As everybody knows, Banks had to face numerous difficulties in recovering their loans earlier due to inordinate delay in Civil Courts and due to technicalities. In order to help the Banks in recovering their dues speedily ‘The Recovery of Debts due to Banks and Financial Institutions Act, 1993’ (RDDBI Act) was enacted and the Banks could file a Original Application before specially constituted Debt Recovery Tribunal seeking a ‘Certificate of Recovery’ and it is like a getting a Decree from a Civil Court in a Civil Suit seeking recovery of money. Even after RDDBI Act was enacted, the Banks could not achieve considerable results and it has prompted the legislature to enact ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’ (SARFAESI Act) wherein the Banks are allowed to proceed against the ‘Secured Assets’ by determining the outstanding due on their own instead of getting the ‘outstanding due’ determined by the Debt Recovery Tribunal. The object of SARFAESI Act, 2002 is to enable the Banks to reduce the mounting ‘Non-performing Assets’ (NPAs). Banks or Financial Institutions are successful, as I feel, in taking the advantage of the provisions of SARFAESI Act, 2002. There were concerns at SARFAESI Act and it has been considered as draconian, however, the constitutional validity of the Act was upheld by the Constitutional Courts. The Courts have also addressed the concerns of the borrower by interpreting section 17 of the Act which confers authority on Debt Recovery Tribunal to pass orders in an Appeal preferred by the borrowers or any aggrieved person. The issue of making statutory deposit while preferring an appeal to the Debt Recovery Appellate Tribunal has also been dealt with by the Constitutional Courts and we have seen amendment in the Act in this regard. Again, despite the clear provision that the borrower should file an appeal within the stipulated period if he is aggrieved at the action under section 13 (4), the Courts have enabled the borrowers to approach the Debt Recovery Tribunal under Section 17 of the Act against all the steps taken by the Bank pursuant to the issuance of notice under section 13 (2) of the Act and also under section 13 (4). Courts have dealt with the issue as to how the Bank should entertain objections from the borrowers or any person to the notice under section 13 (2) and now it is clear that the Bank should apply its mind property while giving a mandatory reply to the objections raised by the borrower to the demand made by the Bank under section 13 (2) of the Act. As such, most of the issues under the Act are now settled barring the effectiveness of the mechanism provided to the borrowers to get their grievances addressed and barring very few other complicated issues.
Despite having the clear legal position now under SARFAESI Act, 2002, the borrowers or litigants still feel that they can automatically get relief against the Bank when the Bank proceeds against the ‘Secured Asset’ by issuing a notice under section 13 (2) of the Act and consequential steps. Getting an automatic relief against the Bank under section 17 of the Act from the Debt Recovery Tribunal is not at all true. There may be a clear case and in such cases, when the borrower approaches the Debt Recovery Tribunal under section 17 of the Act by raising some mechanical grounds, the borrower may get an interim relief upon the condition to deposit some amount. It would be temporary and the endeavour of the Debt Recovery Tribunal will always be to recover the outstanding due and the presiding officers can be sympathetic at times though they can not act against the express provisions of the Act. In fact, in clear cases and when the outstanding due amount is not huge, then, the borrowers or the litigants should think about the expenses of approaching the Tribunal and in some cases, these expenses are substantial considering the ‘outstanding due’. Again, in most of the cases, the borrowers or the litigants lacks the understanding of law when the Bank proceeds against the ‘Secured Asset’ under the provisions of SARFAESI Act and they want to get a definite opinion as to how to question the action initiated by the Bank. In fact, it is very difficult to get a definite professional advice in respect of SARFAESI matters and the borrowers may have to continually update the developments and should get the professional advice if they choose to. It is not like getting a legal opinion as to how to file a Civil Suit for damages for breach of Agreement or Contract. The Bank may be right in classifying the account as ‘NPA’ and still they may commit a mistake in following the mandatory procedure prescribed under the provisions of SARFAESI Act, 2002 and any deviation from the mandatory procedure gives a right to the borrower to question the Bank and get an appropriate relief. The Bank may be right in issuing notice under section 13 (2), giving reply to the objections under section 13 (3A), may be right in issuing possession notice under section 13 (4), but, they might be wrong in taking steps to auction the property and it gives right to the borrower to approach the Debt Recovery Tribunal seeking relief. Thus, in most of the cases and especially when the outstanding loan mount is not huge, the borrowers should take a prudent professional advice and should deal with the Banks if they are interested in securing the ‘Secured Asset’. If the borrowers or the litigants think that they will get some relief immediately and automatically against the Banks action under the provisions of SARFAESI Act, 2002, then, its wrong and not possible. In respect of the Loan Accounts or the transactions which are clear and not complicated, the borrower may not have any effective voice against the Banks except pleading for some waiver or some time to clear the ‘Outstanding Due’.
It is not the case with the loans sanctioned to the Corporates with typical arrangements and agreements. It is not the case where many Banks hold a pari-passu charge against assets of the Company and it is not the case where so much complicated litigation is pending before different forums in respect of a Company with substantial assets and interests. There can be complications while proceeding against the ‘builders’ or the owners of the land in respect of the loan sanctioned to the ‘Builder’ with typical and complicated tri-parte agreements. There can be many complications in respect of the loans sanctioned to the Corporate Houses and they may have a strong case against the Banks when the Banks proceed under the provisions of the SARFAESI Act, 2002. The Banks also may proceed unreasonably against a particular property though the interests of the Bank are secured through other disposable ‘Secured Assets’. In these cases, the borrower may effectively convince the Debt Recovery Tribunal under Section 17 and can get a relief. There may be a case where the ‘Secured Asset’ is sold for a throw away price and in these cases, in accordance with law, the Borrower may get a relief by approaching the competent forum. So, the presumption of getting automatic relief by approaching Court or the Debt Recovery Tribunal when the Bank proceeds under SARFAESI Act, 2002 is not at all correct.
With so many judgments, the stakes, the powers of the Bank, the RBI guidelines, the discretion of Banks in some cases, conflicting judgments, the law under SARFAESI Act, 2002 is still interesting and complicated. It may prove to be costly and risky, but, where there is a good ground in challenging the action initiated by the Bank under the provisions of SARFAESI Act, the borrower can definitely press for the relief and can get the relief. Courts have held that even when the Bank takes the physical of the property if the Banks found to be wrong, the Debt Recovery Tribunal can restore the possession back to the borrower and we see many such orders in recent times.
Note: the views expressed are my personal and a view point only.