It appears to me that the SARFAESI Act, 2002 was enacted on the assumption that the Bank will commit no mistake in the course of its business relations with the borrowers. It is understandable as to why the Banks need a special legislation like SARFAESI Act, 2002, but, there can not be any justification for not providing an effective remedy to the borrowers in case they have a genuine grievance. The Bank will sanction loans to the borrowers on specific terms and conditions.  There can be variety of credit facilities. In the course of adhering to the terms and conditions; like borrowers, the Banks too can commit mistakes and there can not be any doubt in this regard. Looking at the provisions of the SARFAESI Act, 2002, the rules, the practice and few precedents; borrowers and also professionals alike are doubtful in getting relief from the specially constituted Debt Recovery Tribunal which entertains appeals from the borrowers under section 17 of the Act.  I have heard many borrowers saying that the Debt Recovery Tribunals will support the Banks and their actions, and will not effectively listen to the grievances of the borrowers. Such an assumption on the functioning of Debt Recovery Tribunals and Appellate Tribunals may not be correct though the system needs to look within. The Courts too have understood the difficulties in approaching the Civil Courts in recovering the outstanding dues and the Courts have upheld the provisions of SARFAESI Act, 2002 with few suggestions in the Course.  The SARFAESI proceeding and litigation, as many feel, goes as follows:

1.     The Bank will classify a loan account as NPA (Non-performing Asset) as per the RBI guidelines on Asset Classification etc. It is debatable as to whether it is right to apply the guidelines issued by the RBI mechanically or not. There may be cases where the Bank or the concerned officials believe in the credentials and credit worthiness of a borrower due to past record. Even in these cases, the Bank normally classifies the account as NPA if the borrower fails to meet the agreed commitments and the Bank will rely on the guidelines issued by the Reserve Bank of India. There can be two views on this. If the discretion is given to the Bank in classifying an Account as NPA, will it really benefit the bonafide borrowers?. As such, the law in this regard is that the Bank should follow the RBI guidelines in classifying an Account as NPA and RBI guidelines are mandatory. The classification of an Account as NPA is the preliminary thing before proceeding further in recovering the dues under the provisions of SARFAESI Act, 2002.

2.     After classifying an account as NPA, the Bank or the authorized officer of the Bank will issue a demand notice to the borrower under section 13 (2) of the Act demanding the borrower to pay the entire outstanding due as on date.

3.     The borrower can raise his objections if any to the demand being made by the Bank under section 13 (2). It is to be noted that if the borrower is silent to the demand notice, the same will be noted when the borrower files an appeal before the Debt Recovery Tribunal under section 17 of the Act.

4.     If the borrower raises any written objections to the Bank’s demand notice under section 13 (2), then, the Bank should reply to the objections. The reply is mandatory. The courts have emphasized the need on the part of the Bank to apply its mind properly to the objections raised by the borrower. Borrowers contend that the Bank will not listen to the objections and mechanically reject those. If the Bank finds merit in the objections raised by the borrower, then, the Bank can correct itself and proceed accordingly.

5.     If the Banks rejects the objections raised by the borrower under section 13 (3A), then, the Bank will issue a possession notice under section 13 (4) of the Act. It is called symbolic possession.

6.     The possession notice issued by the Bank under section 13 (4) of the Act provides a right to the borrower to approach the Debt Recovery Tribunal and file an Appeal if he feels aggrieved.

7.     The borrower should pay the prescribed fee while filing an appeal under section 17 and normally the borrower prays for a stay of SARFAESI proceedings. Many borrowers feel that the Debt Recovery Tribunal will ask the borrower to deposit some amount while granting stay if the DRT comes to a conclusion to grant a stay.  I feel that the borrower need not make a deposit always and the DRT will grant a stay directly without asking for any deposit in some cases based on facts.  If the DRT is not inclined to grant a stay and if the DRT dismisses the application seeking stay, then, the borrower is entitled to file an appeal to the DRAT (Debt Recovery Appellate Tribunal).

8.     In case where the borrower did not approach the Tribunal and in case where the borrower fails to meet the demand made by the Bank, the Bank will take such steps in taking physical possession of the property under section 14 and can sell the secured asset in public auction etc.

