22 Sep 2017
The Supreme Court has held that NBFC is entitled to initiate both arbitration...
The Supreme Court has held that NBFC is entitled to initiate both arbitration proceedings and SARFAESI proceedings with respect to a loan account, and that the ‘doctrine of election’ was not attracted in such a scenario.
IN THE SUPREME COURT OF INDIA, CIVIL APPELLATE JURISDICTION,CIVIL APPEAL NO. 15147 OF 2017, M.D.Frozen Foods Exports Pvt. Ltd. & Ors versus Hero Fincorp Ltd
It was further clarified that there was no illegality in an Non-Banking Financial Company(NBFC) invoking SARFAESI Act for recovery of loan arrears with respect to an account classified as Non-Performing Asset(NPA) before the NBFC got notified under the Act
The issue was considered by a bench comprising Justices R.F Nariman and Sanjay Kishen Kaul. In the case, the lender Hero Fincorp Ltd., was an NBFC, which had advanced loan to one M.D Frozen Foods Exports Pvt.Ltd, The lender had initiated arbitration proceedings on 16.11.2016. The lender was also notified under Sec.31(2)(1)(m)(iv) of the SARFAESI Act. Once an NBFC gets notified under the said provision, it becomes entitled to invoked proceedings under SARFAESI Act.
It was explained that the doctrine of election was attracted only in cases where both remedies available are mutually repugnant or inconsistent.
SARFAESI Act provided an additional remedy for enforcement of claim against secured asset as opposed to an adjudicatory process for realization of dues.