The Madhya Pradesh High Court has issued a significant interim directive protecting borrowers from coercive recovery under the SARFAESI Act during the prolonged vacancy of the Debt Recovery Tribunal in Jabalpur. Recognizing the structural dysfunction in the statutory framework, the Court balanced the rights of financial institutions with the legitimate need of borrowers for procedural fairness and time to remedy defaults.
Background & Facts
The Dispute
The petitioners, Swati Namdeo and others, availed a housing loan of Rs.29,00,000 from respondent no.1, CAN FIN HOMES, a financial institution. To secure the loan, they mortgaged their residential property measuring 750 sq. ft., located at Mouja Tilimafi, Patwari Halka No.63, Khasra No.27/2/Ph, Tehsil and District Sagar, Madhya Pradesh.
Key Facts
- The loan agreement provided for monthly EMI payments over a stipulated tenure.
- The petitioners defaulted on EMI payments due to financial hardship.
- A demand notice dated 29.05.2024 was issued by the bank under the SARFAESI Act.
- On 28.07.2025, respondent no.1 filed an application under Section 14 of the SARFAESI Act, resulting in an order directing the petitioners to hand over vacant possession of the mortgaged property (Annexure P-1).
- The petitioners received the certified copy of the order and approached the bank on a goodwill basis to negotiate a settlement.
- A further notice dated 31.03.2026 was issued, fixing 20.04.2026 as the date for taking physical possession.
- On 15.04.2026, the petitioners filed a Securitisation Appeal (S.A. No.372/2026) before the Debt Recovery Tribunal, Jabalpur.
- As of the date of the judgment, no Presiding Officer had been appointed to the DRT, Jabalpur, rendering the tribunal non-functional.
Procedural History
- 29.05.2024: Demand notice issued under SARFAESI Act.
- 28.07.2025: Section 14 application allowed; possession order passed.
- 15.04.2026: S.A. No.372/2026 filed before DRT Jabalpur.
- 20.04.2026: Writ petition filed before the High Court due to non-functioning DRT.
- 20.04.2026: Judgment delivered by the Division Bench.
Relief Sought
The petitioners sought stay of the possession order, protection from coercive action, and direction to the DRT to hear their appeal expeditiously. They also requested rescheduling of EMIs pending adjudication.
The Legal Issue
The central question was whether borrowers facing enforcement under the SARFAESI Act are entitled to interim protection from coercive recovery when the Debt Recovery Tribunal, to which they have filed a statutory appeal, remains non-functional due to the absence of a Presiding Officer.
Arguments Presented
For the Petitioner
The petitioners argued that the non-functioning of the DRT Jabalpur deprived them of their statutory right to appeal under Section 17 of the SARFAESI Act. They contended that allowing possession without a forum to challenge the bank’s action would render their appeal infructuous and violate principles of natural justice. They relied on the Court’s earlier direction in M/s Divyadeep Sugar and Industries Pvt. Ltd. v. India Bank (W.P. No.25138/2021) as precedent for interim relief during tribunal vacancies.
For the Respondent
The bank did not oppose the grant of interim relief per se but emphasized the petitioners’ clear default and the statutory right of secured creditors to enforce security interest. The State, through the Deputy Advocate General, acknowledged the administrative delay in appointing a Presiding Officer and supported the Court’s intervention to prevent injustice.
The Court's Analysis
The Court acknowledged that while the petitioners were in default, the SARFAESI Act provides a statutory right of appeal to borrowers under Section 17, which is rendered meaningless if the appellate forum is non-functional. The Court observed that the purpose of the SARFAESI Act is not to enable immediate dispossession but to provide a structured, time-bound recovery mechanism with built-in safeguards.
"Had they have money for the purpose of which they took loan or financial assistance, they would not have taken the same from the bank public financial institutions, there is a period available to the petitioners for payment of loan."
The Court emphasized that the borrower’s default does not negate the constitutional right to access justice. The absence of a Presiding Officer at the DRT Jabalpur was not the fault of the petitioners, and denying them interim relief would amount to penalizing them for administrative failure. The Court distinguished between the bank’s right to enforce and the borrower’s right to challenge, holding that the latter must be preserved pending adjudication.
The Court further noted that its earlier direction in Divyadeep Sugar established a precedent for such interim protection and found no reason to depart from it. The Court rejected the notion that borrowers must pay the entire outstanding amount upfront to seek relief, recognizing the impracticality and economic hardship such a demand would impose.
The Verdict
The writ petition was disposed of with the following directions: (i) The petitioners shall file a Securitisation Appeal before the DRT, along with an application for interim relief, within 15 days; (ii) The DRT shall take up S.A. No.372/2026 expeditiously upon becoming functional; (iii) The petitioners shall deposit 20% of the outstanding amount, including any amounts already paid post-possession order, within 30 days; (iv) Upon deposit, the bank shall reschedule the remaining EMIs during the pendency of the appeal; (v) No coercive action, including possession or eviction, shall be taken until the deposit is made or the DRT decides on interim relief, whichever is later; (vi) The petitioners shall communicate this order to the DRT Registrar within seven working days; (vii) If there is undue delay in appointing a Presiding Officer, either party may approach this Court.
What This Means For Similar Cases
Interim Relief Is Mandatory During DRT Vacancy
- Practitioners representing borrowers must immediately file S.A. under Section 17 even if the DRT is non-functional, to preserve the right to appeal.
- Courts will not permit enforcement of possession orders while statutory appellate forums are inactive.
- Banks must suspend coercive actions upon filing of an appeal, regardless of DRT functionality.
Deposit of 20% Is a Condition for Stay, Not a Settlement
- The 20% deposit is not an admission of liability but a procedural condition to balance interests.
- This amount is subject to adjustment upon final adjudication by the DRT.
- Failure to deposit within 30 days will nullify the stay and permit the bank to proceed with recovery.
Rescheduling of EMIs Is a Recognized Remedy
- Post-deposit, banks are obligated to reschedule EMIs to ensure affordability during pendency.
- This creates a new norm: temporary restructuring as a default interim measure under SARFAESI.
- Practitioners should now routinely pray for EMI rescheduling in SARFAESI writ petitions pending DRT vacancies.
