Continuing Cause of Action under SARFAESI Act: Correlation between Section 13 and 17 of SARFAESI Act

Continuing Cause of Action under SARFAESI Act: Correlation between Section 13 and 17 of SARFAESI Act

The correlation between Sections 13 and 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act is essential in understanding the concept of “continuing cause of action” under the Act.

1. Section 13:
   • Section 13 of the SARFAESI Act empowers secured creditors (such as banks and financial institutions) to enforce their security interest without the intervention of courts or tribunals.
   • It lays down the procedure for issuing a notice to the borrower upon default, providing an opportunity for the borrower to remedy the default.
   • If the borrower fails to discharge the liability within the specified period, the secured creditor may take recourse to various measures specified under Section 13(4) to recover the outstanding debt. These measures include taking possession of the secured assets, taking over the management of the borrower’s business, appointing a manager for the secured assets, etc.
2. Section 17:
   • Section 17 provides a remedy for aggrieved persons, including borrowers, to challenge the measures taken by secured creditors under Section 13.
   • Any person aggrieved by the measures taken under Section 13(4) may make an application to the Debt Recovery Tribunal (DRT) within 45 days from the date on which such measures were taken.
   • The DRT examines whether the measures taken by the secured creditor are in accordance with the provisions of the SARFAESI Act and the rules made thereunder.
   • If the DRT finds that any of the measures taken by the secured creditor are not in accordance with the Act, it may declare such measures as invalid and pass appropriate orders, including restoration of possession or management of secured assets to the borrower.
3. Correlation:
   • The correlation between Sections 13 and 17 lies in the fact that Section 17 provides a recourse for borrowers to challenge the measures initiated by secured creditors under Section 13.
   • Section 17 acknowledges that the actions taken by the secured creditor under Section 13 may constitute a continuing cause of action for the borrower. This means that each action taken by the secured creditor under Section 13 may trigger a new cause of action for the borrower to challenge.
   • The limitation period for filing an application under Section 17 starts from the date on which such measures were taken by the secured creditor. Therefore, if multiple actions are taken by the secured creditor under Section 13, the limitation period for challenging each action starts afresh from the date of the last action taken.

Section 13 empowers secured creditors to take measures for recovery of outstanding debts, while Section 17 provides a mechanism for aggrieved persons to challenge such measures before the DRT. The correlation between these sections ensures that borrowers have a timely and effective remedy against any improper or unlawful actions taken by secured creditors under the SARFAESI Act.

Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, Sections 13 and 17 are interrelated provisions that deal with the enforcement of security interest by banks and financial institutions.

1. Section 13: This section empowers secured creditors, primarily banks and financial institutions, to enforce their security interest without the intervention of courts or tribunals. It lays down the procedure for issuing a notice to the borrower upon default, providing an opportunity to the borrower to remedy the default, and subsequently taking possession of the secured assets and selling them to recover the dues.
2. Section 17: This section provides for a right to appeal against measures taken by the secured creditor under Section 13. It allows the borrower to make an application to the Debt Recovery Tribunal (DRT) challenging the actions taken by the secured creditor. The DRT has the authority to adjudicate on the correctness or legality of the measures taken by the creditor and can provide appropriate reliefs if it finds the actions to be improper.

The correlation between Sections 13 and 17 lies in the fact that Section 17 provides a mechanism for borrowers to challenge the actions initiated by secured creditors under Section 13. It acts as a safeguard for borrowers against any potential arbitrary or wrongful actions by the creditors during the enforcement of security interest.

However, it’s essential to note that Section 17 does not provide for an automatic stay on the proceedings initiated by the secured creditor under Section 13. The borrower needs to approach the DRT and seek appropriate reliefs, which may include a stay on the actions initiated by the creditor, depending on the facts and circumstances of the case.

While Section 13 empowers secured creditors to take necessary actions for enforcing their security interest, Section 17 provides a recourse for borrowers to challenge these actions before the DRT, ensuring a fair and transparent process in the enforcement of security interests under the SARFAESI Act.

