Case Note & Summary
The dispute arose from writ petitions filed by borrowers, Vishwa Bharati Vidya Mandir and St. Ann's Education Society, against Phoenix ARC Private Limited, an Asset Reconstruction Company (ARC), challenging a communication dated 13.08.2015 as a possession notice under Section 13(4) of the SARFAESI Act, 2002. The borrowers had availed credit facilities from Saraswat Co-operative Bank Limited, which were later assigned to the ARC after the accounts were classified as Non-Performing Assets (NPAs). Despite a Letter of Acceptance acknowledging dues, the borrowers defaulted, leading to the ARC's proposed SARFAESI action. The High Court of Karnataka entertained the writ petitions under Article 226 of the Constitution of India and passed ex-parte ad-interim orders directing status quo on possession of secured assets, which were extended multiple times. The core legal issues were whether writ petitions are maintainable against a private ARC under Article 226 and whether the High Court was justified in granting interim relief. The ARC argued that writ petitions are not maintainable against a private party, and the proper remedy is an appeal under Section 17 of the SARFAESI Act, citing precedents like United Bank of India v. Satyawati Tondon. The borrowers contended that the appeals were against interim orders and the main petitions were pending. The Supreme Court analyzed that the ARC is a non-State actor, and writ jurisdiction under Article 226 does not extend to private entities unless they perform public functions. The Court held that the High Court erred in entertaining the writ petitions and granting interim relief, as the petitions were not maintainable. The decision set aside the High Court's orders and dismissed the writ petitions, favoring the ARC.
Headnote
A) Banking and Finance - SARFAESI Act - Writ Jurisdiction Against Private Asset Reconstruction Company - Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, Sections 13(2), 13(4), 17 - The High Court entertained writ petitions under Article 226 of the Constitution of India against a private Asset Reconstruction Company (ARC) regarding SARFAESI action, granting ex-parte ad-interim orders directing status quo on possession of secured assets. The Supreme Court held that writ petitions are not maintainable against a private ARC as it is a non-State actor, and the proper remedy is an appeal under Section 17 of the SARFAESI Act. The Court set aside the High Court's orders and dismissed the writ petitions as non-maintainable. (Paras 1-8) B) Civil Procedure - Interim Relief - Ex-parte Ad-interim Orders in Non-maintainable Writ Petitions - Constitution of India, Article 226 - The High Court passed ex-parte ad-interim orders directing status quo on possession of mortgaged properties in writ petitions filed by borrowers against an ARC, extending these orders multiple times. The Supreme Court found that the High Court erred in granting interim relief when the writ petitions themselves were not maintainable against a private party, effectively staying SARFAESI proceedings. The Court quashed the interim orders and emphasized that such relief should not be granted in non-maintainable petitions. (Paras 2.5-2.7, 4.3-4.4)
Issue of Consideration
Whether the High Court was justified in entertaining writ petitions under Article 226 of the Constitution of India against a private Asset Reconstruction Company (ARC) and granting interim relief in relation to SARFAESI Act proceedings, and whether such writ petitions are maintainable.
Final Decision
The Supreme Court set aside the impugned order dated 27.03.2018 passed by the High Court and dismissed the writ petitions as being non-maintainable.
Law Points
- Writ jurisdiction under Article 226 of the Constitution of India is not maintainable against a private Asset Reconstruction Company (ARC) under the SARFAESI Act
- 2002
- as the ARC is a non-State actor and not performing public functions
- the proper remedy against SARFAESI actions is an appeal under Section 17 of the SARFAESI Act
- interim orders in writ petitions should not be granted when the main petition is not maintainable
- especially when they effectively stay SARFAESI proceedings
- the High Court erred in entertaining writ petitions against a private party and granting ex-parte ad-interim relief.