Though the procedure under SARFAESI Act, 2002 appear to be simple, there were many complications in the course. It is presumed that the DRT will only look into the procedural lapses and other disputes pertaining to maintenance of account, violation of terms and conditions etc., can not be looked into by the DRT.  Then, where is the remedy to the borrower for his genuine grievance?. Is it proper to ask the borrower to approach Civil Court against the Bank paying Court fee and asking for damages etc.? The Civil Court may not be entitled to grant a stay of SARFAESI proceeding in view of Section 34 of the Act.  If the borrower approaches the High Court, the High Court may say that the alternative remedy is available before the DRT and as such a Writ under Article 226 is not maintainable.  In these circumstances, where is the effective remedy available to the borrower unless the DRT looks into all the genuine objections of the borrower keeping the technicalities apart? It may be contended that if the Bank commits any mistake, then, the DRT can award cost and compensation to the borrower as enshrined under section 19 of the Act. But, the careful perusal of the Section 19 makes it very clear that the DRT can award costs and compensation only when it is provided that the procedure followed by the Bank in proceeding against the secured asset is incorrect.  We may not have many precedents where the DRT award compensation to the borrowers.  These are the various complications in fighting against the mistake committed by the Bank while classifying an account as NPA and while seeking relief against the SARFAESI proceeding.  As such, the entire process to be clear and the DRT should effectively function and grant relief to the borrowers if there is a merit in the borrowers’ contention. If the specially constituted Tribunals supported by Courts fail to function, then, there can not be any meaning in constituting the Tribunals and the High Courts would be flooded with petitions under Article 226 of Constitution of India and petitions under Article 227 of Constitution of India.  Dealing with the issue of functioning of Tribunals in India, the Hon’ble High Court of Calcutta in Chanda Engineers (India) Ltd Vs. U.C.O. Bank 2005 AIR(Cal) 28, 2005 (125) CC 708, was pleased to observe as follows:

“(2.) So far as the power of Article 227 is concerned, in earlier, High Courts hardly got any opportunity to apply the power of superintendence under it over the Lower Courts and Tribunals. Number of litigations was much less. Lower Courts had enough opportunity to go through procedural propriety. There was no mushroom growing of Tribunals. Only few traditional Tribunals were existing. Provision was normally applied where there was neither any scope of appeal nor any scope of usual revision. But since when various Tribunals either by way of Constitutional amendment or under the respective statutes are formed and also revisional jurisdictions are curtailed by way of amendment of the Code of Civil Procedure particularly in respect of the interlocutory matters, number of applications under Article 227 of the Constitution of India have been increased. Therefore, if the totality of the scenario is projected it will be seen that from when several jurisdictions of the High Courts are curtailed number of making applications under Article 227 of the Constitution of India have been increased. If this is the trend then formation of Tribunals for the sake of people is a big question for the legislature. It is high time to think whether the installation of various Tribunals is really minimizing number of disputes or increasing the number of disputes.”

Thus, the borrower will have to face lot of difficulties once the account is classified as NPA.  In cases where the outstanding is only few lakhs and the borrower do not run a big business concern, then, it would really be difficult to face the Banks under the provisions of SARFAESI Act, 2002. There is an issue of work pressure with Tribunals and getting a competent counsel engaged is also a costly thing when the amount outstanding is not much. The borrowers may not really understand the whole procedure and the implications under SARFAESI Act, 2002 and as such there is a need to ignore technicalities and keep the law constant. There were contradictory views on certain issues under SARFAESI Act, 2002. Thus, a wrong classification of an account as NPA will have disastrous consequences though one may say that the law is clear and the SARFAESI Act, 2002 provides a remedy to the borrower to file an Appeal under section 17.  I would like to share a case study in this regard and the facts are as follows.

Facts of the Case:

A Bank has issued a notice to the borrower under section 13 (2) of the Act demanding the payment of outstanding being 25 lakhs. The borrower’s contention is that there was a fire accident in the Factory admittedly. The Bank was supposed to process the insurance thing and it is part of terms and conditions of credit facility. However, the insurance claim was delayed to due to the mistake by the Bank in informing the changed address of the borrower to the Insurance Company though the borrower has duly informed about the change of address and other relevant issues from time to time. As the borrower in this particular case is not a willful defaulter, has approached the Bank seeking waiver of interest and penal interest etc. as that was resulted due to the Bank’s mistake. The borrower contention is that he has to suffer a loss of 12 lakhs due to the Bank’s mistake and the Bank continues to charge interest and penal interest against the outstanding though the Insurance Claim was delayed due to the mistake of the Bank. Even after the issuance of notice, the borrower has paid a sum of 4 lakhs initially and 8 lakhs thereafter. The borrower’s query is as to how to get effective relief in this case as he was subjected to heavy loss?. The borrower’s contention is that his account was classified as NPA due to charging of interest and penal interest without looking at the mistake committed by the Bank.


