Despite the clear objective behind enacting SARFAESI Act, 2002, while implementing the provisions of the Act, many complications have arisen and the Hon’ble Courts have cleared some complications making a good balance between the interests of the borrowers and the objective of Act to reduce the alarming levels of Non-performing Assets (NPA).  Courts have dealt with the issue of limitation to approach the Debt Recovery Tribunal under section 17 of SARFAESI Act, 2002 and according me, it is the wonderful interpretation by Courts in giving the borrower a right to challenge the Bank’s action on all measures pursuant to section 13 (4) of the Act. In the recent past, there was also a consistency with regard to entertaining Writ Petitions under Article 226 of Constitution of India in respect of SARFAESI matters.  The borrowers’ interest is also protected even at the stage when the Bank approaches the Magistrate Court under section 14 of the Act and gets an order to take the physical possession of the ‘secured asset’.  Though there is a tendency of discouraging the Civil Courts in entertaining Civil Suits in respect of SARFAESI proceedings given the limited scope pursuant to Mardia Chemicals case, it is important to look at the issue of making a counter claim in the form of damages or compensation against the Bank.  It is true that section 19 of the SARFAESI Act, 2002 provides an authority to the Debt Recovery Tribunal to order compensation against the Bank in appropriate cases. The interpretation of section 19 would definitely be a key thing. The compensation can not be limited to the issue of procedural lacunae on the part of the Bank in taking steps under the provisions of SARFAESI Act, 2002. In appropriate cases, the claim of compensation or the damages can also be looked at while entertaining a plea for granting stay of SARFAESI proceedings initiated by the Bank. It is supported by the laudable interpretation by the Court on the issue of powers granted to the Debt Recovery Tribunal under section 17 of SARFAESI Act, 2002. It was once perceived that the Debt Recovery Tribunal is only concerned at looking the procedure followed by the Bank under SARFAESI Act, 2002, but, now the DRT is looking at all issues raised by the borrower including the issue of determination of ‘outstanding due’ and classification of an Account as ‘NPA’.  There can be an argument that the if the scope of Section 19 is widened, then, the DRT may not be able to speedily dispose of the Appeals and may be forced to keep the order of stay pending till the litigation is finally disposed of.  This argument, though appear to be logical, can not be sustained as the Courts are against conferring jurisdiction on other forums in respect of SARFAESI matters.  This issue can be addressed with the careful exercise of power and the efficiency of the presiding officers on Civil Law and Law of Torts.

Likewise, there are many interesting and complicated issues under the provisions of SARFAESI Act, 2002. Another complicated issue is about Section 36 of SARFAESI Act, 2002 dealing with the application of the provisions of Law of Limitation. Section 36 of SARFAESI Act, 2002 is as follows:

“36.Limitation.- No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963 (36 of 1963).”

In the light of the fact where the Bank proceeds under SARFAESI Act, 2002 even after obtaining a ‘Recovery Certificate’ from the Debt Recovery Tribunal under Section 19 of RDDBI Act, 2002, section 36 of SARFAESI Act, 2002 is to be carefully looked at. The issue of simultaneous proceedings was upheld now and I don’t know to how to understand the land-mark judgment saying that the Bank need not withdraw its Original Application under section 19 of RDDBI Act, 1993 while contemplating action under SARFAESI Act, 2002.  But, it is a fact that the Bank  may feel comfortable in invoking the provisions of SARFAESI Act, 2002 for execution of its claim even after getting a ‘Certificate of Recovery’ under section 19 of RDDBI Act, 1993.  Where there is a mortgage in favour of the Bank, the limitation to act upon the mortgage in realizing the debt is 12 years. And the 12 years limitation is to be calculated from the date when the money actually becomes due as per the provisions of Limitation Act as everybody knows. In many cases now, if the limitation is strictly applied as contemplated under Section 36 of the SARFAESI Act, 2002, the Banks may not be able invoke the provisions of the SARFAESI Act, 2002 as it could have taken considerable time in getting the ‘Certificate of Recovery’ in Original Application under Section 19 of RDDBI Act, 1993. What the Bank claims is that the limitation under Section 36 starts from the date of passing the ‘Certificate of Recovery or the decree’. On the contrary, the borrowers claim that the proceedings under RDDBI Act, 1993 and SARFAESI are completely independent though they can go simultaneously now and as such the limitation under Section 36 is to be calculated separately based on the loan transaction and default while Bank proceeding under the provisions of SARFAESI Act, 2002. There is a merit technically in this argument also as the Bank will not straight-away proceed taking possession of ‘secured asset’ where there is already a ‘Certificate of Recovery’. Even when there is a ‘Certificate of Recovery’, the Bank, if wants to invoke the provisions of SARFAESI Act, 2002, makes a fresh demand under section 13 (2), entertains objections, gives a reply if required and then only proceeds under section 13 (4) of the Act and the borrower gets a right to appeal to DRT under Section 17 of SARFAESI Act, 2002 again though there was a prior adjudication of the issue earlier under RDDBI Act, 2002.   This aspect is highlighted technically and the Courts have considered the ‘Decree or the Certificate of Recovery’ as ‘debt’ or ‘financial asset’ within the purview of SARFAESI Act, 2002 and allowed the Bank to be in advantageous position in this regard. Though there were conflicting views on this like the issue of redressel against the order passed by the Magistrate under section 14 of SARFAESI Act, 2002, a consistent view is now being taken in this regard.

