S.17 SARFAESI Act | Recovery Action May Have Disastrous Consequences For Borrower, DRT Must Pass Interim Order Upon Application Of Mind: Kerala HC

The Kerala High Court recently held that interim orders passed by the Debts Recovery Tribunal under 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be issued mechanically and without application of mind. On Maintainability The Court held that in cases where the Tribunal has failed to exercise its jurisdiction properly, requiring the petitioner to appeal against such order under Section 18 of the SARFAESI Act which mandates depositing 50% of the claimed amount for maintaining the appeal, would be a ‘negation of justice’ Holding that the petitions were maintainable under Article 227 of the Constitution, the Court observed: “The orders impugned in these petitions are orders of Debts Recovery Tribunal functioning within the territorial limits of this Court. In the facts of these cases, and considering the nature of the orders issued by the Tribunal, I am convinced that there is an apparent failure by the Tribunal to exercise a jurisdiction vested in it in a proper manner occasioning the failure of justice” On Whether The Tribunal Exercised Its Jurisdiction In A Proper Manner The Court observed that while passing an interim order under Section 17 the Tribunal must prima facie appreciate the contentions of the parties on merit and apply the well settled principles of i) strong prima facie case; balance of convenience; and irreparable injury. “Considering the drastic nature of the powers conferred on the banks/financial institutions under the provisions of the SARFAESI Act, this Court must expect that the Tribunal will apply its mind to the contentions taken in the Securitisation Application and a decision on whether or not an interim stay should be granted will be taken on well-settled principles governing the grant of interim relief.” The Court observed.