The case of Asset Reconstruction Company (India) Ltd. (ARCIL) vs. M/s PML Industries Ltd. and others was adjudicated by the High Court of Punjab & Haryana, focusing on the enforcement of security interests under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
Case Facts
M/s PML Industries Ltd. had availed substantial financial assistance from a consortium of banks, including ICICI Bank. Upon defaulting on its repayment obligations, ICICI Bank assigned its debt to ARCIL. ARCIL, acting as the secured creditor, issued a notice under Section 13(2) of the SARFAESI Act to PML Industries, demanding repayment of the outstanding dues. In response, PML Industries raised objections, which ARCIL addressed. Subsequently, ARCIL sought to take possession of the secured assets under Section 13(4) of the Act.
Legal Issues:
- Compliance with Section 13(3A): PML Industries contended that ARCIL had not duly considered or responded to their objections as mandated by Section 13(3A) of the SARFAESI Act.
- Consortium Lending Requirements: The company argued that ARCIL, representing only a portion of the consortium, could not unilaterally enforce security interests without the consent of other secured creditors, as stipulated under Section 13(9) of the Act.
Court’s Analysis and Final Judgment
The High Court examined the procedural aspects of the SARFAESI Act, particularly the obligations of secured creditors in consortium lending scenarios and the necessity to address borrowers’ objections. The court emphasised that while individual creditors can initiate actions under Section 13(2), collective consent is required under Section 13(9) before proceeding with measures under Section 13(4). The court also highlighted the mandatory nature of Section 13(3A), which obligates secured creditors to consider and respond to borrowers’ objections. In this case, the court found that ARCIL had not complied with these statutory requirements. Consequently, the court ruled in favour of PML Industries, setting aside ARCIL’s actions under Section 13(4) due to procedural lapses.
This judgment underscores the importance for asset reconstruction companies and financial institutions to adhere strictly to the procedural mandates of the SARFAESI Act, ensuring due process and fairness in the enforcement of security interests.