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 has almost settled and become like a regular practice for the borrowers to question the proceedings initiated by the Banks at the last stage under the provisions of “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)”. In fact, the law mandates that the aggrieved can approach the Debt Recovery Tribunal under section 17 of the SARFAESI Act, 2002 within 45 days from the date of issuance of notice under section 13 (4) of the Act. However, as the process of recovery of money do not end at the issuance of section 13 (4) of the Act and as it is likely that the Bank can commit mistakes in the process and process even after the issuance of notice under section 13 (4), it is settled that the borrower is entitled to question all steps initiated by the Bank under the provisions of SARFAESI Act, 2002. The borrowers have started questioning the Sale Process conducted by the Bank and also started questioning the order of the Magistrate under section 14 of the Act before the High Court regularly and as a result, the Courts have consistently held that the borrower is entitled to question all the steps initiated by the Bank under the provisions of SARFAESI Act, 2002. There is another point in this. If the borrower is silent even after the receipt of notice under section 13 (4) and do not prefer any appeal, there can be an argument from the Bank that there is nothing wrong in the proceedings initiated by the Bank till the notice under section 13 (4). If such an argument is accepted and if the borrower is silent even after the receipt of notice under section 13 (4) of the Act, then, the scope of Appeal preferred by the borrower at a subsequent stage gets narrowed-down. If the Borrower challenges the Sale Process only, the borrower may have to confine himself to the illegalities committed by the Bank in the Sale Process. However, if the borrower could offer some kind of explanation as to why he could not challenge the proceedings initiated by the Bank under section 13 (4) of the Act, then, he must be allowed to raise all the points in his Appeal under section 17 of SARFAESI Act, 2002.
When
an Appeal is prepared or preferred under section 17 of the SARFAESI Act, 2002,
there will be usual grounds with the intention of getting some time to repay
the loan. The usual grounds are vague and are like:
- The borrower is not a willful defaulter.
- The classification of Account as ‘Non-performing Asset (NPA)’ is incorrect.
- The interested charged is exorbitant.
- No notice or caution is issued by the Bank before classifying the Account as ‘NPA’.
- The outstanding claimed by the Bank is incorrect.
- The value of the ‘secured asset’ mortgaged with the Bank is much more than the outstanding loan.
- The Bank has not issued any notice or demand notice under section 13 (2) or 13 (4) of the Act etc.
These
are the usual grounds in any SARFAESI Appeal preferred by the borrower under
section 17 of the Act. As the law is settled that the procedure prescribed
under the provisions of SARFAESI Act, 2002 is mandatory, the Debt Recovery
Tribunal has to give a serious thought to the averment made in the Appeal that
no demand notice is received by the borrower under section 13 (2) or 13 (4). If
that is established, then, the Appeal deserves to be allowed straight-away and
without any further enquiry. But, for knowing this, the DRT may give notice to
the Bank to file their counter and to ascertain the truth. This process will
take time as there will be a procedure for the paper work done legally in any
Public Sector Bank. At times, it may take few months also. In view of the averments in the Appeal that
no notice is issued under section 13 (2) or 13 (4), the DRT may consider
granting relief to the Appellant or the borrower. While doing so, the Debt
Recovery Tribunal will consider the outstanding payable, the security and the
averments with regard to the value of security mortgaged with the Bank. In view of these practical and procedural
difficulties, the DRT may be forced to grant an interim-stay of further
proceedings initiated by the Bank and the DRT may insist that the borrower
remits some deposit and usually it can be from 10% to 30% depending upon the
discretion of the DRT. It all depends upon the averments made in the Appeal. It
would be extremely difficult for the DRT to ascertain the facts by looking at
the averments in the Appeal and if the DRT refrains from granting any
interim-order, then, there is a possibility that the Bank proceeds with the
process and even can complete the Sale Process at times creating some third
party interest which will further complicate issues.
