International Asset Reconstruction Co. Pvt. Ltd. Vs Jayant Vitamins Ltd. & Another (Supreme Court of India)
SARFAESI Disputes Must Go Before DRT: Supreme Court Sets Aside Liberty to Pursue Civil and Criminal Remedies
Summary: The Supreme Court has set aside a High Court review order granting a borrower wider liberty to pursue a civil suit for damages or criminal proceedings concerning measures taken under the SARFAESI Act, 2002. The Court held that the legality of the disputed enforcement action must be examined through the statutory mechanism, while protection against prosecution applies to actions taken in good faith.
A Bench of Justices B.V. Nagarathna and Augustine George Masih delivered the order on September 17, 2026, in International Asset Reconstruction Co. Pvt. Ltd. v. Jayant Vitamins Ltd. & Another, arising from SLP(C) No.12913/2024.
Background of the Recovery Proceedings
A bank had extended credit facilities to Jayant Vitamins Limited, secured by mortgages and hypothecation over its movable and immovable properties. Following non-payment, the account was classified as a non-performing asset.
The bank initiated recovery litigation in 1996. The matter was subsequently transferred to the Debts Recovery Tribunal-II, Mumbai, as Original Application No.283 of 2001.
On October 17, 2005, the DRT directed payment of approximately ₹28.29 crore, together with future interest at 12% annually. A recovery certificate followed on December 5, 2005, and recovery proceedings commenced.
The bank subsequently assigned the relevant financial assets to the appellant asset reconstruction company.
Sale of Plant and Machinery Challenged
The appellant issued a demand notice under Section 13(2) on January 16, 2009, and subsequently took possession under Section 13(4) of the SARFAESI Act.
In June 2023, Apexter Corporation offered ₹1.89 crore for the hypothecated plant and machinery. The offer was increased to ₹2.84 crore, which the appellant accepted.
The sale was confirmed through an acceptance letter dated July 11, 2023. A sale certificate was issued, and possession was handed over to the purchaser.
Jayant Vitamins challenged the transaction before the Madhya Pradesh High Court, Indore Bench, alleging that the sale was arbitrary, fraudulent and legally invalid.
High Court Expanded Liberty Through Review
The High Court dismissed the writ petition on February 9, 2024. It observed that the movable property had already been sold and that alleged procedural irregularities could be raised through the alternative remedies before the DRT and Debts Recovery Appellate Tribunal.
The borrower then sought review. On May 8, 2024, the High Court modified its earlier order, broadening the liberty to pursue alternative remedies or appropriate proceedings.
The review order contemplated that restricting the borrower to SARFAESI remedies might obstruct a civil suit claiming damages or criminal proceedings. The asset reconstruction company challenged this enlargement before the Supreme Court.
Sections 32 and 34 Governed the Dispute
The Supreme Court held that the High Court had failed to account for Sections 32 and 34 of the SARFAESI Act.
Section 32 protects specified authorities, secured creditors and their officers against suits, prosecutions or other legal proceedings for anything done or omitted in good faith under the Act.
Section 34 bars civil courts from entertaining matters that the DRT or appellate tribunal is empowered to determine. It also restricts injunctions concerning action taken or proposed under the relevant statutory powers.
The Court found that the High Court could not enlarge the available remedies without considering these provisions.
DRT Must Examine Whether Enforcement Was Wrongful
The Supreme Court explained that a claim for damages arising from the appellant’s enforcement measures required a finding that those measures had been wrongly initiated.
According to the Court, that determination belonged to the DRT, rather than a civil court, because the jurisdictional bar under Section 34 expressly covered the matter.
The Court also referred to Section 35, which gives the SARFAESI Act overriding effect over inconsistent provisions in other laws or instruments.
The statutory framework therefore governed the borrower’s challenge to the enforcement action.
Good Faith Remained Material to Criminal Protection
On criminal proceedings, the Supreme Court emphasised that acts and omissions under SARFAESI receive protection if undertaken in good faith.
