Writ Petition Not Maintainable Against Private ARC Enforcing Security Interest: Madras High Court

On 2 June, the Madras High Court dismissed a writ petition challenging a pre-sale auction notice issued under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and held that Article 226 jurisdiction does not extend to a private Asset Reconstruction Company (ARC) enforcing contractual rights, and that the borrower must approach the Debts Recovery Tribunal (DRT).

The Division Bench comprising Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan held that JM Financial ARC acted as a private entity enforcing contractual and statutory security interests and did not perform any public function that could attract writ jurisdiction. It observed:

“The first respondent, in initiating proceedings under the SARFAESI Act, is merely enforcing a private contractual right and security interest created by the borrower. It is not discharging any public function or sovereign duty. Therefore, a writ petition against a private ARC enforcing a private debt is not maintainable under Article 226 of the Constitution of India.”

The petitioner, R. Kumar, an ex-serviceman, availed a financial facility of Rs. 25 lakh and claimed that he repaid Rs. 38.02 lakh. He alleged that the financier charged exorbitant interest and filed proceedings before the City Civil Court, Chennai, under the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003. That proceeding remained pending before mediation.

During the pendency of those proceedings, JM Financial ARC issued a pre-sale auction notice dated 17 March 2026 under the SARFAESI Act to recover the alleged dues. Kumar then moved the High Court seeking a writ of mandamus to quash the notice and restrain further coercive action.

Kumar argued that the auction process operated oppressively and violated fair play principles, especially since the civil court already examined the issue of exorbitant interest. He urged the Court to exercise jurisdiction under Article 226 to protect his rights until the civil proceedings concluded.

The Bench identified three core issues, the first being maintainability of a writ petition against a private ARC. It held that JM Financial ARC qualifies as a private corporate entity and does not fall within the definition of “State” under Article 12.

It further held that enforcement of security interest under SARFAESI constitutes a private contractual enforcement mechanism and not a public duty. It relied on Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir (2022) and reiterated that writ jurisdiction does not apply against private ARCs acting under SARFAESI.

The Bench also examined the nature of reliefs sought by the petitioner and noted that he sought both mandamus and certiorari-type reliefs against a private recovery action. It clarified that mandamus enforces a public duty while certiorari lies in supervisory jurisdiction over judicial or quasi-judicial actions, and held that the prayers reflected a fundamental misunderstanding of writ jurisdiction.

The Bench further held that SARFAESI operates as a self-contained code and Section 17 provides an effective statutory remedy before the DRT against measures under Section 13(4). Relying on PHR Invent Educational Society v. UCO Bank (2024), it reiterated that courts should not exercise writ jurisdiction when an efficacious alternative remedy exists. It observed:

“In the present case, the petitioner's grievance regarding the calculation of dues and the allegation of exorbitant interest are pure questions of fact that require examination of accounts. The Debts Recovery Tribunal is fully equipped to undertake this fact finding exercise. It is for the petitioner to avail the statutory remedy, if so advised.”

The Court further held that pendency of proceedings under the Tamil Nadu Exorbitant Interest Act does not restrain SARFAESI enforcement. It also noted that Section 34 bars civil court jurisdiction in matters falling within the DRT framework, and Section 35 gives SARFAESI overriding effect over inconsistent state legislation.

Accordingly, the High Court dismissed the writ petition as not maintainable and left it open to Kumar to approach the DRT under Section 17 of the SARFAESI Act. The Bench did not impose costs and closed all connected interim applications.

For Appellants: Advocate R Sankarasubbu