DRT Order and Judgement: DRT Judgements Favourable to Borrowers
Debt Recovery Tribunals (DRTs), established under the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), are primarily designed to expedite recovery of dues by banks and financial institutions. However, over the years, several landmark judgments from the Supreme Court, High Courts, and DRTs/DRATs have safeguarded borrowers’ rights by reinforcing procedural fairness, transparency, and judicial oversight under both the RDB Act and the SARFAESI Act, 2002.
These judgments underscore that while recovery of dues is legitimate, it must not override statutory safeguards or principles of natural justice.
Key Favourable Judgments for Borrowers
1. Supreme Court on Loan Restructuring and Foreclosure (2025)
The Supreme Court ruled that foreclosure should only be a last resort. The bank in this case had violated RBI guidelines by denying the borrower a fair opportunity for restructuring and by charging excessive interest, leading to unreasonable accumulation of dues.
The Court held that:
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Banks must give borrowers every reasonable chance to settle before foreclosure.
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RBI norms and fair interest rates must be strictly observed.
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Judicial review is appropriate where procedural violations or bad faith are alleged.
Impact: Strengthened the borrower’s right to fair restructuring and restricted arbitrary foreclosure.
2. Mathew Varghese v. Amritha Kumar & Ors.
The Supreme Court reaffirmed that the right of redemption of mortgaged property continues until the actual conclusion of a valid auction sale under SARFAESI.
High Courts have followed this precedent, holding that banks cannot deny redemption if dues are cleared before the sale is formally concluded.
Impact: Prevents premature loss of ownership and ensures redemption remains a real, enforceable right.
3. State Bank of India v. Jah Developers Pvt. Ltd.
The Supreme Court emphasized strict procedural compliance under the SARFAESI Act.
Failure to follow statutory procedure renders the recovery action invalid. The judgment restricts banks from taking possession or selling assets unless all legal preconditions—notice, valuation, and timelines—are properly met.
Impact: Strengthened procedural rights and ensured borrowers’ access to remedy against unlawful recovery actions.
4. Jurisdiction of DRT and Civil Court
Courts have clarified that although DRTs handle debt recovery, borrowers are not barred from filing independent civil suits for damages or counterclaims arising from the same banking transactions.
Borrowers can thus pursue remedies simultaneously where broader relief or equitable jurisdiction is required.
Impact: Borrowers have a dual avenue—DRT for debt recovery disputes and civil courts for contractual or tortious wrongs.
Key Judgments Favourable to Borrowers / Guarantors
| Case Name | Court/Year | Key Ruling | Impact on Borrowers |
|---|---|---|---|
| Mardia Chemicals Ltd. v. Union of India | Supreme Court, 2004 | Struck down the 50% deposit rule for DRT appeals under SARFAESI as unconstitutional (violating Article 14). Later reduced to 25%. | Made DRT appeals more accessible to borrowers. |
| M/s. Transcore v. Union of India | Supreme Court, 2006 | Clarified that DRT retains jurisdiction over recovery even after SARFAESI proceedings; borrowers can seek restoration if possession was unlawful. | Prevented banks from bypassing DRT scrutiny. |
| Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. | Supreme Court, 2014 | Recognized rights of tenants and third parties under SARFAESI; DRT can order compensation where rights are infringed. | Protected non-borrower occupants and prevented arbitrary possession. |
| M/s. Laxmi Pat Surana v. Union Bank of India | Supreme Court, 2019 | Borrowers can approach DRT even after sale if assets are sold below fair value. | Enabled post-sale remedies against undervalued auctions. |
| State Bank of India v. Rajesh Agarwal | Supreme Court, 2023 | DRTs must adjudicate borrower counterclaims; civil suits cannot be transferred to DRT without consent. | Preserved independent civil remedies for borrowers. |
| Civil Courts Not Barred from Counterclaims | Supreme Court, 2022 | Civil courts can entertain borrower counterclaims even when DRT proceedings are ongoing. | Broadened forum choice for borrowers. |
| Indian Overseas Bank v. Ashok Saw Mill | Supreme Court | DRT can examine legality of all SARFAESI enforcement stages, including possession and sale. | Prevented banks from avoiding DRT oversight. |
| Jimmy Thomas v. Indian Bank | Kerala High Court, 2023 | DRT must apply its mind when granting interim orders; cannot act mechanically. | Reinforced fair hearing standards. |
Notable DRT and DRAT Orders
| Case Name | Tribunal/Year | Key Ruling | Impact on Borrowers |
|---|---|---|---|
| State Bank of India v. M/s. Spectrum Consultants | DRAT, 2019 | Bank cannot sell property without offering reasonable opportunity for settlement. | Encouraged negotiated settlements. |
| Generic DRT Rulings on Section 13(2) Notices | DRTs (2018–2022) | Section 13(2) notices must specify correct dues; vague or inflated claims can be quashed. | Helped borrowers challenge defective notices. |
| Rana Girders Ltd. v. Union of India | DRT, 2022 | DRT can stay recovery where bank fails to prove debt quantum accurately. | Protected borrowers in disputed liability cases. |
Recent Judicial Developments (Up to 2025)
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2025 INSC 95 (Supreme Court): Clarified DRT jurisdiction under amended Section 13(3A) of SARFAESI; DRTs can restore possession to borrowers or legal heirs in wrongful repossessions.
