Ozg Sarfaesi / DRT Lawyer
Ozg Business Resource Center
Ahmedabad | Pune | Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone # 09811415831-37-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
It would be clueless for the professionals at times in answering the queries of the borrowers facing proceedings under ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’. If the Bank initiates proceedings under the provisions of SARFAESI Act, 2002, then, in view of section 34, no Civil Court
shall have jurisdiction to entertain any suit or legal proceeding in
respect of the same subject matter. Though there can not be any such
restriction in any act when it comes to High Court exercising
jurisdiction under Article 226 of Constitution of India, the High Courts
too may hesitate to look into the infirmities committed by the Bank
under SARFAESI Act, 2002 and the Court may lay emphasis on the
availability of ‘alternative remedy’ to the borrowers under section 17
of the SARFAESI Act, 2002. Section 34 of the Act is as follows:
“34.
Civil Court not to have jurisdiction.- No civil court shall have
jurisdiction to entertain any suit or proceeding in respect of any
matter which a Debts Recovery Tribunal or the Appellate Tribunal is
empowered by or under this Act to determine and no injunction shall be
granted by any court other authority in respect of any action taken or
to be taken in pursuance of any power conferred by or under this Act or
under the Recovery of Debts Due to Banks and Financial Institutions Act,
1993 (51 of 1993).”
Relief before DRT under section 17:
Initially,
it is held by the Courts and followed by the Debt Recovery Tribunals
that the Tribunal, under section 17, can only see as to whether there is
any procedural irregularity in the action initiated by the Bank.
However, now, it is settled, atleast as a legal principle, that the Debt
Recovery Tribunal can look into all allegations or issues while
entertaining an Appeal under section 17 and it extends to the issue of
looking at the correctness of the amount/outstanding amount demanded by
the Bank in its notice under section 13 (2). Courts have further held
that the DRT has the power to restore the possession of the ‘secured
asset’ back to the borrowers in appropriate cases. It all may appear
good as a principle of law, but, the reality is different. If the
borrower files any appeal under section 17, then, the DRT will look at
the outstanding amount in the notice under section 13 (2) and insists
for the deposit of 20 or 30% of the outstanding before granting any
interim relief and this interim relief can only be for some time or till
the disposal of the Appeal in some cases. It is alleged that the DRT
emphasis on the amount demanded by the Bank rather the grievance of the
borrower or borrowers.
What if borrower succeeds?
Again,
even if borrower succeeds in his Appeal under section 17 of the
SARFAESI Act, 2002, the borrower may not be happy. It is interesting.
Because, the borrower might have clearly alleged or established that the
Bank was at fault in adhering to the terms and conditions of the
sanction and might have wanted the DRT to force the Bank to act upon the
agreed terms. But, it will not happen and the DRT may simply set-aside
the possession notice issued by the Bank under section 13 (4) of the Act
and the Bank impliedly have an opportunity to start the proceedings
afresh. There may not be any difficulty for a Public Sector Bank or the
officers of the Bank to initiate proceedings against the borrower again
and again. Like-wise, on some technical grounds, the borrower may
succeed in his Appeal under section 17 of the SARFAESI Act, 2002, but,
it would be interesting to understand as to what that means. That may be
nothing at times unless the borrower is interested only in getting some
time to repay the outstanding amount. It is felt that the Debt Recovery
Tribunal can grant no relief to the borrowers under section 17 except
asking the Bank to start the proceedings afresh.
High Court/Civil Court’s jurisdiction:
In
view of the Bar under section 34 of SARFAESI Act, 2002 and in view of
the composition of Tribunal, the Tribunal should have all powers to
adjudicate the claim and to issue suitable directions to the Bank or
suitable relief to the borrowers. The High Court can be issuing various
directions to the Bank in a SARFAESI proceeding if it chooses to
entertain any Writ Petition under Article 226 of Constitution of India.
Why can’t it be done by the Tribunal also? In view of the settled
practice, as many say, before the Debt Recovery Tribunals and in view of
the fact that the borrower needs a forum to agitate his grievance, it
is impossible according to me to say that ‘no civil court shall have
jurisdiction’ or impossible to confine the jurisdiction of Civil Court
in cases only when there exists ‘fraud’ etc. Civil Court
shall have jurisdiction in deciding disputes between the Bank and the
borrower unless there exists an ‘Arbitration Clause’. Just because, the
Bank initiates the proceedings under the provisions of SARFAESI Act,
2002, it can not be a Bar on the Civil Court or the High Court under
Article 226 and it all depends upon the facts and circumstances of the
case.
Why there can’t be suitable compensation:
There
exists a provision in the SARFAESI Act, 2002 that the borrower should
be compensated if it is proved that the Bank is at fault in a proceeding
under the provisions of SARFAESI Act, 2002. While section 19 of the Act
deals with the issue of payment of costs and compensation to the
borrowers; section 32 of the Act protects the action taken in good
faith. Section 19 and section 32 of the Act are as follows:
19.
Right of borrower to receive compensation and costs in certain cases. –
If the Debt Recovery Tribunal or the Court of District Judge, on an
application made under section 17 of section 17A or the Appellate
Tribunal or the High Court on an appeal preferred under section 18 or
section 18A, holds that the possession of secured assets by the secured
creditor is not in accordance with the provisions of this Act and rules
made thereunder and directs the secured creditors to return such secured
assets to the concerned borrowers, such borrower shall be entitled to
the payment of such compensation and costs as may be determined by such
Tribunal or Court of District Judge or Appellate Tribunal or the High
Court referred to in section 18B.
32.
Protection of Action taken in Good Faith- No suit, prosecution or other
legal proceeding shall lie against any secured creditor or any of his
officers or manager exercising any of the rights of the secured
creditors or borrower for anything done or omitted to be done in good
faith under this Act.
When
there exists a fault on the part of the Bank, the borrower should
suitably be compensated under section 19, but, in reality, it is not
happening and it should happen.
Courts to the rescue of borrowers:
While
resisting to entertain the Writ Petitions under Article 226 and 227 in
respect of SARFAESI matters as many believe, the Courts have always
tried to make the proceedings before the Debt Recovery Tribunal
meaningful. The Courts made it clear that the Bank should apply its mind
in disposing of the objections raised by the borrower under section 13
(3). The Courts have held that the DRT has all powers under section 17
and the DRT can entertain appeals challenging any proceeding of the Bank
pursuant to the issuance of notice under section 13 (4) of the Act.
Thus, Courts have done its best to make the Debt Recovery Tribunals
really effective.
Unless
there is a course correction as to how the Tribunals deal with the
Appeals of the borrowers under section 17, it is very difficult to stick
to the principle that the Civil Courts and the High Courts should avoid
interfering in SARFAESI proceedings initiated by the Bank. 