Few judgments extracted below will expose the trend in interpreting section 36 of SARFAESI Act, 2002 and the Complications.  The Hon’ble High Court of Punjab and Haryana, in Raj Rani Versus Oriental Bank of Commerce, 2008 AIR (P&H) 66, was pleased to observe as follows:

“In the present case, the loan was availed on 23-10-1999 (P-10) and notice under Section 13 (2) of the Act was given on 28-4-2003. It is undisputed that the loan has been secured by mortgaging the properly in question as is evident from the loan application (P-7). Once the loan has been secured by mortgage or by creating a charge on immovable property in question, the provisions of Article 62 of the schedule appended to the Limitation Act, 1963 would apply which provides a period of 12 years from the date when the money becomes due. The respondent-Bank had issued notice under Section 13 (2) of the Act in April, 2003, which is less than four years. It is thus obvious that action even otherwise does not attract the bar of limitation. Therefore, the argument raised is liable to be rejected. Even on facts, it has to be held that the action does not suffer from the bar of limitation provided by Section 36 of the Act. “

On the same issue, the Hon’ble High Court of Madras in M/s. Consolidated Construction Consortium Ltd Vs. M/s. Indian Bank, 2010 AIR (Mad) 68 was pleased to observe as follows:

“33. I could see considerable force in the submission made by the learned counsel for the defendant for the following reasons.

The term ‘debt’ as defined in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is found adopted in the SARFAESI Act.

“S.2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993:

“debt” means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application.

34. A plain reading of the definition of the ‘debt’ as contained in the The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would exemplify and demonstrate that given a ‘decree debt’ could be taken as a ‘debt’. It is quite obvious and axiomatic that for obtaining decree, considerable time would be taken by a litigant and in some cases, it might exceed even ten years or fifteen years and in such a case, if twelve years period of limitation for enforcing mortgage is calculated from the date of accrual of the cause of action based on mortgage due under the bank, then the relevant portion of the definition of ‘debt’, as contemplated under the ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ as well as SARFAESI Act would be rendered nugatory or otiose. It is therefore crystal clear that the twelve years’ limitation period has to be reckoned from the date of decree or the debt recovery certificate issued by the Tribunal. The question might arise as to whether the provisions of the SARFAESI Act, so to say Section 13(4) could be pressed into service for the purpose of executing a decree debt or the certificate issued under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

38. A plain reading of the above definition would reveal and connote that the term ‘financial asset’ includes debt and thereby the definition as contained in Section 2(g) of the ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ is ushered in. As such, the phrase ‘financial asset’ and the term ‘debt’ including ‘secured debt’ are all interlinked and interwoven, interconnected and entwined with one another like a cobweb and the term ‘debt’ envisages the ‘decree debt’ as well as the ‘debt recovery certificate.’

