REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.                 OF 2010 (Arising out of SLP(C) No.10145 of 2010)

United Bank of India …Appellant   

Versus

Satyawati Tondon and others …Respondents

J U D G M E N T  

1. Leave granted.

2. With a view to give impetus to the industrial development of the country,  

the Central and State Governments encouraged the banks and other financial  

institutions  to formulate  liberal  policies  for  grant  of  loans and other  financial  

facilities  to  those  who wanted  to  set  up  new industrial  units  or  expand the  

existing units.  Many hundred thousand took advantage of easy financing by the  

banks and other financial institutions but a large number of them did not repay  

the  amount  of  loan,  etc.   Not  only  this,  they  instituted  frivolous  cases  and  

succeeded in persuading the Civil Courts to pass orders of injunction against the  

steps taken by banks and financial institutions to recover their dues.  Due to lack  

of adequate infrastructure and non-availability of manpower, the regular Courts  

could not accomplish the task of expeditiously adjudicating the cases instituted

by banks and other financial institutions for recovery of their dues.  As a result,  

several hundred crores of public money got blocked in unproductive ventures.  In  

order to redeem the situation, the Government of India constituted a committee  

under  the  chairmanship  of  Shri  T.  Tiwari  to  examine  the  legal  and  other  

difficulties faced by banks and financial institutions in the recovery of their dues  

and suggest remedial measures. The Tiwari Committee noted that the existing  

procedure  for  recovery  was  very  cumbersome  and  suggested  that  special  

tribunals be set up for recovery of the dues of banks and financial institutions by  

following a summary procedure. The Tiwari Committee also prepared a draft of  

the proposed legislation which contained a provision for  disposal  of  cases  in  

three  months  and  conferment  of  power  upon  the  Recovery  Officer  for  

expeditious  execution  of  orders  made by adjudicating  bodies.  The issue  was  

further examined by the Committee on the Financial System headed by Shri M.  

Narasimham.  In  its  First  Report,  the  Narasimham Committee  also  suggested  

setting  up  of  special  tribunals  with  special  powers  for  adjudication  of  cases  

involving the dues of banks and financial institutions.  

After  considering  the  reports  of  the  two  Committees  and  taking  

cognizance of the fact that as on 30-9-1990 more than 15 lakh cases filed by  

public sector banks and 304 cases filed by financial institutions were pending in  

various  Courts  for  recovery  of  debts,  etc.  amounting  to  Rs.6000  crores,  the  

Parliament  enacted  the  Recovery  of  Debts  Due  to  Banks  and  Financial  

Institutions Act, 1993 (for short, ‘the DRT Act’). The new legislation facilitated  

2

creation of specialised forums i.e., the Debts Recovery Tribunals and the Debts  

Recovery Appellate Tribunals for expeditious adjudication of disputes relating to  

recovery of the debts due to banks and financial institutions.  Simultaneously,  

the  jurisdiction  of  the Civil  Courts  was  barred and all  pending  matters  were  

transferred to the Tribunals from the date of their establishment.  

An analysis of the provisions of the DRT Act shows that primary object of  

that Act was to facilitate creation of special machinery for speedy recovery of the  

dues of banks and financial institutions. This is the reason why the DRT Act not  

only provides for establishment of the Tribunals and the Appellate Tribunals with  

the  jurisdiction,  powers  and  authority  to  make  summary  adjudication  of  

applications made by banks or financial institutions and specifies the modes of  

recovery of the amount determined by the Tribunal or the Appellate Tribunal but  

also bars the jurisdiction of all courts except the Supreme Court and the High  

Courts in relation to the matters specified in Section 17. The Tribunals and the  

Appellate  Tribunals  have  also  been  freed  from  the  shackles  of  procedure  

contained in the Code of Civil Procedure. To put it differently, the DRT Act has  

not  only  brought  into  existence  special  procedural  mechanism  for  speedy  

recovery of the dues of banks and financial institutions, but also made provision  

for ensuring that defaulting borrowers are not able to invoke the jurisdiction of  

Civil  Courts  for  frustrating  the  proceedings  initiated  by  the  banks  and  other  

financial institutions.

3

For  few  years,  the  new  dispensation  worked  well  and  the  officers  

appointed to man the Tribunals worked with great zeal for ensuring that cases  

involving recovery of  the dues of  banks and financial  institutions are decided  

expeditiously.  However, with the passage of time, the proceedings before the  

Tribunals became synonymous with those of the regular Courts and the lawyers  

representing the borrowers and defaulters used every possible mechanism and  

dilatory tactics to impede the expeditious adjudication of such cases.  The flawed  

appointment procedure adopted by the Government greatly contributed to the  

malaise of delay in disposal of the cases instituted before the Tribunals.

