SARFAESI Proceedings unaffected by the orders of Regulator barring Disposal of Assets

Legal Updates
August 4, 2023

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Brief Overview:

Debts of secured creditors get priority even over dues owed to government or any statutory authority. The statement of objects and purpose of the SARFAESI Act, 2002 (“SARFAESI Act”) relied on to so conclude.

Held by the Hon’ble Delhi High Court (“Delhi High Court”) in the matter of ICICI Bank Limited vs The Deputy General Manager & Ors. (W.P.(C) 3796/2022).

Technical Details:

SEBI, the capital markets regulator, passed an order restraining the alienation of assets of a borrowers without prior permission from SEBI. A writ petition was filed before Delhi High Court seeking declaration that such an order passed by SEBI against the borrower does not prevent the lender bank from proceeding against the said assets under the provisions of SARFAESI Act.

The Delhi High Court considered the interplay between powers of SEBI under the SEBI Act, 1992 and rights of a secured creditor under the SARFAESI Act it then held that:

1) The SARFAESI Act was enacted to provide a statutory framework that allows for swifter and prioritised recovery of the bank’s secured debt. There is thus a clear intention to prioritise the bank’s realisation of its security under the SARFAESI Act.

2) The intention of the legislature would get compromised if banks are disallowed from realising their security that they had registered following the statutory scheme.

3) The insertion of Section 26E of SARFAESI Act was, therefore, for a broader purpose, it being to protect our banks from the force of the State machinery that had hitherto interfered with the rights of the banks to realise their dues.

4) The proceedings under the SARFAESI Act are to be treated as a carve out to, and remain unaffected by, the orders and directions passed under the SEBI Act, 1992.

JC Key Takeaways:

The Delhi High Court has clarified that operations of the SARFAESI Act being a specific legislation empowers the Banks and Financial Institutions to take actions against the defaulters to realise their security without any embargo being created by other statutes.

For further details, please see:

ICICI Bank Limited vs The Deputy General Manager & Ors. (W.P.(C) 3796-2022).pdf (jclex.com)

For any queries/clarifications, please feel free to ping us and we will be happy to chat:

● Mr. Saurabh Sharma (saurabh.sharma@jclex.com)

● Ms. Palak Nenwani (palak.nenwani@jclex.com)