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          REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 19847  OF 2017 (ARISING OUT OF SLP (C) No. 33514/2016)

Agarwal Tracom Pvt. Ltd.    ...Appellant(s)   VERSUS

Punjab National Bank & Ors.        …Respondent(s)

J U D G M E N T

Abhay Manohar Sapre, J.  

1. Leave granted.

2. This  appeal  is  directed  against  the  final

judgment and  order dated 11.05.2016 passed by

the High Court of Delhi at New Delhi in LPA No.699

of  2015  whereby  the  Division  Bench  of  the  High

Court  dismissed the  appeal  filed by the  appellant

herein  for  quashing  the  order  dated  01.09.2015

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passed by  the  Single  Judge,  which dismissed the

appellant’s W.P.(c) No.8314 of 2015.

3. The controversy involved in the appeal centers

around the short facts and is essentially a legal one.

However, few relevant facts need mention, in brief,

to appreciate the controversy.

4. Respondents-Punjab National Bank(hereinafter

referred to  as "PNB")  is  a Nationalised Bank.  The

PNB had  given  loan  facility  to  a  Company  called

"M/s  India  Iron  &  Steel  Corporation  Limited"  (in

short,  "Borrower”)  for  their  business,  which  they

were  carrying  at  a  place  called  Noorpur  Khirki,

Village Farid Nagar, Tehsil Dhampur, District Bijnor

(U.P.).  

5. To secure the loan amount, the Borrower had

secured their assets,  which consisted of  the land,

factory  building,  plant  and machinery  situated  at

Dhampur.  The  Borrower,  however,  failed  to  clear

their  loan  amount  and  became  a  defaulter  in  its

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repayment.  The  PNB,  therefore,  invoked  their

powers under Section 13(4) of the Securitization and

Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002 (hereinafter referred to

as “SARFAESI Act”) and issued a public sale notice

in  leading  English  newspapers  for  sale  of  the

mortgaged  assets  of  the  Borrower  in  the  public

auction  fixed  for  17.06.2014  (Annexure-P-1).  The

appellant herein was one of the bidders, whose bid

was declared the highest.  

6. The appellant's  bid was accordingly accepted

by the PNB followed by execution of memorandum

of  understanding  between  the  appellant  and  the

PNB (Annexure P-4). The PNB also sent a letter to

the  appellant  stating  that  the  entire  plant,

machinery,  land and the  building  is  auctioned in

favour of  the appellant.  The letter also authorized

the appellant to dismantle and sell the scrap plant

and  the  machinery  which  was  lying  at  the

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Borrower’s  factory's  premises  after  depositing  the

necessary  installment  of  sale  amount,  as  agreed

upon between the  parties  in  the  memorandum of

understanding.

7. The  appellant,  however,  failed  to  pay  the

regular installments towards sale money in terms of

memorandum of understanding to PNB and sought

extension  of  time  to  pay  and  remove  the  scrap

material from the site.  

8. This  gave  rise  to  the  disputes  between  the

parties, namely, PNB, appellant (auction purchaser)

and the Borrower before the Debt Recovery Tribunal

(DRT), Lucknow being S.A. No 310 of 2014 wherein

an  order  was  passed  on  03.07.2014

(Annexure-P-11)  directing  the  appellant  not  to

remove any material from the factory premises. The

appellant  then  wrote  a  letter  to  PNB  requesting

them to refund their money with interest. This led to

another dispute between the parties which was filed

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in the DRT and then before the appellate authority-

DRAT and finally, in the High Court at Allahabad in

Writ  Petition(c)  No.  22246/2015 by  the  Borrower.

This  writ  petition  was  disposed  of  finally  on

29.05.2015  observing  therein  that  since  the

appellant  had  failed  to  comply  with  the  term  of

memorandum  of  understanding  inasmuch  as  the

appellant  having  failed  to  deposit  the  requisite

installment of sale money, the PNB cannot proceed

with the auction sale held on 17.06.2014 and nor

can the appellant be permitted to remove the scrap

material lying in the factory premises.  