The survey conducted by the Ministry of Finance, Government of India  

revealed that as in 2001, a sum of more than Rs.1,20,000/- crores was due to  

the banks and financial institutions and this was adversely affecting the economy  

of  the country.   Therefore,  the  Government  of  India  asked  the Narasimham  

Committee  to suggest  measures  for  expediting  the recovery of  debts  due to  

banks  and  financial  institutions.  In  its  Second  Report,  the  Narasimham  

Committee noted that the non-performing assets of most of the public sector  

banks were abnormally  high and the existing mechanism for recovery of  the  

same was wholly  insufficient.   In Chapter VIII  of the Report,  the Committee  

noted  that  the  evaluation  of  legal  framework  has  not  kept  pace  with  the  

changing commercial practice and financial sector reforms and as a result of that  

the economy could not reap full benefits of the reform process.  The Committee  

made  various  suggestions  for  bringing  about  radical  changes  in  the  existing  

4

adjudicatory mechanism.   By way of illustration, the Committee referred to the  

scheme of mortgage under the Transfer of Property Act and suggested that the  

existing laws should be changed not only for facilitating speedy recovery of the  

dues of banks, etc. but also for quick resolution of disputes arising out of the  

action taken for recovery of such dues.  The Andhyarujina Committee constituted  

by the Central Government for examining banking sector reforms also considered  

the  need  for  changes  in  the  legal  system.  Both,  the  Narasimham  and  

Andhyarujina  Committees  suggested  enactment  of  new  legislation  for  

securitisation  and  empowering  the  banks  and  financial  institutions  to  take  

possession of the securities and sell them without intervention of the court.   The  

Government of India accepted the recommendations of the two committees and  

that led to enactment of the Securitization and Reconstruction of Financial Assets  

and Enforcement of Security Interest Act, 2002 (for short ‘the SARFAESI Act’),  

which can be termed as one of the most radical legislative measures taken by  

the  Parliament  for  ensuring  that  dues  of  secured  creditors  including  banks,  

financial  institutions are recovered from the defaulting borrowers without any  

obstruction. For the first time, the secured creditors have been empowered to  

take  steps  for  recovery  of  their  dues  without  intervention  of  the  Courts  or  

Tribunals.   

3. Section  13  of  the  SARFAESI  Act  contains  detailed  mechanism  for  

enforcement  of  security  interest.   Sub-section  (1)  thereof  lays  down  that  

notwithstanding  anything contained in Sections 69 or 69-A of the Transfer of  

5

Property Act, any security interest created in favour of any secured creditor may  

be enforced, without the intervention of the court or tribunal, by such creditor in  

accordance  with  the  provisions  of  this  Act.   Sub-section  (2)  of  Section  13  

enumerates first of many steps needed to be taken by the secured creditor for  

enforcement of security interest. This sub-section provides that if a borrower,  

who is under a liability to a secured creditor, makes any default in repayment of  

secured  debt  and  his  account  in  respect  of  such  debt  is  classified  as  non-

performing asset, then the secured creditor may require the borrower by notice  

in writing to discharge his liabilities within sixty days from the date of the notice  

with an indication that if he fails to do so, the secured creditor shall be entitled  

to exercise all or any of its rights in terms of Section 13(4).  Sub-section (3) of  

Section 13 lays down that notice issued under Section 13(2) shall contain details  

of the amount payable by the borrower as also the details of the secured assets  

intended to be enforced by the bank or financial institution. Sub-section (3-A) of  

Section 13 lays down that the borrower may make a representation in response  

to the notice issued under Section 13(2) and challenge the classification of his  

account as non-performing asset as also the quantum of amount specified in the  

notice.  If  the  bank  or  financial  institution  comes  to  the  conclusion  that  the  

representation/objection of the borrower is not acceptable, then reasons for non-

acceptance are required to be communicated within one week. Sub-section (4)  

of  Section 13 specifies  various modes which can be adopted by the secured  

creditor for recovery of secured debt.  The secured creditor can take possession  

of the secured assets of the borrower and transfer the same by way of lease,  

6

assignment  or  sale  for  realising  the  secured  assets.  This  is  subject  to  the  

condition that the right to transfer by way of lease, etc. shall be exercised only  

where substantial part of the business of the borrower is held as secured debt. If  

the management of whole or part of the business is severable, then the secured  

creditor can take over management only of such business of the borrower which  

is relatable to security. The secured creditor can appoint any person to manage  

the secured asset, the possession of which has been taken over. The secured  

creditor can also, by notice in writing, call upon a person who has acquired any  

of  the  secured  assets  from the  borrower  to  pay  the  money,  which  may  be  

sufficient to discharge the liability of the borrower.   Sub-section (7) of Section  

13 lays down that where any action has been taken against a borrower under  

sub-section (4), all costs, charges and expenses properly incurred by the secured  

creditor or any expenses incidental thereto can be recovered from the borrower.  

