Delhi High Court: DRT cannot entertain less than Rs.10 lakh claim under SARFAESI Act

Delhi High Court: DRT cannot entertain less than Rs.10 lakh claim under SARFAESI Act

The IDFC First Bank had challenged the rejection of its Section 13(10) application for lack of pecuniary jurisdiction.

The Delhi High Court has held that the Debt Recovery Tribunal (DRT) cannot entertain a claim for an amount less than Rs.10 lakh under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002.

A division bench comprising Justice Vibhu Bakhru and Justice Amit Mahajan added that the remedy under Section 13(10) of the SARFAESI Act could not be availed by a bank independent of the provisions of the Recovery of Debts and Bankruptcy (RDB) Act, 1993, and the pecuniary limit set out in the Act also applies.

The court stated, "The nature of the application is precisely that of the original action, covered under the RDB Act. However, the SARFAESI Act does not contain any express provisions that stipulate that the Debts Recovery Tribunal has the jurisdiction to decide an original claim to the outstanding amount that remains after the secured creditor enforced the security interest."

The IDFC First Bank had approached the court, challenging the rejection of its Section 13(10) SARFAESI Act application by the DRT for lack of pecuniary jurisdiction.

The outstanding amount was approximately Rs.6,92,551.63, with interest. The DRT argued that the RDB Act did not apply when the debt due to the bank was less than Rs.20 lakhs.

IDFC averred before the court that Section 13(10) provided an independent remedy and should be considered separately from the provisions of the RDB Act. The bank contended that the pecuniary limit set by Section 1(4) of the RDB Act was not applicable to the application under Section 13(10)of the SARFAESI Act. It stated that the SARFAESI Act lacked a provision equivalent to the RDB Act.

On the other hand, the respondent argued that IDFC had another effective remedy available under the RDB Act, rather than the SARFAESI Act. It claimed that the outstanding amount (after selling the secured assets) could be recovered under the RDB Act, with the Ministry of Finance's Gazette Notification, which specified that the RDB Act did not apply when the amount was less than Rs.20 lakh.

However, the court did not accept IDFC's arguments. It clarified:

a) The SARFAESI Act does not specify which DRT would have jurisdiction to handle Section 13(10) applications.

b) To determine the jurisdiction, the court needed to refer to the RDB Act, and there was no valid reason to disregard the pecuniary jurisdiction limits of the DRT under the RDB Act.

c) Certain provisions of the RDB Act, crucial for claim adjudication and recovery, could not be omitted. These included the right to file an appeal against the determination of the amount due (under Section 13(10), not provided under the SARFAESI Act) and a borrower's right to file a counterclaim.

The court highlighted the amendments made to the RDB Act by Section 294 of the Insolvency and Bankruptcy (IBC) Code, 2016, which introduced the words ‘save as otherwise’ provided in Section 1(4).

The judges explained, “The import of the words was to carve out an exception to the clause regarding the pecuniary jurisdiction of the Debts Recovery Tribunal.”

The bench emphasized that when the DRT was explicitly granted jurisdiction, it should exercise it regardless of the pecuniary threshold specified under Section 1(4) of the RDB Act. Thus, an application under Section 13(10) of the SARFAESI Act was more about recovering an amount payable by a borrower to the secured creditor than enforcing a security interest in a financial asset.

Justice Bakhru and Justice Mahajan referred to the decision of the Supreme Court in the State Bank of Patiala v. Mukesh Jain and Anr case, wherein it was held that the Rs.10 lakh threshold under the RDB Act applied to limit the original jurisdiction of the DRT.

Thus, while dismissing the petition of the IDFC, the court stated that an application under the SARFAESI Act was an original application under the RDB Act, which had a Rs.20 lakh set limit. Therefore, the remedy under the SARFAESI Act could not be considered independent of the RDB Act.

Advocates Sanjeev Singh and Ridhi Pahuja appeared for IDFC.

The respondents were represented by advocates Vivek Goyal, SPG and Mimansak Bhardwaj, GP, along with Gokul Sharma, Shivam Singh, and Aneeta Goyal.