It is alleged that the Banks or the officials of the Bank often misuse the provision of ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002)”. It is also alleged that the Bank officials help some clients/borrowers using all technicalities and their expertise in financial matters. While the Bank officials help few, they tend to be very perfect and sincere in respect of other cases where there is enough security and where the default is negligible and can be corrected. I don’t think that the guidelines of RBI with regard to ‘Asset Classification’ are one-sided. RBI guidelines with regard to ‘Asset Classification’ are balanced and never intended to harass the borrowers who have got a very good track-record in repayment otherwise. It is true that the officials dealing with ‘classification of accounts’ and officials dealing with the recovery tend to exercise some kind of discretion and it is alleged that the actions of the Bank officials in some cases are biased. On the same footing, it should also be recognized that it would extremely difficult for the Bank to recover their dues and reduce their ‘Non-performing Assets’ without the aid from a special law like SARFAESI Act, 2002. There are people who are very much experienced in dealing with the legal issues and they know as to how to find loopholes in law and make use of the loopholes to their advantage. It is known that a borrower can challenge the action initiated by the Bank by filing an appeal under section 17 of the SARFAESI Act, 2002 with the Debt Recovery Tribunal and an appeal is also provided with the Debt Recovery Appellate Tribunal. While the Act provides a right to the borrower to challenge the possession notice issued by the Bank under section 13 (4) within a time-limit, it is now settled that all actions initiated by the Bank under the provisions of SARFAESI Act, 2002 can be challenged with the Debt Recovery Tribunal under section 17. This observation is quite often seen when the High Court deals with a Revision Petition challenging the Civil Suit filed by the borrower in respect of SARFAESI proceedings and when a proceeding like Writ or Civil Revision Petition is filed by the borrower challenging the order passed by the Chief Judicial Magistrate under section 14 of SARFAESI Act, 2002. Though technicalities to be ignored by the Debt Recovery Tribunal while entertaining an Appeal under section 17, there is logic as to why the borrower should be allowed to challenge all actions initiated by the Bank. The Bank might be right in their actions till the issue a possession notice under section 13 (4) of the Act and the borrower may have no major grievance with the Bank. Thereafter, the Bank’s action might be illegal with regard to conduct of sale of the property. Under those circumstances, there is no way except to allow the borrower to challenge the illegality by filing an Appeal under section 17 and it is in line with the object of section 34 of the Act and the judicial pronouncements that where there is an effective alternative remedy, a Writ Petition under Article 226 is not maintainable. The reasons behind High Courts entertaining Writ Petitions frequently even in respect of SARFAESI proceedings now-a-days is a different issue though it is settled that there can not be any absolute bar on the jurisdiction of High Court under Article 226 of Constitution of India.

While this is the brief back-ground of a SARFAESI proceedings being initiated by the Banks or Public Sector Institutions, the manner in which the borrowers or the aggrieved pursues his/her challenge under section 17 of the Act is another significant issue. In most of the cases, appeals under section 17 are filed mechanically and with vague grounds like the notice under section 13 (2) of the Act has not been received, objections are not considered by the Bank properly, account has never become NPA, the borrower is not the willful defaulter etc. As the Bank will be proceeding with their action under SARFAESI Act, 2002 once they initiate the proceedings and issues notice under section 13 (2) and 13 (4) of the Act, the Debt Recovery Tribunal grants an interim-stay of the proceedings and may ask the borrower to deposit some percentage of the outstanding-claimed with the Tribunal. Thereafter, the Bank takes its time as it should follow some procedure and co-ordinate its efforts among its officers, and then, files a reply/counter to the appeal. The Bank in most of the cases insists that they have followed the procedure correctly and in most of the cases, Bank succeeds in an appeal under section 17. The borrower may continue his fight with the Bank and his intention may not always be to evade the payment which he can not do if there is a security. But, the borrower may have to follow-up his case properly and may have to bring all actions of the Bank to the knowledge of the Debt Recovery Tribunal from time to time and he may have to resort to many proceedings at times.