The money which is received by the secured creditor is required to be held by  

him  in  trust  and  applied,  in  the  first  instance,  for  such  costs,  charges  and  

expenses and then in discharge of dues of the secured creditor. Residue of the  

money  is  payable  to  the  person entitled  thereto  according to  his  rights  and  

interest.   Sub-section  (8)  of  Section 13 imposes  a  restriction  on the sale  or  

transfer of the secured asset if the amount due to the secured creditor together  

with costs,  charges and expenses incurred by him are tendered at  any time  

before the time fixed for such sale or transfer.   Sub-section (9) of Section 13  

deals with the situation in which more than one secured creditor has stakes in  

the secured assets and lays down that in the case of financing a financial asset  

7

by more than one secured creditor  or  joint  financing of  a  financial  asset  by  

secured creditors, no individual secured creditor shall be entitled to exercise any  

or all  of the rights under sub-section (4) unless all of them agree for such a  

course.  There are five unnumbered provisos to Section 13(9) which deal with  

pari passu charge of the workers of a company in liquidation. The first of these  

provisos lays down that in the case of a company in liquidation, the amount  

realised from the sale of secured assets shall be distributed in accordance with  

the provisions of Section 529-A of the Companies Act, 1956.  The second proviso  

deals  with  the  case  of  a  company  being  wound  up  on  or  after  the  

commencement of  this  Act.  If  the secured creditor  of  such company opts to  

realise its security instead of relinquishing the same and proving its debt under  

Section  529(1)  of  the  Companies  Act,  then  it  can retain  sale  proceeds  after  

depositing the workmen’s dues with the liquidator in accordance with Section  

529-A.  The third proviso requires the liquidator to inform the secured creditor  

about the dues payable to the workmen in terms of Section 529-A. If the amount  

payable to the workmen is not certain, then the liquidator has to intimate the  

estimated amount to the secured creditor. The fourth proviso lays down that in  

case the secured creditor deposits the estimated amount of the workmen’s dues,  

then such creditor shall be liable to pay the balance of the workmen’s dues or  

entitled to receive the excess amount, if any, deposited with the liquidator. In  

terms of the fifth proviso, the secured creditor is required to give an undertaking  

to the liquidator to pay the balance of the workmen’s dues, if any.  Sub-section  

(10) of Section 13 lays down that where dues of the secured creditor are not  

8

fully satisfied by the sale proceeds of the secured assets, the secured creditor  

may file  an application  before  the Tribunal  under  Section 17 for  recovery of  

balance  amount  from  the  borrower.  Sub-section  (11)  states  that  without  

prejudice to the rights conferred on the secured creditor under or by this section,  

it shall be entitled to proceed against the guarantors or sell the pledged assets  

without resorting to the measures specified in clauses (a) to (d) of sub-section  

(4) in relation to the secured assets.  Sub-section (12) of Section 13 lays down  

that rights available to the secured creditor under the Act may be exercised by  

one or more of its officers authorised in this behalf. Sub-section (13) lays down  

that after receipt of notice under sub-section (2), the borrower shall not transfer  

by way of  sale,  lease or otherwise (other than in the ordinary course of  his  

business) any of his secured assets referred to in the notice without prior written  

consent of the secured creditor.  In terms of Section 14, the secured creditor can  

file  an  application  before  the  Chief  Metropolitan  Magistrate  or  the  District  

Magistrate,  within  whose  jurisdiction  the  secured  asset  or  other  documents  

relating thereto are found for taking possession thereof. If any such request is  

made, the Chief Metropolitan Magistrate or the District Magistrate, as the case  

may be, is obliged to take possession of such asset or document and forward the  

same to the secured creditor.  

4. Section  17  speaks  of  the  remedies  available  to  any  person  including  

borrower  who  may  have  grievance  against  the  action  taken  by  the  secured  

creditor under sub-section (4) of Section 13. Such an aggrieved person can make  

9

an application to the Tribunal within 45 days from the date on which action is  

taken under that sub-section. By way of abundant caution, an Explanation has  

been added to Section 17(1) and it has been clarified that the communication of  

reasons to the borrower in terms of Section 13(3-A) shall not constitute a ground  

for filing application under Section 17(1).  Sub-section (2) of Section 17 casts a  

duty on the Tribunal to consider whether the measures taken by the secured  

creditor  for  enforcement  of  security  interest  are  in  accordance  with  the  

provisions  of  the  Act  and the  Rules  made thereunder.  If  the  Tribunal,  after  

examining the facts and circumstances of the case and evidence produced by the  

parties, comes to the conclusion that the measures taken by the secured creditor  

are not in consonance with sub-section (4) of Section 13, then it can direct the  

secured creditor to restore management of the business or possession of the  

secured assets to the borrower. On the other hand, if the Tribunal finds that the  

recourse taken by the secured creditor under sub-section (4) of Section 13 is in  

accordance with the provisions of the Act and the Rules made thereunder, then,  

notwithstanding anything contained in any other law for the time being in force,  

the secured creditor can take recourse to one or more of the measures specified  

in Section 13(4) for recovery of its secured debt.  Sub-section (5) of Section 17  

prescribes the time-limit of sixty days within which an application made under  

Section  17  is  required  to  be  disposed  of.  The  proviso  to  this  sub-section  

envisages extension of time, but the outer limit for adjudication of an application  

is four months. If the Tribunal fails to decide the application within a maximum  

period of four months, then either party can move the Appellate Tribunal for  

10

issue of a direction to the Tribunal to dispose of the application expeditiously.  

Section 18 provides for an appeal to the Appellate Tribunal.  

