Monday, December 3, 2018

SARFAESI : Borrower Has No Right Of Hearing In Proceedings Under Section 14 : Karnataka HC

The High Court of Karnataka has held that borrower has no right of hearing in proceedings under Section 14 of the SARFAESI Act.
The ruling was delivered by a Division Bench of Chief Justice Dinesh Maheshwari and Justice R Devdas, setting aside the general directions issued by a Single Judge that borrowers have the right to be heard in proceedings under Section 14.
The matter pertained Section 14 proceedings initiated by banks against few tenants, who were possessing the secured assets on lease. Challenging the SARFAESI proceedings initiated against them, they approached the High Court.
The Single Judge disposed of the writ petition, directing them to approach the DRT against the proceedings within two weeks under Section 17(4A) of the Act. The proceedings were kept in abeyance for two weeks based on the undertaking made by the bank. Going further, the Single Judge also held that even the borrower had to be heard before issuing directions under Section 14. Challenging this direction regarding borrowers, appeal was before before the Division Bench.
The Division Bench noted that the Supreme Court precedents in Harsh Govardhan Sondagar vs Internation Asset Reconstruction Company Ltd (2014) 6 SCC 1 & Vishal N Kalsaria vs Bank of Baroda and others (2016) 3 SCC 762 had recognized the right of a tenant to be heard before issuance of order under Section 14, so as to ascertain the existence of a valid and genuine tenancy. This is because, a tenant had the protection under Rent Control Laws and cannot be evicted by invoking SARFAESI. However, no such opportunity was extended to the borrower by the Supreme Court. Hence, the declaration made by the Single Judge concerning borrowers was set aside.

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