SARFAESI Act; Punjab National Bank Vs. Consumer Disputes Redressal Forum [Kerala High Court, 29-07-2011]

Consumer Protection Act, 1986 – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Consumer Disputes Redressal Forum has no jurisdiction to entertain any complaint in respect of any measures taken by a Bank or a Financial Institution under the SARFAESI Act, 2002 and the CDRF has no jurisdiction to give any relief whatsoever against the same.

# 2011 (3) KLT 616 : 2011 (3) KLJ 542 : ILR 2011 (3) Ker. 693 : 2011 (3) KHC 511

IN THE HIGH COURT OF KERALA

The Hon’ble MR. Justice S.SIRI JAGAN

Dated this the 29th day of July, 2011

W.P. (C) No. 5957 of 2011 (T)

For Petitioner: P.K. Suresh Kumar, M. Sindhu Thankam; For Respondent: M.D. Sasikumaran, K.S. Hariharaputhran, George Mathew, Dipu James, K.V. Ramya

J U D G M E N T

The petitioner Bank challenges an interim order of the Consumer Disputes Redressal Forum, Alappuzha, passed under the

# Consumer Protection Act, 1986

in Ext.P4 complaint filed by respondents 1 and 2, restraining and prohibiting the petitioner from taking auction proceedings of sale and other proceedings against the respondents 2 and 3, pursuant to a notice issued by the petitioner under the

# Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)

for recovery of loan amounts due under a loan given to the respondents 2 and 3, on the ground that the respondents 2 and 3 have made out a prima facie case against the petitioner and there is a consumer dispute. According to the petitioner, the Consumer Disputes Redressal Forum (CDRF) has no jurisdiction to entertain a challenge against the proceedings under the SARFAESI Act. The petitioner therefore seeks the following reliefs:

“a) quash Ext.P3 order by the issue of a writ of certiorari or other appropriate writ, order or direction.

b) issue a writ of prohibition or other appropriate writ, order or direction restraining the 1st respondent from proceeding further with Ext.P4 petition.

c) declare that the 1st respondent has no authority or jurisdiction to entertain Ext.P4 petition.”

2. The respondents 2 & 3 oppose the prayers of the petitioner on the ground that since there is a consumer dispute involving deficiency in service of the petitioner and banking comes within the purview of ‘service’ as defined in Section 2 (o) of the Consumer Protection Act, the CDRF has jurisdiction to entertain a complaint regarding deficiency in service of the petitioner Bank, notwithstanding the SARFAESI Act, in view of Section 3 of the Consumer Protection Act.

3. I have considered the rival contentions in detail. At first blush the argument of the respondents on the basis of the definition of ‘service’ in Section 2 (o) of the Consumer Protection Act, read with Section 3 thereof, stipulating that the provisions of the Consumer Protection Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force, sounds attractive. But the jurisdiction of the Consumer Disputes Redressal Forum to interfere with proceedings under the SARFAESI Act has to appreciated in the light of the provisions of the SARFAESI Act, the object and purpose of that Act and the decisions of the Supreme Court upholding the primacy of the Act, even in relation to the powers of the High Court under Article 226 of the Constitution of India.

4. At the outset certain obvious facts are to be noted, which are as follows:

(a) The Consumer Protection Act is a general enactment and the SARFAESI Act is a special enactment.

(b) The Consumer Protection Act was enacted in 1986, whereas the SARFAESI Act was enacted in 2002.

(c) Under Section 34 of the SARFAESI Act, jurisdiction of the civil courts for entertaining any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by the said Act to determine is barred and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the said Act.

(d) Under Section 35 of the SARFAESI Act, the provisions of the said Act is to have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

(e) The SARFAESI Act is a comprehensive law providing for all aspects relating to the subject dealt with by that legislation and the Act provides to persons aggrieved by measures taken under the Act a remedy by way of challenging the action taken under the Act before a quasi judicial authority, namely, the Debts Recovery Tribunal, with a right to file a further appeal before the Debt Recovery Appellate Tribunal, making the legislation a self contained one.