5. Section 34 lays down that no Civil Court shall have jurisdiction to entertain  

any suit or proceeding in respect of any matter which a Tribunal or Appellate  

Tribunal is empowered to determine. It further lays down that no injunction shall  

be granted by any Court or other authority in respect of any action taken or to  

be taken under the SARFAESI Act or the DRT Act.  Section 35 of the SARFAESI  

Act is substantially similar to Section 34(1) of the DRT Act. It declares that the  

provisions  of  this  Act  shall  have effect,  notwithstanding anything inconsistent  

therewith  contained  in  any  other  law  for  the  time  being  in  force  or  any  

instrument having effect by virtue of any such law.

6. However, effective implementation of the SARFAESI Act was delayed by  

more than two years because several writ petitions were filed in the High Courts  

and this Court questioning its vires.  The matter was finally decided by this Court  

in Mardia Chemicals v. Union of India (2004) 4 SCC 311 and the validity of  

the SARFAESI Act was upheld except the condition of deposit of 75% amount  

enshrined in Section 17(2).  The Court referred to the recommendations of the  

Narasimham and Andhyarujina Committees on the issue of constitution of special  

tribunals to deal with cases relating to recovery of the dues of banks etc. and  

observed:

11

“One of the measures recommended in the circumstances was to  vest the financial institutions through special statutes, the power of  sale  of  the  assets  without  intervention  of  the  court  and  for  reconstruction of assets. It is thus to be seen that the question of  non-recoverable  or  delayed  recovery  of  debts  advanced  by  the  banks or financial institutions has been attracting attention and the  matter  was  considered  in  depth  by  the  Committees  specially  constituted consisting of the experts in the field. In the prevalent  situation where the amounts of dues are huge and hope of early  recovery is less, it cannot be said that a more effective legislation  for the purpose was uncalled for or that it could not be resorted to.  It is again to be noted that after the Report of the Narasimham  Committee, yet another Committee was constituted headed by Mr.  Andhyarujina for bringing about the needed steps within the legal  framework.  We are, therefore, unable to find much substance in  the submission made on behalf of the petitioners that while the  Recovery of Debts Due to Banks and Financial Institutions Act was  in operation it was uncalled for to have yet another legislation for  the  recovery of  the mounting  dues.   Considering the  totality  of  circumstances  and  the  financial  climate  world  over,  if  it  was  thought as a matter of policy to have yet speedier legal method to  recover the dues, such a policy decision cannot be faulted with nor  is it a matter to be gone into by the courts to test the legitimacy of  such a measure relating to financial policy.”

(emphasis supplied)

This Court then held that the borrower can challenge the action taken under  

Section 13(4) by filing an application under Section 17 of the SARFAESI Act and  

a civil suit can be filed within the narrow scope and on the limited grounds on  

which  they  are  permissible  in  the  matters  relating  to  an  English  mortgage  

enforceable without intervention of the Court.  In paragraph 31 of the judgment,  

the Court observed as under:

“In view of the discussion held in the judgment and the findings  and directions contained in the preceding paragraphs, we hold that  the borrowers would get a reasonably fair deal and opportunity to  get  the  matter  adjudicated  upon  before  the  Debts  Recovery  Tribunal.  The effect of some of the provisions may be a bit harsh  for  some  of  the  borrowers  but  on  that  ground  the  impugned  

12

provisions of the Act cannot be said to be unconstitutional in view  of the fact that the object of the Act is to achieve speedier recovery  of  the  dues  declared  as  NPAs  and  better  availability  of  capital  liquidity and resources to help in growth of the economy of the  country and welfare of the people in general which would subserve  the public interest.”

(emphasis supplied)

7. In the light  of  the above, we shall  now consider whether the Division  

Bench  of  the  High  Court  was  justified  in  restraining  the  appellant  from  

proceeding under Section 13(4) of the  SARFAESI Act against the property of  

respondent No.1.

8. A perusal of the record shows that the appellant sanctioned a term loan of  

Rs.22,50,000/- in favour of M/s. Pawan Color Lab [through its proprietor Pawan  

Singh (respondent No.2)] some time in November, 2004.  Respondent No.1 gave  

guarantee for repayment of the loan and mortgaged her property bearing House  

No.  752/062,  Bakshi  Khurd,  Daraganj,  Pargana  and  Tehsil  Sadar,  District  

Allahabad  by  deposit  of  title  deeds.   She  also  submitted  an  affidavit  dated  

28.12.2004  and  executed  agreement  of  guarantee  dated  29.12.2004  making  

herself liable for repayment of the loan amount with interest.

9. After one year and six months, the appellant sent letter dated 6.5.2006 to  

respondent Nos.1 and 2 pointing out that repayment of loan was highly irregular.  

