The Supreme Court has consistently held that High Courts should not entertain writ petitions under Article 226 of the Constitution when an efficacious statutory remedy is available under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) before the Debts Recovery Tribunal (DRT) and Debts Recovery Appellate Tribunal (DRAT).
SARFAESI Balances Banks Interest and the Borrower’s
On the one hand, the SARFAESI ACT provides a specialized legal mechanism for financial institutions to recover non-performing assets (NPAs) without the intervention of civil courts.
On the other, to safeguard borrower’s interests, the Section 17 grants the right to approach the Debts Recovery Tribunal (DRT), and Section 18 permits an appeal to the Debts Recovery Appellate Tribunal (DRAT).
However, the borrowers frequently bypass the tribunal system, and file writ petitions under Article 226 of the Constitution to obtain emergency stays on property possession or auction.
The Section 17 and Section 18 of the SARFAESI ACT
The SARFAESI Act provides the aggrieved borrowers with a remedy – a dedicated, multi-tier adjudicatory mechanism:
Section 17 Application to DRT
Any person (including a borrower) aggrieved by the enforcement measures taken by a Secured Creditor under Section 13(4) of the act can challenge the action before the DRT within 45 days. The DRT possesses ample powers to examine whether the bank’s actions align with statutory procedures and can set aside wrongful possession or restore status quo.
Section 18 Appeal to DRAT
Any order passed by the DRT—whether interim or final—can be appealed before the appeal authority – DRAT.
To filter out frivolous litigation aimed solely at stalling recovery, Section 18 imposes a mandatory “pre-deposit” requiring the borrower to deposit 25% to 50% of the debt amount.
High Courts Lack Routine Authority to Grant Stays
While the jurisdiction of High Courts under Article 226 is a constitutional feature that cannot be completely stripped away by legislation, the Supreme Court has established that this extraordinary power is governed by self-imposed restrictions.
Bypassing the Statutory Pre-Deposit
The primary reason High Courts are barred from granting routine stays in SARFAESI matters is the strict requirement of Section 18 of the act.
Entertaining a writ petition under Article 226 allows a defaulting borrower to completely circumvent the mandatory 50% pre-deposit condition required by the DRAT. Allowing it would effectively neutralize the legislative intent of the Act, rendering the appellate tribunal redundant and encouraging forum shopping.
Landmark Judgments of the Supreme Court
In landmark judgments like Authorized Officer, State Bank of Travancore v. Mathew K.C. [AIR 2018 SC 676] and South Indian Bank Ltd. v. Naveen Mathew Philip (2023), the Apex Court underscored the need for exercising restraint on the part of high courts and cautioned that unwarranted, unreasoned interim stays granted by High Courts under Article 226 delay recovery timelines, build up bad loans, and distort bank liquidity.
In United Bank Of India vs Satyawati Tondon & Ors [AIR 2010 SC 3413], the Supreme Court observed: “It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues.”
The three-judge bench judgment of the Supreme Court in PHR Invent Educational Society v. UCO Bank & Ors. (2024 INSC 297) is a prominent judgment that strongly reinforces the rule of exhausting statutory remedies under the SARFAESI Act before filing a writ petition.
Writ Court Ill-equipped to Resolve Disputed Questions of Fact
A Writ Court under Article 226 is ill-equipped to conduct trials or examine extensive account ledgers to find out the truth concerning complex, disputed questions of fact—such as the exact value of the property, the exact outstanding dues, or the physical serving of individual notices.
The DRT, acting as a specialized fact-finding body, is the correct forum designed for this precise task.
The Narrow Exceptions to the Rule
The Supreme Court has made it clear that a writ petition under Article 226 can only be maintained under highly restrictive, extraordinary exceptions. Some of them are as follows:
- where the statutory authority has not acted in accordance with the provisions of the enactment in question;
- it has acted in defiance of the fundamental principles of judicial procedure;
- it has resorted to invoke the provisions which are repealed; and
- when an order has been passed in total violation of the principles of natural justice.
In Conclusion
In short, it is well settled that Article 226 is not an alternative way forward to stall debt recovery. As Sections 17 and 18 offer a fast, effective, and complete mechanism for relief, High Courts do not have the authority to routinely entertain SARFAESI cases or grant stays. Defending a property against a bank recovery under SARFAESI may follow the statutory way through the DRT and DRAT but not the High Court.
