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Pecuniary Limit of DRT Applicable to Applications Under Section 13(10) of SARFAESI Act

The Delhi High Court, in the case of IDFC First Bank Limited v. Union of India and Ors. [2023 DHC 7924 DB] held that an application by a secured creditor for the recovery of the balance amount payable by a borrower under Section 13(10) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act, 2002) is an original application under Section 19(1) of the Recovery of Debts and Bankruptcy Act, 1993, (hereinafter referred to as the RDB Act, 1993) and therefore the pecuniary limit under the RDB Act, 1993, would apply. 

The petitioner in this case had entered into a Loan Agreement for an amount of Rs.23,00,000 with the respondents. The respondents secured the loan by creating security interest in the builtup property for which the original title deeds were deposited with the petitioner. The respondents defaulted in the repayment of the loan and accordingly the loan amount was classified as a Non-Performing Asset. The petitioner subsequently filed an application under Section 14 of the SARFAESI Act, 2002, as a secured creditor and thereafter sold the secured property for an amount of Rs.21,38,000/- and issued a sale certificate to the successful purchaser. After adjusting the sale proceeds recovered with the loan amount, an amount of Rs.6,92,551.63 remained outstanding in respect of which the petitioner filed an application under Section 13(10) of the SARFAESI Act, 2002 read with Rule 11 of the Security Interest (Enforcement) Rules, 2002. This petition was rejected on the ground that the same was less than Rs.10,00,000 and was therefore, not within the pecuniary jurisdiction of the Debts Recovery Tribunal (hereinafter referred to as the DRT). The present case is brought before the court challenging this order of the DRT.

 

The petitioner submitted that the pecuniary limit prescribed under the RDB Act, 1993 is inapplicable for the recovery of the balance amount by secured creditor under Section 13(10) of the SARFAESI Act 2002 read with Rule 11 of the Security Interest (Enforcement) Rules, 2002. The petitioner further contended that an application under the SARFAESI Act, 2002 as aforementioned, is not an application under the RDB Act, 1993 thereby making its provisions inapplicable. The petitioner also contended that there was no provision in the SARFAESI Act, 2002 that corresponds to the appliable provision of the RDB Act, 1993 limiting the amount to be claimed by a bank or a financial institution to Rs. 10,00,000. As per the petitioner, the format laid down for recovery of balance under Section 13(10) of the SARFAESI Act 2002 read with Rule 11 of the Security Interest (Enforcement) Rules, 2002 is different from the procedure provided under the Recovery of Debts (Procedure) Rules, 1993. Further, the petitioner also submitted that Section 34 of the SARFAESI Act bars the jurisdiction of civil courts from entertaining any suit or proceedings that the Debts Recovery Tribunal is empowered to adjudicate, leaving only the Debts Recovery Tribunal to entertain the petitioner’s application.

 

The respondents cited the decision of the Supreme Court in the case of United Bank of India v. Satyawati Tandon & Ors. [(2010) 8 SCC 110], where it was held that the RDB Act, 1993 as well as the SARFAESI Act, 2002 has statutory remedies available to an applicant and the High Court need not be approached under Article 226 of the Constitution for the same. Further, as per a notification issued by the Ministry of Finance (Department of Financial Services), the provisions of the RDB Act, 1993 shall not be applicable where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than Rs. 20,00,000. It was also submitted that although as per Section 13(10) of the SARFAESI Act 2002 if there was any balance amount remaining after the sale of the secured assets such balance amount was recoverable, it did not mean that the application for recovery of the same shall be maintainable under the provisions of the RDB Act, 1993.

The court observed that, in matters wherein the legislature has intended for them to be decided by the DRT, it has enacted express provisions relating to the same. Further, it noted that, the nature of an application under Section 13(10) of the SARFAESI Act, 2002 is in that of an original action for the recovery of an amount payable by the borrower to the secured creditor and not an action for the enforcement of a security interest and therefore it would be covered under the RDB Act, 1993. The Court noted that a remedy under Section 13(10) of the SARFAESI Act, 2002 however, cannot be considered as a remedy independent of the RDB Act, 1993 and therefore, since the SARFAESI Act, 2002 does not specify which DRT has jurisdiction to handle the matter, reference has to be placed on the RDB Act, 1993. Concluding that an application under Section 13(10) of the SARFAESI Act, 2002 was an original application under Section 19(1) of the RDB Act, 1993, the court held that the relevant pecuniary limit of Rs.20 lakhs would apply and thereby dismissed the petitioner’s case.