Can Debts Recovery Tribunal Entertain A Claim For Less Than Rs.10 Lakhs Under SARFAESI Act? Delhi High Court Answers

The Delhi High Court recently held that DRT cannot entertain a claim for an amount less than Rs.10 lakhs under the SARFAESI Act. 

A Division Bench comprising Justices Vibhu Bakhru and Amit Mahajan added that the SARFAESI Act's remedy under Section 13(10) cannot be availed by a bank independent of the provisions of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), and the pecuniary limit set out in the RDB Act also applies.

"An application under Section 13(10) of the SARFAESI Act is not an action for enforcement of a security interest in respect of a financial asset. The nature of the said application is precisely that of the original action, which is covered under the RDB Act. However, the SARFAESI Act does not contain any express provisions, that stipulates which Debts Recovery Tribunal has the jurisdiction to decide any original claim as to the outstanding amount that remains after the secured creditor has enforced the security interest."

The IDFC First Bank had approached the court, challenging the rejection of their Section 13(10) SARFAESI Act application by the Debts Recovery Tribunal (DRT) on the grounds of lacking pecuniary jurisdiction.

The outstanding amount in question was approximately Rs. 6,92,551.63, with interest, and the DRT argued that the RDB Act didn't apply when the debt due to the bank was less than Rs. 20 lakhs.

Before the court, IDFC averred that Section 13(10) of the SARFAESI Act provided an independent remedy and should be considered separately from the provisions of the RDB Act. They contended that the pecuniary limit set by Section 1(4) of the RDB Act was not applicable to Section 13(10) SARFAESI Act applications.

They pointed out that the SARFAESI Act lacked a provision equivalent to Section 1(4) of the RDB Act.

On the respondent's side, it was argued that IDFC had another effective remedy available under the RDB Act, rather than SARFAESI. They claimed that the outstanding amount (after selling secured assets) could be recovered under the RDB Act, with the Ministry of Finance's Gazette Notification specifying that the RDB Act didn't apply when the amount due to a bank was less than Rs. 20 lakhs.

The court did not accept IDFC's arguments for several reasons.

Firstly, the SARFAESI Act does not specify which DRT would have jurisdiction to handle Section 13(10) applications. 

This observation led the court to the second reason i.e., to determine jurisdiction, the court needed to refer to the RDB Act, and there was no valid reason to disregard the pecuniary jurisdiction limits of the DRT under the RDB Act.

Thirdly, certain provisions of the RDB Act, crucial for claim adjudication and recovery, couldn't be omitted, such as the right to file an appeal against the determination of the amount due (under Section 13(10), which is not provided under SARFAESI Act) and a borrower's right to file a counterclaim.

The court also highlighted the amendments made to the RDB Act by Section 294 of the IBC, which introduced the words "save as otherwise provided" in Section 1(4). 

“The import of the said words was to carve out an exception to the clause regarding the pecuniary jurisdiction of the Debts Recovery Tribunal”, it said.

The court emphasized that when the DRT is explicitly granted jurisdiction, it should exercise it regardless of the pecuniary threshold specified under Section 1(4) of the RDB Act.

Significantly, the court noted that an application under Section 13(10) of the SARFAESI Act is more about recovering an amount payable by a borrower to the secured creditor than enforcing a security interest in a financial asset.

Before concluding, it referred to the Supreme Court’s decision in State Bank of Patiala v. Mukesh Jain and Anr, which held that the Rs. 10 lakhs threshold under Section 1(4) of the RDB Act applied to limit the DRT's original jurisdiction.

The court concluded that an application under Section 13(10) of the SARFAESI Act, for all practical purposes, was an Original Application under Section 19(1) of the RDB Act, which had a limit set at Rs. 20 lakhs.

Therefore, the remedy under the SARFAESI Act could not be considered independent of the RDB Act, and the court dismissed IDFC's petition.

Appearance: Mr. Sanjeev Singh and Ms. Ridhi Pahuja, Advocates appeared for IDFC

Mr. Vivek Goyal, SPG and Mr. Mimansak Bhardwaj, GP alongwith Mr. Gokul Sharma, Mr. Shivam Singh and Ms. Aneeta Goyal, Advocates appeared for respondent Nos.1 & 2

Case Title: IDFC First Bank Limited v. Union of India and Ors.

Citation: 2023 LiveLaw (Del) 1080

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