Third-Party SARFAESI Claims in DRT: Are They Maintainable?

In the complex world of banking and financial recovery, disputes over secured assets often arise. A common question arises: whether Securitisation applications are maintainable in DRT by third party claiming title? This issue pits the swift enforcement powers of banks under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against claims of ownership by outsiders to the secured property.

If you're a potential claimant, borrower, or financial institution, understanding the Debt Recovery Tribunal's (DRT) limited scope is crucial. This post breaks down the legal position, drawing from judicial precedents and statutory provisions. Note: This is general information, not specific legal advice. Consult a qualified lawyer for your situation.

Jurisdiction of DRT under the SARFAESI Act

The SARFAESI Act empowers banks and financial institutions to enforce security interests without lengthy court interventions, such as taking possession or selling secured assets. The DRT's role, primarily under Sections 17 and 18, is narrow: it reviews whether the secured creditor's enforcement actions comply with the law. It does not extend to resolving ownership or title disputes.

As clarified in key rulings, the DRT’s jurisdiction is limited to disputes between the bank/financial institution and the borrower or guarantor concerning the enforcement of security interest 2007 0 Supreme(Raj) 277. Third parties lack standing to initiate or pursue such applications directly in DRT.

Third-Party Claims to Title: Not Maintainable in DRT

Generally, applications filed under the SARFAESI Act by third parties claiming title to the secured property are not maintainable in the DRT. Courts have repeatedly emphasized that DRT proceedings are not the forum for title adjudication.

• Limited Scope: DRT examines the legality of bank actions against borrowers/guarantors, not third-party ownership claims

  Satnam Agri Products Ltd. VS Union of India - Dishonour Of Cheque (2014)

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• Statutory Bar: The Act restricts DRT from adjudicating title questions, reserving them for civil courts 2007 0 Supreme(Raj) 277.
• No Standing: Third parties are not recognized as parties with standing to directly initiate or pursue Securitisation applications in the DRT 1980 0 Supreme(MP) 80.

For instance, in a similar matter, the third party has moved before the DRT for claiming charge over the property. It appears DRT has rejected the application filed by the third party on the ground that only Civil Court can entertain the above issue 2020 0 Supreme(Mad) 1287. This underscores the consistent judicial stance.

Key Judicial Pronouncements

Supreme Court and High Courts have solidified this position through landmark cases:

Supreme Court Insights

• In Ramgulam v. Mahendra Kumar, the Court held that a third party cannot apply under Order 21 Rule 97 CPC to claim rights or title before dispossession 1980 0 Supreme(MP) 80. DRT cannot stay proceedings for such claims 2003 8 Supreme 285.

High Court Rulings

• M/s. Sardar Associates: Proceedings under SARFAESI are not meant to decide title disputes and that such disputes are to be settled in civil courts 2008 0 Supreme(Mad) 185.
• Standard Chartered Bank v. Dharmender Bohi: DRT lacks inherent powers to decide questions of ownership or title, which are outside its statutory scope 2003 8 Supreme 285. It cannot direct banks on settlements or rehabilitation based on third-party claims 2022 0 Supreme(Guj) 1480.

Additional precedents reinforce this:- Allowing third-party title claims in DRT would set at naught the very reason for the enactment of the DRT Act and establishment of the DRT and would lead to a waste of effort BHASIN TOBACCOS LTD. & ORS. vs GAMBRO NEXIM (INDIA) MEDICAL LTD. & ORS.-962_2016)

BHASIN TOBACCOS LTD. & ORS. vs GAMBRO NEXIM (INDIA) MEDICAL LTD. & ORS.

. If a third party proves possession under title, release may occur, but not via DRT adjudication.- In another case, applications by non-borrowers/third parties were dismissed by DRT as not maintainable 2015 0 Supreme(Mad) 3458

B. Kamal VS Ramasamy

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These rulings ensure DRT focuses on debt recovery efficiency, not tangential ownership battles.

Nature of DRT Proceedings under Sections 17 and 18

Section 17 allows borrowers/guarantors to challenge enforcement measures, but third-party claims to title are not within the jurisdiction of the DRT

Satnam Agri Products Ltd. VS Union of India - Dishonour Of Cheque (2014)

. Similarly, Section 18 appeals are confined to the same parties. DRT cannot entertain applications from outsiders seeking to challenge the validity of enforcement actions based on ownership claims 2024 0 Supreme(Mad) 1069.

The principle is clear: The DRT cannot issue directions to the bank to consider settlement proposals or ownership claims, emphasizing its limited jurisdiction 2022 0 Supreme(Guj) 1480.

Exceptions, Limitations, and Alternatives

While third-party SARFAESI applications are typically barred:- Civil Courts' Role: Exclusive jurisdiction for title/ownership disputes. Third parties must file suits there to establish rights 2008 0 Supreme(Mad) 185.- Possession Claims: In execution proceedings, third parties may claim under CPC Order 21 Rules 97/99, but not in SARFAESI/DRT directly 1980 0 Supreme(MP) 80.- No Substitution for Civil Litigation: DRT is not a substitute for civil litigation regarding ownership or title 2007 0 Supreme(Raj) 277.

From other contexts, like NCDRC proceedings, improper notices under SARFAESI were deemed deficient, but still routed outside DRT for title issues

M/S ALLIED COMPUTERS INTERNATIONAL (ASIA) LTD vs ANDHRA BANK

. In eviction or arbitration cases, third-party tactics claiming title were dismissed when improperly raised 2015 0 Supreme(All) 1171 2013 0 Supreme(Mad) 1476.

If a bank auctions a property, challengers must file independent SARFAESI applications as borrowers, not third parties, within time limits 2015 0 Supreme(Mad) 3458.

Practical Recommendations for Stakeholders

• For Third Parties: Approach civil courts promptly for injunctions or title declarations. Clarify your status to avoid jurisdictional dismissals.
• For Banks/Institutions: Proceed with enforcement, directing third-party claims to civil forums. Ensure clean title verification pre-action.
• For Borrowers: Implead third parties only if relevant, but focus on your defenses in DRT.
• General Tip: When filing, specify party status (borrower/guarantor vs. third party) to sidestep maintainability challenges.

Conclusion and Key Takeaways

In summary, Securitisation applications by third parties claiming title are generally not maintainable in DRT. The Tribunal's mandate is debt recovery between creditors and debtors, with title disputes firmly in civil courts' domain. This preserves the SARFAESI Act's efficiency while upholding due process.

Key Takeaways:- DRT jurisdiction: Limited to borrowers/guarantors 2007 0 Supreme(Raj) 277.- Title claims: Civil courts only 2008 0 Supreme(Mad) 185.- Judicial Consensus: Supreme Court & High Courts bar third-party applications 1980 0 Supreme(MP) 80 2003 8 Supreme 285.- Action Step: Seek civil remedies swiftly.

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