Kerala High Court Ruling: Bank Cannot Pursue Debtors Under SARFAESI Act After Civil Court Dismissal
Recently, the Kerala High Court delivered a vast ruling regarding the rights of banks to pursue debtors below the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. The court clarified that when a civil courtroom dismisses a financial institution's suit for loan recovery, the financial institution can't proceed similarly under the SARFAESI Act in opposition to the debtor.
Here are the key points from the case:
1. Background:
- A borrower from Kottayam determined herself dealing with complaints initiated via the financial institution beneath the SARFAESI Act, regardless of having paid off the complete mortgage amount.
- The Commercial Court in Kottayam had formerly disregarded the financial institution's suit for loan recovery in November 2023, figuring out that there was no first-rate debt owed by using the petitioner.
2. Legal Implications:
- The civil court's dismissal of the suit effectively hooked up that there has been no legally recoverable debt from the borrower.
- Consequently, the secured creditor (the bank) become disentitled from pursuing in addition movement under the Securitisation Act.
3. Debtor's Perspective:
- Despite the bank's suit being dismissed, the bank argued that there still existed a "debt" that could be legally recovered.
- However, the court rejected this argument, emphasizing that the absence of a legally recoverable debt was clear based on the civil court's judgment.
4. Bank's Stand:
- The bank contended that it could initiate parallel proceedings for debt recovery through the civil court while simultaneously pursuing measures under the Securitisation Act.
- The court found this stance irrational and contrary to legal principles, as it undermined the civil court's decision.
5. Conclusion:
- The Kerala High Court ruled that the bank could not disregard the civil court's judgment.
- However, the bank could still proceed with measures under Section 13(2) of the Securitisation Act.
In summary, this ruling underscores the importance of respecting legal decisions and ensures that debtors are not unfairly pursued under the SARFAESI Act after a civil court has already dismissed a suit due to lack of outstanding debt.