39. The learned Senior counsel for the plaintiff also by inviting the attention of this Court to sub-sections (1) and (2) of Section 13 of the Act would develop his argument that unless sub-sections (1) and (2) of Section 13 are attracted, the question of invoking Section 13(4) does not arise and accordingly if viewed, the debt recovery certificate cannot be taken as one contemplated under sub-section (1) or (2) of Section 13.

40. I am of the considered opinion that Section 13(4) as well as sub-sections (1) and (2) of Section 13 are widely worded to include even mortgage debts, which got crystallised in the form of a decree or debt recovery certificate. No doubt, the term ‘debt recovery certificate’ is not contemplated in the definition as contained under Section 2(g) of the ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’. But still, the clause, ‘whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application’ would amply make the point clear that the said clause is wide enough to include even the debt recovery certificate. Accordingly, if viewed it is clear that ex facie and prima facie the notice issued under Section 13(4) of the SARFAESI Act on 27-7-2009 cannot be held to be one barred by limitation.”

I am sure that the complications under section 36 of SARFAESI Act, 2002 are temporary in nature and rarely discussed now as the Banks could have completed their recovery in the cases those were pending before 2002 by now.

Note: the views expressed are my personal and a view point only.

Author: V.DURGA RAO, Advocate, Madras High Court. Email: [email protected]

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  1. V.D.Gadekar says:

    M/s Gadekar Ginning & Pressing Pvt. registered in the year 1998. Since there was Monopoly Purchase of Cotton by Govt of Maharashtra, my role was only processor I.e.Job Work. On 24 May 2006, I was in coma for a week due to head injury in an accident.Till that date I had cleared the loan taken by S.B.I. However, thereafter my son Ashish had continued the factory and sale- purchase of cotton after processing. Mean time as he is recently graduate and enthusiastic borrowed Rs 40 Lakhs as Term Loan and Rs. 1.50 Cr as Cash Credit. Unfortunately, due to continuous famine and changed Export Policy of Govt. of India, rates of Cotton Bales are decreased and he incurred huge losses. As I was suffering from Unsound Mind since head injury, naturally I have neglected the business. Due to heavy loss my son have shifted to Pune for the education of his daughters. I had been to U S A to see my daughter, Dr.Aparna for Six months. When came , due to possession of house by Prawara Coop Bank, we directly went Pune. Then due to Corona -19, I went to my Gigging factory for living and to protect from Carona-19. One day, of what I observed that some persons were dismantled my machineries, while objected they told that they have purchased in auction from Canara Bank, our Creditor. When approached to Bank they told the whole story. Now my grievance is that Bank sent notice u/s 13(2) by post, but since we were in USA & our son was in Pune, notice was undelivered with remark “Door Close ” by postman. After that Bank had completed all remaining Steps up to sale of my only immovable property. Immediately I approached DRT and fortunately I got Stay to sale of moveable property.However, since delay is not condoned, I could not get relief for immovable property. One thing which I must mention is that, immovable property is sold at Rs. 2.11 Cr.where as registered at Rs 6.56Cr as per Govt Ready Recknor Rates. Important dates are as follows.1) Loan is covered under CGTMSE Scheme.2)Loan sanction date is 25-3-2014.3)Date of NPA -01 -10 2015 4) Notice U/s 13(2) on 21-11-2015. 5) OTS amount paid Rs 30 Lakhs on 21-12-2016 6) Term Loan outstanding Rs.10,000/- on 21-12-2016 Dear Sir, I have explained my case in detail and taken your time with expectation. What happens I could not find an advocate to plead for me in High Court. Hence you are requested to accept my case and plead for me. Waiting for your favourable response. Thanking You, Sincerely Your’s Prof.Adv. Vishnu Gadekar. 9356715710.

  2. Mahendran says:

    We have mortgaged and taken business loan, due to step down at business cannot able to pay EMIs, after a year (Meanwhile every alterative months we are paying our EMIs) but NBFC stating we are about to issue 13/2 & 13/4… and pressuring. here we are now requesting them to re-structure the loan against all payable.. but not getting support from them.. can you please support in this regards how can we proceed further… [email protected]

  3. Ninad Patil says:

    Is there any limitation period of Notice issued u/s 13/2, 13/4 of SARFAESI Act. Notice issued u/s 13/2 is valid for ever ? or have some limitation period to go further for taking action ? Let me know .

