Remedies available to the borrower or aggrieved person against the proceedings


India is the world’s third largest economy. In order to keep pace with the fast evolving economies of the developed countries and to secure its position amongst the fastest developing countries, it is of utmost interest that the financial stability and growth of the country remains fluid and unharmed. Banks and financial institutions are responsible for the flow of liquid money throughout the economy and they play the key role in maintaining and regulating the country’s economic growth. The banking sector of our country is increasingly trying to match the international standards and norms of banking, however, it is faced with innumerous hurdles that hamper the proper working of these institutions. The government of India has stepped in to ensure that there are certain legal frameworks that the banking sector has to abide by, only to accommodate a larger scope for development. These legal frameworks were first introduced by the government through the Recovery of Debts due to Banks and Financial institutions Act, 1993, subsequent to which the Debt Recovery Tribunals and Debt Recovery Appellate Tribunals were established for expeditious adjudication of disputes with regard to ever increasing non-recovered dues, which is one of the most common impediment to the proper functioning of the banking sector. Non-recovered loans, bad loans, or Non-performing Assets cause interruption in the financial growth of the country, and the government cannot afford it. The Recovery of Debts due to Banks and Financial institutions Act, 1993, however had a number of loopholes, which were yielded by the borrowers and lawyers to their own advantages. The government introspected on these issues and on the recommendation of the committee under Mr. Andhyarujina, brought about a legal reform in the banking sector laws in the form of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002.

It is a legislation that helps financial institutions to ensure asset quality in multiple ways. This means that the Act was framed to address the problem of NPAs (Non-Performing Assets) or bad assets through different processes and mechanisms.

The SARFAESI Act gives detailed provisions for the formation and activities of Asset Securitization Companies (SCs) and Reconstruction Companies (RCs). Scope of their activities, capital requirements, funding etc. are given by the Act. RBI is the regulator for these institutions.

This article is going to deal with the enforcement of security interests in detail and chalk out the various procedures undertaken by the financial institutions to recover their debts and the remedies and reliefs available to the borrowers in case such procedures are initiated against them.


The Act vests with the bank the power to issue notice to the defaulting borrower and guarantor, asking them to repay the debt within 60 days from the date of the notice. However, if the borrower fails to comply with the notice, the bank or the financial institution may enforce security provided by the borrower, that is, the bank’s security interest, by any of the following provisions, as laid down in the Act:

a) Take possession of the security;
b) Sale or lease or assign the right over the security;
c) Appoint Manager to manage the security;
d) Ask any debtors of the borrower to pay any sum due to the borrower.
If there are more than one secured creditors, the decision about the enforcement of SARFEASI provisions will be applicable only if 75% of them are agreeing.

Chapter III of the SARFAESI Act deals with the enforcement of security interest.

Section 13 of the Act provides that notwithstanding anything contained in Sections 69 or 69A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the court’s intervention, by such creditor in accordance with the provisions of the Act. Section 13(2) of the Act provides that when a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt, and his account in respect of such debt is classified as non- performing asset, then the secured creditor may require the borrower, by notice in writing, to discharge his liabilities within sixty days from the date of the notice, failing which the secured creditor shall be entitled to exercise all or any of the rights given in Section 13(4) of the Act. Section 13(3) of the Act provides that the notice under Section 13(2) of the Act shall give details of the amount payable by the borrower as also the details of the secured assets intended to be enforced by the bank. Section 13(3-A) of the Act was inserted after the decision of the Supreme Court in Mardia Chemicals[1] case, and provides for a last opportunity for the borrower to make a representation to the secured creditor against the classification of his account as a non-performing asset. The secured creditor is required to consider the representation of the borrowers, and if the secured creditor comes to the conclusion that the representation is not tenable or acceptable, then he must communicate, within one week of the receipt of the communication by the borrower, the reasons for rejecting the same. Section 13(4) of the Act provides that if the borrower fails to discharge his liability within the period specified in Section 13(2), then the secured creditor, may take recourse to any of the following actions, to recover his debt, namely-

“(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;

(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:

Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;

(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.”


