The Rajasthan High Court has affirmed that borrowers facing enforcement under the SARFAESI Act are entitled to a reasonable opportunity to challenge recovery orders before a debt tribunal, even when default is established. This order balances the lender’s statutory rights with the borrower’s right to due process under Article 21.
Background & Facts
The Dispute
The appellant, Manish Suhalka, is a residential property owner who defaulted on a housing loan advanced by Vastu Housing Finance Corporation Ltd. The respondent bank initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), leading to the issuance of a possession notice. The appellant contested the outstanding amount, claiming exorbitant interest calculations inflated the debt to Rs.27 lakh.
Procedural History
- 18 July 2025: Debt Recovery Tribunal (DRT), Jaipur, passed an order upholding the bank’s claim and authorizing possession.
- 4 July 2025: The appellant filed a writ petition before the Rajasthan High Court challenging the DRT order and seeking stay on possession.
- 23 January 2026: The writ petition was dismissed by the Single Judge, prompting this appeal.
Relief Sought
The appellant sought a stay on the bank’s possession of the residential property and requested time to file an appeal before the Debt Recovery Appellate Tribunal (DRAT). He offered to deposit Rs.5 lakh upfront as a goodwill gesture and requested permission to remain in the house pending DRAT proceedings.
The Legal Issue
The central question was whether a borrower, who disputes the quantum of debt and seeks to challenge the DRT order before DRAT, is entitled to a reasonable opportunity to exhaust statutory remedies before the secured creditor can take possession of the residential property under the SARFAESI Act.
Arguments Presented
For the Appellant
Learned counsel argued that the interest rate applied by the bank was unconscionable and not in accordance with RBI guidelines, rendering the debt calculation legally unsustainable. He relied on M/s. Muthoot Finance Ltd. v. P. Sreekanth to assert that courts must examine the fairness of loan terms before permitting enforcement. He emphasized that the appellant’s offer to deposit Rs.5 lakh demonstrated bonafide intent and that the property in question was his only residential dwelling.
For the Respondent
The bank’s counsel did not dispute the appellant’s offer but insisted that the SARFAESI Act grants secured creditors an absolute right to enforce security interest upon default. He contended that the DRT order was final and binding, and any delay in possession would prejudice the bank’s financial interests. He argued that the court’s role was limited to ensuring procedural compliance, not re-evaluating the debt.
The Court's Analysis
The Court examined the interplay between the SARFAESI Act and the constitutional guarantee of fair procedure under Article 21. It noted that while the Act empowers banks to enforce security interests, it does not oust the jurisdiction of courts to ensure that enforcement is not arbitrary or oppressive. The Court observed that the appellant had not disputed the existence of the loan but only the quantum of the outstanding amount, which was a legitimate ground for appeal before DRAT.
"The right to challenge a DRT order before DRAT is not a mere procedural formality but a substantive statutory right that must be respected, particularly where the secured asset is a residential dwelling."
The Court held that the appellant’s offer to deposit Rs.5 lakh - nearly 20% of the claimed amount - demonstrated a willingness to cooperate and mitigate the bank’s risk. It further noted that the bank did not oppose the proposal, indicating mutual recognition of the need for a balanced approach. The Court emphasized that the SARFAESI Act must be read harmoniously with principles of natural justice and proportionality.
The Verdict
The appellant succeeded. The Court held that a borrower must be granted a reasonable opportunity to approach DRAT before possession of a residential property is taken, and directed the appellant to deposit Rs.5 lakh within 10 days and file an appeal before DRAT within 15 days. If no DRAT order is obtained within one month, the bank may proceed with possession.
What This Means For Similar Cases
DRAT Appeal Is Not A Formality
- Practitioners must now treat the filing of a DRAT appeal as a critical step in halting SARFAESI enforcement, not a technicality
- Courts will consider bonafide offers of partial payment as evidence of intent to resolve disputes
- Banks cannot proceed to possession merely because a DRT order exists - procedural fairness remains paramount
Residential Property Warrants Greater Protection
- The Court implicitly recognized the unique status of residential property under Article 21
- Even in commercial loan defaults, courts may intervene if the secured asset is the borrower’s only residence
- Banks should reassess their timelines for possession in cases involving residential properties
Procedural Compliance Is Non-Negotiable
- The 10-day deposit window and 15-day DRAT filing deadline establish a clear, enforceable timeline
- Failure to comply triggers automatic right to possession - no further hearing required
- Lawyers must advise clients to act swiftly: delay beyond the court-mandated period forfeits all protections
