Only The Secured Creditor Can Initiate Action Against The Borrower Under SARFAESI Act: Karnataka HC [Read Order]

Only The Secured Creditor Can Initiate Action Against The Borrower Under SARFAESI Act: Karnataka HC [Read Order]

The Karnataka High Court has held that only the secured creditor, and no other person or entity, can initiate action against the borrower under the Secularization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI).

Justice L Narayana Swamy and Justice R Devdas while setting aside the order passed by the Debt Recovery Appellate Tribunal (DRAT), upholding the demand and possession notices issued by L&T Financial Services, to Trishul Developers, said "The well-settled principles that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner. Having regard to section 13 (2) of the Act, would empower only the secured creditors to initiate action against the borrower."

The developer had borrowed Rs 20 crore from L & T Housing Finance Limited, on default of payments received a notice from L & T Financial services, which is not a secured creditor. However, the finance company argued that Trishul developers had in its reply to the demand notice sent on the letter head of L & T Financial services, admitted that they have secured a loan and it was never their intention to avoid payments of any legitimate dues.

The court after going through the relevant section of the Act said "We uphold the contention of the petitioner that as on date there is no valid demand notice issued by the secured creditor ---L&T Housing Finance Limited. The petitioner is legally entitled to raise the issue of locus, dehors such issue not being raised in the reply notice issued to the demand notice."

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