Limitation Act applicable while challenging possession of property under SARFAESI Act: Gujarat HC
The High Court of Gujarat ruled that a borrower can challenge the possession of his property within 45 days from the last step of the process i.e. sale notice (which is before the date of auction sale). It also held that the Debt Recovery Tribunal (DRT) has the powers to condone delay when an application under Section 17 of the Securitization and Reconstruction of Financial Assets and...
The High Court of Gujarat ruled that a borrower can challenge the possession of his property within 45 days from the last step of the process i.e. sale notice (which is before the date of auction sale). It also held that the Debt Recovery Tribunal (DRT) has the powers to condone delay when an application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) is made in accordance with the provisions of Section 5 of the Limitation Act, 1963 (Limitation Act).
In the present case, the petitioners had availed finance from the respondent financial institution - Aditya Birla Finance Ltd. by mortgaging title deeds of their immovable properties. On failure to repay the amount borrowed, a notice under Section 13(2) of the SARFAESI Act was issued on 25th April 2017 upon the petitioners to clear the outstanding amount of Rs. 2.17 crores.
On 3rd November, 2018, a sale notice was issued intimating the petitioner that the respondents intended to hold an auction. Being aggrieved by such action of the respondents, the petitioners approached the DRT by filing Securitization Application. The DRT allowed the petitioners’ application and the respondent financial institution was restrained from proceeding further on the auction conducted and it directed that the respondent financial institution may proceed afresh in accordance with law to recover its dues further.
On appeal by the respondent institution, the Debt Recovery Appellate Tribunal at Mumbai (DRAT) set aside the order of the DRT holding that once the DRT clearly recorded a finding that the petitioners had failed to approach the Tribunal within 45 days, and there was a lapse of 45 days in filing the application, the DRT could not have passed such an order. According to DRAT, an application under Section 17 of the SARFAESI Act has to be filed within 45 days and the DRT is not expressly conferred with the power to condone delay.
According to the petitioner’s counsel, the 45-day limitation period commenced from the date on which symbolic possession of the mortgaged property was taken by the Bank which was 11th July, 2017. However, the DRAT had rejected the petitioners' contention that the 45-day limitation period had commenced only on 3rd November, 2018 which was when sale notice was issued.
The petitioner appealed to the High Court of Gujarat.
Justice Biren Vaishnav of the Gujarat High Court held that the Limitation Act is applicable to the provisions of the SARFAESI Act. He relied upon the decisions of the Bombay High Court in similar matters where it was held that with the provisions of Section 17(7) of the SARFAESI Act, such application has to be disposed of in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act).
Further the High Court held that the RDDB Act has Section 24 which provides that the Limitation Act, 1963 shall apply to the Securitization Applications before the Tribunal. Also Section 36 of the SARFAESI Act provides for the applicability of the Limitation Act and therefore there is no express exclusion of the Limitation Act. The DRT therefore has the power to condone the delay in applications filed before the DRT under Section 17 of the SARFAESI Act.
The Gujarat High Court relying upon a number of cases concluded that the Limitation Act is applicable to the provisions of the SARFAESI Act.
Further, the Court observed that SARFAESI Act and RDDB Act are complementary to each other and not in derogation. Section 24 of the RDDB Act states that the provisions of the Limitation Act shall apply to an application under Section 19 of the SARFAESI Act. Moreover, sections 17 and 19 of SARFAESI Act are original proceedings. Therefore section 24 of the RDDB Act would apply to Section 17 also. Therefore the DRT would have power to decide applications and take into consideration Section 5 of the Limitation Act.
The Court ruled that the DRAT was in error in holding that the DRT had no power to condone the delay in applications filed under Section 17 of the SARFAESI Act.
The second question before the High Court was that when does the cause of action to file an application under Section 13(4) of the NPA Act would accrue and whether the Section is for more measures than one and any such measure can be challenged in an application under Section 17 and that is there a continuous cause of action till the date of sale.
The Court concluded that on reading the provisions of Section 13(4) with Rule 8 Security Interest (Enforcement) Rules, 2002 (2002 Rules), it is clear that once possession notice is given under Rule 8(1) and Rule 8(2) by the secured creditor to the borrower, the borrower cannot deal with the secured asset at all and all further steps to realize the same are to be taken by the secured creditor under the 2002 Rules.
In light of the decisions of the Supreme Court in the case of “Mardia Chemicals Limited and another Vs. Union of India and others” and “Hindon Forge Private Limited and Another Vs. State Of Uttar Pradesh and Another” wherein it was held that the cause of action to the borrower accrues from the time the notice under Rule 8(1) and 8(2) is issued and the borrower can approach the Tribunal before the date of auction sale, the Gujarat High court held that the right accrues till such date, the Court quashed the DRAT order and remanded the matter back to the DRAT to be heard afresh on merits.