J&K High Court Dismisses Appeal, Upholds SARFAESI Act’s Bar on Injunction, Cites ‘Abuse of Process’”

In a significant legal development, the High Court delivered a landmark judgment on July 21, 2023, dismissing an appeal and upholding the application of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The judgment, delivered by Hon’ble Mr. Justice Wasim Sadiq Nargal, highlighted the court’s strict adherence to the principles of justice, equity, and the prevention of abuse of process.

The subject of the case was the grant of an interlocutory injunction sought by the appellant to restrain the bank from taking action under the SARFAESI Act. The Act empowers banks and financial institutions to recover their non-performing assets (NPAs) without recourse to civil courts, thus streamlining the recovery process. Section 34 of the SARFAESI Act prohibits the granting of injunctions against any action taken or to be taken under the Act.

Justice Nargal, in his judgment, emphasized the essence of the Act and its overriding effect on other laws. He stated, “The opening portion of Section 34 clearly states that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a DRT or an Appellate Tribunal is empowered by or under the Securitization Act to determine.”

The court also observed that the appellant had filed the suit with an ulterior motive and unclean hands. The plaintiff had previously attempted to challenge the mortgage deeds under the Act and failed to obtain relief. Subsequently, they filed the present suit with the intention to stall the bank’s efforts to recover the dues.

Justice Nargal cited the principles of equity, stating, “One who seeks equitable relief must do equity also and demonstrate bonafides.” The court further highlighted the need for parties to come to the court with clean hands, and those who base their case on falsehood have no right to approach the court.

The judgment also reaffirmed the discretionary nature of granting interlocutory injunctions. The court considered factors like prima facie case, balance of convenience, and the likelihood of irreparable injury while deciding whether to grant the injunction.

Date of Decision: 21st July 2023

Raj Kumar Gupta  vs Bank of India and anr.