Author-Chirag Batra, Bharati Vidyapeeth, New Delhi
To the Point
The Supreme Court ruled that while there are strong statutory remedies available under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act) and the SARFAESI Act, 2002, High Courts cannot consider writ petitions under Article 226.
Liability of borrower and guarantor is co‑extensive, not alternative. Therefore, banks may simultaneously or independently enforce security against either party without exhausting remedies against the other.
Use of Legal Jargon
Statutory Code: Refers to the SARFAESI Act (a self‑contained mechanism for non‑judicial enforcement of security interests) and DRT Act (providing speedy recovery via Debt Recovery Tribunals).
Article 226 Jurisdiction: Writ jurisdiction of High Courts under the Indian Constitution.
Exhaustion of Remedies: The legal principle requiring a party to pursue all prescribed statutory remedies (e.g., under Sections 17/18 of SARFAESI) before seeking judicial recourse.
Co‑extensive Liability: The joint-but-separate liability of the guarantor and borrower—creditor can claim from either or both.
Self‑contained Code: Legislative framework designed to be comprehensive and insulated from interference by general civil or constitutional courts.
The Proof (Factual & Statutory Matrix)
Facts —
Loan, Guarantee & Security:
In November 2004, United Bank provided a term loan of ₹22.5 lakh to M/s Pawan Color Lab.. Security included a mortgage over property and Satyawati Tondon’s personal guarantee .
Default & Bank Action:
Borrower defaulted on repayment; bank issued statutory notices under Sections 13(2)/(4) of SARFAESI, obtained possession under Section 14, and called upon Tondon for repayment .
High Court Intervention:
Tondon submitted a writ petition under Article 226 to the Allahabad High Court, which, while acknowledging that the bank had taken statutory measures, determined that the actions taken against her were premature without thorough proceedings against the borrower, and granted an interim stay.
Supreme Court Appeal:
United Bank appealed, arguing that (a) the debt recovery regime is statutory and self‑contained, (b) writ intervention was inappropriate when statutory appeals exist, and (c) guarantor’s liability is independent and co‑extensive.
Abstract
The Supreme Court, after detailed analysis, concluded:
The SARFAESI/DRT framework offers effective, time-bound remedies (Sections 17‑18), including interim relief, mandating that Article 226 should not be invoked before exhausting these remedies.
The borrower and guarantor share equal responsibility for the debt, as established in Bank of Bihar v. Damodar (1969) and reaffirmed in IIBLtd. v. Jhunjhunwala (2009).
The High Court’s interim stay was held to be contrary to legislative intent, as it undermined a statutory instrument designed to curtail NPA proliferation.
While Article 226 remains a constitutional safety valve, its use must be strictly circumscribed where structured remedies exist.
Case Laws
Bank of Bihar Ltd. v. Damodar Prasad (1969)
Affirmed that the bank can enforce guarantees before or in parallel with action against principal borrowers..
Crucial precedent for Tondon.
Industrial Investment Bank Ltd. v. Biswanath Jhunjhunwala (2009, 9 SCC 478)
Determined that the guarantor’s obligation is equal to, rather than a substitute for, that of the borrower.
Authorised banks to enforce remedy from either party.
Relied upon by the Court in Tondon .
Titaghur Paper Mills Co. v. State of Orissa (1983, 4 SCC 1)
Limited writ jurisdiction where a self-contained statutory code applies.
Cited to endorse exhaustion of statutory remedies .
Punjab National Bank v. O.C. Krishnan (2001)
Reiterated that the SARFAESI/DRT regime is complete, and High Courts cannot bypass it via Article 226 writs .
Mardia Chemicals v. Union of India (2004, 4 SCC 311)
Declared SARFAESI constitutional, recognizing its necessity in expediting NPA recovery .
City & Industrial Dev. Corp. v. Dosu Bhiwandiwala (2009, 1 SCC 168)
Outlined factors for Article 226 relief; high threshold where alternative remedies exist.
Quoted extensively in Tondon .
Phoenix ARC v. Vishwa Bharati Vidya Mandir (2022)
Supreme Court reaffirmed Tondon to restrict writ jurisdiction in SARFAESI contexts.
Delhi HC: Kiran Gupta v. SBI (2020)
It was determined that the responsibility of the guarantor is equal to that of the principal borrower, even during a moratorium under the Insolvency and Bankruptcy Code (IBC), confirming the separate enforcement of SARFAESI.
• Deeper Analysis & Jurisprudential Impact
1. Enforcement of Statutory Remedies
The Court reiterated that SARFAESI and DRT Acts form a comprehensive debt recovery architecture:
Section 13 roadmap: issuance of notices, taking possession, asset recovery .
