finance
The implementation of the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) poses significant challenges in balancing borrower interests with the objectives of the Act. Numerous judicial interpretations exist, yet complexities remain. This blog shares a hypothetical yet illustrative case to highlight these challenges.
Mr. A, a Senior Software Engineer, secured a loan from “L” Bank to purchase a property (referred to as the "first loan"). He consistently made his loan repayments. Subsequently, a builder approached Mr. A to acquire a second property through the same bank. Relying on assurances from bank officials, Mr. A proceeded with the purchase (referred to as the "second loan").
While servicing both loans, Mr. A received a notice indicating that the second property was not legally owned by the builder. In addition to the loan, Mr. A had made significant payments to the builder. Lacking experience with such matters, he conducted an independent inquiry, only to discover that both the bank officials and the builder had deceived him, as the officials were aware of the builder's lack of title to the property.
Upon realization of this fraud, Mr. A sought legal assistance to file criminal charges against the bank officials and real estate parties involved but faced considerable obstacles in securing justice. In the meantime, he incurred substantial legal expenses.
Amid these proceedings, Mr. A received a notice from “L” Bank demanding repayment for the second loan and indicating a potential claim against the first loan property if he failed to meet the obligations. This was alarming for Mr. A, who had fulfilled all payments for the first loan while feeling wronged by the bank and the builder’s fraudulent actions.
The complexity of Mr. A's situation underscores the bank's focus on recovering its dues rather than addressing the fraudulent actions of its officials. The bank’s stance suggests that Mr. A was at fault for not verifying the documentation presented by the builder.
Mr. A has received a notice under Section 13(2) of the SARFAESI Act, 2002 regarding the second loan. However, the first property shows as liable for attachment despite Mr. A's ongoing compliance with his loan obligations. Legally, “L” Bank lacks justifiable grounds for proceeding against Mr. A's first property.
A larger question arises concerning the available remedies for Mr. A. According to Section 17 of the SARFAESI Act, the Debts Recovery Tribunal (DRT) examines procedural correctness in the bank's actions rather than addressing fraud. This may leave Mr. A with considerable confusion regarding how to present his case effectively.
Should Mr. A attempt to approach the High Court, he might encounter a dismissal due to the specific limitations established by Section 34 of the SARFAESI Act, which prohibits civil court interventions.
The challenges identified in Mr. A's scenario illustrate the need for the DRT to consider the broader context of fraud within borrowers' appeals under Section 17 of the SARFAESI Act, 2002. Such cases point to a critical gap in current legal frameworks where the interests of borrowers must be more thoroughly addressed.