Judiciary must collaborate with stakeholders to ensure security and efficacy of banking system: Allahabad High Court

The Allahabad High Court recently remarked that all stakeholders including the judiciary must work in collaboration to ensure the security and efficacy of the banking system [M/S Trilokchand Fabrication Pvt. Ltd]..A Bench of Justices Siddhartha Varma and Shekhar B Saraf took note of the fact that financial institutions are grappling with the issue of Non-Performing Assets (NPA).It also spoke of the importance of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and on the need to curb superfluous litigation aimed at prolonging the resolution of NPAs.By authorizing lenders to proactively undertake measures in the retrieval of their investments, the SARFAESI Act assumes the role of a safeguard, preserving the financial well-being of these institutions, said the Court..“It is incumbent upon all stakeholders, including borrowers and the judiciary, to ensure that frivolous petitions do not impede the seamless progress of recovery proceedings initiated pursuant to the SARFAESI Act,” said the Court..The Court was hearing a petition filed by a company against an additional district magistrate’s decision to keep in abeyance the SARFAESI Act proceedings related to a property due to an injunction order of a civil court.It was argued before the Court that an injunction order illegally obtained by a tenant cannot be a reason to keep the proceedings under the SARFAESI Act in abeyance. The Court was also told there is no registered lease deed in the case..Considering the submissions, the Court said that an unregistered lease cannot be taken into consideration due to the bar under the Registration Act.“A tenancy where no period has been fixed, or a tenancy which is deemed to be a month-to-month tenancy, cannot entitle a tenant to seek possession of a secured asset beyond a period of one year when proceedings have been initiated under Section 14 of the SARFAESI Act,” the Court said further.The Court also said that if a tenant intends to claim the possession of a secured asset facing SARFAESI Act proceedings, it must be done only by way of a registered instrument in his favour. In that case, the tenant can approach the concerned officer so that a determination can be made whether the tenant has a valid lease entitling him to possession of the secured asset, said the Court..The Court went on to state that even the Debts Recovery Tribunal cannot restore the possession of the secured asset to the tenant. Significantly, the Court found that no civil court can entertain a suit or proceeding, if an aggrieved person has grievance against any measures taken under the SARFAESI Act. Thus, the Court held that the magistrate in this present case had failed to exercise its jurisdiction and accordingly quashed the order dated April 18, 2023 to keep the SARFAESI Act proceedings in abeyance..Senior Advocate Rahul Sripat with Advocates Ishir Sripat and Saurabh Patel represented the petitionerSenior Advocate Shashi Nandan with Advocates Udayan Nanadan and Sanjai Singh represented different respondents..[Read Judgment]