"Security Interest Can Arise from Agreement": Gauhati High Court Dismisses Writ Petition, Cites Expanded SARFAESI Scope and Directs Recourse to Debts Recovery Tribunal
Isabella Mariam
A Division Bench of the Gauhati High Court, comprising Chief Justice Vijay Bishnoi and Justice N. Unni Krishnan Nair, dismissed a writ petition challenging the enforcement of the SARFAESI Act, 2002, against a flat purchased by the petitioner through a registered sale deed. The court held that an enforceable security interest had been validly created in favour of HDFC Bank under a tripartite agreement executed prior to the petitioner's purchase, and thus directed the petitioner to seek remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal.
The petitioner, Apurba Dev Sarma, had purchased a residential flat located at the 2nd Floor of Orchid Residency, Milanpur, Guwahati. He challenged the notice dated 01.02.2025 issued under the SARFAESI Act by the Additional District Magistrate, New Guwahati Co-District, Kamrup (Metro), on the ground that the said property was bought by him lawfully and was free of encumbrance.
According to the petitioner, the property was acquired from Ester Rupa Sahu Jyrwa (Respondent No.8), who in turn purchased it from the builder M/s H.B. Developers (Respondent No.9). Both transactions were conducted through registered sale deeds, and the petitioner claimed full ownership, stating that there was no charge on the property at the time of his purchase.
The petitioner contended that since he was not a borrower under the SARFAESI Act and had no direct relationship with HDFC Bank (Respondents No.3 to 5), the provisions of the Act were inapplicable to him. He argued that the bank could not claim a security interest on the property because the original agreement was only an agreement to sell and not a registered sale deed.
The core facts presented by the HDFC Bank were that respondent Dibyajyoti Pathak and Ramdhan Pathak (Respondents No.6 and 7) had obtained a loan of Rs.36,50,000 in 2015 for the purchase of the same flat. A tripartite agreement was executed between them, the builder (Respondent No.9), and HDFC Bank. The builder acknowledged that the property could not be transferred without the bank’s written consent and promised to indemnify the bank in case of any breach. Based on this, HDFC Bank claimed a first and exclusive mortgage on the property.
Following default in EMI payments by the original borrowers, HDFC Bank classified the loan account as a Non-Performing Asset (NPA) and issued notice under Section 13(2) of the SARFAESI Act. A possession notice was also published in newspapers in 2018, asserting the bank’s right over the flat.
Despite this, the builder sold the property to Respondent No.8, who subsequently sold it to the petitioner. The bank argued that both transactions occurred in violation of the tripartite agreement and without the bank’s knowledge or consent.
The petitioner also submitted that Punjab National Bank had earlier sanctioned a loan to Respondent No.8 for purchasing the property, and after conducting due diligence, found no encumbrance on it. This, according to the petitioner, proved the absence of any prior security interest.
However, HDFC Bank maintained that their security interest remained valid and enforceable, as it was created through a legally binding agreement prior to the petitioner's acquisition of the property.
The Division Bench examined the legal validity of the security interest and whether the SARFAESI Act could be invoked in this case.
The court stated: "From the definition of ‘security interest’, provided in Section 2(1) (zf) of the SARFAESI Act, it is clear that in the present case, a security interest was created in favour of the HDFC Bank."
The Bench noted that the earlier definition of "security interest" was limited to traditional instruments like mortgages and charges. However, post the 2016 amendment, the definition includes any contract securing obligations, including tripartite agreements enabling borrowers to acquire tangible assets.
The court observed: "The definition of ‘security interest’ is widened and it also includes any other contract, which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset."
The judges also addressed the petitioner’s argument regarding his exclusion from the term "any person" under Section 17(1) of the Act. They quoted the Supreme Court's judgement in United Bank of India v. Satyawati Tondon: "The expression ‘any person’ used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14."
On the question of whether an agreement to sell could create a security interest, the court referred to Vishwanath M. Pai v. Corporation Bank, decided by the High Court of Madras. Citing the case, it recorded: "The contention of the petitioners that a charge was never created on the property because it was not in existence on the date of Tripartite Agreement, cannot hold good as per the provisions of Section 2(1) (zf) of the SARFAESI Act."
The court found the petitioner’s reliance on older decisions to be misplaced as they were based on the pre-2016 definition of "security interest".
In its final order, the court recorded: "We find no merit in this writ petition and the same is accordingly dismissed. However, the petitioner is at liberty to approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act against the action of the respondent Bank, if so advised."
Advocates Representing the Parties
For the Petitioner: D. Das, Senior Advocate, T. Chakraborty, Advocate
For the Respondents: N. Das, Junior Government Advocate, K.P. Pathak, Advocate
Case Title: Shri Apurba Dev Sarma v. The District Magistrate, Kamrup (Metro) & Ors.
Neutral Citation: 2025: GAU-AS:3944
Case Number: WP (C) No. 920 of 2025
Bench: Chief Justice Vijay Bishnoi and Justice N. Unni Krishnan Nair
[Read/Download order]