After another one year, the account of respondent No.2 was classified as Non-

Performing  Asset.   On  19.7.2007,  the  appellant  sent  separate  letters  to  

13

respondent  Nos.  1  and  2  requiring  them  to  deposit  the  outstanding  dues  

amounting to Rs.23,78,478/-. Thereupon, respondent No.1 deposited a sum of  

Rs.50,000/-  and  gave  written  undertaking  to  pay  the  balance  amount  in  

instalments.   However,  she did not fulfil  her promise to repay the remaining  

amount.  This compelled the appellant to issue notice to respondent Nos.1 and 2  

under  Section  13(2)  requiring  them to  pay  Rs.23,22,972/-  along  with  future  

interest and incidental  expenses within 60 days.   Upon receipt  of the notice,  

respondent No.1 offered to pay a sum of Rs.18 lakhs for settlement of the loan  

account, but the appellant did not accept the offer and filed an application under  

Section  14  of  the  SARFAESI  Act,  which  was  allowed  by  District  

Magistrate/Collector, Allahabad vide his order dated 25.8.2008.  Thereafter, the  

appellant  issued  notice  dated  21.1.2009  to  respondent  Nos.1  and  2  under  

Section 13(4) of the SARFAESI Act.

10. Faced  with  the  imminent  threat  of  losing  the  mortgaged  property,  

respondent No.1 filed C.M.W.P. No.55375 of 2009 and prayed that the appellant  

herein may be restrained from taking coercive action in pursuance of the notices  

issued under Section 13(2) and (4) and order dated 25.8.2008 passed by District  

Magistrate/Collector,  Allahabad.   She  pleaded  that  the  notices  issued  by  the  

appellant for recovery of the outstanding dues are ex facie illegal and liable to be  

quashed because no action had been taken against the borrower i.e., respondent  

No.2 for recovery of the outstanding dues.   

14

11. In the counter affidavit filed on behalf of the appellant, it was pleaded  

that action initiated against respondent No.1 was consistent with the provisions  

of  SARFAESI  Act  and writ  petitioner  (respondent  No.1  herein)  was  bound to  

discharge her obligations to pay the outstanding dues and there was no merit in  

her challenge to the notices issued under Section 13(2) and 13(4) or the order  

passed under Section 14.  It was further pleaded that the writ petition is liable to  

be dismissed because an alternative remedy is available to the petitioner under  

Section 17 of the SARFAESI Act.

12. The  Division  Bench  of  the  High  Court  did  not  even  advert  to  the  

appellant’s  plea  that  the  writ  petition  should  not  be  entertained  because  an  

effective alternative remedy was available to the writ petitioner under Section 17  

of the SARFAESI Act and passed the impugned order restraining the appellant  

from taking action in furtherance of notice issued under Section 13(4) of the  

SARFAESI  Act.   The  reason  which  prompted  the  High  Court  to  pass  the  

impugned interim order and operative portion thereof are extracted below:

“Learned counsel for the petitioner has urged that the loan was  taken by respondent No.4 for opening a colour lab at 50/43, Raj  Complex, K.P. Kakkar Road, Allahabad, but the loan has not been  repaid by respondent No.4 and the bank is proceeding against the  petitioner who is the guarantor of the loan.  It is not clear from the  documents produced by learned counsel for the bank as to what  steps have been taken by the bank against the borrower of the  loan  and  merely  issuance  of  notice  under  section  13(2)  of  the  Securitization  and  Reconstruction  of  Financial  Assets  and  Enforcement of Security Interest Act, 2002 against the borrower is  not  sufficient.   The  bank  should  have  proceeded  against  the  borrower  and  exhausted  all  the  remedies  against  him  and  thereafter the bank could have proceeded against the guarantor.

15

Until  further orders of this court,  the respondents are restrained  from proceeding under section 13(4) of the Act 2002 with regard to  petitioner’s property who was the guarantor of the loan.  However,  if any possession has been taken by the bank then the property  shall  not  be  sold  to  any  one  else  and  the  petitioner  shall  be  continued in possession of the property.”

13. We have heard learned counsel for the appellant and perused the record.  

Normally, this Court does not interfere with the discretion exercised by the High  

Court  to  pass  an  interim  order  in  a  pending  matter  but,  having  carefully  

examined the matter, we have felt persuaded to make an exception in this case  

because the order under challenge has the effect of defeating the very object of  

the  legislation  enacted  by  the  Parliament  for  ensuring  that  there  are  no  

unwarranted impediments in the recovery of the debts, etc. due to banks, other  

financial institutions and secured creditors.

14. The  question  whether  the  appellant  could  have  issued  notices  to  

respondent  No.1  under  Section 13(2)  and (4)  and filed  an application  under  

Section  14  of  the  SARFAESI  Act  without  first  initiating  action  against  the  

borrower i.e., respondent No.2 for recovery of the outstanding dues is no longer  

res integra.   In Bank of Bihar Ltd. v. Damodar Prasad (1969) 1 SCR 620,  

this Court considered and answered in affirmative the question whether the bank  

is entitled to recover its dues from the surety and observed:

“It is the duty of the surety to pay the decretal amount. On such  payment he will be subrogated to the rights of the creditor under  Section 140 of the Indian Contract Act, and he may then recover  the amount from the principal. The very object of the guarantee is  defeated if the creditor is asked to postpone his remedies against  

16

the surety. In the present case the creditor is banking company. A  guarantee is a collateral security usually taken by a banker. The  security will become useless if his rights against the surety can be  so easily cut down.”