Section 17 of the Act which provides for an appeal to the DRT, reads as follows:

“17. Right to appeal.–(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken:

Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.

Explanation.–For the removal of doubts it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under sub-section (1) of Section 17.

(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.”

Sometimes, in furtherance of section 13 of the Act, the Bank may fix the reserve price and sell the property for a very low price affecting the borrower and also the Bank at times. Addressing these concerns, the judiciary has maintained that all actions initiated by the Bank under the provisions of SARFAESI Act, 2002 can be challenged by the borrower in an Appeal under section 17 of SARFAESI Act, 2002.

The borrower or any person aggrieved can approach the Civil Court in a very limited situation where actually there is fraud or serious dispute with regard to the title of the ‘secured asset’/property mortgaged. Though there can be no bar on the jurisdiction of High Courts under Article 226 in dealing with the grievances of the borrower against the Bank when the Bank initiates action, the High Courts come secondary to the DRT in such matters.

The Banks have enormous support from the legal-framework in recovering their dues from the borrowers. Perhaps, in the absence of the SARFAESI Act, 2002, the Banks would’ve had a very difficult time recovering their assets. However, from the borrowers’ point of view, it is alleged that they do not have an effective remedy against the illegal action being initiated by the Bank using the provisions of SARFAESI Act, 2002. The Courts have held that the DRT can look into all allegations while entertaining an appeal under section 17 of the Act and it includes the issue of disputes pertaining to the actual ‘debt’. Then, it is also settled that the DRT can order re-possession of the ‘secured asset’ when it is found that the Bank has illegally taken the possession of the ‘secured asset’.

The DRT can either allow the Appeal filed by the borrower under section 17 or dismiss it. If the DRT allows the Appeal filed by the borrower under section 17, then, it can order re-possession of the ‘secured asset’ if the physical possession of the ‘secured asset’ is already taken, or it have direct the Bank to provide the borrower with cost due to its illegal activities.

When the borrower prefers an Appeal under section 17 against the Bank, the DRT can grant ex-parte stay of proceedings against the Bank if there is sufficient ground to that affect from the averments in the ‘Grounds of Appeal’ and also the documents produced. If there is a caveat, then, the procedure differs. Normally, the DRT orders notice to the Bank irrespective of the fact as to whether it grants stay or not in-favour of the borrower.  The DRT can also ask the borrower to make some deposit while granting stay and it is also reasonable as the borrower has to make the payments towards installments to the Bank in any case and there can be some time lapse between the demand notice issued by the Bank under section 13 (2) and the appeal.

If there is no interim order against the Bank while the Appeal is pending and the Bank is allowed to proceed with the sale proceedings, the issue gets complicated. The borrower should be allowed to raise any point and additional grounds by way of additional affidavit in the pending Appeal and there is nothing wrong in it and technicalities are to be ignored.

In Authorised Officer, Indian Overseas Bank & Anr. Vs. Ashok Saw Mill[2], the main question which fell for determination was whether the DRT would have jurisdiction to consider and adjudicate post Section 13(4) events or whether its scope in terms of Section 17 of the Act will be confined to the stage contemplated under Section 13(4) of the Act?

On an examination of the provisions contained in Chapter III of the Act, in particular Sections 13 and 17, this Court, held as under :

“In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the banks or financial institutions, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor, to make an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in sub- section (3) thereof.

The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.”

In the case of Mardia Chemicals Ltd. v. Union of India and Ors.[3], it was held that the requirement of deposit of 75% of the amount claimed before entertaining an appeal under section 17 of the SARFAESI Act is illusory and an unreasonable condition. The condition is invalid and struck down as it is ultra vires of Article 14 of the Constitution of India.

In the case of Dr. Dipankar Chakraborty v. Allahabad Bank & Ors.[4], Justice Debangsu Basak observed that, “the Act of 2002 gives an independent right to a secured creditor to proceed against its financial assets and in respect of which such asset the secured creditor has security interest. The right to proceed, however, is subject to the adherence to the provisions of limitation as enshrined in the Limitation Act, 1963. The provisions of the Limitation Act, 1963 are, therefore, attracted to a proceeding initiated under the Act of 2002.”