  4. Kumar anish says:

    In a NPA loan demand notice under section 13(2) was served by secured creditor. Loan was for both investment & Cash credit purpose. In demand notice under sec 13(2) only IP that is land and residential building mortgagged with bank was mentioned and plant & machinery & stocks out of bank loan was not mentioned by mistake. Secured creditor have taken symbolic possession in the account but auction & sale is not done yet. What can be done now. Please quote with facts/Judgement supporting it.

  5. RAVI says:

    my question
    1. Possession u/s 13($ of SARFAESI was taken on 01/01/2019. By which date public notice should be published in newspaper. ?

    2. What does “within 7 days” means in the Act.

  6. ANIL BHALAVAT says:

    Sir, is it any restriction for invoke Sec.13(2) of SARFEASI Act? Bank has invoke this once, DRT has rejected entire proceeding of Bank. Now bank can invoke Sec.13(2) again and issue demand notice again? What is the remedy with bank? and how to defend? Highly appreciate if respond on my mobile number. With regards.

  7. SURESH WALE says:

    Borrower took loan from bank in 1992 same was liquidate on 2004 and liquidator declare loan as npa and bank was merged in to other bank ,the takeover bank issued notice under Section 13(2). Of DRT act on 01/01/2018 Borrower objected the notice then within 15 days bank issued notice under Section 13(4) of securitization act 2002 ,dated 28/03/2018 what is remedy for Borrower , can he file application under Section 17(1) before DRT Court or approach before civil court

  8. Sandip Mukherjee says:

    The landlord took a mortgage loan from a private financial institution in June,2016 and repaid 9 installments (EMI) out of 144. [Last EMI was paid in May’17]. Still then, the status of the repayment is under default. Notice u/s 13(2) under securitisation act was issued in Sept’17. Now 10 days back they have issued Advocate’s notice to the landlord.

    Now, We have entered in an lease and license agreement for three years with the landlord, in Dec’17, with a refundable advance payment (100000/-). In this situation , as a licensee, what will be our status and safeguard in law. The landlord is not in a position to pay us back the advance amount, ever. Please advice

  9. Subrata Karmakar says:

    The 13(2) notice is issued on 06/06/ 2017 mortgage property value … Rs30,00,000/- and loan amount RS10,00,000/- sanction date 28/02/2014 type of loan …O/D payment status…total interest due Rs60,000/- history of payment…ON 31/12/2016 the account was well and good but unfortunately it is default A/C now

  10. Sameera says:

    A company availed credit facilities and excecuted certain documents in 1988, mortgaging a piece of land to the bank. the recovery suit was filed in 1991 when the borrower was not able to make the loan repayments. and the decree was passed in 1997. in 2008 demand notice u/s 13(2) was served on the borrower. section 36 of the SAFAESI Act applies how in this situation? When does the time period for limitation begin ?

  11. Ravi Kumar Jain says:

    need to suggest please, when-
    June,2001 Legal Notice/Recall notice (14 Yrs.)
    Dec. 2001 filed O.A. (14 Yrs.)
    Aug. 2002 Issued Notice us. 13(2) (13 Yrs.)
    Aug. 2002 Representation to the Notice(13 Yrs.)
    Aug. 2004 Order and RC issued in O.A. (11 Yrs.)
    Dec. 2004 Execution Proceding pending before Recovery Officer. (10yrs and 8 months)
    May 2007 Notice us. 13(2)
    June 2007 Reply and Objection and Representation to Notice
    After 15 Days sent Caviat Notice (not recd. any reply so all Objection are deemed to be accepted by bank.)
    Reply to the Caviat Notice that ” Bank has decided to not take any action on basis of the Notice dated….May 2007.)

    Recovery Proceedting continue pending when same objections were raised in reply to notice 13(2) in May, 2007.

  12. k n chinnakrishnan says:

    The presentation fantastic.Well appreciable. I will add one more citation of Kerala High Court as value added one to the presentation CDJ 2011 Ker HC 307(WP(C)5490/11(L) DATED 23.03.11) E.P. SREEDHARAN V/S THE MANAGER AND ANOTHER

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