SARFAESI recovery actions can be challenged only before the Debts Recovery Tribunal and its Appellate Tribunal, the Supreme Court has held, so a borrower who says a secured asset was wrongly sold cannot take that claim to a civil court; a Madhya Pradesh High Court direction that kept a damages suit and criminal proceedings open against an asset reconstruction company has been set aside.
New Delhi: Civil courts have no jurisdiction over matters that the Debts Recovery Tribunal (DRT) and the Debts Recovery Appellate Tribunal (DRAT) can decide under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, the Supreme Court has ruled while allowing an appeal by an asset reconstruction company. [International Asset Reconstruction Co. Pvt. Ltd. v. Jayant Vitamins Ltd. & Anr.]
A Bench of Justice B.V. Nagarathna and Justice Augustine George Masih set aside the Madhya Pradesh High Court (Indore) order of 8 May 2024, passed on a review petition, and restored the High Court’s earlier order of 9 February 2024.
From a 2005 recovery certificate to a sale for Rs 284 lakh
Jayant Vitamins Ltd., the first respondent, had credit facilities from a bank, secured by mortgage and hypothecation. When the account turned into a non-performing asset, the bank’s suit was transferred to DRT-II, Mumbai. On 17 October 2005 that tribunal ordered payment of about Rs 28.29 crore with 12 per cent future interest, and a recovery certificate followed on 5 December 2005.
The bank later assigned the debts to the appellant. A notice under Section 13(2) of the SARFAESI Act went out on 16 January 2009, and the appellant took possession under Section 13(4). The secured property was then sold to Apexter Corporation for Rs 284 lakh.
On 9 February 2024 the High Court dismissed the respondent’s writ petition, noting that the sale was complete and that objections could be taken before the DRT and DRAT. On review, however, its order of 8 May 2024 granted the respondent liberty to pursue alternative remedies or appropriate proceedings. That is what brought the appellant to the Supreme Court.
Why only the DRT can say an action was wrongful
The Court looked to Sections 32, 34 and 35 of the SARFAESI Act. Any action taken under the Act in good faith, it held, cannot be assailed except under the Act itself, and the bar on civil courts in Section 34 is explicit. On the question of damages, it said:
The said finding can only be given by the Debts Recovery Tribunal (DRT) and not by a Civil Court; the bar of jurisdiction under Section 34 of the SARFAESI Act is explicit in that regard.
A claim for damages over actions taken under the Act first needs a finding that those actions were wrongly initiated, and only the DRT can give it. Section 35, for its part, gives the Act effect notwithstanding anything inconsistent in other laws.
What was set aside, and what remains open
The Court said it did not find that the High Court was right in enlarging the scope of the alternative remedy. Paragraph 6 of the review order, which had reserved liberty to the respondent, was set aside, the review order fell with it, and the original order of 9 February 2024 stood restored.
The respondent remains free to seek an appropriate remedy under the SARFAESI Act, and all contentions on both sides are left open to be advanced before the DRT.
The route this closes
Borrowers sometimes try a damages suit or a criminal complaint against banks and asset reconstruction companies once a secured asset has been sold. The Court has confirmed that the statutory forum is the DRT and DRAT, and that an allegation of wrongful action must first be tested there.
Case Details: International Asset Reconstruction Co. Pvt. Ltd. v. Jayant Vitamins Ltd. & Anr., Civil Appeal arising out of SLP(C) No. 12913 of 2024, judgment dated 17 September 2026, arising out of the Madhya Pradesh High Court (Indore) orders of 9 February 2024 and 8 May 2024.
Bench: Justice B.V. Nagarathna and Justice Augustine George Masih.
Appearances: For the appellant, Senior Advocate Amar Dave, with Advocate-on-Record Himanshu Bhushan and Advocate Shagun Srivastava. For respondent No. 1, Advocate-on-Record Ashutosh Dubey, with a team of advocates.