The Supreme Court held that proceedings under the SARFAESI Act could coexist with arbitration and RDB Act remedies, and clarified that its procedural nature allowed application to existing debts.
The Supreme Court Bench comprising Justice Rohinton Fali Nariman and Justice Sanjay Kishan Kaul reviewed an appeal and observed that proceedings under the SARFAESI Act, the RDB Act, and arbitration are complementary, not mutually exclusive, thereby allowing cumulative remedies. The Court further held that the SARFAESI Act, being procedural in nature, applies to debts existing at the time of its enforcement without having retrospective effect.
The Supreme Court, in a case concerning borrowers and a financial institution under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, addressed critical issues pertaining to debt recovery mechanisms, retrospective application, and parallel proceedings. The case stemmed from defaults on loans secured by mortgaged properties, where the borrowers' accounts were classified as Non-Performing Assets (NPAs) on July 6, 2016. The respondent financial institution, notified as a Non-Banking Financial Company (NBFC) under the SARFAESI Act on August 5, 2016, issued notices under Section 13(2) after initiating arbitration proceedings. The borrowers challenged the simultaneous proceedings and argued against the retrospective application of substantive provisions of the SARFAESI Act, contending it imposed new obligations for NPAs classified prior to the notification.
The Court analyzed the interplay between the SARFAESI Act, the Recovery of Debts and Bankruptcy Act, 1993, and Arbitration Proceedings. Referring to Transcore v. Union of India and Another, 2007(1) Bank CLR 1 (SC) and Mathew Varghese v. M. Amritha Kumar, REEDLAW 2014 SC 02201, the Court affirmed that the RDDB Act and SARFAESI Act are complementary, not mutually exclusive, as both provide distinct yet harmonious remedies for debt recovery. The Court clarified that while the RDB Act established Debts Recovery Tribunals (DRTs) for recovery claims, the SARFAESI Act empowered secured creditors to enforce security interests without court intervention. Arbitration, being an adjudicatory mechanism for in personam disputes, does not conflict with SARFAESI enforcement proceedings. Therefore, cumulative remedies under arbitration and the SARFAESI Act were held permissible.
On the issue of retrospective application, the Court held that the SARFAESI Act was procedural in nature, providing a remedy for enforcement of existing security interests without creating new substantive rights. Relying on precedents such as West v. Gwynne (1911) and In re Athlumney (1898), the Court reiterated that procedural laws can apply to existing rights without being retrospective. It ruled that the Act's applicability to debts alive at the time of its enforcement was valid and lawful.
The Court ultimately dismissed the appeal, observing that the borrowers’ arguments were mere tactics to delay their repayment obligations. Recognizing the need to settle divergent views among High Courts, the Court upheld the Delhi High Court's reasoned decision and emphasized the importance of swift enforcement mechanisms under the SARFAESI Act. The appeal was dismissed with costs of ₹20,000, reinforcing the principle that cumulative remedies under arbitration and statutory mechanisms like the SARFAESI Act are legally sustainable.
Mr. D.K. Devesh, Mr. U.P. Singh, Mr. S.K. Roshan and Ms. Kheyali, Advocates represented the Appellant.
Mr. Venancio D'Costa, Mr. Faisal Sherwani, Mr. Sivij Kumar, Ms. Astha Ojha Singh and Mr. Damandip, Advocates appeared for the Respondent.
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