Appeal mechanism:
Section 18: Further appeals to DRAT.
Timelines: Mandatory timeframes for decision, with interim relief powers.
High Courts must rule out judicial interference in favour of using tribunal remedies .
2. Writ Jurisdiction—Limited but Alive
The Supreme Court emphasised exceptions that allow Article 226 relief:
If the statutory body acted in violation of jurisdiction, fundamental principles, natural justice, or the statute’s vires.
Mere procedural mistakes insufficient; needs clear jurisdictional breach or bad faith.
3. Protecting Guarantors’ Rights
Banks may proceed directly against guarantors without delaying or requiring parallel action against borrowers:
Guarantor liability is co‑extensive, rooted in contract law (Section 128, Indian Contract Act).
Tondon imposing “prior action against borrower” would contradict this firmly established legal concept.
4. Legislative Intent & Economic Imperative
The Narasimham and Andhyarujina Committees recommended a quick, court-light enforcement regime in response to banking sector non-performing assets (NPAs) totaling lakhs of rupees.
SARFAESI Act enacted in 2002, empowering banks to take possession, manage assets, and sell them through non-judicial processes.
5. Procedural Justice — Borrower’s Safeguard
Section 13(8) mandates notice period and transparency in sale execution .
Guarantee holders and borrowers can raise grievances via representation and appeals, ensuring procedural safeguards.
6. Economic Stability & Judicial Efficiency
Tondon safeguards banking sector’s ability to manage NPAs effectively by preventing frivolous writ petitions that block recovery.
Reduces workload on High Courts, reinforcing tribunal jurisdiction.
Conclusion
United Bank of India v. Satyawati Tondon stands as a pillar of banking law in India, achieving multiple legal milestones:
Restoring Legislative Architecture: Preserved SARFAESI/DRT enactment against constitutional bypass.
Jurisprudential Clarity: Defined the scope and limits of Article 226 vis‑à‑vis statutory remedies.
Contractual Certainty: Reinforced co‑extensive liability of guarantors, avoiding misinterpretations that disrupt contract law orthodoxy.
Judicial Restraint: Encouraged High Courts to exercise caution and defer to litigants’ statutory remedy options.
Economic Benefit: Aided banks in managing NPA recovery without undue judicial delay, fostering financial stability.
The judgment continues to guide courts, counsel, banks, and borrowers, ensuring statutory frameworks are used as intended, judicial wisdom is exercised judiciously, and financial recovery processes remain robust.
• Frequently Asked Questions (FAQ)
Q1: Can a bank go after a guarantor first, without approaching the borrower?
A: Yes. Guarantor liability is co‑extensive. Courts have consistently held banks may act directly against guarantors, regardless of borrower proceedings (e.g., Damodar Prasad and Jhunjhunwala).
Q2: Must someone exhaust SARFAESI & DRT remedies before filing a writ petition?
A: Yes—unless the statutory remedy is completely ineffective or there’s a gross abuse of process, serious illegality, jurisdictional error, violation of natural justice, or a constitutional challenge.
Q3: Do banks still have to follow procedure under Section 13?
A: Absolutely. The notice under Section 13(2)/(4), possession under Section 14, and transparency in sale under Section 13(8) are mandatory. In DRT, noncompliance may be contested.
Q4: Can borrowers still invoke Article 226?
A: Yes—but only under rare, exceptional circumstances (e.g., absence of jurisdiction, gross illegality, lack of natural justice, or challenge to legislation’s constitutional validity). Mere procedural irregularities won’t suffice.
Q5: How has Tondon been applied post-ruling?
A: Courts (Allahabad, Delhi, Hyderabad High Courts) have repeatedly relied on it to dismiss writs challenging SARFAESI actions, even in unionized cases or situations with overlapping alt remedies.
Q6: What if the SARFAESI process itself violates fundamental fairness?
A: Then Article 226 may be invoked as an exception—e.g., if there’s gross irrationality, fraudulent action, or manifest jurisdictional abuse. But only in such extraordinary cases.
Q7: Does this case apply under the IBC regime?
A: Yes. Delhi HC has emphatically held that guarantors continue to be liable under SARFAESI even if the principal borrower is under insolvency, affirming Tondon.
Q8: Can Article 227 be used to undo SARFAESI steps?
A: Similar restraints apply. High Courts may not use supervisory jurisdiction to undermine SARFAESI or DRT proceedings unless fundamental procedural injustice or jurisdictional violation is proven.
