Default and recovery: Debts Recovery Tribunals and the SARFAESI Act

1. Why special recovery law

By the late 1980s banks had huge sums locked in suits that took a decade or more in civil courts. The Tiwari Committee (1981) and the Narasimham Committee (1991) recommended special tribunals. Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, renamed the Recovery of Debts and Bankruptcy Act, 1993 by the Insolvency and Bankruptcy Code, 2016 when the DRTs were also made the adjudicating authority for individual and partnership insolvency. Even tribunals needed an application and a hearing, so the SARFAESI Act, 2002 went further and let secured creditors enforce security without going to any court.

2. The Debts Recovery Tribunal

• Application of the Act (s.1(4)). It does not apply where the debt is less than ₹10 lakh or such other amount, not less than ₹1 lakh, as the Central Government notifies. The threshold was raised to ₹20 lakh by notification in 2018.
• Debt (s.2(g)) means any liability, including interest, claimed as due by a bank or financial institution in the course of its business, secured or unsecured, whether payable under a decree, an award, a mortgage or otherwise, and legally recoverable on the date of the application.
• Establishment (ss.3–5, 8). The Central Government establishes DRTs, each with a Presiding Officer who is, has been, or is qualified to be a District Judge (s.5), and Debts Recovery Appellate Tribunals (DRATs) with a Chairperson.
• Jurisdiction (s.17). The DRT entertains and decides applications by banks and financial institutions for recovery of debts due to them; the DRAT hears appeals. The DRT also hears applications under s.17 of SARFAESI and, under s.17(1A), insolvency of individuals under Part III of the IBC.
• Bar on other courts (s.18). No court or authority, except the Supreme Court and a High Court exercising jurisdiction under Articles 226 and 227, has jurisdiction in matters within s.17. Pending suits above the threshold stood transferred to the DRT (s.31).

3. Procedure and recovery

• Application (s.19) by the bank where the defendant resides or carries on business or the cause of action arose, with documents; summons to the defendant to show cause within thirty days why relief should not be granted. The defendant may claim set-off or file a counter-claim, which the DRT decides with the application. The DRT may grant interim orders, attachment before judgment and appointment of receivers.
• Procedure (s.22). The Tribunal is not bound by the Code of Civil Procedure but by the principles of natural justice and the rules; it has the powers of a civil court for summoning, discovery, affidavits and commissions. Evidence is ordinarily by affidavit, and filings can be electronic (s.19A). The Limitation Act applies (s.24).
• Recovery certificate (s.19(22)). On deciding the application, the Presiding Officer issues a certificate of recovery to the Recovery Officer.
• Modes of recovery (s.25): attachment and sale of movable or immovable property; taking possession of secured property and appointing a receiver to sell it; arrest and detention of the defendant; appointment of a receiver for management; and other prescribed modes. The Recovery Officer follows, as far as possible, the certificate-recovery procedure of the Second and Third Schedules to the Income-tax Act, 1961, to which s.29 refers; that Act has since been replaced by the Income-tax Act, 2025, and the reference is read as one to its corresponding provisions. Appeal from the Recovery Officer lies to the DRT within thirty days (s.30).
• Priority (s.31B): secured creditors' dues have priority over all other debts, including government dues, once the security is realised.

Appeal (ss.20, 21). Any person aggrieved by an order of the DRT may appeal to the DRAT within thirty days; no appeal lies from an order made by consent. A borrower's appeal is not entertained unless he deposits 50 per cent of the debt determined, which the DRAT may reduce to not less than 25 per cent for recorded reasons.

Validity. In Union of India v. Delhi High Court Bar Association, 2002 INSC 140, (2002) 4 SCC 275, the Court upheld the Act under Entry 45 of List I (banking): setting up a special tribunal for bank debts does not erode the independence of the judiciary, the pecuniary threshold is no ground of invalidity, and the procedure, though summary, observes natural justice. Because the Act provides a full appellate remedy, the High Court should not entertain petitions under Article 227 against DRT orders as a matter of course: Punjab National Bank v. O.C. Krishnan, 2001 INSC 360, (2001) 6 SCC 569.

