The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, is a key legal framework that allows financial institutions to recover non-performing assets (NPAs) without resorting to lengthy judicial processes. One of the important aspects of the Act is the resolution of disputes that arise during the enforcement of security interests. While Section 11 does not specifically mention "resolution of disputes," it is generally understood to refer to the mechanisms involved when disputes arise between parties (borrowers, secured creditors, and other stakeholders) concerning the enforcement of rights under the SARFAESI Act.

Section 11 primarily addresses the powers of secured creditors to resolve disputes outside the traditional judicial process by empowering them to recover dues using mechanisms like asset possession, sale of secured assets, and other non-judicial enforcement strategies. However, when disputes arise in the course of this enforcement, various sections of the SARFAESI Act, as well as other legal mechanisms, come into play.

Key Aspects of Dispute Resolution under the SARFAESI Act

1. Role of Debt Recovery Tribunals (DRTs):

   • When disputes arise between borrowers and secured creditors, the Debt Recovery Tribunals (DRTs) are the primary adjudicating bodies designated to resolve them.
   • Borrowers or guarantors can file an application under Section 17 of the SARFAESI Act if they feel aggrieved by any measures taken by the secured creditor under Section 13(4) (possession of the secured asset, sale, etc.). The DRT is responsible for reviewing these cases and providing a resolution based on the merits of the dispute.
   • The DRT must pass an order within 60 days, with a possible extension of up to four months, ensuring that disputes are resolved in an expedited manner.

2. Appeal Mechanism: Debt Recovery Appellate Tribunal (DRAT):

   • If a party (usually the borrower) is dissatisfied with the order of the DRT, they have the option to appeal to the Debt Recovery Appellate Tribunal (DRAT) under Section 18 of the SARFAESI Act.
   • Before filing an appeal with the DRAT, the borrower must deposit 50% of the outstanding dues determined by the DRT, though the DRAT can reduce this amount to not less than 25%. This deposit acts as a deterrent against frivolous appeals.

3. Resolution without Court Involvement:

   • One of the critical objectives of the SARFAESI Act is to enable financial institutions to resolve disputes without extensive court intervention. Section 11 empowers secured creditors to directly enforce their rights over secured assets without needing to approach a court, thus streamlining the dispute resolution process.
   • Non-judicial resolution mechanisms include:
     • Taking possession of the secured assets.
     • Appointing a manager to manage the asset.
     • Selling the asset to recover the outstanding dues.

4. Protection for Borrowers and Guarantors:

   • Despite the powers granted to secured creditors, borrowers are not left without recourse. Section 13(3A) of the SARFAESI Act allows borrowers to submit objections or representations to the secured creditor before the enforcement action is taken. If the creditor does not accept these objections, they must provide reasons in writing.
   • Borrowers who feel their rights have been violated can challenge the actions of the secured creditor by filing an application with the DRT under Section 17. This allows for an impartial review of the enforcement measures.

5. Judicial Review and the Role of the Courts:

   • Although the SARFAESI Act empowers secured creditors to take possession of assets and enforce their security without approaching the courts, the High Courts and Supreme Court retain the power of judicial review under Article 226 and Article 32 of the Constitution of India, respectively.
   • In cases where a borrower believes that their fundamental rights have been violated, they can approach the High Court or Supreme Court, although courts are generally reluctant to intervene unless there is a clear violation of law.

6. Insolvency and Bankruptcy Code (IBC) and SARFAESI Act:

   • In cases where a borrower or corporate entity is under insolvency proceedings, the Insolvency and Bankruptcy Code (IBC), 2016, may intersect with the SARFAESI Act.
   • Once a corporate debtor is under insolvency resolution, the moratorium imposed by the IBC prevents secured creditors from enforcing their security interests under SARFAESI until the resolution process is complete. This ensures a fair and structured resolution of debts, preventing conflicting actions by various creditors.

7. Alternative Dispute Resolution (ADR) Mechanisms:

   • Though not explicitly mandated under the SARFAESI Act, creditors and borrowers can also resort to Alternative Dispute Resolution (ADR) methods, such as mediation and arbitration, to settle disputes related to the enforcement of security interests.
   • ADR methods are often faster, more cost-effective, and less adversarial than judicial proceedings, and they provide both parties with the opportunity to negotiate a mutually beneficial outcome.

8. Important Case Law on SARFAESI Dispute Resolution:

   • Various judicial pronouncements have shaped how disputes under the SARFAESI Act are resolved. Key cases include:
     • Mardia Chemicals Ltd. v. Union of India (2004): The Supreme Court ruled that Section 17 provides adequate protection to borrowers by allowing them to challenge any enforcement action taken by secured creditors before a DRT.
     • Standard Chartered Bank v. V. Noble Kumar (2013): This case clarified the procedural requirements for enforcing security interests under SARFAESI and emphasized the importance of adhering to timelines and statutory processes.
     • Hindon Forge Pvt. Ltd. v. State of Uttar Pradesh (2018): The Supreme Court ruled that aggrieved parties can challenge SARFAESI proceedings in the High Court under Article 226, affirming that judicial review remains available despite the non-judicial nature of SARFAESI enforcement.

Conclusion

Section 11 of the SARFAESI Act, although not explicitly dedicated to the "Resolution of Disputes," supports the non-judicial enforcement of security interests by empowering secured creditors. However, when disputes arise during enforcement, borrowers and creditors can seek redress through well-established mechanisms, including the Debt Recovery Tribunals, Debt Recovery Appellate Tribunals, and in rare cases, higher courts through judicial review. The SARFAESI Act ensures a balance between the efficient recovery of dues by creditors and the protection of the rights of borrowers, offering both statutory and judicial avenues for dispute resolution