In a noteworthy legal development, the High Court of Delhi (HC) has issued a ruling with significant implications for the jurisdiction of Debt Recovery Tribunals (DRT) under the SARFAESI Act.
The Division Bench, comprising Justice Vibhu Bakhru and Justice Amit Mahajan, in the case of IDFC First Bank Limited v. Union of India and Ors., established that claims below Rs.10 lakhs under the SARFAESI Act cannot be entertained by the DRT. Additionally, the HC clarified that the remedy under Section 13(10) of the SARFAESI Act cannot be pursued by a bank independently of the provisions of the Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”).
The HC emphasized that an application under Section 13(10) of the SARFAESI Act does not constitute an action for the enforcement of a security interest in a financial asset. Instead, it aligns with the nature of the original action covered under the RDB Act. However, the SARFAESI Act lacks express provisions specifying which Debts Recovery Tribunal holds jurisdiction to decide an original claim for the outstanding amount post-security interest enforcement.
In the case at hand, IDFC First Bank contested the DRT's rejection of its application under Section 13(10) of the SARFAESI Act due to a lack of pecuniary jurisdiction. The disputed outstanding amount was Rs. 6,92,551.63, with interest. The DRT contended that pecuniary jurisdiction limits under the RDB Act do not apply when the outstanding amount is below Rs.20 lakhs.
The bank argued that Section 13(10) of the SARFAESI Act provides an independent remedy, distinct from the provisions of the RDB Act, and hence, the pecuniary limit set by Section 1(4) of the RDB Act should not be applied.
The HC disagreed with the bank's arguments, citing several grounds:
1. The SARFAESI Act does not specify the DRT with jurisdiction to adjudicate Section 13(10) applications.
2. Referring to the RDB Act for determining DRT jurisdiction under Section 13(10) implies adherence to pecuniary jurisdiction limits.
3. Certain RDB Act provisions crucial for claim adjudication and amount recovery, including the right to appeal, are significant and cannot be disregarded.
The HC highlighted the amendment to the RDB Act by Section 294 of the IBC, introducing the words “save as otherwise provided” in Section 1(4). These words carve out an exception to the pecuniary jurisdiction clause, allowing DRT to exercise jurisdiction expressly conferred, irrespective of the specified pecuniary threshold.
Referring to the Supreme Court’s decision in State Bank of Patiala v. Mukesh Jain and Anr., the HC affirmed that the Rs.10 lakhs threshold under Section 1(4) of the RDB Act limits DRT’s original jurisdiction.
In dismissing the bank's petition, the HC concluded that the remedy under the SARFAESI Act is not independent of the RDB Act. An application under Section 13(10) of the SARFAESI Act is deemed an Original Application under Section 19(1) of the RDB Act, with a limit set at Rs.20 lakhs
The Criteria for the Applicability of the Sarfaesi Act to Non-Banking Financial Companies (NBFCs).