Banking, Finance and Debt Recovery

SARFAESI: enforcement and the borrower's remedy

The SARFAESI Act, 2002 lets a secured lender enforce its security without first going to court. It begins with a demand notice under Section 13(2) requiring the borrower to clear the dues within sixty days; if the borrower does not, the lender can take possession of the secured asset under Section 13(4), with the assistance of the District Magistrate under Section 14 where needed. A borrower who disputes the action applies to the Debts Recovery Tribunal under Section 17.

In Mardia Chemicals Ltd. v. Union of India the Supreme Court upheld the Act but struck down the requirement that a borrower deposit seventy-five per cent of the claim before being heard, holding it oppressive and contrary to Article 14. The result is a framework that lets lenders recover quickly while leaving the borrower a real remedy. The firm acts on both sides: enforcing security for lenders, and challenging notices and possession that do not follow the Act for borrowers.

Debt recovery before the DRT

For dues above the statutory threshold, banks and financial institutions recover through the Debts Recovery Tribunal under the Recovery of Debts and Bankruptcy Act, 1993, filing an original application and, on success, obtaining a recovery certificate enforced by a Recovery Officer. Appeals lie to the Debts Recovery Appellate Tribunal.

The same tribunal hears a borrower's challenge to SARFAESI measures, so the DRT is often the single forum where enforcement and defence meet. The firm prepares and contests these applications on the loan documents and the account, not on generalities.

Insolvency under the IBC

Where a company defaults, a financial creditor under Section 7 or an operational creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016 can apply to the National Company Law Tribunal to begin a corporate insolvency resolution process. In Innoventive Industries Ltd. v. ICICI Bank the Supreme Court held that once the Tribunal is satisfied that a default has occurred and the application is complete, it must admit the matter, and that the Code overrides inconsistent State laws. On admission, the moratorium under Section 14 stays recovery suits, SARFAESI action and other proceedings against the company.

The constitutional validity of the Code, including the different treatment of financial and operational creditors, was upheld in Swiss Ribbons Pvt. Ltd. v. Union of India. The firm advises creditors on initiating and participating in the process, companies on resisting premature or defective petitions, and personal guarantors, who can now be pursued under the Code, on their exposure. Appeals lie to the National Company Law Appellate Tribunal.

Cheque dishonour under Section 138

A dishonoured cheque is an offence under Section 138 of the Negotiable Instruments Act, 1881, provided the payee issues a demand notice within thirty days of the dishonour and the drawer fails to pay within fifteen days of receiving it. The law presumes, under Section 139, that the cheque was issued for a debt or liability, and the burden shifts to the drawer to rebut that presumption.

In In Re: Expeditious Trial of Cases under Section 138 of NI Act the Supreme Court issued binding directions to clear the very large backlog of these cases, including that trials proceed summarily, that evidence in a preliminary inquiry be taken on affidavit, and that the trial be concluded, as far as possible, within six months under Section 143. The firm prosecutes and defends these complaints, and advises on the settlement that frequently resolves them.

Digital banking, fraud and electronic records

As lending and payments move online, disputes increasingly turn on electronic records: net-banking and UPI transactions, the bank's electronic statement of account, and the logs behind an alleged unauthorised transfer. Under the Bharatiya Sakshya Adhiniyam, electronic records are admissible only with proper certification, which can be decisive in both recovery and fraud matters.

The Reserve Bank's customer-protection directions limit a customer's liability for unauthorised electronic banking transactions that are reported promptly, and shift the burden in important respects to the bank. The firm advises customers and businesses on disputed and fraudulent transactions, and scrutinises the electronic record behind a bank's claim, an area where its technology background is put to direct use.

The legal framework

The principal statutes and the provisions that most often decide these matters. Statute text can be read in the firm's Legal Library; always check the current version at the official source.

Key judgments

Grouped by issue. Each case is cited from the court's own record; open a heading to read it.

How we work on these matters

The firm acts for lenders and for borrowers, and brings the same discipline to each: the case is built on the loan and security documents and the statement of account, read closely, rather than on assertion.

Banking matters often run in more than one forum at once, a SARFAESI action, a DRT recovery, an insolvency petition and a cheque case can all arise from the same default. The firm coordinates the strategy across these forums so that steps in one do not undercut the position in another.

Advice on recovery prospects, and on the realistic value of defending or settling, is given candidly. Where settlement serves the client better than a long contest, that is said plainly.

Frequently asked questions