In State Bank of India v. M/s. Indexport Registered and others (1992) 3  

SCC 159, this Court held that the decree-holder bank can execute the decree  

against  the guarantor  without  proceeding  against  the principal  borrower  and  

then proceeded to observe:  

“The execution of the money decree is not made dependent on first  applying for execution of the mortgage decree. The choice is left  entirely  with  the  decree-holder.  The  question  arises  whether  a  decree which is framed as a composite decree, as a matter of law,  must  be  executed against  the  mortgage  property  first  or  can a  money  decree,  which  covers  whole  or  part  of  decretal  amount  covering mortgage decree can be executed earlier. There is nothing  in law which provides such a composite decree to be first executed  only against the [principal debtor].”

In  Industrial  Investment  Bank  of  India  Limited  v.  Biswanath  

Jhunjhunwala (2009) 9 SCC 478, this Court again held that the liability of the  

guarantor  and principal  debtor is  co-extensive and not in alternative and the  

creditor/decree-holder has the right to proceed against  either  for recovery of  

dues or realization of the decretal amount.

15. In view of the law laid down in the aforementioned cases, it must be held  

that the High Court completely misdirected itself in assuming that the appellant  

could not have initiated action against respondent No.1 without making efforts  

for recovery of its dues from the borrower – respondent No.2.   

17

16. The facts  of  the present  case show that even after  receipt  of  notices  

under Section 13(2) and (4) and order passed under Section 14 of the SARFAESI  

Act, respondent Nos.1 and 2 did not bother to pay the outstanding dues.  Only a  

paltry amount of Rs.50,000/- was paid by respondent No.1 on 29.10.2007.  She  

did give an undertaking to pay the balance amount in installments but did not  

honour  her  commitment.   Therefore,  the  action  taken  by  the  appellant  for  

recovery of its dues by issuing notices under Section 13(2) and 13(4) and by  

filing  an  application  under  Section  14  cannot  be  faulted  on  any  legally  

permissible  ground  and,  in  our  view,  the  Division  Bench  of  the  High  Court  

committed serious error by entertaining the writ petition of respondent No.1.  

17. There is another reason why the impugned order should be set aside.  If  

respondent  No.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 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.  Unfortunately, the High Court  

overlooked the settled law that  the High Court  will  ordinarily  not entertain a  

18

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  State  Legislatures  for  recovery  of  such  dues  are  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,  

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.

18. 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.  It is true that the rule of  

19

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.  It must be remembered that  

stay of an action initiated by the State and/or its agencies/instrumentalities for  

recovery of  taxes,  cess,  fees,  etc.  seriously  impedes execution of  projects of  

public importance and disables them from discharging their constitutional and  

legal obligations towards the citizens.  In cases relating to recovery of the dues  

of banks, financial institutions and secured creditors, stay granted by the High  

Court  would  have  serious  adverse  impact  on  the  financial  health  of  such  

bodies/institutions,  which ultimately  prove detrimental  to the economy of  the  

nation.  Therefore, the High Court should be extremely careful and circumspect  

in  exercising  its  discretion  to  grant  stay  in  such  matters.   Of  course,  if  the  

petitioner is able to show that its case falls within any of the exceptions carved  

out in  Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad  

AIR 1969  SC 556,  Whirlpool  Corporation  v.  Registrar  of  Trade Marks,  

Mumbai (1998) 8 SCC 1 and Harbanslal Sahnia and another v. Indian Oil  

Corporation Ltd. and others (2003) 2 SCC 107 and some other judgments,  

then the High Court may, after considering all the relevant parameters and public  

interest, pass appropriate interim order.

20

19. In  Thansingh Nathmal v.  Superintendent of Taxes (1964) 6 SCR  

654, the Constitution Bench considered the question whether the High Court of  

Assam should have entertained the writ  petition filed by the appellant  under  

Article 226 of the Constitution questioning the order passed by the Commissioner  

of Taxes under the Assam Sales Tax Act, 1947.  While dismissing the appeal, the  

Court observed as under:

“The jurisdiction of the High Court under Article 226 of the  Constitution  is  couched  in  wide  terms  and  the  exercise  thereof  is  not  subject  to  any  restrictions  except  the  territorial restrictions which are expressly provided in the  Articles.  But  the  exercise  of  the  jurisdiction  is  discretionary: it is not exercised merely because it is lawful  to do so. The very amplitude of the jurisdiction demands  that it will ordinarily be exercised subject to certain self- imposed limitations. Resort that jurisdiction is not intended  as an alternative remedy for relief which may be obtained  in a suit or other mode prescribed by statute. Ordinarily  the  Court  will  not  entertain  a  petition  for  a  writ  under  Article  226,  where  the  petitioner  has  an  alternative  remedy, which without being unduly onerous, provides an  equally efficacious remedy. Again the High Court does not  generally enter upon a determination of questions which  demand an elaborate examination of evidence to establish  the right to enforce which the writ is claimed. The High  Court does not therefore act as a court of appeal against  the decision of a court or tribunal, to correct errors of fact,  and does not by assuming jurisdiction under Article 226  trench upon an alternative remedy provided by statute for  obtaining  relief.  Where  it  is  open  to  the  aggrieved  petitioner  to  move  another  tribunal,  or  even  itself  in  another  jurisdiction  for  obtaining  redress  in  the  manner  provided by a  statute,  the  High Court  normally  will  not  permit by entertaining a petition under Article 226 of the  Constitution the machinery created under the statute to be  bypassed, and will leave the party applying to it to seek  resort to the machinery so set up.”