9. This  led  the  PNB  to  forfeit  the  appellant's

deposit  by  their  letter  dated  26.06.2015

(Annexure-P25). The appellant objected to the action

of PNB by letters and then filed the writ petition in

the  High  Court  of  Delhi  challenging  therein  the

action of PNB in forfeiting the appellant's deposit of

money.

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10. The Single Judge of the High Court,  by order

dated  01.09.2015,  dismissed  the  appellant's  writ

petition on the ground of availability of alternative

statutory  remedy  to  the  appellant  of  filing  the

application under Section 17 of the SARFAESI Act

before  the DRT to challenge the action of  PNB in

forfeiting the deposit money of the appellant.  The

Single  Judge,  therefore,  declined  to  go  into  the

merits of the case.

11. The appellant, felt aggrieved of the order of the

Single Judge, filed intra Court appeal (LPA 699 of

2015)  before  the  Division  Bench.  By  impugned

judgment, the Division Bench dismissed the appeal

and confirmed the order of  the Single Judge. The

Division Bench was also of  the view that the writ

petition  filed  by  the  appellant  was  rightly  not

entertained by the Single Judge (writ Court) on the

ground that the proper remedy of the appellant was

to file an application before the DRT under Section

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17 of the SARFAESI Act to question the action of

forfeiture made by PNB and not  in filing the writ

petition under Article 226 of the Constitution. Felt

aggrieved,  the  auction  purchaser  has  filed  the

present appeal by way of special leave in this Court.

12. Heard  Mr.  Jaideep  Gupta,  learned  senior

counsel  for  the  appellant  and  Mr.  M.T.  George,

learned counsel for the respondents.

13. Mr.  Jaideep  Gupta,  learned  senior  counsel

appearing  for  the  appellant  (auction  purchaser)

while questioning the legality and correctness of the

view taken by the two Courts below contended that

the reasoning and the conclusion arrived at by the

writ  Court  and the Appellate  Court  is  not  correct

and  hence  deserves  to  be  set  aside.  His  main

submission was that  the  action impugned by  the

appellant in their writ petition, namely,   "forfeiture

of the deposit of money by PNB" is not one of the

measures  specified  under  Section  13(4)  of  the

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SARFAESI Act and, therefore, provisions of Section

17 of SARFAESI Act are not attracted so far as the

appellant's  right  to  challenge  such  action  under

Section 17 before the DRT is concerned.

14. In  other  words,  the  submission  was  that  in

order  to  attract  the  rigor  of  Section  17  of  the

SARFAESI  Act,  it  is  necessary  that  the  action

complained of by the party concerned must satisfy

the conditions set out in Section 13 (4). It was urged

that the “forfeiture of deposit" impugned in the writ

petition is not and nor it could be considered as one

of  the measures falling in Section 13 (4)  so as to

attract the rigor of Section 17 of the SARFAESI Act.

It  was  urged  that  the  dispute  in  question  was

essentially between the PNB (secured creditor) and

the  auction  purchaser  (appellant)  and  arose  after

the measures under Section 13(4) had been taken

by the secured creditor (PNB) against the borrower

and, therefore, the dispute in question fell outside

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the purview of Section 13(4) and, in consequence,

fell  out  of  purview  of  Section  17.  In  short,  the

dispute in question had nothing to do with any of

the measures specified in Section 13(4).

15. It was further urged that reading of Section 17

would go to show that the application under Section

17 can be made to  DRT by “any person” including

borrower to challenge any of the measures referred

to  in  Section  13(4)  once  taken  by  the  secured

creditor.  However,  since  forfeiture  of  the  amount

made by the  secured creditor  against  the  auction

purchaser is not one of the measures under Section

13(4) and hence, the action of forfeiture made by the

secured  creditor  cannot  be  challenged  by  the

auction  purchaser  under  Section  17  of  the

SARFAESI  Act  by  filing  an  application.    It  was

urged that under these circumstances the appellant

had  rightly  filed  the  writ  petition  under  Article

226/227 of the Constitution to challenge the action

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of  forfeiture  of  deposit  money  in  the  High  Court,

that being the only remedy available to them and,

therefore,  the  writ  petition  should  have  been

entertained  for  its  hearing  on  merits  by  the  writ

court.  It  is  these  submissions,  which  were

elaborated by the learned counsel for the appellant

by pointing out relevant provisions of the SARFAESI

Act.

