SARFAESI Appeal: Cause of Action to Appeal to DRT continues at various stages under SARFAESI Act, 2002?

It is felt that enormous powers are conferred on Banks or Public Financial Institutions under SARFAESI Act, 2002 from the stage of determination of outstanding due, entertaining objections, taking possession of the property and selling the property through private treaty at times and in public auctions very often. The borrower too has got a right to question the illegality if any on the part of the Bank in proceeding against the ‘secured asset’ under the Act. The right of the borrower to question the illegal act on the part of the Bank if any starts when the Bank issues a possession notice under section 13 (4) of the Act. Within 45 days from the date of receipt of notice under section 13 (4), the borrower can prefer an appeal to the Debt Recovery Tribunal under Section 17 of the Act seeking stay of further proceedings and seeking to set-aside the action initiated by the Bank under the provisions of SARFAESI Act, 2002 starting from the demand notice under section 13 (2). There were and there are many complicated areas under SARFAESI Act, 2002. The legislature wanted to make a balance between the rights of the borrowers and the interests of the Bank and focused on speedy recovery of loans as can be seen from the objects. Though, there were many complicated areas in the course of proceeding against the ‘secured asset’ under the provisions of SARFAESI Act, 2002, the issue of cause of action to file an appeal under section 17 of the Act was debated and remained complicated for some time. After considering the complications, the plight of the borrowers and the need of providing the borrower a remedy for his grievance, according to me, now it is settled that the borrower can question the action of the Bank under the provisions of SARFAESI Act, 2002 at any stage and on each event after issuance of notice under section 13 (4) of the Act. There still exist complications even with this proposition. There can be cases where the borrower could have remained silent after receiving notice under section 13 (4) and could have got all the knowledge of proceedings initiated by the Bank till the steps to sell the property and will he be allowed to question the sale proceedings finally? This is a very important question as the situation would be different if the borrower expresses his acceptable inability to approach the DRT under section 17 immediate to receipt of notice under section 13 (4). However, in view of the vast powers conferred on the Bank to enforce the ‘secured interest’, the borrower should be given an opportunity to file an appeal liberally though granting of relief will depend on the facts and circumstances of the case and also the law. The views expressed by the High Courts in few cases on the issue of cause action to file an appeal under section 17 of SARFAESI Act, 2002 are as follows:

1. Madras High Court – in Indian Overseas Bank Vs. G.S.Rajshekaran (2008 (4) MLJ 1012):

“From the aforesaid facts, it would be evident that the respondent-Writ Petitioner had not challenged the notice issued under Section 13(2) of the SARFAESI Act, but challenged the action of the appellant-Bank in taking possession of the secured asset for realising the same and such action of taking the possession of the secured asset though started on 13.11.2007, the cause of action continued till the notice dated 26.12.2007 was issued for auction-sale of the secured asset under Section 13(4) of the SARFAESI Act.

9. Section 13(4) of the SARFAESI Act enables the secured creditor to take recourse to one or more of the measures to recover the secured debt as shown under Clauses (a), (b), (c) and (d) of Section 13(4). The cause of action takes place as and when one or other such measure to recover the secured debt is taken by the secured creditor.”

2. Madras High Court – in Ponnusamy and another Vs. Debt Recovery Tribunal 2009 (1) LW 954, 2009 (2) CTC 302, 2009 (3) MLJ 1271:

“38. In Karnataka State Financial Corporation Vs. N. Narasimahaiah {2008 (5) SCC 176}, the Supreme Court held as follows:-

"40. Right to property, although no longer a fundamental right, is still a constitutional right. It is also human right. In the absence of any provision either expressly or by necessary implication, depriving a person therefrom, the Court shall not construe a provision leaning in favour of such deprivation."

"In a case where a Court has to weigh between a right of recovery and protection of a right, it would also lean in favour of the person who is going to be deprived therefrom. It would not be the other way round."

39. Viewed in the context of the ratio laid down by the Supreme Court extracted above, it could be seen that the right conferred upon the secured creditor under Section 13 (4) of the SARFAESI Act, is a right of recovery. The right conferred upon the debtor or the surety under Section 17 is a right to save one's own property. To hold that the fate of a debtor or surety will be sealed in a period of 45 days from the date of initiation of the measures under Section 13 (4) and that he would be left remediless after the said period on account of non-availability of Section 5 of the Limitation Act, would defeat the right to property. Therefore the Court has to choose an interpretation which would lean in favour of the right to property. If so done, the conclusion is irresistible that Section 5 of the Limitation Act, would apply to applications filed under Section 17 of the SARFAESI Act.

40. In so far as the present case is concerned, the possession notice under Section 13 (4) is dated 16.10.2007 and the notice of sale is dated 26.12.2007. The application was filed on 14.1.2008 and hence it was within the period of limitation, from the date of the notice of sale. Therefore there was not even a necessity for the petitioners to have filed an application to condone the delay, in so far as their prayer for setting aside the notice of sale was concerned.”

3. Bombay High Court – in Anand Jayant More Vs. Bank of India (2009 (6) ALL MR 187, 2010 (1) AIR(Bom) R 375, 2010 (2) BCR 484:

“11. Considering the rival submission, the first question is: whether the Debts Recovery Tribunal has jurisdiction to deal with post Section 13(4) situation. Both the Tribunal as well as Appellate Tribunal have proceeded on the basis that it is not open to the borrower to question the sale of the property which is post Section 13(4) situation. This issue has now been authoritatively answered by the Apex Court in the recent decision in the case of Authorized Officer, Indian Overseas Bank & Anr. vs. M/s.Ashok Saw Mill reported in 2009(9) SCALE 649. The main question examined by the Apex Courtin this decision was whether the Debts Recovery Tribunal would have jurisdiction to consider and adjudicate with regard to post Section 13(4) events or whether its scope in terms of Section 17 of the Act would be confined to the stage contemplated under Section 13(4)? The Apex Court has answered the said issue in the affirmative. It has held that the consequences of the authority vested in Debts Recovery Tribunal under sub-section (3) of Section 17 necessarily implies that the Debts Recovery Tribunal is entitled to question the action taken by the secured creditors and the transactions entered into by virtue of Section 13(4) of the Act. It has expounded that the Legislature by including sub-section (3) in Section 17 has gone to the extent of vesting the Debts Recovery Tribunal with authority to even set-aside a transaction including sale and to restore possession to the borrower in appropriate cases. It has also noted that the dichotomy in the views expressed by the Bombay High Court and the Madras High Court has in fact been resolved to some extent in the case of Mardia Chemicals (supra) and also by virtue of the amendments effected to Sections 13 and 17 of the principal Act. It has thus held that the Debts Recovery Tribunal has jurisdiction to interfere with the action taken by the secured creditor even after the stage contemplated under Section 13(4) of the Act, as the action of the secured creditor is not only open to scrutiny and can be set-aside but it is also open to the Tribunal to restore status-quo ante in a given situation.”

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