The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) empowers banks and financial institutions to recover dues without court intervention. However, borrowers have the right to challenge these actions under specific circumstances. A recent judgment by the Allahabad High Court sheds light on the timeline and legal grounds for such challenges.
The Case Background
In Vimla Kashyap vs Union of India, the petitioners contested an order by the Debts Recovery Tribunal (DRT), which dismissed their application for interim relief, stating their appeal was "hopelessly barred by limitation." The petitioners argued they were unaware of the proceedings until a notice was affixed to their property, and they filed their appeal within the limitation period from that date.
The central question was whether the limitation period for filing an appeal under Section 17 of the SARFAESI Act begins from the date of the notice under Section 13(4) or from the borrower's actual knowledge of the proceedings, such as the issuance of a notice under Section 14.
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Court’s Analysis and Ruling
The High Court referred to several landmark judgments to clarify the legal position:
- Mardia Chemicals Ltd. vs Union of India (2004):
The Supreme Court held that borrowers can approach the DRT only after measures are taken under Section 13(4). The Court emphasized that the 75% pre-deposit requirement for appeals was unconstitutional, ensuring easier access to justice for borrowers."The requirement of deposit of 75% of the amount claimed before entertaining an appeal under Section 17 is oppressive and arbitrary." - Hindon Forge Pvt. Ltd. vs State of Uttar Pradesh (2019):
The Supreme Court reiterated that the borrower’s right to challenge arises as soon as possession notices under Rules 8(1) and 8(2) are issued. The Court clarified that the borrower need not wait for physical possession or auction to file an appeal. - Kanaiyalal Lalchand Sachdev vs State of Maharashtra (2011):
The Supreme Court ruled that actions under Section 14 are a continuation of Section 13(4) measures, providing another opportunity for borrowers to challenge the proceedings.
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The Allahabad High Court quashed the DRT’s order, stating:
- The limitation period must be calculated from the date the borrower becomes aware of the action, not just from the issuance of the Section 13(4) notice.
- The DRT erred in dismissing the appeal as time-barred while simultaneously examining the merits of the case.
- The steps under Sections 13(4) and 14 are part of a continuous cause of action, allowing borrowers to challenge any subsequent measures.
The Court remanded the matter back to the DRT for fresh consideration and directed the preservation of the property’s status quo until the interim application is decided.
Case Title: Vimla Kashyap & Others vs. Union of India & Others
Case No.: Matters Under Article 227 No. 3953 of 2025
