The Kerala High Court held that the Secured Creditor cannot proceed under the SARFAESI Act when a civil suit for recovery is dismissed on merit.
The Kerala High Court single-judge bench of Justice Easwaran S. was recently hearing a petition and observed that when a civil suit is dismissed, indicating the absence of a legally recoverable debt, a secured creditor cannot proceed independently under the Securitisation Act. Pursuing such measures would be without jurisdiction. Therefore, exceptional circumstances may warrant the invocation of writ jurisdiction to address such instances where a secured creditor seeks to continue with Securitisation Act measures after a civil suit dismissal.
In a notable High Court judgment, the court delved into a pressing query arising from a writ petition: whether a Secured Creditor could pursue actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) after the dismissal of a civil suit filed for recovery. The petitioner had availed a car loan and claimed to have repaid the entire amount. However, the bank issued notices under the Securitisation Act for an alleged outstanding sum, which the petitioner disputed.
During the hearing, the petitioner's counsel argued that the dismissal of the civil suit barred further action under the Securitisation Act. Conversely, the bank's counsel contended that the two legal avenues were independent and the dismissal of the suit didn't affect Securitisation Act measures.
The High Court referred to Supreme Court precedents, highlighting that writ petitions against Securitisation Act measures were only permissible under exceptional circumstances. It scrutinized whether such circumstances existed in the present case, especially given the bank's insistence on proceeding despite the suit's dismissal.
Examining the definition of "debt" under the Securitisation Act and related statutes, the court found that the dismissal of the suit negated any legally recoverable debt owed by the petitioner. It emphasized that a creditor couldn't disregard a civil court's ruling and proceed independently under the Securitisation Act.
Drawing parallels with legal precedents, including a Supreme Court ruling on financial institutions' remedies, the court affirmed that the bank couldn't simultaneously pursue remedies under the civil court and the Securitisation Act. It reasoned that the bank's actions lacked jurisdiction, falling within the exceptional circumstances justifying writ jurisdiction.
Moreover, the court criticized the bank's delay in seeking to vacate the interim order or expedite the writ petition's disposal. It deemed unreasonable the bank's insistence on relegating the petitioner to the Debt Recovery Tribunal after the suit's dismissal.
Ultimately, the court allowed the writ petition, declaring the bank's Securitisation Act measures untenable in light of the suit's dismissal. It granted the bank the liberty to resume such measures if the suit's dismissal was reversed on appeal. No costs were awarded.
In summary, the judgment clarified the interplay between civil suits and Securitisation Act measures, asserting the primacy of civil court rulings and affirming the writ jurisdiction under exceptional circumstances.
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