4. SARFAESI: enforcement without court

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 does three things: it regulates asset reconstruction companies that buy bad loans (Chapter II); it lets secured creditors enforce security interest without court (Chapter III); and it creates the Central Registry of security interests (Chapter IV).

Section 13 is the core:

• Section 13(1): notwithstanding ss.69 and 69A of the Transfer of Property Act, a security interest may be enforced without the intervention of court or tribunal.
• Section 13(2): where the borrower defaults and the account is classified as a non-performing asset, the secured creditor may by written notice require him to discharge his liabilities in full within sixty days. The notice must give details of the amount and the secured assets (s.13(3)).
• Section 13(3A): if the borrower objects, the creditor must consider the objection and, if it rejects it, communicate reasons within fifteen days. The communication gives no right of appeal by itself.
• Section 13(4): on failure to pay, the creditor may take possession of the secured assets with the right to sell or lease them, take over the management of the business, appoint a manager, or require any person who owes money to the borrower to pay the creditor.
• Section 13(8): the borrower may stop the sale by tendering the full dues with costs before publication of the notice for sale.
• Section 14: for physical possession the creditor may apply to the Chief Metropolitan Magistrate or District Magistrate, who must assist.

Remedies of the borrower. Any person aggrieved by a measure under s.13(4) may apply to the DRT within forty-five days (s.17), and appeal to the DRAT within thirty days on depositing 50 per cent of the dues (reducible to 25 per cent) (s.18). No civil court has jurisdiction in matters the DRT may decide, and no injunction may be granted against action under the Act (s.34). The Act overrides other laws (s.35). The creditor's claim must be within limitation (s.36).

Exclusions (s.31). The Act does not apply to, among others, a lien under the Contract Act or Sale of Goods Act, a pledge of movables, security over aircraft and vessels, the unpaid seller's rights, property not liable to attachment under s.60 CPC, a security interest for a financial asset not exceeding ₹1 lakh, security in agricultural land, and any case where the amount due is less than 20 per cent of the principal and interest.

5. The SARFAESI cases

• Mardia Chemicals Ltd. v. Union of India, 2004 INSC 244, (2004) 4 SCC 311: the Act is valid, enacted for speedier recovery of NPAs and for liquidity in the economy, and borrowers get reasonable protection. But the condition in the original s.17(2) of depositing 75 per cent of the claim before the borrower could even approach the DRT was struck down as onerous and arbitrary. The Court also said the creditor must consider and reply to the borrower's objections to the s.13(2) notice, which Parliament then enacted as s.13(3A).
• Transcore v. Union of India, 2006 INSC 924, (2008) 1 SCC 125: a bank that has filed an application before the DRT need not withdraw it before invoking SARFAESI; the remedies are cumulative, and the doctrine of election does not apply.
• United Bank of India v. Satyawati Tondon, 2010 INSC 428, (2010) 8 SCC 110: the bank could proceed against the guarantor without first proceeding against the borrower, and High Courts should not entertain writ petitions against SARFAESI action when the borrower has an effective remedy under s.17.
• Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., 2020 INSC 382, (2020) 9 SCC 215 (Constitution Bench): co-operative banks are “banks” for SARFAESI; the banking activity of co-operative banks falls under Entry 45 of List I, so Parliament could provide them the s.13 remedy.

How this is examined

“Discuss the jurisdiction, powers and functions of Debt Recovery Tribunal” (August 2024) and the short note “Debt Recovery Tribunal” (June 2025). The syllabus heading is “Default and recovery — debt recovery tribunal”, but a complete answer should give SARFAESI and its relation to the DRT in a paragraph, since the DRT is also the forum under s.17 of SARFAESI and one of the prescribed books is on that Act.