In the case referred to above, it may be easy to say that the borrower can send his objections under section 13 (3A) and can file an appeal challenging the notice under section 13 (4) of the Act. It is also easy to say that the borrower can get compensation under section 19. Practically, the issue is different and technicalities are also there. Some may say that the borrower can only approach the Civil Court claiming damages and the DRT will only look into the procedural lapses in issuing notice under section 13 (2), reply under section 13 (3A), notice under section 13 (4) of the Act etc.  This is a bonafide case and why should the borrower approach different forums involving lot of costs. Why can’t the DRT look into the issues of mistakes committed by the Bank in arriving at the outstanding due etc. Despite having a clear case, the borrower is made to suffer and many issues under SARFAESI Act, 2002 as such requires clarity and technicalities are to be ignored.

Note: the views expressed are my personal and a view point and am aware of various other complicated issues under SARFAESI Act, 2002.


V.DURGA RAO, Advocate, Madras High Court.


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0 responses to “NPA due to Bank’s mistake – remedies available to the Borrower – SARFAESI Act – a Case Study”

  1. rastogi ajay says:

    sir, i wish to seek an advise that i was enjoying a credit limit for rs 3 cr from bank due to some reason i had to close down the bussiness n i paid the entire amount to bank n nothing is due now but in course of payment once i could not pay intt to bank continuously for three months but i paid the entire money in 4th month n hence my a/c became npa. now in the same company wish to seek loan for 1 cr.pls advise thanks

  2. hanif shaikh says:

    There are triparty agrment of my unit in bitween coopretive midc ,bank of india and me but bank of india didnt inform even midc in this of india holding my subsidy amount illegally they have to adjust my subsidy amount to my loan account but they failed do do so even though khadi and village board officer given them letter to convert subsidy amount to my loan of india not created TDR and misappropreation of goverment fund can i fill case against bank,or can i get consumer court for comainsation pls advice

    thanking you

    hanif i shaikh pls reply

  3. hanif shaikh says:

    Respected sir, I hanif i shaikh age 28 yrsR/o narayangaon rural pune educated unemployed started corrugated boxes manufacturing unit under PMEGP scheme aided by central govt msme and state khadi board industries to promot rural employment .i turned before task force commitee headed by dist collector task force commitee and got approval lettar from them
    and my sanctioned file sent to bank of india br junnar dist pune with recommandation and sanction lettar of goverment subsidy undre this scheme in 2008 my project cost was 24.95 lacks with 35% subsidy from Khadi & village industry board .loan amount was 23.70 contribution was 5% and sanction subsidy with bank was 873250/= which is to be kept as term deposit by my name for three branch level in the name of benificiarry NO INEREST WILL BE PAID ON THE AMOUNT OF TDR ANDNO INTEREST WILL BE CHARGED ON LOAN TO THE CORRESPONDING AMOUNT OF TDR AND THE AMOUNT WILL BE CREATED TO HIS LOAN AMOUNT AFTER THREE YEARS FROM THE DATE OF FIRST DISBRUSSMENT TO THE BORROWERS BY BANK tTHIS AGRIMENT AND CLAIM FORM FILLED BY AND DULY SIGNED BY ME AND MANAGAR BANK OF INDIA ON DT 20/04/2009 bank of india managar violated terms condition of PMEGP scheme and
    charged me interest on full amount they financed from beginning and also recovered int rest as well loan recovery from my account without any prior intimation or concern by me.due to blunder mistake by bank they charged me intrest on full 95% amount due to bank mis calulation they treated my a/c goes NPA and given me notice of serfesi under 13 (2)on dt 5/10/2011 i have been requesting bank they are charging intrest on full amount but they ignored my sevral lettars even i have deposited Rs 40000/= on 14/12/2011 again i asked bank to calclate intrest by rule and am ready to pay money but no responce from them.
    i went to bank on 6/03/2012 bank manager gave me on costomer summery details showing 318000/= critical amount and total recoverable dues are 540000/= should be reshudeled and adjusted in monthly instalments.then i went to bank alongwith crical amount to deposit but he told your account should be re schduled you have to bring all dues or go to asset recovery branch.then ihave visited asset recovery branch and meeting with zonal manager mr gandhre on 17/03/2012 and agreed that i will clear dues before march 31 but calculate my intrest as per agreement .I send fax to zonal office on dt 24/03/2012 that i will clear my dues before 31/03/2012 but i have not got any reply from them.some people was in touch with bank manager mr ashok walke and bank want to sell my property to them.on dt 27/032012 i got call from delta recovery agency that we came from bank of india to take possesion from bank of india i quite surprise with out any prior notice how anyone can seal my unit illeagelly but i went to my sight .what i saw there was no police person with them or no revenue department person with them or they did nt showed me any attachment order even i was ready to pay Rs 3.50 lacks cheque was with me but they refused to accepect.even though i tried to zonal office but they have not given any chance to stop the process.even they didnt took any my signature on puncnama or gave any document to me.My unit sealed by bank is totally illeagel base less,not givan me chance natural justice
    I have not got any demand notice ,any news paper publication notice or received copy of any letter from failed to keep intrest of costomer and there lack in difficiency in services it proves automatically even though before taking any action bank of india didnt informed khadi and village industry board,or to nodal offficer or director SSI .collector the head of PMEGP scheme .

