Retrospective SARFAESI application barred where merger followed an earlier loan and arbitration was already invoked.

A later merger does not, by itself, bring an earlier loan transaction within the SARFAESI recovery regime if the transaction was outside that regime at inception. The text treats SARFAESI as a substantive recovery framework and states that it cannot be applied retrospectively to impose a more onerous remedy on the borrower without consent. It also notes that where an arbitration clause has already been invoked and Section 9 proceedings are pending, parallel SARFAESI enforcement on the same loan dispute is impermissible on the facts discussed, so the recovery action was set aside while leaving other remedies open.

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Issues: (i) Whether a lender, after merger with another entity covered by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, could invoke that Act in respect of a loan transaction that was not originally within its ambit. (ii) Whether proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 could be pursued despite prior invocation of the arbitration clause and pending proceedings under Section 9 of the Arbitration and Conciliation Act, 1996.

Issue (i): Whether a lender, after merger with another entity covered by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, could invoke that Act in respect of a loan transaction that was not originally within its ambit.

Analysis: The loan transaction was entered into with an entity that was not then subject to the statutory regime under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The later merger could not, by itself, alter the legal character of the earlier transaction or impose a more onerous recovery regime on the borrower without consent. The statutory scheme was treated as creating a substantive recovery framework, not a merely procedural change, and a subsequent arrangement could not be used indirectly to bring an out-of-scope transaction within the Act.

Conclusion: The invocation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for the earlier loan transaction was not sustained.

Issue (ii): Whether proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 could be pursued despite prior invocation of the arbitration clause and pending proceedings under Section 9 of the Arbitration and Conciliation Act, 1996.

Analysis: The loan documents contained an arbitration clause, and proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 had already been initiated. Once that contractual dispute-resolution mechanism had been set in motion, parallel enforcement action under the later recovery notice was held impermissible on the facts of the case.

Conclusion: The subsequent recovery action could not be continued in the face of the pending arbitration proceedings.

Final Conclusion: The writ petition succeeded, the impugned recovery proceedings were set aside, and the respondents were left free to pursue any other remedy available in law.

Ratio Decidendi: A later merger or statutory change cannot retrospectively subject an earlier loan transaction to a stricter recovery regime when that transaction was outside the regime at inception, and parallel enforcement must yield to the contractual arbitration process already invoked.

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