T. R. Radhakrishnan


The purpose of law is to ensure the dignity of human beings and to enable them to lead a decent life as free citizen having their human rights and constitutional rights protected and upholding the principles of natural justice. But the way the SARFAESI Act is interpreted and implemented by the secured creditor, authorised officer and the presiding officer of DRT and even by some of the High Court and Supreme Court judges make one believe whether the Act is an infringement into the human rights and constitutional rights of the citizens.

Human Rights as per Human Rights Act, 1993 means, “the rights relating to life, liberty, equality and dignity of the individual guaranteed by the Constitution or embodied in the International Covenants and enforceable by Courts in India;” and Article 21 of the Constitution of India dealing with protection of life or personal liberty says that no person shall be deprived of his life or personal liberty except according to procedure established by law. “In Munn vs. Illinois {(1876) 94 US 113; AIR 1963 SC 1295=1964 (1) SCR 332} Field J. observed that life means something more than mere animal existence and the inhibition against the deprivation of life extend all those limhs and faculties by which life is enjoyed. In Baskey {(1954) 347 M.D. 442} it was observed by Douglas J, that the right to work is the most precious liberty because it sustains and enables a man to live and the right to life is a precious freedom.”

Further, In Olga Tellis vs. Bombay Municipal Corporation (AIR 1986 SC 180 AT 193) it was observed, “The question which we have to consider is whether the right to life includes the right to livelihood. We see only one answer to that question namely that it does. The sweep of the right to life conferred by Art. 21is wide and far reaching…….. An equally important facet of that right is the right to livelihood because; no person can live without the means of living i.e. the means of livelihood.”

In Consumer Education and Research Centre vs. Union of India (AIR 1995 SC 922 at 939) dealing with the expression “life”, it was held- “The expression ‘life’ assured in Art. 21 of the Constitution does not connote mere animal existence or continued drudgery through life. It has a much wider meaning which includes right to livelihood, better standard of life, hygienic conditions in work place and leisure.” Besides, Quality if life contained under Article 21 of the Constitution includes right to human dignity. (AIR 1978 SC 1514) which is derived its strength from The Directive Principles of the State Policy. The importance of Article 21 of the Constitution is that when fundamental rights of the petitioners under Article 21 have been violated by the tortious acts of state or its servants, constitutional Courts can grant relief of compensation.

Section 17 sub section (7) of SARFAESI Act states, “Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of application in accordance with the provisions of the Recovery of Debts to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder.” Such being the case, Section 22 (1) of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 states, “The Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Tribunal and Appellate Tribunal shall have the powers to regulate their own procedure including the places at which they shall have their sittings.” Here the emphasis is Principles of Natural Justice.

Banks and Financial Institutions can invoke SARFAESI Act only when an account is classified as Non Performing Asset (NPA) based on RBI norms. But the impact of classifying the account as NPA is overlooked most of the times and recovery of dues takes precedence over rehabilitation. The sudden impact particularly for accounts coming under the category of SMEs is as severe that the business enterprise / company tend to become sick and most likely to be shut down for want of funds which ultimately lead to the workers and employees losing their job and thereby their livelihood affecting their lives and the lives of those who depend upon them. The SARFAESI Act has not touched upon the plight of the multitude of employees and workers who face a very bleak and uncertain future having thrown out of their jobs which is their only sources of income. Besides, the contributions of such industries particularly SMEs towards GDP of the country are not at all taken into consideration and also the employment potential available on account of these industries. When the clarion call of the nation is to “make in India” and creating employment opportunity, the action of the bank and financial institution should not lead to ‘mar in India’ of such industries and the resultant consequences and the following chain of events that may occur in the lives of the employees and workers can be construed as an infringement into the human rights and the constitutional rights of the employees and workers and even that of the promoters and share holders.

That does not mean that the bank and the financial institution cannot take any steps to recover their dues especially being the custodian of public money. But when is the question. SARFAESI Act was promulgated on the 21st of June, 2002 and understanding the chances of misuse and abuse of the vast power vested with the bank and the financial institution to recover their dues without the intervention of the court, Reserve Bank of India issued their circular DBS.CO.OSMOS/ B.C./ 4 /33.04.006/2002-2003 dated 12.09.2002 on prevention of slippage of NPA accounts wherein they have enumerated various measures to be undertaken by the bank and the financial institution before declaring the account as NPA. Besides, they also introduced various measures like corporate debt restructuring (CDR), SME restructuring, OTS etc for the rehabilitation of NPA accounts. Further, Banking Regulation Act and provisions of SARFAESI Act also give vast powers for the bank and the financial institution to take such steps including appointment of investigation auditor, concurrent auditor, controller of finance etc that envisage prevention of account becoming NPA. Lately RBI has formulated a policy for revitalizing distressed assets and issued their circular on “Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)”. The basic reason for the introduction of such measures by RBI is to help the bank and the borrowers to come to an understanding with regard to the problems and predicament faced by them and to find amiable solutions so that the incidence of account becoming NPA can be minimized. Legal action is expected to be the last resort for the bank and the financial institution when all other possible measures including repeated rehabilitation measures fail to produce the desired result. Had the bank and the financial institution taken various measures as directed by RBI and implemented them faithfully, the problem of NPA accounts could have been tackled more effectively which would have prevented the employees and workers from facing a turbulent future.