16.    In reply, learned counsel for the respondents

(PNB)  supported  the  impugned  judgment  and

contended  that  the  action  impugned  in  the  writ

petition  does  attract  Section  13(4)  read  with  the

Rules framed thereunder and hence the remedy of

the appellant lies in approaching DRT by filing an

application under Section 17 of the SARFAESI Act

as was rightly held by the two Courts below.

17. Having  heard  the  learned  counsel  for  the

parties and on perusal of the record of the case, we

find no merit in the appeal. In other words, the view

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taken  by  the  High  Court  appears  to  be  just  and

reasonable  and  hence  does  not  call  for  any

interference.

18. The short question that arise for consideration

in  this  appeal  is  whether  the  High  Court  was

justified in holding that the remedy of the appellant

(auction purchaser) lies in challenging the action of

the secured creditor (PNB) in forfeiting the deposit

by  filing  an  application  under  Section  17  of  the

SARFEASI  Act  before  the  DRT  or  the  remedy  of

auction purchaser is in filing the writ petition under

Article  226/227  of  the  Constitution  of  India  to

examine the legality of such action.  

19. Section 13(4) and Section 17 of the SARFAESI

Act,  Rules  8  and  9  of  the  Security

Interest(Enforcement)  Rules,2002(hereinafter

referred  to  as  “the  Rules”)  to  the  extent  they  are

relevant  for  deciding  the  question  involved  in  the

appeal are quoted below:

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Section 13(4)

13. Enforcement of security interest-

(1) to (3A)……………………………………………….

(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse  to  one  or  more  of  the  following measures  to  recover  his  secured  debt, namely:-

(a) take  possession  of  the secured  assets  of  the borrower including the right to transfer by way of lease, assignment  or  sale  for realizing the secured asset;

(b) take  over  the  management of  the  business  of  the borrower including the right to transfer by way of lease, assignment  or  sale  for realizing the secured asset:

Provided that the right to transfer by way of lease, assignment or sale shall  be exercised  only  where  the substantial  part  of  the business of  the borrower is held  as  security  for  the debt:

Provided  further  that where  the  management  of whole,  of  the  business  or part  of  the  business  is severable,  the  secured creditor shall take over the management  of  such business  of  the  borrower which  is  relatable  to  the security or the debt;

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(c) appoint  any  person (hereafter referred to as the manager),  to  manage  the secured  assets  the possession  of  which  has been  taken  over  by  the secured creditor;

(d) require  at  any  time  by notice  in  writing,  any person  who  has  acquired any  of  the  secured  assets from the borrower and from whom any money is due or may  become  due  to  the borrower, to pay the secured creditor,  so  much  of  the money  as  is  sufficient  to pay the secured debt.”  

Section 17

“17. Application against measures to recover secured  debts-(1)  Any  person  (including borrower), aggrieved by any of the measures referred  to  in  sub-section  (4)  of  section  13 taken  by  the  secured  creditor  or  his authorized  officer  under  this  Chapter,  may make an application along with such fee, as may  be  prescribed  to  the  Debts  Recovery Tribunal  having  jurisdiction  in  the  matter within forty-five days from the date on which such measures had been taken:

 (2) The  Debts  Recovery  Tribunal  shall consider  whether  any  of  the  measures referred  to  in  sub-section  (4)  of  section  13 taken  by  the  secured  creditor  for enforcement  of  security  are  in  accordance with the provisions of this Act and the rules made thereunder.