The qualification is significant. The order did not conclusively determine that every act complained of was lawful or that every allegation concerning enforcement was immune from examination.
Instead, the Court rejected the High Court’s broader liberty and left the parties to advance their respective contentions through the appropriate SARFAESI proceedings.
Review Order Set Aside, Statutory Remedies Preserved
The Supreme Court allowed the appeal, set aside the review order dated May 8, 2024, and restored the original writ-petition order dated February 9, 2024.
It expressly clarified that its decision would not prevent Jayant Vitamins from seeking an appropriate remedy under the SARFAESI Act.
The Court also left all contentions on both sides open before the DRT. Consequently, the ruling settles the dispute over the High Court’s expansion of remedies without finally deciding the borrower’s allegations about the sale or the merits of the appellant’s enforcement measures.
FULL TEXT OF THE ORDER OF SUPREME COURT OF INDIA
Leave granted.
2. The appellant herein is aggrieved by the order dated 08.05.2024 of the High Court of Madhya Pradesh, Indore Bench in Review Petition No.368 of 2024 whereby the High Court allowed the said review petition preferred by respondent No.1 herein and thereby modified its earlier order dated 09.02.2024 passed in Writ Petition No.21285 of 2023.
3. Briefly stated, the facts of the case are that certain credit facilities were extended to respondent No.1 by respondent No.2-bank and in lieu thereof, certain charges and encumbrances in the nature of mortgage and hypothecation were created on the properties-movable and immovable property of respondent No.1 in favour of the bank.
4. Thereafter, due to the non-payment of dues, the account of respondent No.1 was classified as a Non-Performing Asset (hereinafter, ‘NPA’) by respondent No.2-bank pursuant to which Suit No.3920 of 1996 was filed by the Bank before the High Court of Judicature at Bombay which was later transferred to the Debts Recovery Tribunal-II, Mumbai and renumbered as Original Application No.283 of 2001.
5. The Debts Recovery Tribunal-II, vide order dated 17.10.2005, allowed the Original Application No.283 of 2001 and thereby directed respondent No.1 to pay respondent No.2-bank a sum of Rs.28,28,56,282.49/- along with future interest thereon at the rate of 12% per annum and pursuant thereto, a recovery certificate dated 05.12.2005 was issued and Recovery Proceeding No.409 of 2005 was initiated against respondent No.1.
6. Thereafter, a Deed of Assignment was entered into between the appellant herein and respondent No.2-bank whereby the debts, assets and liabilities of respondent No.1 were transferred by respondent No.2-bank to the appellant herein.
7. Recovery proceedings were initiated by the appellant whereby notice dated 16.01.2009 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter, referred to as ‘SARFAESI Act’) was issued to respondent No.1 and subsequently, possession was taken by the appellant under Section 13(4) of the SARFAESI Act.
8. On 21.06.2023, an offer of Rs.189 lacs was received from one Apexter Corporation, which was later on improved to Rs.284 lacs that was accepted by the appellant and thereby confirmed the sale in favour of the said Corporation vide acceptance letter dated 11.07.2023 and consequently, possession of the hypothecated property (plants & machinery) was handed over to the successful purchaser by issuance of the Sale Certificate.
9. Aggrieved, respondent No.1 preferred Writ Petition No.21285 of 2023 before the High Court of Madhya Pradesh at Indore, inter-alia, seeking setting aside of the sale of the property on the ground of the same being null and void and to be arbitrary and fraudulent.
10. The High Court dismissed the said Writ Petition, vide order dated 09.02.2024, while observing that the sale proceedings had already taken place and that the entire movable property of respondent No.1 had already been sold. Furthermore, it was observed that the objection with respect to irregularity in the procedure followed under the SARFAESI Act by the appellant herein could be addressed and raised by opting for an alternative remedy before the Debts Recovery Tribunal and Debts Recovery Appellate Tribunal.
