Supreme Court Holds a SARFAESI Measure Taken in Good Faith Cannot Be Unwound by a Civil Suit
Background and Facts
A borrower who believes a secured creditor has gone too far has a forum, and it is not the civil court. The Supreme Court has held that a SARFAESI measure taken in good faith cannot be assailed, that a civil court has no jurisdiction over a matter the Debts Recovery Tribunal is empowered to determine, and that a claim for damages cannot be built until the Tribunal has first found the measure to be outside the Act. The appeal was brought by an asset reconstruction company against a borrower company and was reported on October 2, 2026.
The outcome was a redirection rather than a dismissal. The borrower was left to pursue its grievances before the Debts Recovery Tribunal, with all contentions open for that forum. Nothing was decided about whether the enforcement steps were in fact lawful.
That distinction is the whole value of the decision. It does not tell a borrower that the complaint is bad. It tells the borrower that the complaint has to be made in the right place, and that the order of the two steps cannot be reversed.
Key Legal Issue
Whether a borrower aggrieved by enforcement steps under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 may sue in a civil court for damages and other relief, or must first obtain a finding from the Tribunal that the steps were not in accordance with the Act.
What the Court Held
Three propositions were laid down. An action taken in good faith under the Act cannot be assailed. A civil court lacks jurisdiction where the Tribunal or the Appellate Tribunal has it. And a claim in damages is premature until the Tribunal has held the measure to be wrongful, because the finding is what the damages claim would have to rest on.
The Court also held that a criminal proceeding does not lie in respect of an action taken in good faith under the Act. That closes the route a borrower sometimes takes when the civil route is blocked, which is to recast the same grievance as a complaint of wrongdoing against the officers who carried out the enforcement.
Why Section 34 Does the Work
Section 34 provides that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Debts Recovery 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. Both halves matter. The first removes the suit. The second removes the interim order a borrower would want on the first day.
Section 35 completes the scheme by giving the Act overriding effect over anything inconsistent in other law. Read together, the two sections do not merely prefer the Tribunal: they make it the only forum in which the lawfulness of a measure can be determined at all.
What the Tribunal Can Actually Do
The reason the scheme is not a deprivation is Section 17. Under Section 17(1) any person aggrieved, including the borrower, may apply to the Debts Recovery Tribunal within forty five days of the date on which the measure was taken, with the prescribed fee. Under Section 17(2) the Tribunal considers whether the measures taken under Section 13(4) for enforcement of the security are in accordance with the Act. Under Section 17(3), if it finds that they are not, it may declare them invalid and restore possession or management to the borrower.
Restoration is a stronger remedy than an injunction, because it reverses what has already happened rather than freezing it. A borrower who misses the forty five day window loses that, and a civil suit will not substitute for it.
Where the Earlier Steps Fit
The measure a borrower challenges does not arrive without notice. Section 13(2) requires the secured creditor to give the borrower sixty days written notice to discharge the liabilities in full 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 receiving it.
Those two steps are where most defensible challenges are built, and they are built before the enforcement rather than after it. A representation under Section 13(3A) that was never answered, or answered without reasons, is the kind of defect the Tribunal is equipped to examine under Section 17(2). Section 13(8) adds the commercial exit: where the borrower tenders the dues together with all costs and expenses before the notice of public auction or inviting quotations or tenders is published, the secured asset is not to be transferred.
Practice Notes
In practice, the decision changes the order in which a borrower's advisers should work:
Treat the forty five days as the only clock that matters: Section 17(1) runs from the date the measure was taken. A plaint filed in a civil court in the meantime does not stop it and does not preserve the application.
Build the damages claim second, not first: A money claim needs a finding that the measure was outside the Act. Pleading loss before obtaining that finding invites the objection that the claim is premature.
Do not plead for an injunction against enforcement: Section 34 bars it expressly. The remedy the scheme offers instead is restoration under Section 17(3), which the application should ask for in terms.
Mine the Section 13(2) notice and the Section 13(3A) reply: The defects that survive scrutiny are usually procedural and early. An objection that drew no reasoned response is better material than a complaint about valuation.
Expect the good faith question to be taken first: Where the creditor has followed the statutory steps, the protection for action taken in good faith will be the answer to a suit and to a criminal complaint alike.
Price the appeal before relying on it: Under Section 18(1) an appeal to the Appellate Tribunal must be filed within thirty days and the borrower must deposit fifty per cent of the debt due, which the Appellate Tribunal may reduce to not less than twenty five per cent.
Key Provisions Discussed
Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Enforcement of security interest, with 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 in sub-section (8).
Section 17 of the Act: Application to the Debts Recovery Tribunal by any person aggrieved within forty five days of the measure, the Tribunal's enquiry into whether the measures accord with the Act, and its 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.
Case Details
Court: Supreme Court of India
Parties: An asset reconstruction company and a borrower company. No party name is carried in this note
Reported: October 2, 2026
Subject: Whether enforcement action under the Act may be challenged by a civil suit, and whether damages may be claimed before the Tribunal has ruled
Outcome: Action taken in good faith under the Act cannot be assailed; a civil court has no jurisdiction where the Tribunal does; a damages claim requires a prior finding that the measure was wrongful; and a criminal proceeding does not lie for a good faith action
Direction: The borrower to pursue its remedies before the Debts Recovery Tribunal, with all contentions left open
Sources and References
Section 13 of the SARFAESI Act, 2002: enforcement of security interest
Sections 17, 18, 34 and 35 of the SARFAESI Act, 2002, as amended to 2021
Exclusion of civil court jurisdiction under Section 34 of the SARFAESI Act, 2002
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Sections 13, 17, 18, 34 and 35
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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