Welcome to the SARFAESI Newsletter for February 2025. This edition highlights significant recent legal developments under the SARFAESI Act and related financial statutes. We explore key rulings, including DRAT & High Courts decision on jurisdiction of DRT & Civil Court, timelines for replying to the objection of borrower, initiation of simultaneous proceedings, monetary threshold. These insights provide valuable guidance for navigating the evolving landscape of financial dispute resolution and recovery mechanisms.
1. Declaration and jurisdiction of DRT
Central Bank of India and Anr. Vs. Smt. Prabha Jain and Ors
In a recent Supreme Court judgement, a question arose as whether Debt Recovery Tribunal (DRT) has jurisdiction to grant a declaration with respect to mortgage deed or sale deed.
The Supreme Court held that DRT does not have the jurisdiction to grant a declaration with respect to the mortgage deed or the sale deed. The jurisdiction to declare a sale deed or a mortgage deed being illegal is vested with the civil court under Section 9 of the Code of Civil Procedure. The Supreme Court also observed that banks should remain very careful with inadequate title clearance reports, more particularly, when such reports are obtained cheaply and at times for external reasons. This concerns the protection of public money and is in the larger public interest. Therefore, it is essential for the Reserve Bank of India and other stakeholders to collaborate in developing a standardized and practical approach for preparing title search report before sanctioning loans and also for the purpose of determining liability (including potential criminal action) of the Officer who approves loan. Additionally, there should be standard guidelines for fees and costs associated with title search reports so as to ensure that they maintain high quality.
2. Time line
Bank of Baroda Vs. E-star Infotech Ltd. and Anr
A question arose as to whether the provisions under Section 13 (3A) of SARFAESI Act, 2002 to send a reply to the objections raised by Borrower within a week is directory or mandatory?
The DRAT held that the scheme of the SARFAESI Act makes it amply clear that the creditor is required to consider such representation of the borrower within the stipulated time before proceeding to resort to any measures under Section 13(4) of the SARFAESI Act. Since there is a blatant violation of the provisions, the SARFAESI action has to fail going by the maxim sublato fundamento cadit opus which translates to "remove the foundation and structure falls". The DRAT relied upon the findings of the Hon'ble Supreme Court in ITC Ltd. Vs. Blue Coast Hotels Ltd. & Ors and observed that the provision under Sec. 13(3A) is mandatory and the creditor is required to consider such representation of the borrower within the stipulated time before proceeding to resort to any measures under Section 13(4) of the SARFAESI Act.
3. Bar on simultaneous proceedings
Madhusudan Garai Vs. State of West Bengal and Anr
A question arose as to whether there is any bar under the law for simultaneous proceeding both under the Negotiable Instrument Act, 1881 (NI Act) and under the SARFAESI Act, 2002 in respect of the same transaction.
The Calcutta High Court held that a proceeding under section 138 of the N.I. Act is not a proceeding so called for realization of arrear amount or for recovery of money. Section 138 deals with punishment for dishonor of cheque for insufficiency of fund etc, whereas the object of a proceeding under the SARFAESI Act is to ensure that dues of secured creditors including banks, financial institutions are recovered from the defaulting borrower without any obstruction or without intervention of courts or tribunals. Accordingly, there is no bar under the law for simultaneous proceeding both under the N.I. Act and under the SARFAESI Act in respect of the same transaction and the question of enrichment in such circumstances does not arise at all.
4. Monetary threshold appliable to NBFC
Gupta Hardware Store and Ors. Vs. Union of India and Ors
A question arose on the applicability of provisions of SARFAESI Act for Non-Banking Financing Company (NBFC) when recovery of outstanding dues is lower than the monetary threshold of Rs.20,00,000/-; a bar fixed by the Central Government (Ministry of Finance) for Non-Banking Financing Company (NBFC)?
The Himachal Pradesh High Court held that the notification issued under Section 2(1)(m)(iv) of the SARFAESI Act clearly specifies the threshold limit of Rs. 20 Lakhs, therefore, since the claim of finance company is admittedly, less then threshold of Rs.20 lakhs, obviously, the proceedings initiated under the SARFAESI Act are not maintainable.
5. Jurisdiction of Civil Court
Anoob J.Singh and Anr. Vs. Indian Bank and Anr
A question arose on the jurisdiction of the Civil Court in respect of matters which a DRT or DRAT is empowered to determine in respect of any action.
The Madras High Court held that the relief claimed by the revision petitioner / plaintiff seeking for declaration of agreement relating to deposit of title deed as illegal was rightly rejected by the Trial Court in view of the provisions of Section 34 of the SARFAESI Act. The Court also referred to the decision of Hon'ble Supreme Court in the Mardia Chemicals Limited wherein it was held that jurisdiction of the civil court is barred in respect of matters which a DRT or an Appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". The Hon'ble Supreme Court has also held that the prohibition covers even matters which may be taken cognizance of by the DRT though no measure in that direction has so far been taken under sub- section (4) of Section 13 of the SARFAESI Act.
Contributors to the newsletter:
- Ravi Charan Pentapati, Partner
- Venkateshwara Rao Lakkineni, Senior Associate
- Grancy Bonam, Associate
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