In the case of United Bank Of India vs Satyawati Tondon & Ors, it was held that, “both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.”

In the case of Sadhna Shivhare and others v. Chief Manager, Punjab and Sind Bank and another[5], the Bank had committed the erroneous mistake of not providing the appellants with the notice under section 13(4) before initiating action under section 13(2), and therefore, owing to the failure on the part of the Bank to comply with all the procedural requirements of the SARFAESI Act before enforcing their security interest, the appeal was allowed by the DRT and the notice issued by the Bank under Section 13(2) was quashed.

In the case of Cyril Kotian & Anr. v. The Bharat Cooperative Bank (Mumbai) Ltd.[6], the notice issued by the Bank under Section 13(2) of the Act was illegal for the reason that it was signed by a Deputy General Manager without explaining as to how he was authorised to sign the same. There was no cause of action for issuing such notice. The amount claimed was highly exaggerated and excessive. The appeal under section 17 was allowed and the learned Judge held that the act of taking possession on the basis of an illegal notice, cannot be sustained and since the appellant was deprived of the possession, unlawfully some amount towards the damages must be awarded.

In the case of Pankaj Shah v. Cosmos Co-Operative Bank Ltd.[7], the appellant was not the borrower, however, he had ownership over certain raw materials that the respondent no. 1 took possession of along with the immovable property of respondent no. 2, who was the defaulting borrower. The securitization application was allowed and the respondent was directed to hand over the possession of raw materials within 15 days from the date of passing the order.


The system is aimed at speedy recovery and is balanced heavily towards the Bank, thus genuine borrowers who don’t have mala fide intention of defaulting are also affected in a grave manner . There is a prevalent feeling of helplessness amongst the borrowers due to the lack of remedies and even if someone gets a relief, they feel that the relief provided is ineffective.

It is definitely important to improve the financial health of the Banks/Financial Institutions, there is no justification for a completely biased legal system where the borrower is harassed like anything. Bank officials exercise great discretion and the Bank officials must be extremely happy with the legal provisions now governing the recovery of ‘secured loans’ under SARFAESI Act, 2002. It has become totally one-sided affair and ordinary citizens & small businesses may feel it better to approach the private money leaders for their financial needs rather approaching Banks and Financial Institutions in this country.

However, with the recent judicial pro-activism of the Courts and Tribunals, borrowers and aggrieved persons have been increasingly getting reliefs against illegal and wrong acts of the Banks. A more liberal outlook has been adopted by the Judiciary in dealing with appeals under section 17 and section 18, in order to facilitate the establishment of a fair platform for the aggrieved parties to bring their grievances to.

[1] Mardia Chemicals Ltd. v. Union of India and Ors., (2004) 4 SCC 311.

[2] 4 (2009) 8 SCC 366.

[3] (2004) 4 SCC 311.

[4] W.P. No. 16511   of 2016, Calcutta High Court.

[5] (2010) 109 RD 151 (DRAT).

[6] (2004) 4 BC 175 (DRT).

[7] (2005) 4 BC 217 (DRT)


SARFAESI ActNauras Suhrawardy

Critical issues determining the extent of powers vested with the secured creditors under SARFAESI act

