Kerala High Court Says Writ Maintainable Against SARFAESI Notice Before Recovery Action In Housing Loan Dispute

The Kerala High Court has held that a writ petition filed by the legal heirs of a deceased borrower was maintainable at the stage of a Section 13(2) notice under the SARFAESI Act, since no measures under Section 13(4) had yet been initiated and their challenge also concerned the bank's alleged failure to transfer the insurance premium to the insurer.

A Division Bench of Justice Anil K Narendran and Justice Muralee Krishna S was hearing an appeal filed by Prameela Devi and her two daughters, the wife and daughters of late C. Radhakrishnan Nair, who had availed a housing loan from the State Bank of India in 2018.

As per the arrangement letter dated January 23, 2018, the bank sanctioned a total limit of Rs 35.03 lakh to C. Radhakrishnan Nair. Of this, Rs 33.44 lakh was towards the housing loan and Rs 1.59 lakh was earmarked towards premium for Home Loan Insurance Cover, if requested. Since he was working abroad at the time, the loan documents were signed by his son on his behalf under a power of attorney

The appellants contended that the equated monthly instalment of Rs 48,737 included the component towards the insurance premium and that the borrower regularly paid Rs. 50,000 per month. They claimed that when the loan was sanctioned, the amount towards the insurance premium was also approved.

After he defaulted due to illness and passed away in January 2022, the family requested the bank to close the outstanding loan under the insurance cover.

The bank informed them that the borrower had not opted for insurance, as no insurance application or health declaration had been submitted. SBI Life Insurance Company also stated that no insurance policy existed in respect of the loan. Thereafter, a demand notice under Section 13(2) of the SARFAESI Act was issued by the bank seeking recovery of Rs. 23.78 lakh, following which the matter reached the High Court.

The Single Bench closed the writ petition holding that the remedy available to the family was before the Debt Recovery Tribunal, leading to the appeal before the Division Bench.

On the question of maintainability, the bench held that the bank had only issued a notice under Section 13(2) of the SARFAESI Act demanding recovery of the dues and had not yet initiated recovery proceedings under Section 13(4). Therefore, the writ petition could not be rejected on the ground of alternate remedy at that stage.

“The Bank is yet to initiate the measures provided under Section 13(4) of the SARFAESI Act. Therefore, at present, the appellants cannot invoke the jurisdiction of the Debts Recovery Tribunal under Section 17 of the SARFAESI Act against Ext.P9 notice.” it observed

It further held

“we are of the view that the writ petition under Article 226 of the Constitution of India is maintainable before this Court, since the stage of challenge against the action of the Bank before the Debt Recovery Tribunal is yet to be reached.”

Examining the arrangement letters produced by both sides, the bench observed:

“In the fourth page of Ext.P1, two options are stated, i.e., “I/We wish to avail/do not wish to avail” Loan for Funding of Premium of Home Loan Insurance Cover. However, Ext.P1 shows that neither of these Clauses was struck off by either the insurer or the insured. Annexure R1(C) is a copy of Ext.P1 produced by the appellants before the District Consumer Dispute Redressal Forum. But surprisingly, in Annexure R1(C), the words “do not wish to avail” are seen struck off. According to the respondents, this was done purposefully by the appellants while producing a copy of Ext.P1 to the District Consumer Redressal Forum.”

On merits, after perusing the arrangement letter and the loan account statement, the bench observed that the borrower had not availed the benefit of the insurance cover and had not paid any amount as insurance premium.

Setting aside the judgment of the Single Judge, which had relegated the matter to the DRT, the court dismissed the writ petition.

For Appellants: Advocate U Balagangadharan

For Respondents: Senior Advocate Jaju Babu, Advocates Amal George, M.U Vijayalakshmi and George Thomas (Mevada)