The Debts Recovery Tribunal has no jurisdiction to adjudicate the legality of loan disbursement under the Securitisation Act, limiting its scope to recovery measures by the secured creditor.

Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 17(1) - Jurisdiction of Debts Recovery Tribunal (DRT) - No power to adjudicate the legality of loan disbursement or to entertain claims regarding compliance with loan conditions - The DRT’s powers are limited to issues arising under the recovery measures initiated by the secured creditor. (Paras 13, 14, 19, 21)

(B) Appeal - Dismissal of appeal filed by a guarantor against possession notice - The court upheld DRT and DRAT’s findings, emphasizing that the possession notice complied with statutory requirements and the petitioner failed to demonstrate any procedural irregularity affecting her liability. (Paras 20, 22, 25)

Facts of the case:
The petitioner challenged the DRT and DRAT orders regarding loan recovery proceedings initiated by a bank against a borrower for whom she was a guarantor, claiming irregularities in the loan disbursement process and in the notice issued for possession.

Findings of Court:
The challenge against the measures taken by the secured creditor was dismissed as beyond the jurisdiction of the DRT, which cannot assess the validity of the underlying loan agreement.

Issues: The primary issues involved whether the DRT and DRAT had jurisdiction to examine the legitimacy of the loan disbursement and the validity of the possession notice issued.

Ratio Decidendi: The court concluded that the DRT has limited jurisdiction under Section 17 of the Act, which does not extend to adjudicating the legitimacy of loan agreements and actions taken by the bank for recovery of debts.

Result: Petition dismissed.

ORDER

(Order of the Court was made by the Hon'ble Chief Justice)

Heard learned counsel for the parties.

2. This petition is directed against the order passed by the Debt Recovery Appellate Tribunal (DRAT), by which the petitioner's appeal against the order passed by the Debts Recovery Tribunal (DRT) was dismissed.

3. The instant petition has been filed by the petitioner aggrieved by the measures taken by the bank in the matter of recovery of loan advanced to the borrower, the second respondent herein, in respect of which, the petitioner, admittedly, stood as a guarantor.

4. Indisputedly, the borrower was declared as Non-Performing Asset (NPA) by the bank, as the borrower failed to repay the installments according to the schedule. The borrower having failed to challenge any steps taken by the bank, including declaration of the borrower's account as NPA, the bank was left with no other option, but to initiate proceedings towards recovery of the loan amount and, for that purpose, the bank had issued notice of possession on 05.09.2019. Aggrieved upon the receipt of notice of possession, the petitioner approached the DRT by moving an application under Section 17 (1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the Act of2002”).

5. In the application, the petitioner confined challenge more to the manner in which the loan was advanced to the borrower and also sought to raise an issue that borrower was wrongly granted loan without compliance of several conditions.

However, in the entire application, no specific ground was raised by the petitioner to satisfy as to how the initiation of proceedings towards recovery of the loan by issuance of notice of possession was, in any manner, violative of the provisions contained in the Act of 2002 or the Rules made thereunder.

6. The DRT, vide its order dated 13.11.2020, rejected the application, which led to the filing of an appeal before the DRAT.By the impugned order, the DRAT dismissed the appeal.

7. Learned counsel for the petitioner vehemently submitted that the DRT as well as DRAT have committed gross illegality in holding that the issue relating to irregularity in the advancement of loan by the bank in favour of the borrower could not be gone into in exercise of powers under Section 17 of the Act of 2002. He would submit that the scope of enquiry under the said provision is very wide and not only the illegality of the action taken by the bank towards the recovery of loan could be examined, but also whether the loan was granted in a proper manner and in compliance with various conditions, subject to which loan could be granted by the secured creditor in favour of the borrower.

8. The next limb of submission of learned counsel for the petitioner is that the petitioner stood as guarantor. The bank had issued a demand notice against the borrower for recovery of a sum of Rs.1,90,07,990.50 on 03.06.2019, but, thereafter, three properties belonging to the borrower as well another guarantor have been sold successfully on 19.8.2020 for a sale price of Rs.55.75 lakhs; on 4.8.2021 for a sale price of Rs.82.60 lakhs and thereafter on 30.8.2022 for a sale price of Rs.35.50 lakhs. Therefore, the stand now taken by the bank that despite huge amount collected through more than one auction, still an amount of Rs.95.91 lakhs, as on 31.12.2023, is outstanding is wholly unjustified and without any basis and only a devise to somehow sell the property of the petitioner/guarantor.

9. On the other hand, learned counsel for the bank would submit that the order passed by the DRT and the DRAT holding that an enquiry into the procedural aspects relating to release of loan amount in favour of the borrower could not be gone into by the DRT, does not warrant any interference. It is submitted that Section 17 of the Act of 2002 confers upon the Tribunal, limited jurisdiction to examine the issue with regard to the proceedings taken by t

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2025 Supreme(Online)(Mad) 65151

The Debts Recovery Tribunal has no jurisdiction to adjudicate the legality of loan disbursement under the Securitisation Act, limiting its scope to recovery measures by the secured creditor.

Cases Referred (1)