Object and reasons for the enactment of the SARFAESI ACT

The issue of blocking of public money of banks and financial institutions had seen its roots in the liberal policies of granting loans by the financial institutions in pursuance of the directions of the Central and the Sate Governments .The aftermath was consequently visible in an increasing amount of unsatisfied dues of banks and the difficulties in their recovery. The central government in view of this crisis, faced by the financial institutions, constituted a committee under the chairmanship of Mr. Narsimham which ultimately led to the enactment of the Recovery of Debts due to Banks and Financial institutions Act ,1993 .The fact that approximately 15 lakh cases and 304 cases involving a startling amount of Rs 6000 crores , filed by the public sector banks and financial institutions respectively , necessitated the need for this enactment.
This new legislation created specialised forums such as Debt Recovery Tribunals and Debt Recovery Appellate Tribunals for expeditious adjudication of disputes with regard to ever increasing non-recovered dues.
These tribunals brought into existence special procedural mechanism for the speedy recovery of dues and also barred the jurisdiction of civil matters already pending in these tribunals. However, with the advent of time the existing lacunae in the enactment was severely misutilised by practising lawyers and borrowers , which consequently led to the dues being blocked in the web created by them. Thus , in view of the alarming increase in the dues of banks and financial institutions to the tune of Rs 12,000 crores, the Central Government was forced to introspect the existing provisions of the legislations. This situation led the government to appoint another committee under the chairmanship of Mr. Andhyarujina to examine banking sector reforms and consideration to changes in the legal system .The Narsimham committee as well as the Andhyarujina committee suggested the enactment of a new legislation for the establishment of securitisation and reconstruction companies and to empower the banks and financial institutions to take possession of the Non performing assets These powers were sought to be granted through the enactment of The securitisation and Reconstruction of financial assets and enforcement of security interest Act,2002. For the first time, the secured creditors were empowered to recover their dues without the intervention of the court.
The effective implementation of the SARFAESI act was delayed for about 2 years due to filing of several court petitions challenging its vires. The issue was finally decided by the Hon’ble Supreme Court in Mardia Chemicals v. Union of India and the validity of the SARFAESI act was upheld except the deposit of 75% amount as enshrined under section 17(2). The Court also made appreciable remarks on the dire need of enacting such legislation in view of the huge amounts of non recoverable dues on non performing assets. . The court ruled in favour of the capabilities of the provisions of the act to redress the grievances of the borrowers and meet their demands for justice at ever level.
Though the constitutional validity of the act was upheld in 2002 , the judiciary took every possible precautionary measure to ensure that the interests of the borrowers were protected and enhanced. The judiciary through its various pronouncements had attempted to provide adequate representations and remedies to the borrowers without brushing aside the provisions of the SARFAESI Act,2002.
The effective remedy to the borrower has been provided under the act itself. The plethora of cases decided by the Apex court as well as the high courts have highlighted these adequate provisions and have pronounced over the bar of jurisdiction of civil courts in matters already pending or within the jurisdiction of the Debt Recovery Tribunals .
This paper seeks to discuss some of the critical issues concerning the SARFAESI Act which lay down the extent of powers of banks under the legislation. These issues throw light on the instances and provisions under the enactment which empower the banks to an extent, sometimes used by them arbitrarily against the interests of the borrowers.

Critical issues concerning the SARFAESI Act.

Though the enactment had provided effective measures to the secured creditors to recover their long standing dues from the Non performing assets, the rights of the borrowers could not be ignored .The SARFAESI act while enabling the secured creditors to gain through the provisions of the act, has shown a tendency to ignore the vital rights of the borrowers, especially the arbitrary powers exercise with regard to properties mortgaged in respect of the loans therein. Though right to property has ceased to be a fundamental right after the Constitutional 44th Amendment Act, 1978 the presence of it as a legal right cannot be ignored. The Supreme Court in Karnataka State Financial Corporation Vs. N.Narasimahaiah is 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.”

In-spite of the clarifications and the efforts of the judiciary in providing guidance as to how the provisions of SARFAESI Act, 2002 are to be interpreted and followed, many still believe that certain issues are still to be addressed under SARFAESI Act, 2002. Some of the critical issues under SARFAESI Act, 2002 are dealt-with hereunder.

I. NON performing Assets classification and the notice under section 13(2)

According to the provisions of section 13(2) the banks shall classify a loan as non-performing asset as per the guidelines notified by the Reserve Bank of India. A non performing asset is defined as a credit facility in respect of which the interest or instalment of the principal has remained past due for a specified period of time.

