers from transferring secured assets post-receipt of notice under Section 13(2) without the secured creditor's consent. The plaintiffs did not disclose the MOU to the bank, nor informed the defendants about the notice received under Section 13(2). The court concluded that the MOU was not enforceable.

3. Allegations of Fraud and Collusion between Defendants and Bank Officers:
The plaintiffs alleged that defendants colluded with bank officers to purchase the property at an undervalued rate, thus causing unlawful losses to the plaintiffs. The court found no prima facie evidence of fraud. It noted that the bank was unaware of the MOU and that the allegations of collusion were vague and lacked specific particulars. The court emphasized that the bank's measures to enforce security interest were taken in compliance with the SARFAESI Act.

4. Measures Taken by the Bank under Section 13 of the SARFAESI Act:
The court observed that the bank followed mandatory provisions and rules under the SARFAESI Act, including issuing a notice under Section 13(2) and conducting an e-auction through a government agency. The plaintiffs' account was categorized as a stressed asset, and despite several reminders, they failed to pay the dues. The bank published sale notices and conducted the auction transparently. The court found no fault in the bank's actions and stated that the measures taken were immune from challenge in a civil suit.

5. Remedies Available to Plaintiffs for Alleged Breach of MOU:
The court suggested that the plaintiffs' remedy for any alleged breach of the MOU by the defendants was to claim damages and pecuniary loss through arbitration, as the defendants had invoked the alternative dispute resolution mechanism. The court noted that the plaintiffs had also availed the remedy under Section 17 of the SARFAESI Act by filing an appeal before the DRT, which was pending.

Conclusion:
The court dismissed the plaintiffs' case, holding that there was no prima facie evidence of fraud or collusion. It affirmed that the bank's measures under the SARFAESI Act were lawful and could not be challenged in a civil suit. The court also rejected the request to continue interim relief.

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