Writ petition not maintainable against proceedings of banks: Supreme Court
Recently in the Karnataka High Court the borrowers filed writ petition under Article 228 of the Constitution. These petitions were against an asset reconstruction company (ARC). This decision of the Supreme Court has come in appeal against these petitions.
The Supreme Court (SC) has clarified that writ petitions against the proceedings of banks will not be maintainable.
The Supreme Court has held that:-
A writ petition challenging the proceedings initiated under the SARFAESI Act by private banks/Asset Reconstruction Companies (ARC) is not maintainable. The proceedings initiated under the SARFAESI Act will provide relief to borrowers aggrieved by the same law. This is because the SARFAESI Act provides for very quick and effective legal remedies.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)
- It helps in restructuring bad loans or non-performing assets (NPAs) without the intervention of courts.
- The Act empowers ARCs to facilitate securitization of bad loans or NPAs and asset restructuring. This provides quick resolution and ensures liquidity in the system.
- ARCs have been declared as companies under the Companies Act. Also, they have been registered with RBI under SARFAESI Act, 2002.
- It allows only secured lenders to take possession of the asset held as collateral if the loan is not repaid by the borrower.
- Secured lenders are those from whom the borrower pledges an asset with them in return for taking the loan.
Key definitions:
- Asset Restructuring: When banks are unable to recover loans, advances or debentures given, efforts are made to recover them by contracting with banks under asset restructuring. This work is done by ARCs.
- Securitization: It is the realization of financial assets from banks either by issuance of security receipts to eligible buyers or through any other means. Such security receipts shall present undivided interest in financial assets.
- ARC or Bad Bank: It is a special type of financial institution. It buys out the liabilities of the bank at a mutually agreed price. It attempts to recover the debt or related securities itself.
Source – The Hindu
