SARFAESI is Not Only for Lenders: It Protects Aggrieved Borrowers, Guarantors, and Third Parties Too
The common perception that the SARFAESI Act, 2002 exists solely to empower banks and financial institutions is legally incorrect. While the Act was enacted to facilitate speedy recovery of secured debts by lenders, it simultaneously provides robust remedies to borrowers, guarantors, tenants, legal heirs, co-owners, and other aggrieved third parties against arbitrary, illegal, or non-compliant actions of secured creditors. Section 17 of the SARFAESI Act expressly grants a statutory right to “any person (including borrower)” aggrieved by measures taken under Section 13(4) to approach the Debt Recovery Tribunal (DRT). This broad expression extends protection beyond borrowers and includes guarantors and third parties whose rights are affected by SARFAESI proceedings.
Banks undoubtedly possess significant enforcement powers under Section 13, including taking possession of secured assets and conducting auctions without prior court intervention. However, these powers are not absolute. A borrower has the right to challenge illegal possession notices, defective demand notices under Section 13(2), non-consideration of objections under Section 13(3A), improper valuation, fraudulent auctions, violation of mandatory Rules 8 and 9, and other procedural irregularities before the DRT. The law requires secured creditors to consider and communicate reasons for rejecting borrower objections, thereby ensuring procedural fairness.
The Supreme Court has further strengthened borrower protections by holding that a challenge under Section 17 can be filed even after symbolic or physical possession is taken before sale is completed. This ensures that borrowers need not wait until irreversible damage occurs before seeking judicial intervention.
Importantly, guarantors are equally entitled to challenge SARFAESI measures affecting their mortgaged properties. Likewise, third parties claiming tenancy, leasehold rights, ownership interests, inheritance rights, or other lawful interests in secured assets can seek relief before the DRT. Section 17 specifically empowers the Tribunal to examine such claims and to restore possession where the secured creditor’s action is found contrary to law.
Recent judicial decisions also emphasize that while the DRT is the primary tribunal for examining the legality of SARFAESI measures, civil courts continue to retain jurisdiction over complex title disputes, declarations regarding validity of mortgage deeds, and questions requiring adjudication of ownership rights. Thus, aggrieved parties are not left remediless merely because SARFAESI proceedings have been initiated.
In essence, SARFAESI is a balanced legislation. It is not merely a weapon for lenders; it is equally a shield for borrowers, guarantors, and third parties against unlawful recovery actions. The Act seeks to ensure recovery of legitimate debts while preserving the constitutional and legal rights of every person affected by the enforcement process. When banks act beyond the framework of the Act and Rules, the DRT possesses the authority to declare such measures invalid and restore possession or other rights to the aggrieved person.
