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How to Challenge a SARFAESI Enforcement Measure Before the Debts Recovery Tribunal

Writer: Kaustav Chowdhury
Kaustav Chowdhury
2 hours ago
6 min read

A borrower who wants to challenge a SARFAESI enforcement measure has one application, one forum and one short period in which to file. This guide sets out how to bring that application, in the order the steps arise, beginning with the distinction that decides whether the application is competent at all.

Step 1: Identify Which Application You Are Making

Two different applications go to the Debts Recovery Tribunal and they are not interchangeable. A secured creditor recovering a debt files an original application under the recovery legislation. A borrower resisting enforcement of a security interest files an application under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This guide is about the second.

The difference matters because the thresholds, the limitation and the relief are all different. A borrower who files the wrong one loses time it cannot recover, since the Section 17 period is short and does not stop running while the mistake is corrected.

Step 2: Fix the Date the Measure Was Taken

Section 17(1) allows any person aggrieved, including the borrower, to apply to the Tribunal within forty five days of the date on which the measure was taken, together with the prescribed fee. Everything in the file should be dated against that one event.

Work out which measure under Section 13(4) is being challenged and when it occurred: possession of the secured asset, takeover of the management of the business, appointment of a manager, or a direction to a person who holds money of the borrower to pay it over. Where more than one measure has been taken, each has its own date, and an application aimed at the earliest of them may be out of time while one aimed at a later step is not.

Step 3: Audit the Notice and the Reply Before Drafting the Grounds

The defects that succeed are usually earlier than the measure. Section 13(2) requires the secured creditor to give the borrower a written notice to discharge the liabilities in full within sixty days before exercising the enforcement powers. Section 13(3A) requires the creditor, where the borrower makes a representation or raises an objection, to consider it and to communicate the reasons for non-acceptance within fifteen days of receipt.

So the first documents to pull are the Section 13(2) notice, proof of its service, the borrower's representation, and the creditor's reply. A representation that drew no reply, or a reply that recorded a conclusion without reasons, is concrete material. A complaint that the valuation was low, without more, usually is not.

Step 4: Ask for the Relief the Section Actually Gives

Section 17(2) requires the Tribunal to consider whether the measures taken under Section 13(4) for enforcement of the security are in accordance with the Act. Section 17(3) provides that where the Tribunal finds that they are not, it may declare them invalid and restore possession or management of the secured asset to the borrower or the aggrieved person.

Draft the prayer in those words. Restoration is the statutory remedy and it is stronger than an order freezing the position, because it reverses a step already taken. A prayer framed as an injunction restraining the creditor is the one thing the scheme withholds, as the next step explains.

Step 5: Do Not Plead Towards a Civil Court

Section 34 provides that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine, and that no injunction shall be granted by any court in respect of any action taken or to be taken in pursuance of a power conferred by the Act. Section 35 gives the Act overriding effect over anything inconsistent in other law.

Two practical consequences follow. A suit filed in parallel is liable to be rejected and does not preserve anything. And a claim for damages is premature until the Tribunal has held the measure to be outside the Act, because the finding is what such a claim would rest on. Sequence the damages claim after the Section 17 application, not alongside it.

Step 6: Keep the Commercial Exit Open

Section 13(8) provides that where the borrower tenders the amount of dues together with all costs, charges and expenses incurred by the secured creditor before the date of publication of the notice for public auction or for inviting quotations or tenders, the secured asset shall not be transferred and no further step shall be taken for its transfer or sale.

That is a date, not a discretion. It is worth calendaring the moment the auction notice is expected, because the tender right is at its most valuable just before publication and disappears on the far side of it. Where a client can fund a tender, the arithmetic of doing so should be compared against the cost and the odds of the application.

Step 7: Cost the Appeal Before You Rely on It

Section 18(1) allows an appeal to the Appellate Tribunal against an order of the Tribunal within thirty days of receipt of the order, but no appeal by a borrower is entertained unless it deposits fifty per cent of the amount of debt due, which the Appellate Tribunal may reduce to not less than twenty five per cent for reasons recorded.

Advise on that deposit at the outset rather than after an adverse order. A borrower who learns about it only when the appeal is being drafted may have no realistic appeal, which changes how much should be invested in getting the Section 17 application right the first time.

Common Pitfalls to Avoid

  • Filing a civil suit first: Section 34 bars it and the forty five day period under Section 17(1) continues to run while the suit is pending.

  • Dating the application from the wrong event: The period runs from the date the measure was taken, not from the Section 13(2) notice and not from the auction notice.

  • Asking for an injunction: Section 34 withholds it expressly. Ask for a declaration of invalidity and restoration under Section 17(3).

  • Leading with valuation: It is a difficult ground and it distracts from procedural defects in the Section 13(2) notice and the Section 13(3A) reply, which are what the Tribunal can measure against the Act.

  • Claiming damages in the same breath: A money claim needs a prior finding that the measure was wrongful. Pleading loss first invites the answer that the claim is premature.

  • Ignoring the deposit under Section 18: Fifty per cent of the debt due, reducible to not less than twenty five per cent, decides whether an appeal is realistic. It belongs in the first advice, not the last.

Key Statutory Provisions

  • Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Sixty days notice under sub-section (2), a reasoned reply to the borrower's objection within fifteen days under sub-section (3A), the enforcement measures in sub-section (4), and the tender route before publication of the auction notice in sub-section (8).

  • Section 17 of the Act: Application by any person aggrieved to the Debts Recovery Tribunal within forty five days of the measure, the enquiry into whether the measures accord with the Act, and the power to declare them invalid and restore possession or management.

  • Section 18 of the Act: Appeal to the Appellate Tribunal within thirty days on deposit of fifty per cent of the debt due, reducible to not less than twenty five per cent.

  • Section 34 of the Act: No civil court jurisdiction over a matter the Tribunal or the Appellate Tribunal is empowered to determine, and no injunction in respect of action taken or to be taken under the Act.

  • Section 35 of the Act: Overriding effect over anything inconsistent in any other law in force.

Sources and References


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.

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