5. Certainly, as stated in its Preamble, the Consumer Protection Act, 1986 is an Act to provide for better protection of the interests of consumers and for that purpose to make provision for the establishment of consumer councils and other authorities for the settlement of consumers disputes and for matters connected therewith. Section 2 (o) of the said Act defines ‘service’ thus: “service” means service or any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection with banking, financing insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service;” Under Section 12 of the Act, the CDRF has jurisdiction to entertain a complaint in relation to any service provided or agreed to be provided. Section 3 of the said Act reads thus:

# 3. Act not in derogation of any other law

The provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force.”

Borrower of money from a Bank is a consumer as defined under Section 2 (d). Reading all these provisions together, certainly deficiency in service provided by a Bank can be the subject matter of a dispute before a CDRF. But in the event of a CDRF finding in favour of a complainant, the CDRF has power to grant only the reliefs provided for in Section 14 (1) of the Consumer Protection Act, which reads thus:

(1) If, after the proceeding conducted under section 13, the District Forum is satisfied that the goods complained against suffer from any of the defects specified in the complaint or that any of the allegations contained in the complaint about the services are proved, it shall issue an order to the opposite party directing him to do one or more of the following things, namely:–

(a) to remove the defect pointed out by the appropriate laboratory from the goods in question;

(b) to replace the goods with new goods of similar description which shall be free from any defect;

(c) to return to the complainant the price, or, as the case may be, the charges paid by the complainant;

(d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party:

Provided that the District Forum shall have the power to grant punitive damages in such circumstances as it deems fit;

(e) to remove the defects in goods or deficiencies in the services in question;

(f) to discontinue the unfair trade practice or the restrictive trade practice or not to repeat them;

(g) not to offer the hazardous goods for sale;

(h) to withdraw the hazardous goods from being offered for sale;

(ha) to cease manufacture of hazardous goods and to desist from offering services which are hazardous in nature;

(hb) to pay such sum as may be determined by it, if it is of the opinion that loss or injury has been suffered by a large number of consumers who are not identifiable conveniently:

Provided that the minimum amount of sum so payable shall not be less than five per cent, of the value of such defective goods sold or services provided, as the case may be, to such consumers:

Provided further that the amount so obtained shall be credited in favour of such person and utilized in such manner as may be prescribed;

(hc) to issue corrective advertisement to neutralize the effect of misleading advertisement at the cost of the opposite party responsible for issuing such misleading advertisement;

(i) to provide for adequate costs to parties. Going by the said Section, the CDRF has no power to injunct or restrain a Bank from enforcing their rights under a loan agreement executed by a borrower with them, which would include sale of the mortgaged properties for recovery of the loan amounts advanced by the Bank to the borrower, for which specific purpose the SARFAESI Act was enacted.

6. Further Section 34 of the SARFAESI Act provides thus:

# Civil Court not to have jurisdiction

No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).”

(underlining supplied)

Although the first part of the Section ousts the jurisdiction of only the Civil Court, which will not apply to a CDRF which is not a Civil Court, the latter part of the Section expressly bars the jurisdiction of not only civil courts but also other authorities, which would include CDRFs also from granting injunction in respect of any action taken or to be taken in pursuance of any power conferred by or under the SARFAESI Act. The CDRF cannot, without granting an injunction, restrain financial institutions like Banks from proceeding with an action taken under the SARFAESI Act, for which the CDRF has no powers under Section 14 (1) of the Consumer Protection Act and such power is expressly barred by Section 34 of the SARFAESI Act. As such it is clear that the CDRF cannot grant any relief against measures taken by a Bank or Financial Institution under the SARFAESI Act. Therefore, going by the above said provisions of the two Acts themselves, the jurisdiction of the CDRF to deal with matters provided for in the SARFAESI Act is expressly excluded.

