The Bombay High Court has reinforced the procedural safeguards under the SARFAESI Act by directing a bank to suspend enforcement actions while a borrower’s interim application for stay remains pending before the Debt Recovery Tribunal. This order underscores that statutory remedies must be exhausted in sequence and that procedural compliance is non-negotiable, even when banks assert secured creditor rights.
Background & Facts
The Dispute
The petitioner, Rahul Wakodikar, is a borrower who defaulted on a loan secured by immovable property. Canara Bank, the respondent, initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), issuing notices for auction and physical possession of the property. The petitioner challenged these actions before the Debt Recovery Tribunal (DRT), Nagpur, seeking interim relief to prevent enforcement pending adjudication of his main application.
Procedural History
- January 2025: Bank filed Securitisation Application No.174 of 2025 before DRT Nagpur.
- February 6, 2025: Bank issued notice for auction; DRT rejected interim stay application due to lack of bids.
- January 12, 2026: Bank issued fresh E-auction notice; DRT dismissed Interim Application No.157 of 2026 as infructuous due to no bids received.
- January 29, 2026: Bank issued notice for physical possession on February 25, 2026.
- February 2026: Petitioner filed fresh interim application before DRT, which was refused physical filing and hearing.
Relief Sought
The petitioner sought immediate stay on the notice for physical possession and directed the DRT to accept and hear his interim application without delay.
The Legal Issue
The central question was whether a secured creditor under the SARFAESI Act may proceed to take physical possession of secured assets while a borrower’s interim application for stay remains pending and unadjudicated before the Debt Recovery Tribunal.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that Section 13(4) of the SARFAESI Act mandates that enforcement actions, including possession, cannot be initiated until the borrower’s objections are heard and disposed of by the DRT. Reliance was placed on Mardia Chemicals Ltd. v. Union of India to assert that procedural fairness under Article 14 and 21 requires a meaningful opportunity to be heard before deprivation of property. The refusal to accept the interim application amounted to denial of access to justice.
For the Respondent
The bank contended that since no bids were received in prior auction attempts, the enforcement process was merely procedural and not yet consummated. It argued that the DRT’s dismissal of prior applications as infructuous rendered the petitioner’s latest application redundant, and that the bank was entitled to proceed with possession under its statutory rights.
The Court's Analysis
The Court examined the statutory scheme of the SARFAESI Act and held that the DRT’s role is not merely adjudicatory but also protective. The Act creates a statutory mechanism where the borrower’s right to object precedes enforcement. The Court emphasized that the DRT’s refusal to accept the interim application physically and deny hearing violated the principle of natural justice.
"The right to be heard is not a mere formality but a substantive right under the SARFAESI Act, and the Tribunal cannot abdicate its duty by refusing to entertain an application merely because prior applications were dismissed on technical grounds."
The Court distinguished Canara Bank v. P.N. Srinivasan where possession was upheld only after full adjudication. Here, no adjudication had occurred. The Court further noted that the bank’s reliance on lack of bids did not extinguish the borrower’s right to challenge the validity of the notice or the underlying debt. The DRT’s inaction effectively nullified the borrower’s statutory remedy.
The Verdict
The petitioner succeeded. The Court held that the DRT must accept and decide the interim application within two weeks, and the bank is restrained from taking physical possession until the DRT disposes of the application. If rejected, the stay continues for two additional weeks to enable appeal to the DRT, Mumbai.
What This Means For Similar Cases
Interim Applications Cannot Be Ignored
- Practitioners must immediately file interim applications when possession notices are issued under SARFAESI Act.
- DRTs are under a mandatory duty to accept and hear such applications; refusal constitutes procedural illegality.
- Courts will intervene if DRTs delay or refuse to entertain applications, even if prior ones were dismissed.
Possession Is Not Automatic After Auction Failure
- Failure to attract bids does not validate possession notices.
- Banks must await final adjudication of borrower’s objections before proceeding to possession.
- Any attempt to bypass DRT jurisdiction by claiming technical closure of prior proceedings will be struck down.
Stay Orders Are Interim but Binding
- Interim stays granted by High Courts under SARFAESI matters operate as statutory injunctions.
- Banks violating such orders risk contempt proceedings and liability for damages.
- Petitioners should seek explicit continuation of stay pending appeal, as directed here, to avoid enforcement gaps.