With a view to moving towards international best practices and to ensure greater transparency, the ’90 days’ overdue’ norm for identification of NPAs has been adopted from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004 , a non-performing asset (NPA) shall be a loan or an advance where:
(i) interest and/or instalment of principal remain overdue for a period of more than 90 days in respect a term loan,
(ii) the account remains ’out of order’, in respect of an Overdraft/Cash Credit (OD/CC),
(iii) the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
(iv) interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and
(v) any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
There are several occasions where this power of classification of a loan account as a non-performing asset by the secured creditors is misutilised by them. Many borrowers feel harassed by the bank officials using their powers under SARFAESI Act in an unreasonable and arbitrary manner. On several occasions, the borrowers are not ‘wilful defaulters’ and in the event of negligible defaults the loan accounts of such borrowers are arbitrarily classified as Non performing. The attempts by the borrowers to rectify their defaults within the legal framework and to honour their debt commitments are ignored deliberately .
The secured creditors are bound to observe the guidelines laid down by the Reserve Bank of India, but in certain circumstances these provisions are wilfully ignored by them while classifying the loan accounts as non-performing assets.
In Mardia Chemicals v. Union of India , it was held that it is not on the whims and fancies of the banks to classify the loan accounts as non-performing assets. Strict consonance with the guidelines laid down by the RBI has to be complied with. Similiarly in the case of M/S Sravan Mill P. Ltd. V Central bank Of India , the Andhra Pradesh High court rejected the statement ’Once an NPA ,always an NPA.’ The respondent banks were held liable for arbitrarily classifying the petitioner’s loan account as NPA deliberately ignoring the attempts of the petitioner to rectify the omission and to pay back the dues. The power of High Courts to entertain writ petitions with regard to arbitrary classification as NPAs was upheld in view of the inadequate provisions of section 17 to deal with the same. The court pronounced similar judgments in K.M. Shibu v. State Bank of India, Syamala Kumari v. State Bank of India. In the plethora of cases similar to those abovementioned indicate the lenient approach adopted by the courts in regularisation of the defaulting loan accounts. However , in spite of such attitude the banks need to be relaxant in their policies on the classification of an account as NPA considering the fact that though a mere classification, the borrower is hurdled with burdens beyond his reasonable power from that moment itself.
II. Powers of Debt Recovery Tribunal
The debt Recovery Tribunals have been empowered under section 17 to entertain appeals against the misuse of powers given to banks under section 13(4). The appeals have to be filed within a prescribed time limit. Though the areas on which the appeals can be entertained has been expressly provided for, the issue concerning this specific power of the Debt Recovery Tribunal has become a much debated topic. From the stage of maintaining that ‘the DRT is supposed to only look into the procedural issues’, with the interpretation of Courts, the scope of powers of DRT under section 17 of SARFAESI Act, 2002 is significantly expanded though certain issues still requires consideration. While mentioning the powers of the DRT to set aside a sale the Hon’ble Supreme Court of India in CIVIL APPEAL NO. 4429 OF 2009 (2009 (8) SCC 366 was pleased to observe as follows:
“23. The intention of the legislature is, therefore, clear that while the Banks and Financial Institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. The consequences of the authority vested in DRT under Sub-Section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The Legislature by including Sub-Section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. It was also held in the case of Bd And P Hotels (India ) Pvt Ltd vs The District Judge Jhunjhunu that Scheme of S.13(4) read with S.17(3) of SARFAESI Act clearly states that if the borrower is dispossessed, not in accordance with the provisions of SARFAESI Act, then DRT is entitled to put the clock back by restoring the status quo ante and thus a complete mechanism has been provided which enables the Bank/financial institution to realise long terms assets without intervention of any court or Tribunal. Dealing with the issue of jurisdiction of DRT straight away, the Hon’ble Calcutta High Court earlier in Star Textiles and Industries Ltd Vs. Union of India (2008 (3) WBLR 385), was pleased to observe as follows:
If the Debts Recovery tribunal is satisfied that recourse has been taken to measures specified in section 13 (4) of the Act not in accordance with the provisions contained in sections 13 (2) read with 2 (o) of the Act, it has the authority to declare the action of the secured creditor as invalid. At the same time, the Debts Recovery tribunal may in a given situation find no fault and uphold the action of the secured creditor.
Though the plethora of cases have specifically laid down the jurisdiction of the Debt Recovery tribunals under section 17 of the SARFAESI Act, on many occasions the tribunals avoid adjudication upon issues having an indirect nexus with its jurisdiction. In such situations the borrower is hurdled to run from pillar to post without a redressal for his genuine grievances. In view of this critical issue , it is pertinent to mention the necessity for the Debt Recovery tribunals to widen their horizon of jurisdiction within the legal framework to adjudicate upon issue to satisfy the requirements and grievances of the borrowers.
The banks have been authorised under the provisions of the SARFAESI Act to take possession of the secured assets and transfer by way of lease , assignment or sale of the secured asset. Once a notice of 60 days is given for repayment of secured debt or instalment thereof to a defaulter and such a defaulter fails to pay the amount then the secured creditor is entitled to exercise its right under sub-section (4) of Section 13 of taking possession of the secured assets of the borrower including the right to jurisdiction by way of lease, assignment or sale for realising the secured assets.
However, it is often contended by the borrowers that this power seems to be draconian in nature which permits the banks to use unauthorized powers to cause the secured assets to be sold. Not only while taking possession of the secured assets , the banks use excessive discretion while the auctioning of the secured assets . Dealing with the rights of the borrower in getting maximum possible price to the property in a public auction conducted by the Bank and the vis a vis responsibility of the Banks, the Hon’ble Madras High Court in K. Raamaselvam & Others Vs. Indian Overseas Bank was pleased to observe as follows:

