Legal Advice

Bank initiated recovery proceeding – How to defend?

Shivendra Pratap Singh


High Court Lucknow

Civil Law

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Question asked on: 18 Jun, 2021

Question: I have agricultural land in Bareilly and against which I had taken a loan from Bank of Baroda (Bareilly) for Agricultural activity. The bank has sent a recovery notice under SARFAESI Act because of some reasons for the loan. Sir, How to defend when the bank initiated recovery proceeding under SARFAESI Act? The loan has gone Non Performing Assets (NPA) and the bank has initiated legal proceedings. I wish to pay the bank but currently do not have the funds to pay off. I wish to dispose of the property and pay it to the bank but I do not want any legal proceedings.

Question from: Uttar Pradesh

You are a borrower under section 2(f) of the Securitisation   and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). When the loan has declared non performing assets then the security creditor i.e. Bank may initiated recovery proceeding under section 13 of SARFAESI Act.

The borrower has a right to file a representation to the secured creditor under Section 13(3A) of the SARFAESI Act. In the said representation the borrower can object to the recovery proceeding or give his plan of repayment of loan. 

Also read: How to quash demand notice?

In ITC Ltd. v. Blue Coast Hotels Ltd., 2018 SCC OnLine SC 237 the Supreme Court has held that provisions under Section 13(3-A) were mandatory and failure on the part of the creditor to respond to the representation of borrower vitiate the recovery proceedings.

What to do when bank is initiated recovery proceeding under section 13(2) SARFAESI Act?

When the bank initiates recovery proceeding the borrower should send a representation to the Bank as soon as possible. If the bank is initiated the recovery proceeding arbitrarily then raise your object thereon. It is your right to object to the recovery proceeding before taking possession of secured assets by the bank under Section 13(4) SARFAESI Act. 

Hence, if you have legal grounds to assail the recovery proceeding initiated under Section 13(2) of SARFAESI Act you must do it. The bank will reply to your representation within fifteen days. However, in Kannu Aditya India Ltd. v. SBI, 2018 SCC OnLine Del 12208 the Delhi High Court has held that fifteen days period is directory. 

Also read: Bank cannot auction agricultural land

When the bank has initiated recovery proceeding without reply to your representation, the proceeding becomes void. Hence, before taking possession of secured assets then you should file a Securitisation Application before the DRT. You can seek stay of the proceeding under 13(4). The compliance of provisions of Section 13(3A) is mandatory. Hence, the DRT will stay the proceeding under Section 13(3A) with immediate effect.