7. Apart from that, the necessity to confine remedies of an aggrieved person as provided under the SARFAESI Act in respect of measures taken by a financial institution under the said Act to those provided under Section 17 of that Act has been repeatedly emphasised by the Supreme Court in various decisions, some of which are:

# Mardia Chemicals Ltd & Others v. Union of India and others, (2004) 4 SCC 311

# Transcore v. Union of India and another, (2008) 1 SCC 125

# United Bank of India v. Satyawati Tondon and Others, (2010) 8 SCC 110

In Mardia Chemical’s case (supra) the Supreme Court held thus in paragraph 34 regarding the necessity of the special law relating to securitisation thus:

“Some facts which need be taken note of are that the banks and the financial institutions have heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but as the figures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the governments in creating Debt Recovery Tribunals and appointing Presiding Officers, for a long time. Even after leaving that margin, it is to be noted that things in the concerned spheres are desired to move faster. In the present day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of the NPAs was not called for or that it was super imposition of undesired law since one legislation was already operating in the field namely the Recovery of Debts due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and Narasimham Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another expert committee was constituted then alone the impugned law was enacted. Liquidity of finances and flow of money is essential for any healthy and growth oriented economy. But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved.”

The importance of the legislation in the global economic scenario was underscored in the other decisions (supra) also. In all those decisions the Supreme Court particularly noted the fact that although the legislation was harsh, sufficient protection has been given to persons aggrieved by measures under the Act by providing a two tier remedy by way of an application under Section 17 of the SARFAESI Act to the Debt Recovery Tribunal (DRT) and an appeal from the decision of the DRT to the Appellate Tribunal under Section 18 of the said Act. In view of those effective alternate remedies available for an aggrieved person, the Supreme Court has repeatedly frowned upon even the High Courts entertaining writ petitions under Article 226 of the Constitution of India against proceedings under the SARFAESI Act. In United Bank of India’s case, the Supreme Court held thus in paragraph 42 to 46:

42. There is another reason why the impugned order should be set aside. If respondent No. 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression ‘any person’ used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.

43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.

44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution.

45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance.

46. It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions carved out in

# Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad MANU/SC/0399/1968 : AIR 1969 SC 556

# Whirlpool Corporation v. Registrar of Trade Marks, Mumbai MANU/SC/0664/1998 : (1998) 8 SCC 1

and

# Harbanslal Sahnia and Anr. v. Indian Oil Corporation Ltd. and Ors. MANU/SC/1199/2002 : (2003) 2 SCC 107

and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass appropriate interim order.”

When the High Court itself should be circumspect in entertaining challenge against proceedings under the SARFAESI Act, I am of opinion that the provisions in the SARFAESI Act, prescribing exclusion of jurisdiction of authorities to grant injunction against proceedings under that Act should apply with added vigour to the CDRF.

8. Section 35 of the SARFAESI Act is another reason for excluding jurisdiction of the CDRF in respect of matters covered by the SARFAESI Act. The said Section reads thus:

“35. The provisions of this Act to override other laws.- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

The SARFAESI Act is a later Act than the Consumer Protection Act. The SARFAESI Act is a special enactment and the Consumer Protection Act is a general enactment. It is settled law that the provisions of a special enactment would override the provisions of a general enactment. The SARFAESI Act provides for specific remedies to aggrieved persons for challenging proceedings under the said Act. Therefore if it is to be held that CDRF has also jurisdiction to entertain challenge against proceedings under the SARFAESI Act, that would be hit by Section 34 in so far as that would be inconsistent with the provisions of the SARFAESI Act.

9. In

# Integrated Rubian Exports Ltd. v. Industrial Finance Corporation 2008 (4) KLT 640

a learned single judge of this court has held that Section 35 of the SARFAESI Act overrides Section 22 of the Sick Industrial Provisions (Special Provisions) Act, 1985. The learned Judge has held thus in paragraphs 6 and 7 of that decision:

“6. For the purpose of deciding this case, it is not necessary to consider whether SICA stands repealed by the enactment of 2004 or whether that repealing enactment stands enforced, as noticed by the Division Bench of this Court in

# Aluminium Industries Ltd. v. State of Kerala, 2005 (1) KLT 889

Still further, it is also not necessary to consider the question whether it was at the stage of “reference” that the case was pending before BIFR and whether the third proviso to sub-s. (1) of S. 15 of SICA would nullify the plea of the petitioner. This is because proviso under consideration, only enjoins that the reference shall abate. Whatever be the scope of the term ‘reference’ and status of proceedings before BIFR, the case in hand can be decided without holding that the BIFR proceedings have abated. This is because, S. 35 of the SARFAESI Act a later enactment, categorically lays down that the provisions of that Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect, by virtue of that law. That provision overrides S.22 of the SICA, which is a previous enactment, having come into being in 1985. Therefore, notwithstanding the abatement provided by the third proviso to S.15 (1) of SICA, introduced by virtue of S. 41 read with the Schedule to the SARFAESI Act, the effect of S. 22 of SICA no more survives S. 35 of the SARFAESI Act.

