Phoenix ARC Pvt Ltd v. Vishwa Bharti Vidya  Mandir and Ors

Civil Appeal Nos. 257-259 of 2022

Background facts

  • Vishwa Bharati Vidya Mandir, a Society registered under the Karnataka Societies Registration Act, 1960, and one of its educational institutions, St. Ann's Education Society (Respondents), availed credit facilities to the tune of INR 105.6 crore and INR 20 crore respectively from Saraswat Co-operative Bank Ltd (Bank). The Respondents created an equitable mortgage by depositing title deeds over the immovable properties with respect to the mortgaged properties.
  • Owing to the defaults committed by the Respondents in repayment of outstanding dues, in the month of April, 2013 the accounts of Respondents were classified as a Non-performing Asset (NPA), subsequent to which the Bank issued a notice dated June 1, 2013 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (Act).
  • Thereafter, vide an Assignment Agreement dated March 28, 2014, the bank assigned the NPA account of the Respondents in favor of Phoenix ARC Pvt Ltd (Appellant). In accordance with the Assignment, the Respondents approached the Appellant with a request for restructuring the repayment of outstanding dues, which was
  • A Letter of Acceptance dated February 27, 2015 was executed between both parties, wherein the borrowers/Respondents acknowledged and admitted the liability to repay the entire outstanding dues. However, the borrowers defaulted and, consequently, the Appellant issued a letter dated August 13, 2015 to the Respondents, whereby the Appellant proposed to take possession of the mortgaged properties of the Respondents, after expiry of 15 days. This letter was strongly opposed by the Respondents on the ground that the letter issued by the Appellant was a possession notice under Section 13(4) of the Act, which was in violation of Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 and subsequently, filed Writ Petitions under Article 226 of the Constitution, in the Karnataka High
  • The High Court passed an ex-parte ad-interim Order directing status quo to be maintained with regard to possession of the mortgaged properties, subject to the Respondents making a payment of INR 1 crore to the Appellant (in total INR 3 crore, in view of the subsequent orders passed by the High Court while extending the ex-parte ad-interim Order).
  • Aggrieved by the Impugned Orders and entertainment of Writ Petitions by the High Court, the Appellant filed the present Appeal in the Supreme Court of India (SC).

Issue at hand?

  • Whether the High Court was justified in entertaining the Writ Petitions against the communication dated August 13, 2015 and to pass the ex-parte ad interim Order, virtually stalling/restricting the proceedings under the Act by the Appellant?

Decision of the Court

  • Following that, SC referred to its decision in United Bank of India v. Satyawati Tondon & Ors1 whereby it was observed that the remedy available to an aggrieved person by way of Appeal under Section 17 of the Act, against an action taken under Section 13(4) or Section 14, would render speedy and effective results. Furthermore, SC also raised question on the maintainability of a Writ Petition under Article 226 of the Constitution of India when such effective remedy was available for matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions.
  • SC took note of the glaring fact that as per the Appellant, approximately INR 117 crore was the amount due and payable to the Bank; however, the High Court directed the Respondents to deposit a sum of INR 3 crore only.
  • Also, the Court underpinned its decision in City and Industrial Development Corpn v. Dosu Aardeshir Bhiwandiwala2 that the Court, while exercising its jurisdiction under Article 226, is under an obligation to examine whether the Petitioner had any alternative or effective remedy for the resolution of the dispute. In addition, SC considered the principle laid down in Kanaiyalal Lalchand Sachdev and Ors v. State of Maharashtra & Ors3 wherein the Order of the Hon'ble Court dismissed the Writ Petition on the ground that if an efficacious remedy was available under Section 17 of the Act, the relief under Articles 226/227 of the Constitution of India is not available to any aggrieved
  • In light of the statutory remedy available under Section 17 of the Act and the law laid down by the Court in the above cases, SC strongly opined that the High Court had erred in entertaining the Writ Petition against the communication dated August 13, 2015. It clarified that if proceedings are initiated under the Act and/or any proposed action is to be taken and the borrower is discontented by such actions, then borrower has to avail the remedy under the Act and no Writ Petition would lie and/or is maintainable and/or entertainable.
  • With reference to the submission of the Respondents that in exercise of the powers under Article 226 of the Constitution, this Court may not interfere with the interim/interlocutory orders, SC dismissed it, on the strength of its judgement in State Bank of Travancore & Anr v. Mathew K.C.4 and expressed that 'filing of the Writ Petition by the borrowers before the High Court under Article 226 of the Constitution of India is an abuse of process of the Court'.
  • In view of the aforementioned reasons, SC allowed the Appeal, dismissed the Writ Petition, and vacated the ex-parte ad-interim Order.

