The conduct of the Borrower can show waiver & he is estopped for arguing violation of Section 13(3A) of the SARFAESI Act: Supreme Court

By Merles' Law Firm on July 4th, 2022

The Supreme Court was considering the question whether a borrow can be regarded as having waived his rights by inaction and whether he is estopped from arguing that there is a violation of section 13(3A) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“The SARFAESI Act)

In ARCE POLYMERS PRIVATE LIMITED VERSUS M/S. ALPHINE PHARMACEUTICALS PRIVATE LIMITED CIVIL APPEAL NO. 7372 OF 2021, the Supreme Court was considering the question whether a borrow can be regarded as having waived his rights by inaction and whether he is estopped from arguing that there is a violation of section 13(3A) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“The SARFAESI Act).

Section 13(3) in The SARFAESI Act reads as follows:

(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. 1[(3A) If, on receipt of the notice under sub‑section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non‑acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.

The Supreme Court held that waiver is an intentional relinquishment of a known right. Waiver applies when a party knows the material facts and is cognizant of the legal rights in that matter, and yet for some consideration consciously abandons the existing legal right, advantage, benefit, claim or privilege. Waiver can be contractual or by express conduct in consideration of some compromise. However, a statutory right may also be waived by implied conduct, like, by wanting to take a chance of a favourable decision. The fact that the other side has acted on it, is sufficient consideration.

It held that while it is correct that waiver being an intentional relinquishment is not to be inferred by mere failure to take action, but the present case is of repeated positive acts post the notices under Sections 13(2) and (4) of the SARFAESI Act. Not only did the Borrower not question or object to the action of the Bank, but it by express and deliberate conduct had asked the Bank to compromise its position and alter the contractual terms. The Borrower wrote repeated request letters for restructuring of loans, which prayers were considered by the Bank by giving indulgence, time and opportunities. The Borrower, aware and conscious of its rights, chose to abandon the statutory claim and took its chance and even procured favourable decisions. Even if we are to assume that the Borrower did not waive the remedy, its conduct had put the Bank in a position where they have lost time, and suffered on account of delay and laches, which aspects are material. Action on the Subject Property was delayed by more than a year as at the behest of the Borrower, the Bank gave them a long rope to regularise the account.

To ignore the conduct of the Borrower would not be reasonable to the Bank once third party rights have been created. In this background, the principle of equitable estoppel as a rule of evidence bars the Borrower from complaining of violation, the Court held.

The question of waiver of mandatory requirement of a statute was considered by the Supreme Court in depth in Commissioner of Customs, Mumbai v. Virgo Steels, Bombay and Another, (2002) 4 SCC 316 by referring to a catena of judgments beginning from the judgment of the Privy Council in AL.AR. Vellayan Chettiar (Decd.) and Others v. Government of the Province of Madras, Through the Collector of Ramnad at Madura, and Another AIR 1947 PC 197 wherein it was held that though notice under Section 80 of the Code of Civil Procedure, 1908 is mandatory, the suit would not be bad if the non-issuance of notice is waived by the party for whose benefit the provision has been enacted. Similarly, in S. Raghbir Singh Gill v. S. Gurcharan Singh Tohra and Others, (1980) Supp SCC 53 the argument that the requirement of Section 94 of the Representation of Peoples Act, 1951 cannot be waived was rejected observing that a privilege conferred or a right created by a statute, if it is solely for the benefit of a party, the said party can waive it. However, where a provision enacted is founded on public policy, the courts would be slow to apply the doctrine of waiver. The doctrine applies in the first situation as the right to waive inheres in the concept of personal privilege and right. Reference in this regard can be also made to the ratio in Krishan Lal v. State of J&K (1994) 4 SCC 422 and Martin & Harris Ltd. v. VIth Additional Distt. Judge and Others. (1998) 1 SCC 732

In Bank of India and Others v. O.P. Swarnakar and Others, (2003) 2 SCC 721 and in Shri Lachoo Mal v. Shri Radhey Shyam, (1971) 1 SCC 619 the Supreme Court elucidated the general principle that everyone has a right to waive and to agree to renounce an advantage of law or rule made solely for the benefit and protection of the person in private capacity. If a party gives up the advantage that could be taken of a particular position in law, it cannot later be permitted to change and turn around so as to avail of that advantage. However, this rule will not apply when there is a prohibition against contracting out of the statute, which prohibition would have its consequences or in case the waiver would be contrary to public policy. Further, a person cannot waive a right of a third person.

This principle has been subsequently followed in Pravesh Kumar Sachdeva v. State of Uttar Pradesh and Others, (2018) 10 SCC 628 to hold that waiver is abandonment of a right which normally everybody is at liberty to waive. Waiver is nothing unless it amounts to release, albeit it can be adduced from acquiescence or may be implied. The essence of waiver is an estoppel and they are questions of conduct and, therefore, necessarily determined on the facts of each case. As a rule and judicial policy, the courts of law do not allow a litigant to take inconsistent position to gain advantage through the aid of judicial proceedings.

The judgement of the Supreme Court can be downloaded below.


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This article is a mere general guide to the subject matter. It is not professional advice. Please consult a professional for advice on the specific circumstances of your case.


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