  4. Dewani Shankar says:

    Dear Sir/madam, I need your advice regarding HSBC bank’s more than 50 blunders in my home loan a/c. .I have obtained a home loan in 2005. Bank is manipulating my a/c calculations since 2005. complaints are made at bank’s CEO & other highest designated officers.Bank is harassing me since 2008. HSBC Bank’s issued more than 80 statements are incorrect. i.e. bank has violated RBI rules more than 80 times. Bank has breached loan agreement terms.i have already made three complaints at RBI..Core group etc Bank is asking me to ignore bank’s all mistakes..Bank is not admitting its mistake. kindly refer Some of my complaints & advice what steps/action we can take against HSBC bank. (1) Despite calc on exactly same amount, same r.o.i. & same Emi, HSBC bank’s issued statements are reflecting 5 incorrect & contradictory interest calculations.
    (2) Despite calc on exactly same amount, same r.o.i. & same Emi, HSBC bank’s issued statements are reflecting incorrect & contradictory loan tenures .(3) Despite calc on exactly same amount, same r.o.i. & same Emi, HSBC bank’s issued statements are reflecting incorrect & contradictory loan due dates.
    (4) Instead of bank’s issued one loan amount ,bank’s issued statements are reflecting 5 more non issued loan amounts totalling more than Ninety lacs.
    (5) Two non issued loan amounts added in my principal amount. Loan tenure also increased by 13 instalments.
    (6) Bank’s issued same day’s 4 statements are reflecting 4 contradictory loan tenure calc results.i.e. 180,263, 274 & 303 .There is diff. of more than 100 instalments in same day’s statements.Diff. of 100 * 20000 =20 Lacs-

    (7) HSBC Bank’s issued Nine statements are reflecting nine contradictory balance loan tenure calc results despite calc on same amount ,at same r.o.i. .
    (8) HSBC bank’s issued three statements are reflecting balance loan tenure as 254,255 & 253 months resp despite calc on same amount
    (6) HSBC bank’s issued two amort are reflecting balance loan tenure as 251 & 252 months resp despite calc on same amount .There is diff. of One Emi . There is loan due date diff. of 13 months
    (7) HSBC bank’s issued three statements are reflecting 2 contradictory balance loan tenures ,three contradictory loan due dates despite calc on same amount .There is diff. of One Emi.. There is loan due date diff. of 13 months

    (8) HSBC bank’s issued amort 15/9/2011 & 16/5/2012 & bank’s statement dt.30-6-2010 & bank’s stat.dt.13-12-2011 Aare reflecting 2 contradictory balance loan tenure calc.results ,three contradictory loan due date calc results despite calc on same amount .There is diff. of NINE Emi’s. There is loan due date diff. of 36 months on exactly same calc

    (9) HSBC Bank’s issued Eight interest paid certificates, issued for same financial year 2007-2008 are reflecting 5 contradictory interest paid amounts.
    (10) Bank’s issued SIX interest paid certificates, issued for same financial year 2008-2009 are reflecting 4 contradictory interest paid amounts.
    (11) Discepancies in bank’s Nodal officer ‘s issued two certified copies of interest paid certf of same financial year 2008-2009.(12) Instead of 31 days, in bank’s many statements,Bank’s statements reflecting charged interest of 32 to 33 days. There are still 40 more very serious mistakes by bank. kindly advice what steps we could take against bank.What amount of compensation could we claim from bank for manipulating my a/c & ruining my life .

