The Madhya Pradesh High Court has reaffirmed that procedural fairness under the SARFAESI Act is non-negotiable, particularly when possession of property is sought without notice to the borrower. In a significant ruling, the Court set aside an ex-parte possession order issued by a Recovery Officer, emphasizing that the absence of notice and the availability of a statutory remedy under Section 17 render such actions legally unsustainable.
Background & Facts
The Dispute
The petitioners, Roop Singh and others, challenged an order dated 28.01.2026 passed by Respondent No.3 (Recovery Officer), directing the delivery of possession of secured property to Respondent Nos.1 and 2 (AU Small Finance Bank Ltd.). The order was passed ex-parte, without issuing any notice to the petitioners, despite their clear interest in the property as borrowers. The petitioners received the order via WhatsApp and discovered material misrepresentations in the bank’s submissions to the Recovery Officer.
Key Facts
- The bank claimed a sanctioned loan amount of Rs. 7,00,000/-, but account statements show only Rs. 6,60,000/- was actually disbursed.
- The petitioners have already repaid Rs. 8,25,709/- (Rs. 1,48,810/- principal + Rs. 6,76,899/- interest), exceeding the disbursed amount.
- The loan account has not been declared a Non-Performing Asset (NPA) in compliance with RBI’s Master Guidelines.
- The loan amount is below Rs. 20 lakhs, and the outstanding principal is less than 20% of the original principal, making the SARFAESI Act inapplicable under Section 31A.
- Respondent Nos.1 and 2 are classified as non-banking financial companies, not scheduled banks, further limiting SARFAESI applicability.
Procedural History
- 28.01.2026: Recovery Officer passed ex-parte order directing possession of property under Section 14 of the SARFAESI Act.
- 28.01.2026 to 10.03.2026: Petitioners received order via WhatsApp and reviewed bank’s documents.
- 12.03.2026: Writ Petition No. 8223 of 2026 filed before the Madhya Pradesh High Court, Indore.
- 12.03.2026: Hearing conducted; petitioners argued lack of notice and alternative remedy under Section 17.
Relief Sought
The petitioners sought quashing of the possession order dated 28.01.2026, restoration of possession, and a declaration that SARFAESI Act is inapplicable due to non-compliance with RBI guidelines and threshold limits.
The Legal Issue
The central question was whether a Recovery Officer may pass an ex-parte order for possession under Section 14 of the SARFAESI Act without serving notice to the borrower, and whether the availability of an alternative remedy under Section 17 precludes direct recourse to a writ petition.
Arguments Presented
For the Petitioner
Counsel argued that the ex-parte order violated principles of natural justice under Article 14 and 21 of the Constitution. The bank failed to establish NPA status, misrepresented the disbursed amount, and ignored RBI’s Master Circular on NPA classification. The petitioners contended that Section 17 of the SARFAESI Act provides an efficacious remedy, and writ jurisdiction should not be invoked when statutory alternatives exist. They further submitted that the DRT, Jabalpur, though currently without a Presiding Officer, is not permanently non-functional.
For the Respondent
The Deputy Advocate General conceded that notice was not issued but argued that the bank had a right to enforce security under SARFAESI Act. The State did not dispute the factual inaccuracies but maintained that the petitioners’ delay in challenging the order undermined their claim. No substantive legal rebuttal was offered regarding the applicability thresholds or NPA compliance.
The Court's Analysis
The Court observed that Section 14 of the SARFAESI Act permits enforcement of security interest only after compliance with Section 13(2) and 13(4), which mandate issuance of notice and opportunity to be heard. The ex-parte nature of the order dated 28.01.2026 rendered it legally void ab initio.
"The right to be heard is not a mere formality; it is the very soul of natural justice. To permit possession without notice is to sanction a legal fiction."
The Court further noted that Section 17 of the SARFAESI Act explicitly provides a statutory remedy for borrowers aggrieved by actions under Sections 13 or 14. The High Court reiterated that writ jurisdiction under Article 226 is discretionary and should not be exercised when an equally efficacious remedy exists.
The Court acknowledged the temporary vacancy of the Presiding Officer at DRT Jabalpur but held that this does not extinguish the remedy. The Court directed the petitioners to file an application under Section 17 within 10 days, and mandated that the DRT Registrar place the matter before the next Presiding Officer within 10 days of filing.
The Verdict
The petition was disposed of with liberty to the petitioners to file an application under Section 17 of the SARFAESI Act within 10 days from the date of judgment. The status quo regarding possession of the property shall be maintained until the DRT disposes of the Section 17 application. If no application is filed within 10 days, the interim protection shall stand vacated. No costs were awarded.
What This Means For Similar Cases
Notice Is Mandatory Under SARFAESI Act
- Practitioners must challenge any ex-parte possession order under Section 14 as violative of natural justice.
- Banks cannot rely on technical compliance if notice was never served, regardless of the borrower’s delay.
Section 17 Remedy Is Primary, Not Optional
- Writ petitions under Article 226 are not a substitute for Section 17 applications.
- Courts will not entertain writs where the DRT remedy is available, even if temporarily delayed due to administrative vacancies.
NPA Classification and Disbursement Accuracy Are Critical
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Banks must strictly adhere to RBI’s Master Circular on NPA classification before invoking SARFAESI.
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Disbursed amount must match sanctioned amount; discrepancies invalidate enforcement proceedings.
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Always verify loan disbursement records before responding to SARFAESI notices.
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File Section 17 applications immediately upon receipt of possession notice, even if DRT is understaffed.
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Challenge NPA declarations with RBI guidelines and account statements as evidence.