It is thus evident that employees and workers are an integral part of any organisation, manufacturing, service and any other type, and their plight will have to be taken care of in case recovery proceedings are to be undertaken and to be compensated adequately to sustain their losses for which the Government will have to enact a suitable legislation to protect the legitimate aspirations of the working class. Even the promoters, directors of the enterprise / company who have offered their personal guarantees are likely to lose their personal assets and livelihood and can face an ignoble exist because of the publicity spread through print media. Hence in order to protect the legitimate aspiration of the employees and workers and even the promoters and directors and other guarantors, mortgagors and share holders, they may resort to file suitable application with the respective Tribunal/ Appellate Tribunal / High Court and Supreme Court as the case may be under human rights and constitutional rights so as to get some relief / compensation for the deprivation of their livelihood and thus upholding the principles of natural justice.

(The author invites comments from readers and he can be contacted through his e-mail id [email protected] or mobile – 9229248048)

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  1. DEEPAK DANG says:

    Dear Sir,
    I am a Bank Officer & dealing with all these cases. I have gone through the Blog & draw your kind attention to the following points of your concern:
    • Human Right [emphasis applied]: The SARFAESI ACT-2002 & its rules (hereinafter call as ‘Act’) or any other act, passed by the Parliament or State Govt. is ‘ultra vires’, if it is against the rights of Citizens of India, which includes Individuals & Corporate bodies constituted by law also. Therefore, right of a citizen will be obligation of the other in the society. Further, Hon’ble SCI has gone into the question of classification of NPA & issued directives that RBI, being regulator, is empowered to issue & amend guidelines in this regard & it is a compliance matter. In most of the cases it has been proved that accounts are classified correctly. So, the extract of judgments quoted by you are not directive principles & merit differs from case to case.
    • Impact of classifying the account as NPA: Before classifying any account as NPA all out efforts are being made by the bankers, even at the cost of time, chances of disposal of assets by borrowers or take shelter of Civil Courts to delay recovery by taking benefit available on vague grounds of urgency, balance of convenience & prima facie cooked facts & obtain the order of “Status Quo” “Temporary” or “Mandatory Injunction” from the court. They never visit the courts again.
    • Principles of Natural Justice [emphasis applied]: The above ‘Act’ incumbent upon the Authorized Officer to take next step for possession or sale only if any objection against previous step has been disposed of within 15 days from the date of receipt thereof or stay is not granted by any court. It guarantees “Principles of Natural Justice”.
    • Measures for resolution: You have rightly pointed there are other measures like restructuring/ rehabilitation/ CAP/ OTS etc. The Bankers adopt this route even by additional financing. If sales are not sufficient, the stakeholders are allowed tagging or monthly reduction of limits. In case, the industry itself is incurring losses due to recession & chances are bleak for up-gradation then accounts are classified as NPA & borrowers are requested to follow to OTS route or file cases before Lok Adaalat (both Pre/post litigation). The powers vested with the Authorized Officer under the ‘Act’ are exercised as a last resort.
    Even when the Suit is filed, action initiated under the ‘Act’ or decree obtained/ under execution, OTS or Lok Adaalat route is always kept open.
    • Personal Guarantors:(P.G.) The liabilities of P.Gs. are “Co-extensive” as per “Contract Act” which was enacted much before the constitution of India. It is also tested by the passage of time & always upheld by Hon’ble by SCI. Off course, they are likely to lose their personal assets and livelihood and can face an ignoble exist because of the publicity spread through print media but it is his financial obligation. Default thereof put him to adverse publicity. When, all the citizens are bound to declare their assets & liabilities & past criminal history if any, if he is filing nomination then why not a guarantor should face the same litmus test. Moreover, their history, even after closure of a/c, is available at web sites of CIBIL/ EQUIFAX/ CERSAI & so on.
    As you have advised in closing lines to take shelter of Hon’ble DRT/DRAT/ High Courts, it appears that the author is encouraging litigations. Respected friend, I appreciate your concern with the human being & their right to live with dignity, which is associated with the right to livelihood too. But, no one can guarantee for “Interim Relief” even. The final disposal may take minimum five-ten years with one court. The courts are directed not to question the outstanding amount, interest rates & various enabling clauses of agreements unless there is any “error of judgment” or clause is “ultra vires”.
    Therefore, to avoid the hardships, obey the financial discipline, co-operate with banks, find out the best solution & don’t avoid financial obligations by following the avoidable litigations. Why I must repay the dues:
    – For mental fitness. – to maintain dignity in the society – to create credit worthiness
    – Building National character – Example for next generation. – to maintain pace of growth of economy. ABOVE ALL: To secure our deposit in Banks, – avoiding failure of Banking system, which is back bone of economy.

    Deepak Dang
    [email protected]

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June 2021