11. Aggrieved by the order dated 09.02.2024 in Writ Petition No.21285 of 2023, respondent No.1 preferred a Review Petition No.368 of 2024 which was allowed by the High Court vide order dated 08.05.2024 wherein the High Court modified paragraph 14 of its order dated 09.02.2024 to the extent that liberty was granted to respondent No.1 to avail the alternative remedy/appropriate proceedings in accordance with law.
12. Hence, this Appeal.
13. We have heard learned counsel for the appellant and learned counsel for respondent No.1. We have perused the material on record.
14. We find that the High Court was not right in reserving liberty to respondent No.1 herein to seek remedies by filing a suit for claiming damages etc. or for pursuing criminal proceedings while allowing Review Petition No.368/2024 vide order dated 08.05.2024 and by modification of its earlier order dated 09.02.2024. By order dated 09.02.2024, the Writ Petition filed by respondent No.1 herein was disposed of having regard to the availability of an alternative remedy in law to assail the actions of the appellant herein purportedly taken under the provisions of the SARFAESI Act.
15. In the Review Petition, the High Court instead of reiterating the said order, has granted further liberty to respondent No.1 herein which in our view is not right. We say so for the reason that the High Court has not taken into consideration Sections 32 and 34 of the SARFAESI Act. For immediate reference, the said provisions are extracted as under:
“32. Protection of action taken in good faith.- No suit, prosecution or other legal proceedings shall lie against [the Reserve Bank or the Central Registry or any secured creditor or any of its officers] for anything done or omitted to be done in good faith under this Act.
xxx xxx xxx
34. Civil court not to have jurisdiction.- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993(51 of 1993)”
16. Any action taken under the provisions of the SARFAESI Act which is in good faith cannot be assailed so also for any omission under the provisions of the said Act. Similarly, a challenge to an action taken under the provisions of the SARFAESI Act can be assailed only under the provisions of the said Act and the Civil Court does not have jurisdiction to entertain any suit or other proceedings in respect thereof. Moreover, under Section 35 of the SARFAESI Act it is expressly stated that the provisions of the said Act would have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. For ease of reference, the said provision is extracted as under:
“35. The provision of this Act to override other laws.- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”
17. If respondent No.1 herein intends to seek damages for the actions initiated by the appellant herein under the provisions of the said Act, there ought to be a finding given that the said actions were wrongly initiated by the appellant herein so as to entitle respondent No.1 for damages. The said finding can only be given by the Debts Recovery Tribunal (DRT) and not by a Civil Court; the bar of jurisdiction under Section 34 of the SARFAESI Act is explicit in that regard. Moreover, pursuing criminal proceedings in respect of the actions taken or omitted to be taken under the SARFAESI Act are protected if they are taken in good faith under the SARFAESI Act.
18. In the circumstances, we do not find that the High Court was right in enlarging the scope of the alternative remedy available to respondent No.1 herein. Hence, paragraph 6 of the impugned order passed in the Review Petition which reads as under, is set aside:
“6. Considering the fact that tenor of the order remains in tact. However, looking to the fact that a specific observation was made while dismissing the writ petition that the petitioner would be free to avail the alternative remedy available under the SARFAESI Act, the said order would come in his way while filing suit for claiming damages etc. or in pursuing criminal proceedings, it would be expedient in the interest of justice to modify the order so passed.”
19. Consequently, the order passed in the Review Petition is set aside and the original order in the Writ Petition dated 09.02.2024 is restored. The appeal is allowed in the aforesaid terms. However, we reiterate that the passing of this order would not come in the way of respondent No.1 seeking appropriate remedy as against the appellant herein under the provisions of the SARFAESI Act.
20. All contentions on both sides are left open to be advanced before the Debts Recovery Tribunal (DRT).
Pending application(s), if any, shall stand disposed of.
1. Leave granted.
2. The appeal is allowed in terms of the signed order.
3. Pending application(s), if any, shall stand disposed of.