7. In this context, learned counsel for the petitioner argued that SICA could be treated as a special enactment occupying a very peculiar field and in that sense, could be treated as one which would not fall within the purview of S. 35 of the SARFAESI Act. The SARFAESI Act is an enactment to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The SICA is an Act to make special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, with the ultimate goal of taking preventive, ameliorative, remedial or other measures and the expeditious enforcement of the measures so determined. Both enactments essentially focus on the measures which are needed for asset management, either of the company or of the security company. Not only that, S.37 of the SARFAESI Act enumerates different statutes and provides that the provisions of SARFAESI Act shall be in addition to and not in derogation of the legislations referred to therein. On a reading of Ss.35 and 37 of the SARFAESI Act, in conjunction, it has to be held that all enactments and laws in force, including those enumerated in S. 37, would also be available to a secured creditor, notwithstanding the other provisions of the SARFAESI Act and the overriding effect of the SARFAESI Act, by virtue of S. 35 thereof, is in no manner abridged by any other provisions in that Act or in SICA.”

(underlining supplied)

The Madras High Court has, in the decision of

# BPV Classic Tea Factory (P) Ltd v. Corporation Bank 2008 (3) BC 557

held that in respect of enforcement of a secured asset under the SARFAESI Act, the provisions of that Act alone would apply with regard to sale of an immovable property by the secured creditor and the same cannot be challenged before the Company Court under the provisions of the Companies Act. It was further held that, if aggrieved by any of the measures taken by the creditor under Section 13 (4) of the SARFAESI Act, the aggrieved person has to work out his remedy as provided in that Act only. In that decision the learned Company Judge of the Madras High Court held thus in paragraphs 17 and 18 thereof:

17. In Transcore v. Union of India (supra), the Hon’ble Supreme Court held that Section 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act gives an overriding effect to that Act with all other laws and if such other laws are inconsistent with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. The Supreme Court further observed that the very object of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act is recovery by non- adjudicatory process and it is for this reason that Sections 13 (1) and 13 (2) of the Act proceeds on the basis that security interest needs to be enforced expeditiously without the intervention of the Court/Tribunal. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act states that enforcement would take place by non-adjudicatory process and the Act removes all fetters on the rights of the secured creditors.

18. A reading of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and the above referred judgments of the Supreme Court would make it very clear that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act is a special Act while Companies Act is a general law. In such circumstances, with regard to enforcement of a security asset under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, the provisions as contained in that Act alone would apply with regard to sale of an immovable property by the secured creditor and the same cannot be challenged before the company Court under the provisions of the Companies Act. If aggrieved by any of the measures taken by the secured creditor under Section 13 (4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, the aggrieved person has to work out his remedy as provided under that Act only.”

I am in respectful agreement with those decisions. The ratio of those decisions clearly applies to the Consumer Protection Act also on all fours. Therefore, resort to the remedy provided under the Consumer Protection Act is clearly barred by the provisions of the SARFAESI Act.

10. The result of the above discussion is that the Consumer Disputes Redressal Forum has no jurisdiction to entertain any complaint in respect of any measures taken by a Bank or a Financial Institution under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the CDRF has no jurisdiction to give any relief whatsoever against the same. It is declared so. In the result Ext.P3 order of the CDRF, Alappuzha is quashed. It is also declared that the CDRF has no jurisdiction to entertain or deal with C.C. No.371/2010 (Ext.P4) in which Ext.P3 order has been passed as against the measures taken by the petitioner under the SARFAESI Act. Accordingly the CDRF shall take steps to remove Ext.P4 complaint from the files of the CDRF.

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