“For example, if the secured creditor, on the basis of the relevant materials, comes to a conclusion that the highest bid offered, even though higher than the reserve price, does not reflect the true market value and there has been any collusion among the bidders, the secured creditor in its discretion may refuse to confirm such highest bid notwithstanding the fact that the highest bid is more than the upset price. This is because the secured creditor is not only interested to realise its debt, but also expected to act as a trustee on behalf of the borrower so that the highest possible amount can be generated and surplus if any can be refunded to the borrower. The first proviso in no uncertain terms makes it clear that no sale can be confirmed by the authorised officer, if the amount offered is less than the reserve price specified under the Rule 8(5). However, the subsequent proviso gives discretion to the authorised officer to confirm such sale even if the bid is less than the reserve price, provided the borrower and the secured creditor agree that the sale may be effected at such price which is not above the reserve price. This is obviously so because the property belongs to the borrower and as security for the secured creditor and both of them would be obviously interested to see that the property is sold at a price higher than the reserve price. However, if both of them agree that the property can be sold, even it has not fetched a price more than the reserve price; the authorised officer in its discretion may confirm such auction.”
Though it is settled that the Bank is supposed to mandatorily follow the procedure prescribed for conduct of a public auction under SARFAESI Act, 2002, it all depends upon the facts and circumstances of the case and the underlying issue is getting the maximum possible price for the property.

Sale of assets of company in liquidation or being wound up
A perusal of sub-section (9) of Section 13 of the SARFAESI Act would show that in case of a company in liquidation the amount realised from the sale of secured assets must be distributed in accordance with the provisions of Section 529A of the Act. The second proviso also postulates that in case of a company being wound up after the commencement of the SARFAESI Act, a secured creditor or a securitisation company may retain the sale proceeds of his secured assets after depositing workmen’s dues with the liquidator as per the requirements of Section 529A of the Act.

On many occasions , there seems to be an apparent contention regarding the conflict of jurisdiction between the SARFAESI Act, 2002 and the Companies Act,1956,regarding the sale of assets of a company being wound up. The issue was raised before the Hon’ble Allahabad High Court wherein the division bench was pleased to observe that there was no apparent conflict between SARFAESI Act and the Companies Act and therefore does not appear to be any conflict between the sale of the security interest. The SARFAESI Act has to be harmonized in that the Act itself declares that is in addition and not in derogation of the Companies Act.
However, in spite of laid down provisions, the banks tend to ignore these provisions extending beyond the scope of powers under the enactment. The company in liquidation or being wound up does not have adequate remedies except for approaching the DRT by way of appeal under section 17, where also the tribunals acting as agents to the banks fail to provide adequate justice to the borrowers.
In view of the genuine grievances of the borrower depending upon case to case, it is essential that the banks provide adequate remedies to the borrowers in respect of auctioned properties by compliance with all the provisions under the law as well as ensuring the maximum price as benefits to them.