But,
when a borrower is serious in raising objections in his appeal under section
17, those objections to be in detail and specific. If the grounds in an Appeal
under section 17 of SARFAESI Act, 2002 are mechanical and vague, then, it is
very much possible for the DRT to come to an easy conclusion that the Appeal is
preferred only to drag the proceedings and nothing more. In those
circumstances, as soon as the Bank files its counter affidavit answering all
the allegations in the Appeal preferred under section 17, the DRT may dismiss
the Appeal. If the Appeal grounds are so vague and mechanical, it would be very
difficult for the borrower to bring any new or additional facts in any further
appeal proceedings before the DRAT or to the High Court subsequently. However,
if the borrower chooses to file an appeal challenging the possession notice
issued by the bank under section 13 (4) and while the Appeal is pending if the
Bank goes ahead with further process with infirmities and illegalities, then,
the Borrower is entitled to bring those further infirmities and illegalities in
the form of an additional affidavit in the Appeal. As such, when the borrower
is serious in his attempt to fight with the Bank challenging the SARFAESI
proceedings under section 17 of the Act, pleadings to be detailed and perfect
rather mechanical and vague. Even the DRT may not give much weight to the
Appeal and the equities beyond a certain point if the grounds raised in the
Appeal under section 17 are so vague and mechanical.
There
may be instances where the borrower is not interested to fight with the Bank
and instead may want to update the loan account and he must even have taken
steps to do that. Under such circumstances, if the Bank is unreasonable and
proceeds with their proceedings, then, the borrower can very well stick to his
stand very firmly that he is not willful defaulter, has a fairly good track
record in repayment issues, has the valuable security lying with the Bank and
can continue to insist that the Bank is illegal in not agreeing to update the
Account. It is a very interesting point if this stand is taken before the DRT.
The DRT is empowered with certain powers under section 17 while entertaining an
appeal from the borrower or any aggrieved person. Initially, the function of
the DRT is to look into the procedural lapses committed by the Bank and nothing
more. Later-on, the Courts have expanded the scope of powers of DRT and held
that the DRT can look into the disputes pertaining to the outstanding claimed
and all other issues and the DRT is even empowered to restore the possession
back to the borrower if the physical possession of the property is taken by the
Bank already. However, the DRT continues to exercise very limited powers and
due this also; many Writ Petitions are filed to the High Court and even on
SARFAESI issues, the High Courts issue directions to the Bank very frequently.
While the DRT exercises some limited powers, there can not be any limitation on
the powers or the power to issue directions by the High Court from time to time
under Article 226 of Constitution of India.
Irrespective
of the powers of the DRT under section 17 of SARFAESI Act, 2002, the borrowers
should take-up all possible legal points in detail to the extent possible. Only
due to the confusion with regard to the powers of DRT under section 17, the borrowers
continue to approach Civil Courts at times and continue to approach the High
Court very regularly. There can be a case where the borrower admits the minor
default in repayment, he must have been other-wise good in repayment issues and
must have expressed his willingness to update his account without raising any
kind of litigation. If such is the attitude of the borrower, then, the borrower
may prefer to approach the High Court seeking a suitable direction to allow him
to get his account updated as even the RBI guidelines permit that and cautions against
unnecessary harassment to the borrowers using technicalities. If this kind of
cases are taken to DRT, then, apart from the expenses involved, the procedure
before the DRT is different and the procedure delays the efforts of the
borrower to get his account updated and the DRT may finally choose to look into
the issue as to whether there is any procedural irregularity on the part of the
Bank under the Act. An account which should have been updated very easily, may
end-up as ‘Non-performing Asset’ forcibly and can lead to long litigation with
the DRT, DRAT, High Court and Supreme Court and more interim applications
in-between. It will not benefit either the borrower or the Bank and the Bank
must be with the intention that they can recover the legal expenses incurred
from the borrower finally.
As
such, the borrowers should be very clear in their approach and should be
careful in raising objections in their Appeal under section 17 of the SARFAESI
Act, 2002.