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(3) If,  the  Debts  Recovery  Tribunal,  after examining the facts and circumstances of the case and evidence produced by the parties, comes  to  the  conclusion  that  any  of  the measures  referred  to  in  sub-section  (4)  of section 13, taken by the secured creditor are not in accordance with the provisions of this Act  and  the  rules  made  thereunder,  and require  restoration  of  the  management  or restoration  of  possession,  of  the  secured assets  to  the  borrower  or  other  aggrieved person, it may, by order,-

(a) to (c)……………………  

(4) If, the Debts Recovery Tribunal declares the  recourse  taken  by  a  secured  creditor under  sub-section  (4)  of  section  13,  is  in accordance  with  the  provisions  of  this  Act and  the  rules  made  thereunder,  then, notwithstanding  anything  contained  in  any other  law  for  the  time  being  in  force,  the secured  creditor  shall  be  entitled  to  take recourse  to  one  or  more  of  the  measures specified under sub-section (4) of section 13 to recover his secured debt.

(4A)…………………………………………………….. (5)……………………………………………………….. (6)………………………………………………………..

(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993(51  of  1993)  and  the  rules  made thereunder.

Rule 8

8.   Sale of immovable secured assets- (1) to (8)………………………………………………….

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Rule 9

9.  Time of sale, issue of sale certificate and delivery of possession, etc.- (1)  to (4)…………………………………………………

(5) In default  of  payment within the period mentioned in sub-rule (4), the deposit shall be forfeited  to  the  secured  creditor  and  the property  shall  be  resold  and  the  defaulting purchaser  shall  forfeit  all  claim  to  the property or to any part of the sum for which it may be subsequently sold.  

(6)  On  confirmation  of  sale  by  the  secured creditor  and  if  the  terms  of  payment  have been  complied  with,  the  authorized  officer exercising  the  power  of  sale  shall  issue  a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix V to these rules.”  

   (Emphasis supplied)

20. Section  13(4)  is  invoked  by  the  secured

creditor against their borrower when the borrower

fails  to  discharge  his  liability  in  full  within  the

specified time. The secured creditor then can take

possession of  the  assets  of  the  borrower,  transfer

the  assets  by  lease  or  by  assignment  or  sell  the

assets to recover the outstanding dues under clause

(a).

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21. The secured creditor under clause (b) can also

take over  the management of  the  business of  the

borrower or transfer by way of lease, assignment or

sale. However such power can be invoked only when

the creditor holds substantial part of the borrower’s

business  as  security  and  further  it  satisfies  the

condition set out in second proviso.

22. The secured creditor under clause (c) can also

appoint  any  manager  to  manage  the  borrower’s

business and lastly  under  clause (d),  the  secured

creditor can ask any person to whom the money is

due or become due to pay to the secured creditor

instead of paying to borrower which is sufficient to

satisfy the debt.

23. So far as Section 17 is concerned, it provides a

remedy  to  a  person  who  is  aggrieved  by  the

measures  taken  by  the  secured  creditor  or  his

authorized officer under Section 13(4) in relation to

secured  assets  of  the  borrower.  It  says  that  "any

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person  (including  borrower)"  may  make  an

application to the DRT within 45 days from the date

of measures taken under Section 13(4). Sub-section

(2) of Section 17 was added by way of amendment

w.e.f. 11.11.2004. It provides that the Tribunal, on

such application being made under Section 17(1),

shall consider whether the measures referred to and

taken under Section 13(4) by the secured creditor

are in accordance with the "provisions of this Act

and the Rules made thereunder".  Similarly, sub-

sections  (3),  (4)  and (7)  of  Section 17 which deal

with the power of the DRT also use the expression

“in accordance with provisions of  the Act and the

Rules made thereunder”.   

24. Rule 8, which has 8 sub-rules, deals with the

manner  of  sale  of  immovable  secured  assets  and

provides  detail  procedure  as  to  how and in  what

manner the  sale  of  secured assets,  is  to be held.