21

20. In Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433,  

a three-Judge Bench considered the question whether a petition under Article  

226 of the Constitution should be entertained in a matter involving challenge to  

the  order  of  the  assessment  passed  by  the  competent  authority  under  the  

Central  Sales  Tax  Act,  1956  and  corresponding  law  enacted  by  the  State  

legislature  and  answered  the  same  in  negative  by  making  the  following  

observations:

“Under the scheme of the Act, there is a hierarchy of authorities  before which the petitioners can get adequate redress against the  wrongful  acts  complained  of.  The  petitioners  have  the  right  to  prefer an appeal before the Prescribed Authority under sub-section  (1) of Section 23 of the Act. If the petitioners are dissatisfied with  the decision in the appeal, they can prefer a further appeal to the  Tribunal under sub-section (3) of Section 23 of the Act, and then  ask for a case to be stated upon a question of law for the opinion  of the High Court under Section 24 of the Act. The Act provides for  a complete machinery to challenge an order of assessment, and the  impugned  orders  of  assessment  can  only  be  challenged  by  the  mode prescribed by the Act and not by a petition under Article 226  of the Constitution. It is now well recognised that where a right or  liability is created by a statute which gives a special remedy for  enforcing  it,  the  remedy provided by that  statute  only  must  be  availed of. This rule was stated with great clarity by Willes, J. in  Wolverhampton  New  Waterworks  Co. v.  Hawkesford in  the  following passage:

“There are three classes of cases in which a liability may  be established founded upon statute. . . . But there is a  third class, viz. where a liability not existing at common  law is created by a statute which at the same time gives  a special  and particular  remedy for enforcing it.  .  .the  remedy provided by the statute must be followed, and it  is  not  competent  to  the  party  to  pursue  the  course  applicable to cases of the second class. The form given  by the statute must be adopted and adhered to.”

The rule laid down in this passage was approved by the House of  Lords in Neville v. London Express Newspapers Ltd. and has been  

22

reaffirmed by the Privy Council in Attorney-General of Trinidad and  Tobago v. Gordon Grant & Co. Ltd. and Secretary of State v. Mask  & Co. It has also been held to be equally applicable to enforcement  of rights, and has been followed by this Court throughout. The High  Court  was  therefore  justified  in  dismissing  the  writ  petitions  in  limine.”

21. The views  expressed  in  Titaghur  Paper  Mills  Co.  Ltd.  v.  State  of  

Orissa  (supra)  were  echoed  in  Assistant  Collector  of  Central  Excise,  

Chandan Nagar, West Bengal v. Dunlop India Ltd. and others (1985) 1  

SCC 260 in the following words:

“Article 226 is not meant to short-circuit  or circumvent statutory  procedures.  It  is  only  where  statutory  remedies  are  entirely  ill- suited  to  meet  the  demands  of  extraordinary  situations,  as  for  instance where the very vires of the statute is in question or where  private  or  public  wrongs  are  so  inextricably  mixed  up  and  the  prevention  of  public  injury  and  the  vindication  of  public  justice  require  it  that  recourse  may  be  had  to  Article  226  of  the  Constitution.  But  then  the  Court  must  have  good  and sufficient  reason to bypass the alternative remedy provided by statute. Surely  matters  involving  the  revenue  where  statutory  remedies  are  available are not such matters. We can also take judicial notice of  the fact that the vast majority of the petitions under Article 226 of  the Constitution are filed solely for the purpose of obtaining interim  orders and thereafter prolong the proceedings by one device or the  other. The practice certainly needs to be strongly discouraged.”

22. In Punjab National Bank v. O.C. Krishnan and others (2001) 6 SCC  

569, this Court considered the question whether a petition under Article 227 of  

the Constitution was maintainable against an order passed by the Tribunal under  

Section 19 of the DRT Act and observed:

“5. In our opinion, the order which was passed by the Tribunal  directing sale of mortgaged property was appealable under Section  20 of the Recovery of Debts Due to Banks and Financial Institutions  

23

Act, 1993 (for short “the Act”). The High Court ought not to have  exercised its jurisdiction under Article 227 in view of the provision  for alternative remedy contained in the Act. We do not propose to  go  into  the  correctness  of  the  decision  of  the  High  Court  and  whether the order passed by the Tribunal was correct or not has to  be decided before an appropriate forum.

6. The Act has been enacted with a view to provide a special  procedure for recovery of debts due to the banks and the financial  institutions.  There  is  a  hierarchy  of  appeal  provided in  the Act,  namely,  filing of  an appeal  under Section 20 and this  fast-track  procedure  cannot  be  allowed  to  be  derailed  either  by  taking  recourse  to  proceedings  under  Articles  226  and  227  of  the  Constitution or by filing a civil suit, which is expressly barred. Even  though  a  provision  under  an  Act  cannot  expressly  oust  the  jurisdiction  of  the  court  under  Articles  226  and  227  of  the  Constitution,  nevertheless,  when  there  is  an  alternative  remedy  available, judicial prudence demands that the Court refrains from  exercising its jurisdiction under the said constitutional provisions.  This was a case where the High Court should not have entertained  the petition under Article 227 of the Constitution and should have  directed the respondent to take recourse to the appeal mechanism  provided by the Act.”

