Civil Courts Cannot Grant Injunctions Against SARFAESI Action: Karnataka High Court

The Karnataka High Court has set aside a Commercial Court order that had stopped lenders from taking action under the SARFAESI Act, holding that such directions cannot be issued by civil courts.

Referring to Section 34 of the SARFAESI Act, which bars courts from granting injunctions in such matters, the Court said:

“A plain reading of the said section indicates that it proscribes any Civil Court from issuing any injunction not only with respect to the action taken, but also to an action that may be taken, pursuant to the powers conferred under the SARFAESI Act or the Recovery of Debts and Bankruptcy Act, 1993.”

A Division Bench of Chief Justice Vibhu Bakhru and Justice C.M. Poonacha was hearing an appeal filed by two Non-Banking Financial Companies and an Asset Reconstruction Company against an order of the Commercial Court, Bengaluru.

The case arose from an application filed before the Commercial Court under Section 9 of the Arbitration and Conciliation Act, 1996. The applicant had sought interim protection, including a direction restraining the lenders from initiating proceedings under the SARFAESI Act or any other law. The Commercial Court granted this relief.

Challenging the order, the lenders approached the High Court. Their challenge was limited to the direction restraining them from initiating proceedings under Section 13 of the SARFAESI Act pending disposal of a petition under Section 11 of the Arbitration and Conciliation Act before the High Court.

The Commercial Court had held that Section 34 of the SARFAESI Act does not bar such injunctions. It reasoned that the restriction applies only to matters within the jurisdiction of the Debt Recovery Tribunal and the Appellate Tribunal under Sections 17 and 18. It also observed that borrowers may not have a remedy until measures under Section 13(4) are taken.

The High Court disagreed with this view and held that the interpretation adopted by the Commercial Court was contrary to law.

Accordingly, the Court set aside the impugned order to the extent it restrained the lenders from initiating proceedings under the SARFAESI Act.

The Court clarified that it had not examined any other aspects of the Commercial Court's order and that the remaining directions were left undisturbed.

For Appellants: Senior Advocate Dhyan Chinnappa and Advocate Chintan Chinnappa M

For Respondents: Advocate Ashiwin Radhakrishnan