The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) plays a pivotal role in strengthening India's financial framework. The recent judgment of the Supreme Court in Central Bank of India & Anr. v. Smt. Prabha Jain & Ors. provided clarity on crucial aspects like the jurisdiction of the Debt Recovery Tribunal (DRT) and civil courts. The decision also elaborates on the rights of borrowers and third parties under the SARFAESI Act.

Key Highlights from the Supreme Court Judgment

The Supreme Court affirmed that the DRT's authority under Section 17(3) of the SARFAESI Act is restricted to restoring possession to individuals who were in possession of the secured asset when the bank took over. It does not extend to handing over possession to individuals whose claims are adverse to the borrower.

"DRT only has power to 'restore' possession; it has no power to 'hand over' possession to a person who was never in possession when the bank took over possession."

The Court reiterated that a civil court can adjudicate claims related to the title and possession of property, which fall outside the ambit of the DRT's jurisdiction. This includes cases where third parties challenge the validity of sale deeds and mortgages.

The Case in Context: Central Bank of India v. Smt. Prabha Jain

The litigation revolved around a suit filed by Smt. Prabha Jain, who claimed that her property was mortgaged illegally without her consent. Key milestones included:

1. Civil Court's Initial Ruling: Rejected her plaint based on jurisdictional limitations under Section 34 of the SARFAESI Act.
2. High Court's Reversal: Upheld the maintainability of her suit, emphasizing the DRT's lack of authority in title disputes.
3. Supreme Court's Affirmation: Supported the High Court's stance, stating that Section 34 does not bar civil courts from deciding such matters.

SARFAESI Act: Objectives, Applicability, and Process

Objectives of SARFAESI Act

• Accelerate recovery of non-performing assets (NPAs).
• Empower banks to auction assets without court intervention.
• Reduce the dependency on conventional legal mechanisms.

Applicability and Key Features

• Applicable: Only to secured loans involving tangible collateral.
• Not Covered: Agricultural land and loans below ₹1 lakh.
• Mechanism: Involves steps like seizure of assets, auctions, and the establishment of Asset Reconstruction Companies (ARCs).

Borrower Rights Under SARFAESI

Borrowers can:

• Approach the DRT under Section 17 to rectify grievances.
• Avoid asset seizure by clearing dues within 60 days.
• Seek compensation for unlawful actions by the lender.

Landmark Precedents on SARFAESI

The judgment builds upon earlier rulings, such as:

• Mardia Chemicals Ltd. v. Union of India: Established that civil courts retain limited jurisdiction where fraud or improper claims are alleged.
• Jagdish Singh v. Heeralal: Highlighted the scope of DRT's authority in dealing with secured creditors' actions.

Conclusion

The Supreme Court's ruling serves as a critical guideline for interpreting the SARFAESI Act's jurisdictional boundaries. By delineating the roles of DRT and civil courts, it ensures a balanced approach to resolving disputes involving secured assets. This judgment underscores the importance of protecting borrowers' rights while maintaining the Act's efficiency in recovering NPAs.