The analysis provided discusses the concept of “continuing cause of action” under Section 13(4) of the SARFAESI Act and the limitation available for challenging the measures taken under this section before the Debt Recovery Tribunal (DRT) under Section 17. Here’s a breakdown of the key points:

1. Background and Purpose of SARFAESI Act: The SARFAESI Act was enacted to address the rising levels of non-performing assets (NPAs) in the banking sector. It was recommended by committees like the Narasimham Committee and the Andhyarujina Committee to provide a comprehensive legal framework for the security of financial assets, reconstruction of secured assets, and enforcement of security interests.
2. Sections 13 and 17 of the SARFAESI Act:
   • Section 13 empowers secured creditors to take measures for the recovery of outstanding debts from borrowers who have defaulted on repayment. These measures include taking possession of secured assets and taking over the management of the borrower’s business.
   • Section 17 provides a remedy for aggrieved persons, including borrowers, to challenge the measures taken by secured creditors under Section 13 before the DRT. The application must be made within 45 days from the date on which such measures were taken.
3. Interpretation of Section 17:
   • Section 17 allows borrowers to challenge any measure taken by the bank under Section 13(4) or subsequent measures related to the recovery of dues.
   • The recent amendment to Section 17 substituted the “right to appeal” with the term “application,” emphasizing the borrower’s recourse to the DRT as the primary forum for redressal.
   • The Supreme Court has interpreted Section 17 as providing checks and balances on the powers of secured creditors, ensuring that borrowers have avenues for redressal against wrongful actions.
   • The Telangana High Court clarified that the term “measures” under Section 13(4) encompasses a series of steps taken by the bank for recovery, and court fees for challenging these measures are payable once as a whole, not individually for each step.
4. Calculation of Limitation Period:
   • The limitation period of 45 days for filing an application under Section 17 starts from the date of the last and latest measure taken by the bank. This ensures that borrowers have the opportunity to challenge any subsequent actions initiated by the bank.
   • Courts have ruled that the cause of action continues until all actions of the bank are concluded, and borrowers can approach the DRT at any stage against any measure taken by the bank.
5. Conclusion:
   • Borrowers have the discretion to decide when to approach the DRT to challenge the actions of the bank under Section 13(4).
   • Challenging auction proceedings at a later stage does not debar borrowers from seeking relief under Section 17, as the limitation period starts afresh with each new measure taken by the bank.

The analysis emphasizes the borrower’s rights and the flexibility provided under Section 17 for seeking redressal against actions taken by secured creditors under the SARFAESI Act.

The correlation between Sections 13 and 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act is essential in understanding the concept of “continuing cause of action” under the Act.

1. Section 13:
   • Section 13 of the SARFAESI Act empowers secured creditors (such as banks and financial institutions) to enforce their security interest without the intervention of courts or tribunals.
   • It lays down the procedure for issuing a notice to the borrower upon default, providing an opportunity for the borrower to remedy the default.
   • If the borrower fails to discharge the liability within the specified period, the secured creditor may take recourse to various measures specified under Section 13(4) to recover the outstanding debt. These measures include taking possession of the secured assets, taking over the management of the borrower’s business, appointing a manager for the secured assets, etc.
2. Section 17:
   • Section 17 provides a remedy for aggrieved persons, including borrowers, to challenge the measures taken by secured creditors under Section 13.
   • Any person aggrieved by the measures taken under Section 13(4) may make an application to the Debt Recovery Tribunal (DRT) within 45 days from the date on which such measures were taken.
   • The DRT examines whether the measures taken by the secured creditor are in accordance with the provisions of the SARFAESI Act and the rules made thereunder.
   • If the DRT finds that any of the measures taken by the secured creditor are not in accordance with the Act, it may declare such measures as invalid and pass appropriate orders, including restoration of possession or management of secured assets to the borrower.
3. Correlation:
   • The correlation between Sections 13 and 17 lies in the fact that Section 17 provides a recourse for borrowers to challenge the measures initiated by secured creditors under Section 13.
   • Section 17 acknowledges that the actions taken by the secured creditor under Section 13 may constitute a continuing cause of action for the borrower. This means that each action taken by the secured creditor under Section 13 may trigger a new cause of action for the borrower to challenge.
   • The limitation period for filing an application under Section 17 starts from the date on which such measures were taken by the secured creditor. Therefore, if multiple actions are taken by the secured creditor under Section 13, the limitation period for challenging each action starts afresh from the date of the last action taken.

Section 13 empowers secured creditors to take measures for recovery of outstanding debts, while Section 17 provides a mechanism for aggrieved persons to challenge such measures before the DRT. The correlation between these sections ensures that borrowers have a timely and effective remedy against any improper or unlawful actions taken by secured creditors under the SARFAESI Act.