SBI Appeal Allowed: Borrowers Not Entitled to Compensation Under SARFAESI Section 19 Without Actual Possession, Rules DRAT [Read Order]
The DRAT set aside the award of ₹50,000 compensation to borrowers, since SBI withdrew the defective SARFAESI notices before taking possession, the compensation was not met and the appeal was allowed.
![SBI Appeal Allowed: Borrowers Not Entitled to Compensation Under SARFAESI Section 19 Without Actual Possession, Rules DRAT [Read Order]](https://images.taxscan.in/h-upload/2025/12/30/2115827-sbi-appeal-allowed-borrowers-entitled-compensation-sarfaesi-section-19-actual-possession-rules-drat-taxscan.webp "SBI Appeal Allowed: Borrowers Not Entitled to Compensation Under SARFAESI Section 19 Without Actual Possession, Rules DRAT [Read Order]")
The Debt RecoveryAppellate Tribunal (DRAT) held that compensation under Section 19 of the SARFAESI Act was payable only if physical/actual possession of secured assets was taken and found unlawful of the Borrowers. Since SBI withdrew defective notices without taking possession, the ₹50,000 compensation was set aside and the appeal allowed. The Tribunal heard and reserved the case...
The Debt RecoveryAppellate Tribunal (DRAT) held that compensation under Section 19 of the SARFAESI Act was payable only if physical/actual possession of secured assets was taken and found unlawful of the Borrowers. Since SBI withdrew defective notices without taking possession, the ₹50,000 compensation was set aside and the appeal allowed.
The Tribunal heard and reserved the case for orders on 21.04.2025. The appellant, State Bank of India challenged the order dated 31.01.2024, which allowed the borrowers' Interim Application No. 6148/2023 before the lower Tribunal.
The Section 19 of the Securitisation And Reconstruction Of Financial Assets And Enforcement OfSecurity Interest Act, 2002 (SARFAESI) explained that: Right of borrower to receive compensation and costs in certain cases.
“If the Debts Recovery Tribunal or the Court of District Judge, on an application made under section 17 or section 17-A or the Appellate Tribunal or the High Court on an appeal preferred under section 18 or section 18-A, holds that the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act and rules made thereunder and directs the secured creditors to return such secured assets to the [concerned borrowers or any other aggrieved person, who has filed the application under section 17 or section 17A or appeal under section 18 or section 18A, as the case may be, the borrower or such other person] shall be entitled to the payment of such compensation and costs as may be determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High Court referred to in section 18-B.]”
The Respondent, borrowers, Sarvamangla and Anr., availed a credit facility of Rs. 30.82 lakhs under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme with security interest/mortgage. Due to irregular operations, the account was classified as NPA on 15.06.2022. A demand notice under Section13(2) of the SARFAESI Act for Rs. 34,17,555/- was issued and served on 27.06.2022.
Following non-payment, a possession notice under Section 13(4) was issued. The borrowers challenged these notices by filing S.A. No. 915/2022 before the Tribunal below. The account was transferred to the Specialized Recovery Branch (SARB), Indore, which found the demand notice defective regarding unsecured amounts and issued a fresh demand notice, withdrawing the earlier notices under Sections 13(2) and 13(4).
Following withdrawal of the earlier notices, the borrowers filed an application seeking compensation including court fees, advocate's fees, and other litigation expenses. The lower Tribunal allowed the application and directed the Bank to pay Rs. 50,000/- towards expenses incurred in filing the S.A., advocate's fee, and also ordered removal of amounts debited from the loan account towards expenses of issuing demand and possession notices. The S.A. was also disposed of. Aggrieved by this order, the appellant filed the present appeal.
The Counsel for the Appellant, stated that the sole question is whether the costs imposed by the lower Tribunal were justified. The Counsel had also opposed the borrowers' compensation application arguing that Section 19 is inapplicable as no physical possession was taken. Further, the lower Tribunal ignored this fact and allowed compensation, making the order unsustainable.
On the other hand, the Counsel for the Respondent, in their reply dated 11.07.2025, stated that the appellant withdrew the SARFAESI proceedings during pendency of the S.A. without reason. Since the S.A. was filed, court fees deposited, and advocate engaged, the appellant was responsible for all these acts. Thus, the lower Tribunal rightly imposed costs under Section 19 of the SARFAESI Act.
The Tribunal consisted of Justice R.D Khare, Chairperson, heard and reviewed the arguments made by the Appellant and reply filed by the Respondent.
The Tribunal, after considering the submissions made, held that the demand and possession notices were issued and challenged by the borrowers, but were subsequently withdrawn by the appellant due to defects before taking any physical possession. Section 19 of the SARFAESI Act pointed out that compensation was available only when "the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act" and directs return of such assets.
Further, the Tribunal observed that since no physical possession was taken, the condition for compensation under Section 19 was not fulfilled. The lower Tribunal erred in allowing compensation without this essential requirement.
Accordingly, the impugned order was set aside and the appeal filed by the appellant was allowed without costs.
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