Auction Of Pledged Gold Not Governed By SARFAESI: J&K and Ladakh High Court

The High Court of Jammu & Kashmir and Ladakh on Wednesday dismissed writ petitions challenging Axis Bank's proposed auction of pledged gold ornaments, observing that such action does not fall within the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) since pledges of movable property are excluded under Section 31(b) of the statute.

A division bench of Justice Sindhu Sharma and Justice Shahzad Azeem was dealing with petitions filed by Yasmeen Jan Wani and Mohammad Hatim challenging auction letters issued by the bank for auctioning gold ornaments pledged as security for loans.

The petitioner-individuals had availed gold loan facilities from the bank and pledged gold ornaments as security. After the loan accounts turned irregular and were declared Non-Performing Assets (NPAs), the bank issued auction letters proposing to auction the pledged ornaments.

Explaining the statutory framework, the bench observed, “Under the provisions of the SARFAESI Act, the secured creditor can enforce the security interest except in respect of the cases as are specified in Section 31, and Section 31(b) excludes the applicability of the provisions of the SARFAESI Act insofar as pledge of movables within the meaning of Section 172 of the Indian Contract Act is concerned.”

The Court then said, “If this be the position, then the action of the bank to auction the pledged gold ornaments does not fall under the provisions of the SARFAESI Act, in view of the bar contained under Section 31(b), that unequivocally bars the applicability of the provisions of the SARFAESI Act, inter alia in so far as pledge of movables within the meaning of Section 172 of the Indian Contract Act, 1872 is concerned.”

The petitioners had argued that the bank initiated the auction process without following the procedure prescribed under the SARFAESI Act and without considering settlement schemes such as one-time settlement.

The bench also noted that the petitioners had already filed civil suits concerning the same dispute before the Court of the 3rd Additional Munsiff, Srinagar.

Referring to the doctrine of election, the Court observed, “Under the Doctrine of Election, once the petitioners have chosen a civil remedy before the civil court, they cannot fall back and resort to the writ jurisdiction of this Court.”

The court consequently dismissed both writ petitions along with the connected contempt petitions.

For Petitioners: Advocate Arshid Andrabi

For Respondents: DSGI Tahir Majid Shamsi with Advocates Rehana Qayoom, Nitin Parihar and Ishrat Maqbool Bhat.