The Madras High Court has clarified that financial institutions cannot obtain physical possession of a secured asset under the SARFAESI Act while a borrower’s application is pending before the Debt Recovery Tribunal, especially when no notice has been served. This ruling reinforces procedural fairness and the primacy of statutory remedies under the Act.
Background & Facts
The Dispute
The petitioner, Sivasakthi Sundarapandi, and her deceased husband availed a loan of Rs.14,94,138/- from Motilal Oswal Home Finance Limited, creating an equitable mortgage over a residential property. Following default in repayment, the first respondent bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The husband passed away during the pendency of these proceedings. The petitioner, as the surviving spouse and legal heir, filed an application under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal, Madurai, in S.A.No.267 of 2025 dated 28.03.2025, challenging the bank’s actions.
Key Facts
- The loan amount was Rs.14,94,138/- secured by an equitable mortgage on a residential property
- The petitioner filed S.A.No.267 of 2025 before the DRT on 28.03.2025 seeking relief against enforcement
- The bank did not appear or respond to the DRT proceedings despite service of notice
- On 09.01.2026, the bank filed Cr.M.P.No.8461 of 2025 before the Chief Judicial Magistrate, Madurai, seeking physical possession of the property
- The Magistrate passed an order on 09.01.2026 authorizing the bank to take possession with police assistance, without issuing any notice to the petitioner
- A further order dated 18.02.2026 reiterated the possession direction
- The petitioner was not heard or notified prior to either order
- The petitioner claims she is ready and willing to pay the entire outstanding amount
Procedural History
- 28.03.2025: Petitioner files S.A.No.267 of 2025 before DRT, Madurai, under Section 17 of SARFAESI Act
- 09.01.2026: First respondent bank obtains ex parte order from CJM, Madurai, for physical possession of property
- 18.02.2026: CJM reiterates possession order in same proceedings
- 18.03.2026: Writ Petition filed before Madras High Court under Article 226
Relief Sought
The petitioner sought quashing of the orders dated 09.01.2026 and 18.02.2026 passed by the Chief Judicial Magistrate, Madurai, directing possession of the secured asset. She also sought a direction to the bank to furnish a statement of account for one-time settlement and to refrain from taking possession until the DRT disposes of her application.
The Legal Issue
The central question was whether a secured creditor can obtain physical possession of a secured asset under Section 13(4) of the SARFAESI Act without serving notice on the borrower, while a challenge under Section 17 is pending before the Debt Recovery Tribunal.
Arguments Presented
For the Petitioner
The learned counsel argued that the Magistrate’s order was passed without notice to the petitioner, violating principles of natural justice. She emphasized that the petitioner had already invoked the statutory remedy under Section 17 of the SARFAESI Act, which provides an exclusive forum for redressal. The bank’s ex parte application before the Magistrate was an attempt to circumvent the DRT’s jurisdiction. She further submitted that the petitioner was ready to pay the entire outstanding amount, making possession unnecessary and unjust.
For the Respondent
The Respondent Bank did not appear before the High Court. The Government Advocate for the second respondent (Police) did not oppose the petition, acknowledging the procedural irregularity.
The Court's Analysis
The Court observed that the petitioner had initiated proceedings under Section 17 of the SARFAESI Act before the DRT, which is the statutorily mandated forum to adjudicate disputes relating to enforcement of security interest. The bank, despite being served notice in S.A.No.267 of 2025, chose not to appear or respond. Instead, it approached the Criminal Magistrate under the guise of enforcing possession, bypassing the DRT’s jurisdiction.
"The remedy under Section 17 is comprehensive and intended to provide a fair opportunity to the borrower to challenge the enforcement action. To permit possession without notice while such a challenge is pending would render the Section 17 remedy illusory."
The Court noted that the Magistrate’s order was passed without affording the petitioner an opportunity to be heard, which is a clear violation of audi alteram partem. The SARFAESI Act does not contemplate parallel proceedings before criminal courts for possession when a Section 17 application is pending. The Court further held that the bank’s conduct amounted to an abuse of process.
The Court also took note of the petitioner’s willingness to discharge the entire liability, which indicated good faith and a desire to resolve the matter without loss of the residential property.
The Verdict
The writ petition succeeded. The Court set aside the orders dated 09.01.2026 and 18.02.2026 passed by the Chief Judicial Magistrate, Madurai, directing possession of the secured asset. The petitioner was directed to deposit the entire outstanding loan amount of Rs.14,94,138/- before the Debt Recovery Tribunal, Madurai, within 14 days. Upon such deposit, the DRT was directed to take up S.A.No.267 of 2025 for final disposal on merits within 30 days. There shall be no order as to costs.
What This Means For Similar Cases
Notice Is Mandatory Before Possession Under SARFAESI
- Practitioners must ensure that no possession order is sought under Section 13(4) while a Section 17 application is pending
- Any ex parte possession order obtained without notice to the borrower is liable to be quashed
- Courts will treat such actions as an abuse of process and a circumvention of statutory remedies
DRT Proceedings Take Precedence Over Criminal Enforcement
- The DRT is the exclusive forum for adjudicating disputes under SARFAESI Act
- Parallel proceedings before Magistrates for possession are impermissible if a Section 17 application is pending
- Banks must exhaust the DRT route before seeking coercive measures
Willingness to Pay Can Stall Enforcement
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A borrower’s clear willingness to pay the entire dues, even if not yet deposited, may be considered by courts to prevent irreparable loss
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Courts may conditionally stay possession pending deposit, as a balance between creditor rights and borrower protection
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Always file a Section 17 application immediately upon receipt of possession notice
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Do not delay depositing dues if willing to settle - courts view this as a mitigating factor
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Challenge ex parte possession orders under Article 226 without delay
