Madras High Court Refuses SARFAESI Writ, Directs Borrower to Debts Recovery Tribunal

The Madras High Court, in G. Sekar Vs Union of India (Madras High Court), declined to entertain a writ petition filed against SARFAESI proceedings initiated by a Non-Banking Financial Company (NBFC) and the consequent auction of the assessee’s residential property. The Court held that the writ under Article 226 of the Constitution was not maintainable against the private financial institution in the absence of any public law element and directed the assessee to avail the statutory remedy before the Debts Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act.

The decision reiterates two important legal propositions:

  • Private NBFCs, while enforcing security interests under the SARFAESI Act, do not ordinarily fall within the writ jurisdiction of the High Court unless they discharge a public duty.
  • The SARFAESI Act is a self-contained mechanism providing a complete remedy before the DRT, which must be approached for grievances relating to measures under Section 13(4).

Background of the Dispute

Property and Auction Proceedings

The assessee challenged a series of recovery actions taken by the second respondent, Aptus Value Housing Finance India Limited, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

  • The dispute centered around a residential house property situated at:
    • No. 1/48B, Giri Nagar, Kulathupudur, Andipalayam, Tirupur.
  • The secured creditor issued a sale notice dated 03.08.2024, culminating in an auction sale held on 10.09.2024.

The assessee invoked Article 226 of the Constitution seeking a declaration that the entire SARFAESI action, including the auction sale, was illegal and void ab initio.

Core Contentions of the Assessee

The assessee’s counsel raised two principal grounds:

  1. Lack of jurisdiction under SARFAESI due to debt amount below threshold

    • Reliance was placed on Ministry of Finance Notification S.O. 856(E) dated 24.02.2020, as modified by notification dated 12.02.2021.
    • As per these notifications, it was argued that NBFCs can invoke SARFAESI only where the secured debt is Rs.20 Lakhs and above.
    • In this case, the outstanding loan amount was admittedly less than Rs.20 Lakhs.
    • According to the assessee, this meant the NBFC had no statutory competence to initiate SARFAESI proceedings, rendering all subsequent steps, including the auction, without jurisdiction.

  2. Alleged non-compliance with procedural requirements under SARFAESI

    The assessee asserted that the mandatory steps under the Security Interest (Enforcement) Rules, 2002 were bypassed:

    • The Demand Notice under Section 13(2) of the SARFAESI Act was allegedly not served.
    • The Possession Notice under Section 13(4) was stated to have not been communicated.
    • The Sale Notice preceding the auction was also claimed to have not reached the assessee.

    On this basis, it was urged that the entire process violated principles of natural justice and therefore stood vitiated.

Court’s Threshold Examination: Maintainability of Writ

Before examining the factual or technical challenges raised by the assessee, the Court first turned to a foundational question: Can a writ under Article 226 lie against the second respondent NBFC?

Nature of the Second Respondent

The Court recorded that:

  • The second respondent, Aptus Value Housing Finance India Limited, is a private financial institution.
  • It is not an instrumentality of the State within the meaning of Article 12 of the Constitution of India.
  • The dispute arose from:
    • A loan agreement between the parties, and
    • The ensuing enforcement of security interest under the SARFAESI Act.

The Court noted that these are essentially private law disputes arising out of a commercial contract and not matters inherently involving sovereign or public duties.