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Rule  9  deals  with  time  of  sale,  issue  of  sale

certificate and delivery of possession

25. Rule 9(6)  empowers the authorized officer to

issue  sale  certificate  in  favour  of  the  purchaser.

Rule 9(9)  then empowers the authorized officer  to

deliver the properties to the purchaser whereas Rule

9(10) empowers the authorized officer to mention in

sale  certificate  that  the  property  is  free  from

encumbrances.

26. So far as this case is concerned, sub-rule (5) of

Rule 9 is relevant.  It provides that,  if  the auction

purchaser commits any default in payment of sale

consideration within the time specified, the deposit

made by auction purchaser  shall  be  “forfeited”  to

the  secured  creditor  and  the  auctioned  property

shall be resold and the defaulting purchaser shall

“forfeit” all claims to the property or its part of the

sum for which it may be sold subsequently.

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27. Reading  of  the  aforementioned  Sections  and

the Rules and, in particular, Section 17(2) and Rule

9(5)  would  clearly  go  to  show  that  an  action  of

secured creditor  in forfeiting the  deposit  made by

the  auction  purchaser  is  a  part  of  the  measures

taken by the secured creditor under Section 13(4).  

28. The reason is that Section 17(2) empowers the

Tribunal to examine all the issues arising out of the

measures taken under Section 13(4) including the

measures taken by the secured creditor under Rules

8 and 9 for  disposal  of  the  secured assets of  the

borrower. The expression  "provisions of this Act

and  the  Rules  made  thereunder" occurring  in

sub-sections (2), (3), (4) and (7) of Section 17 clearly

suggests  that  it  includes  the  action  taken  under

Section  13(4)  as  also  includes  therein  the  action

taken  under  Rules  8  and  9  which  deal  with  the

completion of  sale of  the secured assets.  In other

words,  the  measures  taken  under  Section  13  (4)

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would not be completed unless the entire procedure

laid down in Rules 8 and 9 for sale of secured assets

is fully complied with by the secured creditor. It is

for this reason, the Tribunal has been empowered

by Section 17(2),(3) and (4) to examine all the steps

taken by the secured creditor with a view to find out

as to whether the sale of secured assets was made

in  conformity  with  the  requirements  contained  in

Section 13(4) read with the Rules or not?  

29. We also notice that Rule 9(5) confers express

power on the secured creditor to forfeit the deposit

made by the auction purchaser in case the auction

purchaser  commits  any  default  in  paying

installment of  sale money to the secured creditor.

Such action taken by the secured creditor is, in our

opinion, a part of the measures specified in Section

13(4)  and,  therefore,  it  is  regarded  as  a  measure

taken under Section 13(4) read with Rule 9(5).  In

our view, the measures taken under Section 13(4)

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commence with any of the action taken in clauses

(a) to (d) and end with measures specified in Rule 9.

30. In our view, therefore, the expression “any of

the measures referred to in Section 13(4) taken by

secured creditor or his authorized officer” in Section

17(1) would include all actions taken by the secured

creditor  under  the  Rules  which  relate  to  the

measures specified in Section13(4).   

31. The  auction  purchaser  (appellant  herein)  is

one such person, who is aggrieved by the action of

the secured creditor in forfeiting their money.  The

appellant, therefore, falls within the expression “any

person” as specified under Section 17(1) and hence

is  entitled  to  challenge  the  action  of  the  secured

creditor  (PNB)  before  the  DRT  by  filing  an

application  under  Section  17(1)  of  the  SARFAESI

Act.

32. Learned  counsel  for  the  appellant  placed

reliance  on  the  decision  of  the  Division  Bench of

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High Court of Bombay in Umang Sugars Pvt. Ltd.

vs. State of Maharashtra & Anr., 2014(4) Mh.L.J.

113  which,  according  to  him,  supports  his

submission.   We  have  gone  through  the  decision

and unable  to  agree  with  the  view taken therein.

