The Supreme Court bench comprising Justices Sanjiv Khanna and M. M. Sundresh was hearing an appeal and held that the high courts should refrain from interfering in commercial matters governed by the SARFAESI Act when there exists an effective alternative forum, and the specific mechanism provided by the legislature should be followed.
In the present case, an attempt was made to seek enforcement of a unilateral offer regarding private financial transactions while also questioning the steps taken to recover outstanding dues in the event of non-compliance with one-time settlements. The petitioner invoked the extraordinary jurisdiction of the High Court to challenge the actions taken by the appellants. The High Court of Kerala, in response to the request, passed orders utilizing the powers conferred under Article 226 of the Constitution of India. These orders are now being challenged in the present appeals.
The Supreme Court restated the established legal position regarding the interference of the High Court through the invocation of Article 226 of the Constitution of India in commercial matters. The court emphasized that if there exists an effective and adequate alternative forum established through a statute, the High Court should refrain from interfering. The objective and rationale behind Act 54 of 2002 are evident, as noted by the Supreme Court in the case of Mardia Chemicals Ltd. v. Union of India, 2004(1) Bank CLR 641 (SC). This statute facilitates a faster and smoother recovery process without unnecessary court interference, while also providing a fair mechanism through the legally trained Tribunal. The Tribunal possesses extensive powers to set aside illegal orders and grant consequential reliefs, including repossession, compensation, and costs. Section 17(1) of the SARFAESI Act broadens the scope of "any person" who can approach the Tribunal.
The Supreme Court further observed that approaching the High Court to consider a borrower's offer is disapproved by the Court. A writ of mandamus is a prerogative writ, and the Court cannot exercise such power in the absence of a legal right. More caution is required in financial transactions, particularly when one party does not fall under the purview of Article 12 of the Constitution of India. When a statute prescribes a specific procedure, attempts to circumvent it should not be encouraged by the writ court. A litigant cannot evade compliance with approaching the Tribunal, which entails the payment of fees, and utilize the constitutional remedy as an alternative.
The Supreme Court bench reiterated the stance on High Court interference in matters related to the SARFAESI Act, quoting previous decisions where such practices were disapproved. The Supreme Court urged the High Courts not to entertain such cases.
The Supreme Court observed that the powers conferred under Article 226 of the Constitution of India are rather wide but are required to be exercised only in extraordinary circumstances in matters pertaining to proceedings and adjudicatory scheme qua a statute, more so in commercial matters involving a lender and a borrower, when the legislature has provided for a specific mechanism for appropriate redressal.
The Apex Court disposed of the present appeals by reaffirming the expressed concerns.