A borrower has 45 days to challenge a SARFAESI measure before the Debts Recovery Tribunal, and an appeal needs a deposit of at least 25 per cent of the debt

A borrower, guarantor or mortgagor who wants to contest a measure taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) has 45 days from the measure to apply to the Debts Recovery Tribunal (DRT) under section 17, and any appeal to the Debts Recovery Appellate Tribunal (DRAT) under section 18 is not entertained until the borrower deposits 50 per cent of the debt, a sum that can be reduced to 25 per cent but never waived. The bank's own recovery application under the Recovery of Debts and Bankruptcy Act, 1993 runs the other way: the bank files, the debtor defends, and the same 50 per cent and 25 per cent figures reappear in section 21 of that Act, measured against a different base.

The 45 days, the 50 and 25 per cent deposit and the bar on civil courts are also set out on the banking, SARFAESI and DRT practice page and, for the bank's side of the clock, in the SARFAESI clock note. This note adds the 60 days and four months in section 17(5) and (6), the lower-of-two base worked through, and the contrast with the Recovery of Debts and Bankruptcy Act, 1993.

Who can apply under section 17, and against what?

Section 17(1) gives the right to "any person (including borrower)" aggrieved by a measure under section 13(4). The measures are taking possession of the secured assets, taking over the management of the business, appointing a manager of the secured assets, and requiring a person who acquired a secured asset from the borrower, and from whom money is due to the borrower, to pay the secured creditor so much as is sufficient for the secured debt.

The word "borrower" is wider than the person who took the loan. Section 2(1)(f) includes a person who has given a guarantee, or created a mortgage or pledge, as security for the financial assistance. A guarantor and a third-party mortgagor are therefore borrowers for the purposes of both sections 17 and 18. A person outside that definition, such as a tenant or a purchaser claiming under the borrower, is still "any person" under section 17(1) if aggrieved by a measure.

Two things do not found an application. Section 17(1) reaches only the measures in section 13(4), so the notice under section 13(2) is not itself open to an application, and the Explanation to section 17(1) says that the reasons a secured creditor communicates for rejecting the borrower's representation, or its likely next step, do not entitle anyone to apply.

Where is the application filed, and what must the Tribunal decide?

Section 17(1A) allows the application before the DRT within whose limits the cause of action arises wholly or in part, where the secured asset is located, or where a bank or financial institution maintains the account in which the debt claimed is outstanding.

The question before the Tribunal is narrow. Under section 17(2) it considers whether any measure under section 13(4) was taken in accordance with the Act and the rules. If the Tribunal finds a measure not in accordance with them and restoration is needed, section 17(3) lets it declare the recourse to any one or more measures invalid, restore possession or management to the applicant, and pass such other direction as is appropriate in relation to the recourse. If instead it declares the recourse in accordance with the Act, section 17(4) entitles the secured creditor to proceed with one or more of the measures to recover the secured debt.

Where an applicant claims a tenancy or leasehold over the secured asset, section 17(4A) lets the Tribunal examine whether the lease has expired or been determined, is contrary to section 65A of the Transfer of Property Act, 1882 or to the terms of the mortgage, or was created after the section 13(2) notice. If it is satisfied on any of those grounds it may pass such order as it deems fit under the Act.

Section 34 bars the civil courts. No civil court may entertain a suit or proceeding on a matter the DRT or DRAT can determine under the Act, and no injunction may be granted against action taken under the Act or under the 1993 Act.

What are the 60 days, and what happens after four months?

Section 17(5) tells the DRT to dispose of the application as expeditiously as possible and within 60 days of the application. The proviso allows it to extend that period from time to time, for reasons recorded in writing, so long as the total pendency does not exceed four months from the date the application was made. If four months pass without disposal, section 17(6) lets any party apply to the DRAT, in the prescribed form, for a direction to the DRT to dispose of the pending application expeditiously, and the DRAT may so order. Section 17(7) sends the DRT, for everything the SARFAESI Act does not itself provide, to the procedure of the 1993 Act and its rules.

How does the section 18 pre-deposit work?

An appeal against a DRT order under section 17 lies to the DRAT within 30 days from receipt of the order, with the prescribed fee. The second proviso to section 18(1) bars the DRAT from entertaining the appeal unless the borrower has deposited 50 per cent of the amount of debt due from him, "as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less". The third proviso lets the DRAT, for reasons recorded in writing, reduce the deposit to not less than 25 per cent of that debt. The proviso names the borrower, which by section 2(1)(f) includes the guarantor and the mortgagor.

