Writ jurisdiction may intervene in SARFAESI proceedings where banks ignore insurance claims and borrower representations.

Late Anand Kumar Singh and the petitioner, Shashi Kiran Devi, had availed a housing loan of ₹17,77,000 from the State Bank of India, ADB Begusarai Branch. The loan arrangement included proposed insurance coverage, and an insurance premium of ₹35,400 was debited from the borrower’s account on 4 February 2014.

After Anand Kumar Singh died on 14 January 2016, the petitioner was informed that the insurance had not been effected or had been cancelled because the requisite medical formalities had not been completed, and that the premium had subsequently been refunded.

The petitioner and the legal heirs submitted representations seeking settlement of the insurance claim and liquidation of the loan liability.

Proceedings before the Banking Ombudsman indicated that the Bank had not effectively informed the borrower about the medical requirement, cancellation or non-coverage of the insurance; the insurer’s communication also allegedly contained an incorrect address.

Meanwhile, the Bank issued a demand notice dated 10 July 2016 for ₹15,16,577 and a possession notice dated 21 September 2016 concerning the secured residential property under the SARFAESI Act.

Whether the writ petition was maintainable despite the alternative statutory remedy available under Section 17 of the SARFAESI Act against the Bank’s measures under Section 13(4).

Whether the Bank could proceed against the secured residential property without properly considering the petitioner’s insurance claim and representations, particularly when the insurance premium had been debited and effective communication regarding non-coverage had not been established.

Whether the demand notice dated 10 July 2016 and possession notice dated 21 September 2016 were liable to be quashed.

The Court applied Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which governs measures that a secured creditor may take for enforcement of security interests, read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 concerning possession notices.

It also considered Section 17 of the SARFAESI Act, which provides an efficacious statutory remedy before the Debt Recovery Tribunal against measures taken under Section 13(4).

The Court applied the principles of natural justice and procedural fairness, holding that where a bank facilitates insurance for a loan, debits the premium, and is aware that the insurance is intended to cover the loan liability, it must ensure effective communication regarding completion of formalities, cancellation, or non-coverage of the insurance.

The Court also recognised that the death of a borrower does not, by itself, extinguish the outstanding loan liability.

The petitioner relied upon Cheemala Nagendra Babu v. SBI Life Insurance Company Limited, reported in 2024 SCC OnLine TS 773.

Although the Bank contended that the writ petition was barred by the availability of the remedy under Section 17 of the SARFAESI Act, the Court held that the present case involved more than a challenge to ordinary recovery measures.

The central grievance concerned the Bank’s failure to properly consider the insurance claim and the petitioner’s representations before taking coercive action.

The record showed that the Bank had facilitated the insurance proposal and debited the premium, but had not satisfactorily established that the deceased borrower was effectively informed about the medical requirements or the cancellation and consequences of non-coverage.

The Ombudsman proceedings further supported the petitioner’s contention regarding inadequate communication and the incorrect address in the insurer’s communication.

In these circumstances, proceeding against the residential property without first addressing the insurance-related grievance was held to be procedurally unfair and warranted interference under Article 226, notwithstanding the alternative SARFAESI remedy.

The demand notice dated 10 July 2016 and possession notice dated 21 September 2016 were quashed.

The Bank was directed to reconsider the petitioner’s claim concerning insurance coverage, taking into account the premium debited, the representations of the petitioner and legal heirs, and the observations of the Banking Ombudsman, and to communicate a reasoned decision.

Until such reconsideration and communication, the respondents were restrained from taking coercive action against the residential property.

The writ petition was accordingly allowed, and any interlocutory application was disposed of.