29 January 2016

Company courts not to interfere with proceedings under SARFAESI Act

The Supreme Court of India, with respect to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (“SARFAESI Act”), has held that powers under the Companies Act cannot be wielded by the Company courts to interfere with proceedings by a secured creditor to realize its secured interests in terms of the provisions of the SARFAESI Act.

The present case arose out of a Division Bench judgment of Punjab and Haryana High Court which upheld the judgment of the Company Court and approved of certain fetters placed upon the appellant while allowing it to exercise its powers as a secured creditor under the SARFAESI Act and proceed with the sale of the secured assets. A division Bench of the Delhi High Court had differed with the views taken by the Punjab and Haryana High Court. According to the Delhi High Court, the company judge or the official liquidator cannot have any say in the sale of secured assets by the secured creditors under the SARFAESI Act.

The Supreme Court in this regard noted that Section 13 of SARFAESI Act grants a right to enforce the security interest “without the intervention of the court or tribunal”. Various provisions of the SARFAESI Act, which contained non obstante clauses indicating that it operated as a complete code, a position that was accepted by previous judicial decisions, were also analyzed by the Court.  It was noted that several protections were already present in the legislative scheme as a result of which neither the company court nor the liquidator can exercise greater interference in such sale process.


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