1. Factual Background and Procedural History
The present case, LIC Housing Finance Ltd. v. Nagson and Company & Ors., arose from the High Court of Karnataka’s interference with SARFAESI proceedings initiated by the secured creditor — LIC Housing Finance Ltd. — against its defaulting borrower, Nagson and Company, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”).
Background Facts
- LIC Housing Finance Ltd., a secured creditor, had advanced loans to the borrower, Nagson and Company.
- Due to continuous loan defaults, the lender initiated proceedings under Section 13(2) of the SARFAESI Act, issuing two separate demand notices dated 5 August 2021, claiming dues of approximately ₹41 crore and ₹31 crore, respectively.
- The borrower challenged these actions before the Karnataka High Court through Writ Petition No. 17727/2021, invoking Article 226 of the Constitution of India, seeking to restrain enforcement measures under Section 13(4).
High Court Proceedings
- By an interim order dated 29 September 2021, the High Court restrained LIC Housing Finance Ltd. from taking further action under the SARFAESI Act, on the condition that the borrower deposit only ₹5 crore — despite the outstanding dues exceeding ₹70 crore.
- The interim protection was later continued by another High Court order dated 23 September 2022, upon noting belated compliance by the borrower.
- More than 30 months later, the writ petition remained pending without final adjudication, effectively freezing the creditor’s enforcement rights.
Aggrieved by the prolonged restraint and unreasoned interim relief, LIC Housing Finance Ltd. approached the Supreme Court of India by way of Special Leave Petition (Civil) Diary No. 7979/2025.
2. Identification of Legal Issues
The Supreme Court considered the following key questions:
- Whether High Courts can interfere under Article 226 of the Constitution in SARFAESI proceedings without recording reasons or ensuring adequate justification.
- Whether granting interim relief against secured creditors without assessing statutory remedies constitutes judicial impropriety.
- Whether unreasoned interim orders undermine the objectives and credibility of the SARFAESI framework.
3. Arguments of the Parties
Petitioner (LIC Housing Finance Ltd.)
- The High Court’s orders were contrary to settled law, including United Bank of India v. Satyawati Tondon & Ors. (2010) 8 SCC 110, which mandates judicial restraint in interfering with SARFAESI proceedings.
- The borrower had alternative statutory remedies, including approaching the Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act.
- The High Court’s blanket injunction was unreasoned, disproportionate, and allowed a defaulting borrower to delay recovery for over two and a half years.
- Such interference eroded institutional credibility, as financial institutions rely on the SARFAESI mechanism for expeditious recovery.
Respondents (Borrower – Nagson and Company)
- The borrower contended that they faced genuine business difficulties and sought protection to enable restructuring and repayment.
- The interim relief was conditional, not absolute, and hence did not prejudice the lender.
- The borrower also argued that the writ jurisdiction under Article 226 is wide enough to address arbitrary or excessive enforcement by secured creditors.
4. Court’s Analysis and Reasoning
The Bench of Justice Dipankar Datta and Justice Augustine George Masih delivered a concise but strong order reaffirming the judicial limits of writ jurisdiction in financial recovery proceedings.
(a) Reaffirmation of Satyawati Tondon Doctrine
The Court recalled its earlier decision in United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, where it had cautioned High Courts not to interfere in SARFAESI matters unless exceptional circumstances justified it. The Court observed:
“Despite repeated cautions, some High Courts continue to grant interim relief ‘on the mere asking’, without just and sufficient reasons, causing great disservice to institutional credibility.”
(b) Improper Exercise of Writ Jurisdiction
The Supreme Court strongly disapproved of the Karnataka High Court’s unreasoned interim restraint, holding that:
- Such orders disregard statutory alternatives available to borrowers;
- They undermine the sanctity of the SARFAESI mechanism designed for efficient debt recovery; and
- They create moral hazard by rewarding defaulting borrowers who delay adjudication.
(c) Institutional Integrity and Judicial Discipline
The Court emphasized that the economic stability of financial institutions depends upon the certainty of enforcement mechanisms. Arbitrary judicial interventions frustrate the legislative intent of speedy, non-adjudicatory recovery under SARFAESI.
(d) Specific Direction to High Court
While refraining from commenting on the merits of the pending writ petition, the Supreme Court directed:
“The High Court shall give precedence to the writ petition of the defaulting borrower and decide the same, subject to its convenience, by the end of September 2025.”
The Court also issued notice on the SLP, returnable on 10 October 2025, to monitor compliance.
5. Final Conclusion and Holding
- The Supreme Court did not interfere with the High Court’s interim order but expressed strong disapproval of the manner in which such unreasoned relief was granted.
- It reiterated the binding principle that High Courts must exercise extreme caution before restraining statutory recovery under SARFAESI.
- The Court reaffirmed that borrowers must approach the DRT, and writ jurisdiction should not be a substitute for statutory remedies.
- The judgment reinforces the need for judicial discipline, economic prudence, and institutional accountability in financial matters.
Key Principle:
“Interference in SARFAESI proceedings without recorded justification constitutes judicial overreach and undermines the legislative purpose of speedy recovery.”
FAQs:
1. Can High Courts stay SARFAESI proceedings under Article 226?
Yes, but only in exceptional cases. The Supreme Court has cautioned that High Courts should not interfere routinely, especially when borrowers have statutory remedies before the DRT.
2. What did the Supreme Court decide in LIC Housing Finance v. Nagson & Co.?
The Court criticized the Karnataka High Court for granting unreasoned interim relief to a defaulting borrower and directed it to decide the pending writ petition expeditiously.
3. What is the role of the DRT under the SARFAESI Act?
The Debt Recovery Tribunal is the primary forum for borrowers to challenge measures taken by secured creditors under Section 13(4) of the SARFAESI Act.
4. Why did the Supreme Court refer to Satyawati Tondon’s case?
Because it established the rule that writ jurisdiction should not be invoked to stall SARFAESI enforcement when statutory remedies exist.
5. What message does this judgment send to High Courts?
It reinforces judicial restraint in economic legislation, emphasizing that arbitrary stays in recovery proceedings damage financial discipline and institutional trust.
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