The borrower may have got a very good point to raise or may have a reasonable and legally acceptable objection to the proceedings initiated by the Bank under SARFAESI Act, 2002.  If the borrower fails to bring the true picture to the knowledge of the Court or the Tribunal and takes-up mechanical grounds only for the purpose of getting instant relief, the borrower may have to suffer a lot in the course. If the borrower takes all mechanical grounds and initiate all kinds of proceedings with the intention of getting some kind of instant relief, then, finally, when the real issue comes, he may loose the case. When borrower initiates many proceedings with the intention of gaining some time and getting instant relief, and then if he has real issue with the ‘Auction proceedings’ and choose to challenge the ‘auction sale’, then, the Bank will plead and show the track-record of the borrower from the beginning and it can impact the decision-making by the Court or the appropriate forum.  The borrower may be having a point that his property worth 1 crore is being sold for a meager sum of Rs.10 lakhs, and even then, his appeal or challenge may not have much value or weight if the Bank establishes that the borrower wants to drag the matter continually, and then, the Bank will be showing all the previous proceedings and the grounds taken and pleaded by the borrower in his appeal under section 17 and in various proceedings.  If the borrower continues to take-up mechanical grounds or grounds which are not reasonable and legally acceptable, and still initiates various proceedings, then, there can be some observation by the Court or the Tribunal that the borrower intends to only drag the proceedings and wants to delay the process of recovery. These kinds of observation can prove to be disastrous for the borrower and when needed and when there is a good point to raise and challenge, he may not be able to effectively raise and convince the court or the forum dealing with the issue. Few important issues in this regard are as follows:

(a) Maintain written communication with the Bank and the proof of communication. In most of the cases, written communication is not maintained and the borrower acts upon the oral communication with the officials.

(b) Though it is difficult to question the Bank officials especially by the business people having many transactions and facilities with the Bank, once the Bank issues demand notice, it is advisable for the borrower to raise all his objections and points as to why his account should not be classified as ‘Non-performing Asset’ and all his grievances with the Bank.  This is not happening in most of the cases and instead, the borrowers are taking a stand in their appeal under Section 17 that they have not received the demand notice under section 13 (2). According to me, this is not correct though the Tribunal may grant instant relief at times if this ground is taken, but, it will go against the borrower once the Bank files their reply or counter.

(c) The borrowers should take all grounds and raise all issues in their appeal under section 17. Not only taking all grounds and raising all issues, it is in the interests of the borrowers to bring to the knowledge of the Tribunal about the objectionable actions of the Bank during the pendency of the Appeal. The DRT, at times, may be saying that the Appeal has become infructuous etc., if the challenge is made to section 13 (4) notice and the Bank proceeds and completes further course of action. This approach is not right as the borrower can not be asked to come again and again and file appeal after appeal in respect of the proceedings initiated in a particular account. Once the appeal is filed and pending, the DRT should look into all the issues and issues subsequent to filing of Appeal. The borrower should bring everything to the knowledge of the DRT through affidavits. If the borrower fails to do this, then, it would be extremely difficult to plead new facts and to file other additional documents at an appellate stage.

(d) The borrower should restrain initiating various proceedings unless there is a strong legal basis. If the borrower initiates various proceedings against the Bank in-respect of the same account and if the borrower fails to convince the forum to get relief, then, the Bank can plead that the borrower is a habitual litigant and his only intention is to drag the case and nothing more. This kind of track-record of the borrower may go against him at an important stage in the case and especially when the property is being disposed of by the Bank. If there is a legally acceptable approach by the borrower to the SARFAESI proceedings initiated by the Bank, then, the Court or the forum can appreciate his points on the value of security, objections to the valuation and can provide some kind of relief. Courts can also provide relief to the borrowers at times to get a good price for the property instead of supporting the auction process initiated by the Bank or allowing the Bank to proceed with the Sale process. If the DRT or the Court only stays the confirmation of Sale, it can never be seen as a relief to the borrower as he has to establish a clear case in his main appeal or has to pay the entire out-standing irrespective of his objections to the proceedings initiated by the Bank. If the Court dealing with the ‘SARFAESI Auction’ is convinced at the argument of the borrower, then, the Court or the forum can straight-way stay the auction process instead of allowing the auction and staying only ‘confirmation’.

(e) There can be cases where the  borrower looses very valuable property for a lesser outstanding payable and everyone knows as to the price for the property in ‘Bank Auctions’ in most of the cases. If the borrower raises legally acceptable or considerable grounds, it is likely that the Tribunal or the Court may consider his case sympathetically on other issues as it is likely to consume some considerable time to complete the entire ‘SARFAESI proceedings’ once initiated.

Thus, raising mechanical and vague grounds in an appeal by the borrower under section 17 may provide him some instant and temporary relief in the case, but, he will loose the case when required. Certain things can only be vague like ‘classification of account’ as it is a bigger issue and requires the interpretation of RBI guidelines, but, to the extent possible the borrower should raise all his points in his appeal, should bring all facts and developments to the knowledge of the Tribunal in his appeal and should file all the relevant documents at once. If the borrower is seen as sincere in filing an appeal and pursuing the case with the Bank under section 17 of SARFAESI Act, 2002, then, it can only benefit the borrower in the proceeding when required.  The Tribunal or the Court will have an impression on the petitioner or the party before it based on the pleadings and based on his conduct of proceedings.

Note: the views expressed are my personal.


V.DURGA RAO, Advocate, Madras High Court.


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February 2024