Secured Creditor Free to Choose Remedy under SARFAESI Act

FACTS:

In the case of Diamond Entertainment Technologies (P) Ltd. v. Religare Finvest Ltd., [2023 SCC OnLine Del 4905] decided by the High Court of Delhi on August 14, 2023, the petitioners challenged an order passed under Section 14 of the SARFAESI Act, 2002 which deals with the possession of the secured asset. The respondent in the case, a Non-Banking Financial Corporation (NBFC) had sanctioned a loan of Rs. 10 Crores against mortgaged property. This loan account was restructured, a supplementary agreement was executed, and a payment schedule was given. On June 7, 2021, the sister of Diamond Entertainment (Petitioner no.1) filed for a suit of partition of the mortgaged property, and in this suit, the Court passed an order to maintain the status quo in respect of title possession of the suit property until the next date of hearing. However, due to payment default, this account was classified as a non-performing asset. The respondent, being a secured creditor instituted proceedings under Section 13(2) of the Act demanding the payment of the outstanding amount along with interest. Finally, on September 12, 2021, the respondent took constructive possession of the mortgaged property under Section 13(4) following which the application under Section 14 was filed wherein a receiver was appointed by the Magistrate. This is the order that was challenged in this case on the contention that it was an abuse of the process of law.

ISSUE:

Whether there is a bar/restraint in law against the secured creditor to directly proceed under Section 14 of the SARFAESI Act, 2002 after withdrawing measures taken under Section 13(4) of the Act.

JUDGEMENT:

It was the argument of the petitioners in the present case that there was a stay operating with respect to the mortgaged property in the partition suit which continued till the date of the application filed under Section 14 by the respondents. Further, they claimed that since the respondent had already sought a remedy under Section 13(4) of the Act, they could not at a later stage invoke proceedings under Section 14 by withdrawing the notice under Section 13. This, according to the petitioners, was an abuse of the process of law.

The Court observed that on withdrawal of the notice under Section 13 of the Act, any right of the petitioners which may have accrued to them under Section 17 was extinguished and therefore, the petitioners could not object against the respondent’s withdrawal of notice and initiation of proceedings under Section 14. As per precedent set in the cases of Standard Chartered Bank v. V. Noble Kumar (2013) 9 SCC 620] and Hindon Forge (P). Ltd. v. State of U.P. [(2019) 2 SCC 198], it is the right of the respondent, as a secured creditor, to decide the remedy that they wish to adopt, and the borrower or guarantor has no say in the manner or mode in which recourse is opted to be taken by the secured creditor. There was nothing in law that restrained the respondent from moving under Section 14 of the Act once he had taken measures under Section 13(4). Further, the rights of the petitioners under Section 17 would only accrue once possession was taken and they could not invoke Article 226 of the Constitution to frustrate the object of the recovery proceedings.