This article was written and edited by the team at Anoop & Co. – AOR Anoop Prakash Awasthi, Adv. Parthvi Ahuja and Atluri Sri Vidya.
Court: Supreme Court of India
Decision Date: July 12, 2022
Parties Involved:
Appellant: Vidarbha Industries Power Limited
Respondent: Axis Bank Limited
Facts of the Case:
In 2011, Vidarbha Industries Power Limited (VIPL), a company engaged in the business of power generation, borrowed Rs. 100 crore from Axis Bank Limited (ABL) for the purpose of funding its expansion plans. The loan was secured by a mortgage of VIPL’s properties, including its land, buildings, and other assets. VIPL failed to repay the loan, and as a result, ABL invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, to recover the dues.
Under the SARFAESI Act, 2002, banks and financial institutions can initiate proceedings to recover dues from defaulting borrowers by taking possession of the secured assets and selling them off without the intervention of a court. ABL initiated such proceedings against VIPL, and in accordance with the Act, issued a notice to VIPL, demanding payment of the outstanding dues and informing them of their right to make a representation against the demand. VIPL did not respond to the notice, and ABL proceeded with the recovery proceedings.
VIPL challenged the proceedings before the Debt Recovery Tribunal (DRT), arguing that the proceedings were illegal and arbitrary. VIPL contended that the amount claimed by ABL was excessive and that the mortgage of its properties was not valid. The DRT dismissed VIPL’s challenge, holding that the proceedings had been initiated in accordance with the provisions of the SARFAESI Act, 2002 and that VIPL had not raised any substantial ground to challenge the demand. VIPL appealed the DRT’s decision before the Debt Recovery Appellate Tribunal (DRAT), which also dismissed the appeal. VIPL then filed a writ petition before the High Court, but the petition was dismissed on the same grounds.
Issues:
Whether the proceedings initiated by ABL under the SARFAESI Act, 2002, were legal and valid?
Whether the orders of the DRT, DRAT and the High Court were correct in dismissing VIPL’s challenge to the proceedings?
Judgment:
The Supreme Court, in its judgement delivered on July 12, 2022, upheld the legality and validity of the recovery proceedings initiated by Axis Bank Limited (ABL) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, against Vidarbha Industries Power Limited (VIPL).
The Court observed that VIPL had taken a loan of Rs. 100 crore from ABL for its expansion plans and had created a mortgage of its properties as security for the loan. However, VIPL failed to repay the loan, and as a result, ABL initiated recovery proceedings under the SARFAESI Act, 2002, which allows banks and financial institutions to take possession of secured assets and sell them off without the intervention of a court to recover their dues.
The VIPL challenged the recovery proceedings before the Debt Recovery Tribunal (DRT), contending that the proceedings were illegal and arbitrary. The DRT dismissed VIPL’s challenge, and VIPL appealed the decision before the Debt Recovery Appellate Tribunal (DRAT) and the High Court, but the appeal was dismissed on the same grounds. VIPL then filed a Special Leave Petition (SLP) before the Supreme Court, challenging the orders of the lower courts.
The Supreme Court, after hearing the parties and examining the records, held that the proceedings initiated by ABL under the SARFAESI Act, 2002, were legal and valid. The Court observed that VIPL had defaulted on the repayment of the loan and had not contested the amount claimed by ABL. The Court also noted that VIPL had created a mortgage of its properties as security for the loan.
The Court held that the SARFAESI Act, 2002, was a valid law that provided banks and financial institutions with an effective remedy for the recovery of their dues. The Court observed that the Act did not violate the principles of natural justice and provided adequate safeguards to the borrowers to protect their interests. The Court noted that the Act provided for the issuance of a notice to the borrower, informing them of their right to make a representation against the demand, and the Act also provided for an appeal mechanism to challenge the demand before the DRT and the DRAT.
The Court also held that VIPL had not raised any substantial ground to challenge the proceedings initiated by ABL under the SARFAESI Act, 2002. The Court observed that VIPL had not contested the amount claimed by ABL and had not raised any valid objection to the mortgage created on its properties. The Court noted that VIPL had failed to comply with its obligations under the loan agreement and had failed to repay the loan despite repeated demands by ABL.
Therefore, the Supreme Court dismissed VIPL’s appeal and upheld the orders of the DRT, DRAT, and the High Court. The Court held that the recovery proceedings initiated by ABL under the SARFAESI Act, 2002, were legal and valid, and VIPL had not raised any substantial ground to challenge the demand. The judgement reiterates the importance of timely loan repayments and the legality and validity of proceedings initiated under the SARFAESI Act, 2002, for the recovery of dues by financial institutions.
Conclusion:
The judgment in Vidarbha Industries Power Limited v. Axis Bank Limited (2022) 8 SCC 352 it can be concluded that the Court has upheld the legality and validity of the recovery proceedings initiated by Axis Bank Limited (ABL) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, against Vidarbha Industries Power Limited (VIPL). It emphasizes the legality and validity of proceedings initiated under the SARFAESI Act, 2002, for the recovery of dues by financial institutions. The decision highlights the importance of timely loan repayments and the repercussions of defaulting on such repayments.
Therefore, the appropriate solution for borrowers is to ensure timely loan repayments and comply with the terms of the loan agreement to avoid legal consequences. Financial institutions should follow the due process of law while initiating recovery proceedings and ensure that the rights of the borrowers are protected. They should also provide adequate notice to the borrowers and give them an opportunity to make representations against the demand. In case of any disputes, the borrowers should exhaust the available remedies under the law, including filing appeals before the DRT and the DRAT, to protect their interests.
 8 SCC 352 (Supreme Court, decided on July 12, 2022)){kind=link}