The recent ruling by the Allahabad High Court underscores the necessity for collaboration among all stakeholders, including the judiciary, to uphold the security and efficiency of the banking system. The Court emphasized that it is the collective responsibility of borrowers, as well as the judiciary, to ensure that baseless petitions do not disrupt the smooth progress of recovery proceedings initiated under the SARFAESI Act.
During the hearing of a petition concerning the stay of SARFAESI Act proceedings by an additional district magistrate, the Court considered arguments challenging the validity of an injunction obtained by a tenant and the absence of a registered lease deed. The Court concluded that an unregistered lease cannot be considered due to provisions in the Registration Act.
Furthermore, the Court clarified that a tenancy without a fixed term or presumed to be month-to-month does not entitle a tenant to possess a secured asset beyond one year under SARFAESI Act proceedings. Additionally, reclaiming possession of a secured asset during SARFAESI Act proceedings requires a duly registered instrument in favor of the lessee.
The Court emphasized that even the Debts Recovery Tribunal lacks the authority to return possession of a secured asset to a tenant. It stressed that civil courts cannot entertain grievances regarding actions under the SARFAESI Act.
In light of these principles, the Court determined that the magistrate overseeing the case had failed to exercise jurisdiction and revoked the order to halt SARFAESI Act proceedings issued on April 18, 2023.
The petitioner received legal counsel from Senior Advocate Rahul Sripat, with assistance from Advocates Ishir Sripat and Saurabh Patel. Various respondents were represented by Senior Advocate Shashi Nandan, Advocates Udayan Nanadan and Sanjai Singh, and Shashi Nandan.
A bench comprising Justices Siddhartha Varma and Shekhar B. Saraf acknowledged the challenges faced by financial institutions regarding Non-Performing Assets (NPA) and stressed the importance of the SARFAESI Act in streamlining resolution processes for NPAs.
The Court highlighted that by empowering lenders to take proactive measures to recover their investments, the SARFAESI Act safeguards the financial health of these institutions and contributes to the stability of the banking system.
