Despite the clear objective behind enacting SARFAESI Act, 2002, while implementing the provisions of the Act, many complications have arisen and the Hon’ble Courts have cleared some complications making a good balance between the interests of the borrowers and the objective of Act to reduce the alarming levels of Non-performing Assets (NPA). Courts have dealt with the issue of limitation to approach the Debt Recovery Tribunal under section 17 of SARFAESI Act, 2002 and according me, it is the wonderful interpretation by Courts in giving the borrower a right to challenge the Bank’s action on all measures pursuant to section 13 (4) of the Act. In the recent past, there was also a consistency with regard to entertaining Writ Petitions under Article 226 of Constitution of India in respect of SARFAESI matters. The borrowers’ interest is also protected even at the stage when the Bank approaches the
Likewise, there are many interesting and complicated issues under the provisions of SARFAESI Act, 2002. Another complicated issue is about Section 36 of SARFAESI Act, 2002 dealing with the application of the provisions of Law of Limitation. Section 36 of SARFAESI Act, 2002 is as follows:
“36.Limitation.- No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963 (36 of 1963).”
In the light of the fact where the Bank proceeds under SARFAESI Act, 2002 even after obtaining a ‘Recovery Certificate’ from the Debt Recovery Tribunal under Section 19 of RDDBI Act, 2002, section 36 of SARFAESI Act, 2002 is to be carefully looked at. The issue of simultaneous proceedings was upheld now and I don’t know to how to understand the land-mark judgment saying that the Bank need not withdraw its Original Application under section 19 of RDDBI Act, 1993 while contemplating action under SARFAESI Act, 2002. But, it is a fact that the Bank may feel comfortable in invoking the provisions of SARFAESI Act, 2002 for execution of its claim even after getting a ‘Certificate of Recovery’ under section 19 of RDDBI Act, 1993. Where there is a mortgage in favour of the Bank, the limitation to act upon the mortgage in realizing the debt is 12 years. And the 12 years limitation is to be calculated from the date when the money actually becomes due as per the provisions of Limitation Act as everybody knows. In many cases now, if the limitation is strictly applied as contemplated under Section 36 of the SARFAESI Act, 2002, the Banks may not be able invoke the provisions of the SARFAESI Act, 2002 as it could have taken considerable time in getting the ‘Certificate of Recovery’ in Original Application under Section 19 of RDDBI Act, 1993. What the Bank claims is that the limitation under Section 36 starts from the date of passing the ‘Certificate of Recovery or the decree’. On the contrary, the borrowers claim that the proceedings under RDDBI Act, 1993 and SARFAESI are completely independent though they can go simultaneously now and as such the limitation under Section 36 is to be calculated separately based on the loan transaction and default while Bank proceeding under the provisions of SARFAESI Act, 2002. There is a merit technically in this argument also as the Bank will not straight-away proceed taking possession of ‘secured asset’ where there is already a ‘Certificate of Recovery’. Even when there is a ‘Certificate of Recovery’, the Bank, if wants to invoke the provisions of SARFAESI Act, 2002, makes a fresh demand under section 13 (2), entertains objections, gives a reply if required and then only proceeds under section 13 (4) of the Act and the borrower gets a right to appeal to DRT under Section 17 of SARFAESI Act, 2002 again though there was a prior adjudication of the issue earlier under RDDBI Act, 2002. This aspect is highlighted technically and the Courts have considered the ‘Decree or the Certificate of Recovery’ as ‘debt’ or ‘financial asset’ within the purview of SARFAESI Act, 2002 and allowed the Bank to be in advantageous position in this regard. Though there were conflicting views on this like the issue of redressel against the order passed by the Magistrate under section 14 of SARFAESI Act, 2002, a consistent view is now being taken in this regard.
Few judgments extracted below will expose the trend in interpreting section 36 of SARFAESI Act, 2002 and the Complications. The Hon’ble High Court of Punjab and Haryana, in Raj Rani Versus Oriental Bank of Commerce, 2008 AIR (P&H) 66, was pleased to observe as follows:
“In the present case, the loan was availed on 23-10-1999 (P-10) and notice under Section 13 (2) of the Act was given on 28-4-2003. It is undisputed that the loan has been secured by mortgaging the properly in question as is evident from the loan application (P-7). Once the loan has been secured by mortgage or by creating a charge on immovable property in question, the provisions of Article 62 of the schedule appended to the Limitation Act, 1963 would apply which provides a period of 12 years from the date when the money becomes due. The respondent-Bank had issued notice under Section 13 (2) of the Act in April, 2003, which is less than four years. It is thus obvious that action even otherwise does not attract the bar of limitation. Therefore, the argument raised is liable to be rejected. Even on facts, it has to be held that the action does not suffer from the bar of limitation provided by Section 36 of the Act. “
On the same issue, the Hon’ble High Court of Madras in M/s. Consolidated Construction Consortium Ltd Vs. M/s. Indian Bank, 2010 AIR (Mad) 68 was pleased to observe as follows:
“33. I could see considerable force in the submission made by the learned counsel for the defendant for the following reasons.
The term ‘debt’ as defined in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is found adopted in the SARFAESI Act.
“S.2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993:
“debt” means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application.
34. A plain reading of the definition of the ‘debt’ as contained in the The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would exemplify and demonstrate that given a ‘decree debt’ could be taken as a ‘debt’. It is quite obvious and axiomatic that for obtaining decree, considerable time would be taken by a litigant and in some cases, it might exceed even ten years or fifteen years and in such a case, if twelve years period of limitation for enforcing mortgage is calculated from the date of accrual of the cause of action based on mortgage due under the bank, then the relevant portion of the definition of ‘debt’, as contemplated under the ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ as well as SARFAESI Act would be rendered nugatory or otiose. It is therefore crystal clear that the twelve years’ limitation period has to be reckoned from the date of decree or the debt recovery certificate issued by the Tribunal. The question might arise as to whether the provisions of the SARFAESI Act, so to say Section 13(4) could be pressed into service for the purpose of executing a decree debt or the certificate issued under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
38. A plain reading of the above definition would reveal and connote that the term ‘financial asset’ includes debt and thereby the definition as contained in Section 2(g) of the ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ is ushered in. As such, the phrase ‘financial asset’ and the term ‘debt’ including ‘secured debt’ are all interlinked and interwoven, interconnected and entwined with one another like a cobweb and the term ‘debt’ envisages the ‘decree debt’ as well as the ‘debt recovery certificate.’
39. The learned Senior counsel for the plaintiff also by inviting the attention of this Court to sub-sections (1) and (2) of Section 13 of the Act would develop his argument that unless sub-sections (1) and (2) of Section 13 are attracted, the question of invoking Section 13(4) does not arise and accordingly if viewed, the debt recovery certificate cannot be taken as one contemplated under sub-section (1) or (2) of Section 13.
40. I am of the considered opinion that Section 13(4) as well as sub-sections (1) and (2) of Section 13 are widely worded to include even mortgage debts, which got crystallised in the form of a decree or debt recovery certificate. No doubt, the term ‘debt recovery certificate’ is not contemplated in the definition as contained under Section 2(g) of the ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’. But still, the clause, ‘whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application’ would amply make the point clear that the said clause is wide enough to include even the debt recovery certificate. Accordingly, if viewed it is clear that ex facie and prima facie the notice issued under Section 13(4) of the SARFAESI Act on 27-7-2009 cannot be held to be one barred by limitation.”
I am sure that the complications under section 36 of SARFAESI Act, 2002 are temporary in nature and rarely discussed now as the Banks could have completed their recovery in the cases those were pending before 2002 by now.
Note: the views expressed are my personal and a view point only.