SARFAESI and RDDBFI Proceedings Distinct and cannot be Clubbed: DRAT Allows Canara Bank's Appeal [Read Order]
It was observed that the borrowers had deliberately filed their application under the SARFAESI Act to avoid the mandatory deposit requirement under Section 30-A RDDBFI Act.
The Debts Recovery Appellate Tribunal (DRAT), Allahabad bench, had allowed an appeal filed by Canara Bank holding that proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) are distinct and cannot be clubbed together.
Maruti Nandan Foods Products Pvt. Ltd., the respondent, and its guarantors had availed substantial credit facilities from Canara Bank, secured by personal guarantees and collateral properties. When the borrowers defaulted, the Bank classified the accounts as non-performing assets (NPAs) and initiated recovery under both statutes.
Under the RDDBFI Act, Canara Bank, the appellant, applied for the recovery of ₹27.34 crore, which was decreed in October 2018. A recovery certificate was issued, and Recovery Proceedings commenced before the Recovery Officer DRT.
Simultaneously, under the SARFAESI Act, the Bank issued demand notices in 2017, possession notices in March 2018, and a sale notice in December 2020, scheduling an auction in January 2021. Borrowers challenged these measures in the Tribunal, where the Tribunal granted a status quo order on 29 November 2021.
The borrowers filed their pending SARFAESI application, contending that the Recovery Officer had violated the status quo order by proceeding with the sale proclamation under the RDDBFI Act.
They sought restraint on the Recovery Officer, arguing that both proceedings were enforcement mechanisms for the same debt and that SARFAESI, being a later enactment, had an overriding effect under Section 35.
The DRT accepted this plea, directing the Recovery Officer to keep the sale proclamation in abeyance until the status quo order remained in force. Canara Bank challenged this order before the DRAT, Allahabad.
Canara Bank argued that the borrowers had an alternative remedy under Section 30 of the RDDBFI Act, which allows an appeal against orders of the Recovery Officer. Crucially, Section 30-A requires the deposit of 50% of the debt due when filing such appeals. By filing an interim application under SARFAESI instead, the borrowers sought to bypass this statutory requirement.
The Bank further contended that SARFAESI and RDDBFI proceedings are separate and distinct, and while simultaneous recovery is permissible, orders under one Act cannot restrain proceedings under the other. Therefore, the DRT’s order was without jurisdiction.
The bench of RD Khare (Chairperson) agreed with the Bank’s submissions. It was observed that the borrowers had deliberately filed their application under the SARFAESI Act to avoid the mandatory deposit requirement under Section 30-A RDDBFI Act. The Tribunal emphasised that if an order is passed under the wrong statute, it is null and void.
It is the settled principle that banks may proceed simultaneously under both Acts, but the proceedings cannot be clubbed. The SARFAESI status quo order could not restrain recovery proceedings under the RDDBFI Act, as each statute provides its own framework and remedies.
The Tribunal held that the DRT had acted without jurisdiction in entertaining the borrowers’ application under the SARFAESI Act against an order of the Recovery Officer under the RDDBFI Act.
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