Delay in filing a section 18 appeal can be condoned: section 18(2) brings in the proviso to section 20(3) of the RDB Act (Baleshwar Dayal Jaiswal v. Bank of India, (2016) 1 SCC 444, 5 August 2015).

Two features matter for the arithmetic. The base is the lower of the bank's claim and the DRT's figure, so a Tribunal that finds less due shrinks the deposit; and the 25 per cent is a floor on the reduction, not a threshold below which the deposit disappears.

What does the arithmetic look like? (hypothetical)

The figures below are hypothetical and are not drawn from any matter. A bank classifies a term loan as non-performing, serves a section 13(2) notice, and takes possession of the factory on 5 March 2027. The bank claims INR 18 crore. The DRT, after hearing the application, determines the debt due at INR 15.6 crore.

Measure taken (possession)                      5 March 2027
45th day, last day for the section 17 application  19 April 2027
Application filed                              15 April 2027
60 days from filing (section 17(5))             14 June 2027
Four months from filing (outer limit)           15 August 2027
DRT order received, assumed                     18 October 2027
30th day for the section 18 appeal              17 November 2027

Bank's claim                                    INR 18.00 crore
DRT's determination                             INR 15.60 crore
Base, the lower of the two                      INR 15.60 crore
Deposit at 50 per cent                          INR  7.80 crore
Deposit if reduced to the 25 per cent floor     INR  3.90 crore

In this timeline the application was decided about two months after the four-month outer limit, which is the situation section 17(6) is written for. Had the DRT found the debt to be INR 19 crore, the bank's lower claim of INR 18 crore would have been the base and the deposit INR 9 crore. A deposit of INR 7.8 crore is made with the DRAT, not paid to the bank.

How does this differ from the bank's own recovery application?

The roles reverse. Under the Recovery of Debts and Bankruptcy Act, 1993 (the RDB Act), section 17(1) gives the DRT jurisdiction over applications from banks and financial institutions for recovery of debts due to them, and section 19(1) lets the bank file where its branch maintains the account, where a defendant resides or carries on business, or where the cause of action arises. Section 1(4) excludes debts below a minimum amount that the Central Government may change by notification, within the limits the subsection sets.

Under SARFAESI the bank first acts on its own, without the intervention of a court or Tribunal, and the borrower goes to the DRT afterwards. Under the RDB Act the bank must prove its debt before anything is enforced.

The procedure on the RDB side is a pleaded suit in all but name. The summons under section 19(4) requires the defendant to show cause within 30 days, to disclose other assets, and, under section 19(4A), not to transfer the secured assets or the disclosed assets without the Tribunal's approval. Section 19(5) requires a written statement within 30 days, and sections 19(6) and 19(8) allow set-off and counter-claim, which the Tribunal decides together with the claim. Section 19(24) asks the Tribunal to complete the proceedings in two hearings and dispose of the application within 180 days. A successful application ends in a recovery certificate under section 19(22) executed by the Recovery Officer, whose modes in section 25 include attachment and sale, taking possession of secured property, and arrest and detention.

The appeal also differs. Section 20(3) of the RDB Act allows 30 days from receipt of the order, and its proviso lets the DRAT admit a later appeal on sufficient cause. Section 21 requires the person from whom the debt is due to deposit 50 per cent of the amount "as determined by the Tribunal under section 19", reducible, for recorded reasons, to not less than 25 per cent. There is no "whichever is less" comparison, because the bank's claim has already been tested by the Tribunal. Section 20(6) directs the DRAT to endeavour to dispose of the appeal within six months.

A bank holding security may choose between the two. The first proviso to section 19(1) lets it withdraw a pending recovery application, with the Tribunal's permission, to take action under the SARFAESI Act if no such action was taken earlier, and the permission application is to be decided within 30 days.

What remains unsettled?

The 45 days in section 17(1) carry no express power to condone delay. Section 17(7) brings in the procedure of the RDB Act, whose section 24 applies the Limitation Act, 1963 to an application made to a Tribunal, and neither text says whether that reaches the 45 days.

Section 17(6) gives the DRAT power to direct expeditious disposal after four months, but neither that section nor the proviso to section 17(5) states what follows if the direction is not obeyed, or whether an application decided after four months is open to challenge on that ground alone.

The third proviso to section 18(1) lets the DRAT reduce the deposit for reasons recorded in writing, but it lists no factors, and the reduction is therefore a matter for each bench.