    Dewani Shankar -9969602285
    Sir/Madam,if possible, kindly forward me your contact No. 24-8-2012

  5. Dewani Shankar says:

    Dear Sir/Madam, I stay at Mumbai.I am impressed by your articles on NPA a/c & Sarfaesi acts . As I am the victim of Abhyudaya bank’s wrong doings ,wrong notices, unfair trade practices, harassments & violation of RBI banking rules so I need your advice. I am not a defaulter of payments. Since Dec 1 2008, i have made regular payments of Rs-432760/- against balance loan amount of Rs- 347000/-.
    Dear Sir/Madam, what steps we can take against Abhyudaya bank which on 24-10-2011, deliberately refused to accept 5 more Pdc’s of Rs-8500/- each,, issued legal notice dt. 8-11-2011 just 6 days after clearance of my last Pdc dt.1-11-2011 of my submitted 36 pdc’s , called me on 17-11-2011 & asked to ignore the notice, requested me for same Pdc’s which they have refused to accept & issued legal notice, apologises for their mistake of issuing legal notice .when i demanded everything in written then refused the same & files a wrong case of non payments even after receiving payments of Rs-432760/- since dec 2008 against balance loan amount of Rs- 347000/-. Not a single cheque has been bounced in my a/c since 1999. (I have audio & video footage of bank’s acdmission of wrong doings ). On 25-10-2011, I made complaint at banking ombudsman (RBI) regarding bank’s refusal to accept Pdc’s. I also raised doubts that bank might file a wrong case against me.
    Sir,this is not the first time bank has committed mistakes.In 2008 also, bank issued wrong notice,apologised for the same & again issued possession notice .accepted 5 Pdc’s,cleared one of those on 1-12-2008 & came to shop on my 5-12-2008 for attachment of the same The fact is that bank is violationg RBI banking rules. I have never ever stopped operating my a/c since 1999 .I have never ever stopped payments since 1999. My a/c should not be classified as NPA a/c.
    Important points:-
    (1)There is no gap of non payments of 90 days .so can bank classify my a/c as NPA ?
    (2) As per bank’s issued statutory notice dt. 5-6-2008 ,a/c NPA classification date is 31-5-2006.i.e. bank has informed me after 2 this not against RBI rules.
    (3) This is surprising that Even after issuing legal notices dt.23-7-2008 & possession notices dt. 21-10-2008 & 25-11-2008,bank issued me 4 a/c renewal letters even receiving letter dt. 17-7-2008 of my closure of my shop .
    (4) even after accepting 5 Pdc’s on dec 1 2008& even after clearaning first of them on 1-12-2008 ,bank recovery officer came to my shop for attachment of the this not illegal.(5) as per bank’s statements,my a/c is active. All my payments are being debited /credited in my a/c.(6) Bank’s issued a/c statements are reflecting non information of bank’s charged interest charges for contineous 14 months. kindly advice. I request you to reply immediately.Regards
    Dewani Shanakr
    9969602285 email id-dewanishankar900 24-8-2012

  6. Manish says:

    Who is a lender according to RBI to whom the NPA guidelines of RBI would apply?

  7. shrinivas potan says:

    dear sir,i have received possession notice  from bank .the case is in pending civil court,solapur. the matter is under PMRY scheme & another one is limition. The bank had clubbed both case. & noticed under securitisation . In this situation what is step can i take . how i can take stay from drt, & how much stamps fees is required & how many % of amount i.e. counter claim is required in drt court. The amount of Rs 2,60,000/-plus interest is suit filed  by the bank. please kindly suggest correctly & urgently.

  8. rahul says:

    Dear sir/mam,
    Please guide for my uncle:-
    What is RBI guideline for 3 years NPA a/c. for OTS by the sale of mortgage property with the bank due to very bad condition of borrowers business from 2008 economic recession till today could not stand his business properly, but he want to close that loan a/c. anyhow by the sale of property and to arrange balance from other sources.
    And came to know about some cases that have been settled in 50% in February and March 2011 by the bank on the basis of new RBI guidelines for HOME LOAN NPA A/C’S. which could not pay any emi from last minimum three years.
    So please let me know if there are any rules and regulations for this and to whom I can take guideline from the sites and persons as well.
    My uncle deposited for one year continuously,
    I want to take rebate as per RBI GUIDELINES but bank is not telling me proper way to take rebate.
    Thanks and regards
    Waiting for early reply


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