Petition against pvt financial institutions not maintainable: HC

ALLAHABAD : The Allahabad high court has clarified that a writ petition against private financial institutions was not maintainable as it was not amenable to the jurisdiction of the high court under Article 226 of the Constitution of India.

The court also held that pendency of arbitration between a borrower and a financial institution did not bar the institution or bank from initiating recovery proceedings against the borrower.

Arbitration proceedings operate in a different field and the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, are confined to the recovery of dues of financial institution by enforcement of its security interest by the financial institution/ bank, the court said.

The bench comprising justice Bharati Sapru and justice Siddharth passed the order while dismissing a petition filed by Shiv Shakti Traders and three others.

The petitioners challenged the recovery proceedings initiated against them by HDB Financial Services Ltd on the ground that it was wrongly declared as non-performing asset (NPA) as arbitration proceeding was

pending between it and the institution.

The petitioners demanded quashing of recovery proceedings initiated against it.

The court said since repeated petitions impleading private financial institutions were being filed, it was necessary to decide the issue of maintainability of writ petitions against private financial institutions.

While dismissing the petition, the court left the option open for the petitioner to challenge recovery proceedings against it before the debt recovery tribunal under the SARFAESI Act.

The Act allows banks and other financial institutions to auction residential or commercial properties of borrower/ guarantor to recover loans.