IV. Extent of the Jurisdiction of the High Courts under the SARFAESI Act,2002

Though the High Courts used to entertain writ petitions under article 226 of the constitution of India, challenging the provisions of section 13 (2), their jurisdiction was limited on the grounds of section 17 being comprehensive to deal with all the issues concerning therewith. The writ petitions arising before the High Courts as well as the Supreme Court under article 226 and article 32 respectively, saw a visible tilt towards interest of the banks instead of the general interest of the public.

Furthermore, these courts failed to take adequate measures to dilute the various arbitrary provisions of the SARFAESI Act, which caused immense hardships to the borrowers at every juncture of the arising of a dispute.

Though , with the advent of time and an increasing level of judicial activism in India, these Courts sought to adjudicate upon matters under the various provisions under SARFAESI Act. The borrowers sought to look up to the High Courts as well as the Supreme Court , as the proceedings in DRT were slow and the balance of favour rested with the banks in majority of the cases. If a borrower is aggrieved of the decision of the DRT the next approach is an appeal to the Debt Recovery Appellate Tribunal where also the proceedings fail to provide justice within a reasonable period of time. Again, if it is a challenge against the final order in an appeal under section 17 of SARFAESI Act, 2002, the borrower has to deposit substantial amount and it can even be 75%. Thus, the borrower is made to deposit the entire money or forget his property even when his grievance is not adjudicated.
Emphasizing that ordinarily the borrower is not allowed to knock the jurisdiction of High Court under Article 226 in SARFAESI matters, the Calcutta High Court, in Annapurna Vs. State of West Bengal was pleased to observe as follows:

“25. The overriding provision in Section 35 of the Act and the intent thereof apparent from Section 37 thereof that provides that the Act is in addition to, and not in derogation of, certain other regulatory and general statutes, conceives of a single window redress before the Debts Recovery Tribunal. The jurisdiction under Article 226 of the Constitution cannot be taken away by such a statute but a grievance capable of being redressed by the tribunal under the said Act should ordinarily not be allowed to proceed in the High Court.”

On the same lines and in support of exercise of extraordinary jurisdiction under Article 226 even in matters where SARFAESI Act is invoked and dealing with the argument of availability of alternative remedy, the Hon’ble Madras High Court in Sheeba Philominal Merlin & Another Vs. The Repatriates Co-op Finance & Development Bank Ltd., Chennai & Others was pleased to observe as follows:

“35. With regard to alternative remedy, it is seen that there is a statutory violation by not issuing notice under Section 13(2) and 13(4) as per the Rule 3 of the Security Interest (Enforcement) Rules 2002. There is contravention of statute and violation of principles of natural justice and also violation of constitutional right to hold property as per Article 300A of the Constitution of India. It has been held by the Honourable Supreme Court in Vimala Ben Ajith Bhai Patel -Vs- Vatsala Ben Ashok Bhai Patel reported in 2008 (4) SCC 649 that the right to property can be taken away only as per law and right to hold the property has been glorified as ”Human Right”.

36. That apart, it is well settled law that availability of an alternative remedy is not an absolute bar for exercising the writ jurisdiction and it is only a self-imposed restraint on its power. This has been held so in the judgment in State of Uttar Pradesh -Vs- Mohammad Nooh reported in AIR 1958 SC 86, in Whirlpool Corporation -Vs- Registrar of Trade Marks, Mumbai and others reported in AIR 1999 SC 22, and in Mariamma Roy -Vs- Indian Bank and others reported in 2009 AIR SCW 654. Therefore the plea of availability of alternate remedy miserably fails. The petitioners cannot approach the Tribunal, as the measures taken by the Bank were belatedly known to the petitioners and by that time the time prescribed under the Act was over. The Judgement in Hongo India (P) Ltd relied upon by Mr.K.M.Vijayan, in fact, justifies the contention of the petitioners. As per the judgement, Courts cannot extend the time limit prescribed by the Statute. As such the only remedy for the petitioners is to file a writ petition which has been rightly done by them.

