2011 (5) TMI 1158 - HC - Indian Laws

SARFAESI and SIDBI Acts can coexist; court denies relief to defaulter, cautions SIDBI on future guideline issues.

M/s Maxim Lightech Pvt. Ltd. Versus Small Industries Development Bank of India

The HC dismissed the writ petition, concluding that the SARFAESI Act does not override the SIDBI Act, allowing both to coexist. The court found SIDBI's ... - Issues Involved:1. Whether the SIDBI is precluded from proceeding under Section 38 of the SIDBI Act after the enactment of the SARFAESI Act.2. Whether the provisions of the SARFAESI Act override those of the SIDBI Act.3. Whether the availability of two alternative remedies under the SARFAESI Act and the SIDBI Act violates Article 14 of the Constitution of India due to lack of guidelines for choosing between them.4. Whether the petitioner is entitled to any relief despite being a defaulter.Issue-wise Detailed Analysis:1. Proceeding under Section 38 of the SIDBI Act Post-SARFAESI Act:The core issue was whether SIDBI, after the enactment of the SARFAESI Act, is restricted from proceeding under Section 38 of the SIDBI Act. The petitioner argued that the SARFAESI Act provides a less onerous procedure with opportunities for the debtor to show cause and appeal, unlike the SIDBI Act. However, the court noted that the SARFAESI Act does not expressly repeal Section 38 of the SIDBI Act, nor does it amend the SIDBI Act to remove the powers granted under Section 38. The court found that the SARFAESI Act and SIDBI Act can coexist, and the SIDBI Act remains applicable for quick recovery of loans from defaulting small industries.2. Overriding Effect of SARFAESI Act:The petitioner contended that Section 35 of the SARFAESI Act, which provides an overriding effect, should apply to the SIDBI Act due to inconsistencies. The court, however, found that Section 37 of the SARFAESI Act states that its provisions are in addition to, and not in derogation of, other laws, including the SIDBI Act. Therefore, the SARFAESI Act does not override the SIDBI Act, and both can be applied independently.3. Article 14 and Discretion in Choosing Remedies:The court examined whether the availability of two remedies, one under the SARFAESI Act and another under the SIDBI Act, without guidelines, violates Article 14 of the Constitution. The court observed that the discretion to choose between remedies could lead to arbitrary application and discrimination. It referred to past judgments where unguided discretion in choosing between procedures was held to be violative of Article 14. The court noted that while the SIDBI Act provides a more drastic procedure, there are no guidelines for choosing which remedy to apply, potentially leading to unequal treatment of debtors.4. Entitlement to Relief:Despite finding the SIDBI's action arbitrary due to the lack of guidelines, the court did not grant relief to the petitioner. The petitioner was found to be a chronic defaulter, having defaulted since July 2009, and had not shown any intent to repay the dues or provide a repayment proposal. The court emphasized that discretionary relief under Article 226 is not meant to assist defaulters who have not demonstrated a willingness to settle their debts. The court cited various precedents to support its decision not to aid the petitioner in avoiding repayment obligations.Conclusion:The court dismissed the writ petition, warning SIDBI that future actions without guidelines for choosing between remedies could be challenged under Article 14. The petitioner, being a chronic defaulter, was not entitled to any relief, and the court reiterated that its jurisdiction under Article 226 is not to support defaulters. No costs were awarded.