Summary
Borrowers challenged simultaneous arbitration and SARFAESI enforcement by a lender notified as a financial institution after the loans and NPA classification. The Court held that adjudication by arbitration and enforcement of security could proceed together. The procedural enforcement remedy applied to debts still live when the Act became applicable to the lender, including earlier mortgages and NPAs.
Issues
- Whether arbitration and SARFAESI enforcement could proceed simultaneously.
- Whether a newly notified financial institution could enforce security for loans and accounts classified as NPAs before its notification.
Provisions considered
- Sections 35 and 37, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The statutory remedy supplements other consistent remedies; arbitration adjudicating the debt and enforcement of security are cumulative. (¶ 27–34)
- Sections 2(1)(m), 2(1)(o), 2(1)(zd) and 13, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002Notification permits enforcement against existing live secured debts; earlier creation of the mortgage or NPA classification does not itself prevent use of the remedy. (¶ 35–41)
Held
- Arbitration is an adjudicatory process, whereas SARFAESI proceedings enforce security. Invoking arbitration does not constitute an election excluding SARFAESI enforcement. If secured assets are insufficient, execution against other assets may follow determination of the outstanding amount by a competent forum. (¶ 30–34)
- The lender could invoke SARFAESI only once notified as a financial institution, but could thereafter use its procedural machinery for existing actionable secured debts. Applying that machinery to live earlier agreements does not create a new substantive obligation or confer a borrower’s right to delay enforcement. (¶ 36–40)
- The earlier date of NPA classification made no difference. At applicability of the Act there must be a present actionable debt, a secured creditor, assets securing satisfaction and classification of the borrower’s account as an NPA. (¶¶ 18, 41)
- The contrary Andhra Pradesh High Court view on parallel proceedings did not state the correct law. The supportive Orissa, Delhi and Allahabad decisions were approved in the judgment. (¶ 34)
Result
Appeal dismissed with costs quantified at Rs. 20,000.