37. The Tribunal is not competent to look into violation of fundamental rights and constitutional rights and this Court being a custodian of Constitutional rights is entitled to examine the matter. A Constitution Bench of the Honourable Supreme Court in its judgment in State of West Bengal and others -Vs- The Committee For Protection of Democratic Rights, West Bengal and others reported in 2010(2) Scale 467 held that Article 226 of the Constitution of India can be exercised for enforcing any legal right conferred by a statute and it is further held that under Article 226 of the Constitution of India, the High Court has got more wider power than the Honourable Supreme Court. In Secretary Cannanore Muslim Educational Association, Kanpur vs. State of Kerala reported in 2010 (5) SCALE 184, the Apex Court held that the High Court is conferred with wide power to ” reach injustice whenever it is found”. Therefore as injustice is writ large and glaring, necessarily the judicial arm of this court has to reach there and it cannot be prevented by plea of availability of alternative remedy.”
It was also observed by the Madras High court in K. Ramaselvam v. Indian Overseas Bank that ,”the act does not impose absolute bar for entertaining writ petition .Moreso , a bank being a public sector undertaking ,considered as state under article 12 of Constitution of India has to act strictly in accordance with the statutes and rules.”
With the appraisal of the abovementioned facts, there arises a need for the High Courts to entertain writ petitions in cases where there is apparent miscarriage of justice, While doing so , the High courts should exclude or minimise the emphasis of the availability of alternative remedies under section 17 of the SARFAESI Act, in view of the larger public interest.

V. Limits to the jurisdiction of Civil Courts.

There exists a clear bar in section 34 of the SARFAESI Act , 2002 to the jurisdiction of civil courts on adjudication of matters on the various provisions of the enactment. If the borrowers seek to approach the civil courts for such an adjudication , it becomes complicated for them to persuade these courts that they have sufficient powers to deal with such issues under the enactment. In majority of the cases, the civil courts rule in favour of section 34 to exclude their power of adjudication.
As regards principles relating to exclusion of jurisdiction of civil court, the provisions and the extent of such jurisdiction has been examined in length by the Apex Court in Dhulabhai Vs. State of MP which was further considered in 1988 (1) SCC 681, AIR 2005 SC 2544 and by the Rajasthan High Court in Mohanlal Vs. Dwarka Prasad
The Apex Court summarized the principles relating to the exclusion of jurisdiction of civil courts ad infra:
(a) Where the statute gives a finality to the orders of the special tribunals, the civil court’s jurisdiction must be held to be excluded if there is adequate remedy to do what the civil courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunals has not acted in conformity with the fundamental principles of judicial procedure.
(b) Where there is an express bar of the jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the Civil Court.
Where there is no express exclusion, the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the tribunals so constituted, and whether remedies normally associated with actions in Civil Courts are prescribed by the said statute or not.
An exclusion of the jurisdiction of the civil court is not readily to be inferred unless the conditions above set down apply.
However, there are certain cases which require the civil courts to extend their jurisdiction to adjudicate upon issues under the SARFAESI Act,2002 and the courts should not hesitate to do the same when the requirement of such a leap, despite the existence of section 34 , is apparent.

Though the enactment of SARFAESI Act sought to mobilise blocked funds of the banks in the non-performing assets, the various provisions of the acts have created deep sorrows for the genuine buyers. The various provisions meant to balance the requirements of the borrowers and the banks, have their balance of favour tilted towards the banks. These powers are, at majority of the times, misutilised by the banks to appropriate their interests against the interests of the buyers. In such a situation it is pertinent for the civil courts to assume a more social responsibility for the larger interest of the borrowers on one hand and to share the responsibilities of the banks to mobilise their funds from the numerous non-performing assets.