Their  Lordships,  while  holding  that  Section  17(1)

does not apply to auction purchaser and, therefore,

writ petition filed by him can be entertained in such

cases, did not notice the Rules, which deal with the

measures  taken  under  Section  13(4)  and  nor

considered its effect on the measures.  

33. In  United  Bank  of  India  vs.  Satyawati

Tondon & Ors., (2010) 8 SCC 110, this Court had

the occasion to examine in detail the provisions of

the  SARFAESI  Act  and  the  question  regarding

invocation of the extraordinary power under Article

226/227 in challenging the actions taken under the

SARFAESI  Act.   Their  Lordships  gave  a  note  of

caution while dealing with the writ filed to challenge

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the  actions  taken  under  the  SARFAESI  Act  and

made following pertinent observations which, in our

view, squarely apply to the case on hand:

“42. There  is  another  reason  why  the impugned  order  should  be  set  aside.  If Respondent  1  had  any  tangible  grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could  have  availed  remedy  by  filing  an application  under  Section  17(1).  The expression  “any  person”  used  in  Section 17(1)  is  of  wide  import.  It  takes  within its fold,  not  only  the  borrower  but  also  the guarantor  or  any other  person who may be affected by the  action taken under  Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule.  It  is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.

43. Unfortunately, the High Court overlooked the  settled  law  that  the  High  Court  will ordinarily  not  entertain  a  petition  under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees,  other  types  of  public  money  and  the dues  of  banks  and  other  financial institutions. In our view, while dealing with the  petitions  involving  challenge  to  the action taken for recovery of the public dues, etc. the High Court must keep in mind that the  legislations  enacted  by  Parliament  and

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State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not  only  contain  comprehensive  procedure for  recovery  of  the  dues  but  also  envisage constitution  of  quasi-judicial  bodies  for redressal  of  the  grievance  of  any  aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under  Article  226  of  the  Constitution,  a person must exhaust the remedies available under the relevant statute.

44. While expressing the aforesaid view, we are conscious that the powers conferred upon the  High  Court  under  Article  226  of  the Constitution  to  issue  to  any  person  or authority, including in appropriate cases, any Government,  directions,  orders  or  writs including  the  five  prerogative  writs  for  the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of  that  power  but,  at  the  same  time,  we cannot  be  oblivious  of  the  rules  of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view  while  exercising  power  under  Article 226 of the Constitution.

45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom  any  reason  why  the  High  Court should entertain a petition filed under Article 226  of  the  Constitution  and  pass  interim order  ignoring  the  fact  that  the  petitioner can  avail  effective  alternative  remedy  by filing  application,  appeal,  revision,  etc.  and the particular legislation contains a detailed mechanism for redressal of his grievance.”

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34. In the light of foregoing discussion, we are of

the considered opinion that the Writ Court as also

the Appellate Court were justified in dismissing the

appellant's writ petition on the ground of availability

of  alternative  statutory  remedy  of  filing  an

application  under  Section  17(1)  of  SARFAESI  Act

before  the  concerned  Tribunal  to  challenge  the

action  of  the  PNB  in  forfeiting  the  appellant's

deposit  under  Rule  9(5).   We  find  no  ground  to

interfere with the impugned judgment of  the High

Court.

35. The appellant is, accordingly, granted liberty to

file  an  application  before  the  concerned  Tribunal

(DRT)  under  Section  17(1)  of  the  SARFAESI  Act,

which has jurisdiction to entertain such application

within 45 days from the date of this order. In case,

if  the  appellant  files  any  such  application,  the

Tribunal  shall  decide  the  same  on  its  merits  in

accordance  with  law  uninfluenced  by  any  of  the

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observations  made  by  this  Court  and  the  High

Court in the impugned judgment.

36. With these observations and liberty granted to

the  appellant,  the  appeal  fails  and  is  accordingly

dismissed.  

                     ………...................................J. [R.K. AGRAWAL]

                             …...……..................................J.   [ABHAY  MANOHAR  SAPRE]

New Delhi; November 27, 2017