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Bombay High Court (Prateek Pradeep Agarwal v. Union of India, 2022): Private treaty sales of secured assets require borrower consent, strengthening transparency and fairness.
Statutory Safeguards and Borrower Rights
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Due Process: Borrowers can challenge any action violating SARFAESI or RDB procedures before DRT.
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Right of Redemption: Continues until completion of a valid auction sale.
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Fair Interest and RBI Compliance: Banks must adhere to RBI restructuring norms and avoid excessive or usurious rates.
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Transparency in Sale: Asset sales must follow fair valuation and public notice norms.
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Judicial Oversight: Courts maintain active supervisory jurisdiction over arbitrary or high-handed recovery actions.
Practical Guidance for Borrowers
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Demand procedural compliance with RBI and statutory guidelines before any recovery or sale.
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Challenge defective notices under Sections 13(2) or 13(4).
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Dispute excessive interest or unfair penal charges.
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Invoke right of redemption before auction completion.
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File counterclaims in DRT or civil court where the bank acted in bad faith.
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Document all correspondence and objections to strengthen appeals.
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Approach DRAT or High Court promptly if procedural irregularities persist.
The evolving judicial landscape reveals a growing sensitivity toward borrower protection within India’s debt recovery framework. Courts have consistently reaffirmed that recovery mechanisms must function within the bounds of law, fairness, and equity, ensuring that borrowers receive every procedural safeguard guaranteed under the Constitution and financial statutes.
M. Rajendran & Ors. v. KPK Oils and Proteins India Pvt. Ltd. & Ors. (2025 INSC 1137) is a landmark Supreme Court decision clarifying the borrower’s right of redemption under the SARFAESI Act after the 2016 amendment to Section 13(8).
Case Background
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KPK Oils and Proteins India Pvt. Ltd. availed loans in 2016; after default, the account was declared an NPA and the secured asset was auctioned by the bank.
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The auction purchasers (M. Rajendran and others) were issued a Sale Certificate, but the borrowers sought to redeem the mortgage post-auction, which the Madras High Court allowed.
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The Supreme Court was asked to clarify the exact point at which the right of redemption is extinguished under Section 13(8) post-amendment.
Supreme Court’s Findings
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The 2016 amendment to Section 13(8) of the SARFAESI Act extinguishes the borrower’s right of redemption at the date of publication of the auction notice, rather than the registration of the sale certificate.
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The amended provision applies prospectively, not retrospectively, meaning rights created before the amendment are not affected.
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The High Court erred by allowing redemption after the auction process; once the auction notice is published, the right of redemption is lost if dues are not paid before that date.
Critical Observations
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The Supreme Court highlighted a “glaring anomaly” and ambiguity between the language of Section 13(8) and SARFAESI Rules, which continues to cause litigation and confusion.
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The Court urged the Ministry of Finance and Ministry of Law & Justice to amend the law to resolve these ambiguities.
Final Outcome
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The Supreme Court allowed the appeals, set aside the Madras High Court’s judgment, and upheld the validity of the Sale Certificate issued to auction purchasers.
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Any third-party rights created over the property after the auction were declared void.
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The borrowers’ subsequent tender of dues was invalid as it was after the extinction of their redemption right.
Legal Significance
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This decision is now a defining precedent for the extinction of redemption rights and clarifies the scope of amendments to Section 13(8) of the SARFAESI Act.
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Reinforces protections for auction purchasers and the sanctity of the auction process under the SARFAESI Act.
This judgment directs banks, borrowers, and courts to adhere strictly to the statutory scheme and timelines set out under the SARFAESI Act, providing greater certainty and safeguarding creditor remedies.
