15 July 2024


Supreme Court

Agarwal Tracom Pvt. Ltd. vs. Punjab National Bank and Ors.




Auction purchaser can challenge the action of forfeiting it’s deposit by secured creditor before DRT

The present appeal is filed against the final judgment passed by the Delhi High Court whereby the Division Bench of the High Court had dismissed the appeal filed by the Appellant herein for quashing the order passed by the Single Judge, which dismissed the Appellant's writ petition.

Respondents-Punjab National Bank (PNB) had given loan facility to a Company called "M/s. India Iron & Steel Corporation Limited" (Borrower) for their business. To secure the loan amount, the Borrower had secured their assets, which consisted of the land, factory building, plant and machinery. The Borrower, however, failed to clear their loan amount and became a defaulter in its repayment. The PNB, therefore, invoked their powers under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and issued a public sale notice sale of the mortgaged assets. The Appellant herein was one of the bidders, whose bid was declared the highest and accordingly, accepted by PNB. The Appellant, however, failed to pay the regular installments towards sale money in terms of memorandum of understanding to PNB and sought extension of time to pay and remove the scrap material from the site which gave rise to the disputes between the parties, namely, PNB, Appellant and the Borrower before the Debt Recovery Tribunal (DRT) wherein an order was passed directing the Appellant not to remove any material from the factory premises.

The Appellant then wrote a letter to PNB requesting them to refund their money with interest which led to another dispute between the parties wherein Allahabad High Court had observed that since the Appellant had failed to comply with the term of memorandum of understanding inasmuch as the Appellant having failed to deposit the requisite installment of sale money, the PNB cannot proceed with the auction sale and nor can the Appellant be permitted to remove the scrap material lying in the factory premises.

This led the PNB to forfeit the Appellant's deposit which was challenged by the Appellant by filing the writ petition in the High Court of Delhi. The Petition was dismissed by the Single Judge of the High Court on the ground of availability of alternative statutory remedy to the Appellant of filing the application under Section 17 of the SARFAESI Act before the DRT to challenge the action. The appeal filed for challenging the decision of Single Judge was dismissed by the Division Bench of Deli high Court. Felt aggrieved, the Appellant has filed the present appeal by way of special leave in Supreme Court.

The learned senior Counsel appearing for the Appellant while questioning the legality and correctness of the view taken by the two Courts below contended that action impugned by the Appellant in their writ petition, namely, "forfeiture of the deposit of money by PNB" is not one of the measures specified under Section 13(4) of the SARFAESI Act and, therefore, provisions of Section 17 of SARFAESI Act are not attracted so far as the Appellant's right to challenge such action under Section 17 before the DRT is concerned.

Thus, the short question that arise for consideration in this appeal is whether the High Court was justified in holding that the remedy of the Appellant lies in challenging the action of the secured creditor in forfeiting the deposit by filing an application under Section 17 of the SARFEASI Act before the DRT or the remedy of auction purchaser is in filing the writ petition under Articles 226 and 227 of the Constitution of India to examine the legality of such action.

The Supreme Court has dismissed the Appeal and observed that an action of PNB in forfeiting the deposit made by the Appellant is a part of the measures taken by it under Section 13(4) of SARFAESI Act. The Appellant being fall within the expression "any person" as specified under Section 17(1) of SARFAESI Act is entitled to challenge the action of the PNB before the DRT by filing an application under Section 17(1) of the SARFAESI Act.

Thus, the Writ Court as also the Appellate Court were justified in dismissing the Appellant's writ petition on the ground of availability of alternative statutory remedy of filing an application under Section 17(1) of SARFAESI Act before the concerned Tribunal to challenge the action of the PNB in forfeiting the Appellant's deposit under Rule 9(5). In view of the above, present court do not find any ground to interfere with the impugned judgment of the High Court.

The Appellant is, accordingly, granted liberty to file an application before the concerned Tribunal (DRT) under Section 17(1) of the SARFAESI Act, which has jurisdiction to entertain such application within 45 days from the date of this order. In case, if the Appellant files any such application, the Tribunal shall decide the same on its merits in accordance with law uninfluenced by any of the observations made by this Court and the High Court in the impugned judgment. With these observations and liberty granted to the Appellant, the appeal fails and is accordingly dismissed.


under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Tags : Alternative Remedy SARFAESI Act DRT

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