23. In  CCT, Orissa and others v. Indian Explosives Ltd. (2008) 3 SCC  

688, the Court reversed an order passed by the Division Bench of Orissa High  

Court quashing the show cause notice issued to the respondent under the Orissa  

Sales  Tax  Act  by  observing  that  the  High Court  had  completely  ignored  the  

parameters  laid  down  by  this  Court  in  a  large  number  of  cases  relating  to  

exhaustion of alternative remedy.

24. In City and Industrial Development Corporation v. Dosu Aardeshir  

Bhiwandiwala  and  others  (2009)  1  SCC  168,  the  Court  highlighted  the  

parameters  which  are  required  to  be  kept  in  view  by  the  High  Court  while  

24

exercising jurisdiction under Article 226 of the Constitution.  Paragraphs 29 and  

30 of that judgment which contain the views of this Court read as under:-

“29. In  our  opinion,  the  High  Court  while  exercising  its  extraordinary jurisdiction under Article 226 of  the Constitution is  duty-bound to take all  the relevant facts and circumstances into  consideration and decide for itself even in the absence of proper  affidavits from the State and its instrumentalities as to whether any  case at all is made out requiring its interference on the basis of the  material made available on record. There is nothing like issuing an  ex parte  writ  of  mandamus,  order  or  direction  in  a  public  law  remedy. Further, while considering the validity of impugned action  or  inaction  the  Court  will  not  consider  itself  restricted  to  the  pleadings of the State but would be free to satisfy itself whether  any case as such is made out by a person invoking its extraordinary  jurisdiction under Article 226 of the Constitution.

30. The Court while exercising its jurisdiction under Article 226 is  duty-bound to consider whether:

(a) adjudication of writ petition involves any complex and  disputed questions of facts and whether they can be  satisfactorily resolved;

(b) the petition reveals all material facts;

(c) the petitioner has any alternative or effective remedy  for the resolution of the dispute;

(d) person  invoking  the  jurisdiction  is  guilty  of  unexplained delay and laches;

(e) ex facie barred by any laws of limitation;

(f) grant of relief is against public policy or barred by any  valid law; and host of other factors.

The Court in appropriate cases in its discretion may direct the State  or its instrumentalities as the case may be to file proper affidavits  placing  all  the  relevant  facts  truly  and  accurately  for  the  consideration of the Court and particularly in cases where public  revenue and public interest are involved. Such directions are always  required  to  be  complied  with  by  the  State.  No  relief  could  be  granted in a public law remedy as a matter of course only on the  ground that the State did not file its counter-affidavit opposing the  writ  petition.  Further,  empty  and  self-defeating  affidavits  or  

25

statements of Government spokesmen by themselves do not form  basis  to grant any relief  to a person in a public  law remedy to  which he is not otherwise entitled to in law.”

25. In  Raj  Kumar  Shivhare  v.  Assistant  Director,  Directorate  of  

Enforcement and another (2010) 4 SCC 772, the Court was dealing with the  

issue  whether  the  alternative  statutory  remedy  available  under  the  Foreign  

Exchange Management Act, 1999 can be bypassed and jurisdiction under Article  

226 of the Constitution could be invoked.  After examining the scheme of the  

Act, the Court observed:

“31. When a statutory forum is created by law for redressal of  grievance and that too in a fiscal statute, a writ petition should not  be entertained ignoring the statutory dispensation. In this case the  High Court is a statutory forum of appeal on a question of law.  That should not be abdicated and given a go-by by a litigant for  invoking the forum of judicial review of the High Court under writ  jurisdiction. The High Court, with great respect, fell into a manifest  error by not appreciating this aspect of the matter. It has however  dismissed  the  writ  petition  on  the  ground  of  lack  of  territorial  jurisdiction.

32. No reason could be assigned by the appellant’s counsel to  demonstrate why the appellate jurisdiction of the High Court under  Section 35 of FEMA does not provide an efficacious remedy. In fact  there could hardly be any reason since the High Court itself is the  appellate forum.”

26. In Modern Industries v. Steel Authority of India Limited (2010) 5  

SCC 44, the Court held that where the remedy was available under the Interest  

on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act,  

1993, the High Court was not justified in entertaining a petition under Article 226  

of the Constitution.

26

27. 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.  We hope and trust  

that in future the High Courts will exercise their discretion in such matters with  

greater caution, care and circumspection.

28. Insofar as this case is concerned, we are convinced that the High Court  

was  not  at  all  justified  in  injuncting  the  appellant  from  taking  action  in  

furtherance of notice issued under Section 13(4) of the Act.

29. In the result, the appeal is allowed and the impugned order is set aside.  

Since the respondent  has not appeared to contest  the appeal,  the costs  are  

made easy.

……………………………….…J. [G.S. Singhvi]

…………………………..……..J. [Asok Kumar Ganguly]

New Delhi July 26, 2010.

27