Beereddy Dasaratharami Reddy v. V. Manjunath & Anr

Civil Appeal No. 7037 of 2021 (Arising Out of Special Leave Petition (Civil) No. 13853 of 2021)

Background facts

  • Veluswamy, Karta of the joint Hindu family, consisting of his wife and son, executed an agreement to sell the Suit property with Beereddy Dasaratharami Reddy, (Appellant).
  • Consequently, the Appellant instituted the Suit for specific performance of the sale agreement impleading both K. Veluswamy, (Second Respondent) and V. Manjunath, (First Respondent), son of the Second Respondent. In pursuance of the same, the Senior Civil Judge, Hiriyur Taluk, Karnataka (Trial Court), passed a Decree in favor of the
  • This decision did not sit well with the First Respondent, and he filed a regular First Appeal before the Karnataka High Court. In pursuance of this, the High Court set aside the Decree of the Trial Court, on the premise that the agreement to sell was un-enforceable, as the Suit property belongs to the joint Hindu family and therefore, the sale agreement cannot be executed by the Second Respondent without the signature of the First Respondent.
  • Aggrieved by this, the Appellant challenged the Order of the High Court by filing an Appeal in the Supreme Court of India (SC).

Issue at hand?

Whether the Second Respondent, as a Karta, had legal authority to execute agreement to sell for sale of the Suit land?

Decision of the Court

  • SC noted that the Respondents had openly professed that they agreed to sell the Suit property because they were in need of funds to meet domestic necessities, and, moreover, the same had been recorded in the sale deed, which distinctly establishes the legal necessity.
  • SC expressed that right of the Karta to execute a sale deed of a joint Hindu family property is a well-settled law and recapitulated the principles laid by it in Sri Narayan Bal and Others v. Sridhar Sutar and Others5 wherein it was conclusively determined that a Coparcener, who had right to claim a share in the joint Hindu family estate, could not solicit for an injunction against the Karta, to restrain him from dealing with or parting with the joint Hindu family property, and the right to challenge such sale accrues only after the alienation, if the same was not for legal necessity or for betterment of the estate. In this vein, SC opined that the Karta enjoyed outspread choice in his decision over the existence of legal necessity and as to what steps should be taken to accomplish such
  • Thereafter, SC pointed that there were no particular elements to prove the existence of legal necessity and the existence of legal necessity depended upon facts of each case. To throw light on concept of legal necessity, the SC referred to its judgement in Kehar Singh (D) through Legal Representatives and Ors v. Nachittar Kaur and Ors6 and advanced that once the existence of a legal necessity was built, then no Coparcener had a right to challenge the sale, effected by the Karta of the joint Hindu
  • In view of the aforesaid, the SC explicitly stated that the Second Respondent, being the Karta, was entitled to execute sale deed of the Suit property and therefore, the absence of the First Respondent's signature on the agreement was immaterial.
  • In light of the above, the SC restored the judgment of the Trial Court and accordingly, directed the Respondents to handover the physical possession of the Suit property to the Appellant along with the execution of the sale deed.

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1. (2010) 8 SCC 110

2. (2009) 1 SCC 168

3. (2011) 2 SCC 782

4. (2018) 3 SCC 85

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