Power under SARFAESI Act can have disastrous consequences on borrowers; DRT must apply mind while passing interim order: Kerala High Court

The Kerala High Court recently held that Debt Recovery Tribunals (DRT) should apply their mind with reference to the contentions taken before it while granting even interim orders on applications moved under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) [Jimmy Thomas v Indian Bank]..Justice Gopinath P noted that the judgment of the Supreme Court in Mardia Chemicals Ltd. v. Union of India makes is amply clear that DRTs must be cognizant of the fact that the powers conferred under the SARFAESI Act are drastic, which can have disastrous consequences for the borrower.“This finding of the Supreme Court, in my view, emphasises the fact that in the initial stage of proceedings under the SARFAESI Act, there is absolutely no adjudication. This view of the Supreme Court also makes it clear that when an application is brought before the Tribunal, under Section 17 of the Act, the Tribunal must be alive of the fact that the Bank/Financial Institution has initiated the proceedings without any adjudication and that the powers conferred under the Act are drastic and can have disastrous consequences for the borrower. This is all the more reason for the Tribunal to apply its mind with reference to the contentions taken before it (even at the interim stage) before deciding to grant or reject a prayer for interim relief,” the Court stated. .The Court further noted that Madira Chemicals declares in no uncertain terms that the Tribunal has the power to grant conditional interim orders. "While it may not be necessary to the Tribunal to write a detailed order touching upon merits of each and every contention taken before the Tribunal as well as the response by the banks/financial institutions to such contentions, the order of the Tribunal must, on a reading, indicate that it was alive to the contentions raised in the Securitisation Application," the Court said in its judgment. .The order also noted that the statutes make it clear that DRTs must be manned by a person who “is, or has been, a District Judge”. "The orders issued by the Tribunal must therefore demonstrate reasonableness of its decision by demonstrating therein its experience and expertise as held in Prodair Air Products. Further a judicial order sans reason does not pass the test of fairness and reasonableness", the order stated. .The order was issued on a batch of pleas contending that the DRT, in separate Securitisation Applications filed under Section 17 of the SARFAESI Act, has mechanically issued orders on the interlocutory applications filed in the respective Securitisation Applications. The interim orders were issued without paying any heed to the contentions raised, and completely disregarding the well-settled principles governing the consideration of an application for ad-interim relief, the petitioners contended. .After carefully examining the said orders, concurred with the petitioners. It noted that the orders were “To say the least, the orders are clearly of the ‘cut, copy, paste’ category and does not reflect any application of mind by the Tribunal ..All the impugned orders record that the Tribunal is not entering into the merits of the matter at all. This is clearly a failure on the part of the Tribunal to exercise a jurisdiction vested in it,” the Court observed. The Court took a dim view of the situation especially after it found that the interim orders issued by the DRT in three of the cases were identical."This is not palatable to our judicial ethos", the Court said..The DRT, which was arrayed as a respondent in the case had argued that the petitions were not maintainable before the High Court.However, the Court held that when the DRT has failed to exercise its jurisdiction properly, thereby resulting in a failure of justice, the Court can entertain the petition under Article 227 of the Constitution of India. However, it was clarified that when a DRT has considered the matter in its proper perspective and where the interim orders show application of mind, the High Court will not entertain a petition under Article 227 merely because another view could have been taken..The petitioners were represented by advocates CS Ullas, SS Aravind, AS Dileep, KK Chandran Pillai, P Binod, Suseela Dileep, KY Sudheendran, Sudeep Aravind PanickerThe respondents were represented by advocates Sunil Shankar, Vidya Gangadharan, Sandra S, N Raghuraj, PC Sasidharan, S Easwaran..[Read Judgment]