Section 17(1) of SARFAESI Act states, “Right to appeal: (1) Any person (including borrower), aggrieved by any o the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this chapter, [may make an application along with such fee, as may be prescribed,] to the Debts Recovery Tribunal having jurisdiction in the matter within forty five days from the date on which such measures had been taken:
(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.”
Sub section (3) of section 14 of SARFAESI Act stipulates that in case the secured creditor or it authorised officer do not act in accordance with the provisions of subsection (4) of section 13 and the rules made thereunder, then such action of the secured creditor taken as per sub-section (4) of section 13 can be made invalid by Debts Recovery Tribunal and pass such order as it may consider appropriate and necessary in relations to any of the recourse taken by the secured creditor under sub-section (4) of section 13. Thus, it is apparent that as per section 17(1) of the Act, the aggrieved borrower / person is entitled to question only the measures taken by the secured creditor under section 13(4) of the said Act and nothing else. Is this section not a violation of Principles of Natural Justice?
However sub section (7) of section 17 under “Right to appeal” states, “Save otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made there under” and as per section 22(1) of RDDB & FI Act it is stated under “Procedures and powers of the Tribunal and Appellate Tribunal” that “The Tribunal and Appellate Tribunal shall not be bound by the procedure laid by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice”. But during the course of DRT proceedings when the aforesaid section of RDDB & FI Act is quoted, the Tribunal / Courts in most of the cases invokes the provision of section 35 of SARFAESI Act which states, “The provision of this act to override other laws.” Even though, however, under Section 37 of the SARFAESI Act under “Application of other laws not barred” it is stated, “The provision of this act or the rules made there under shall be in addition to, and not in derogation of” certain other acts as mentioned in the said section which includes Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
What are the pre-requisites to issue possession notice u/s 13(4) of SARFAESI Act?
1. Banks have to take action to prevent the account from classifying it as NPA as per RBI circular CO.OSMOS/ B.C./4/33.04.006/2002-2003 dated September 12, 2002 addressed to The Chairman/Managing Director/Chief Executive Officer, All Commercial Banks (Excluding RRBs) on preventing slippage of NPA accounts.
2. Banks and All India Term Lending Institutions have to comply with the instructions given in RBI circular DBOD.BP.BC. No. 97/21.04.132/2013-2014 dated February 26, 2014.on Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP).
3. Compliance of guidelines issued through circulars and notifications by Reserve Bank of India is mandatory for the banks and financial institutions and any violation is punishable under the law.
4. Adhering to the provisions of SARFAESI Act and the rules made thereunder is compulsory for the banks and financial institutions and Violations of the provisions of SARFAESI Act and the Rules made thereunder by the banks and financial institutions and also anybody who abets such violations are to be punished under the Act.
5. Classification of account as NPA as per RBI norms which includes Asset Classification norms as well as definition of NPA.
6. Appointment of an Authorised Officer by the secured creditor.
7. Issue of demand notice u/s 13(2) of SARFAESI Act.
8. Submission of representation and objections by the defaulted borrower.
9. Reply by the Authorised Officer / secured creditor to the representation and objections submitted by the defaulted borrower within 15 days from the date of the representation and objections filed by the borrower.
Thus the bank and financial institution have to undertake all the aforesaid actions before finally they serve notice of possession under section 13(4) of SARFAESI Act. If they have not undertaken any of such actions as mentioned above, can the borrower question their inaction under section 17(1) of SARFAESI Act?
The Supreme Court has examined the scope of S. 17 vis-a-vis S. 13 & 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (“SARFAESI Act”) in their judgment of Kanaiyalal Lalchand Sachdev & Ors. Vs. State of Maharashtra & Ors (CRIMINAL APPEAL NOS.338-340 OF 2011arising out of S.L.P. Crl. Nos.4436-4438 of 2009). The Supreme Court, while dealing with the relevant provisions of the statute, has held as under; 17. Section 17 of the Act which provides for an appeal to the DRT reads as follows:
“17. Right to appeal.–(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken: Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.
Explanation.–For the removal of doubts it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under sub-section (1) of Section 17. (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made there under.
18.The 2002 Rules, enacted under sub-section (1) and clause (b) of sub- section (2) of Section 38 read with sub-sections (4), (10) and (12) of Section 13 of the Act, set down the procedure for enforcing a security interest. Rule 4 of the 2002 Rules deals with the possession of movable assets, whereas Rule 8 deals with the possession of immoveable assets. It is manifest that Rule 4 has no application to the facts of the instant case, as contended by the learned counsel for the State.
19. In Authorised Officer, Indian Overseas Bank & Anr. Vs. Ashok Saw Mill, the main question which fell for determination was whether the DRT would have jurisdiction to consider and adjudicate post Section 13(4) events or whether its scope in terms of Section 17 of the Act will be confined to the stage contemplated under Section 13(4) of the Act? On an examination of the provisions contained in Chapter III of the Act, in particular Sections 13 and 17, this Court, held as under:
“35. In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the banks or financial institutions, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor, to make an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in sub- section (3) thereof.
36. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.
39. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT.”
In view of what has been stated in the above referred Supreme Court judgment the borrowers certainly can take recourse under section 17(1) of SARFAESI Act challenging every action of the secured creditor and their authorised officer since an efficacious alternative remedy is available to any aggrieved person under section 17(1) of SARFAESI Act.