SARFAESI Act| No Civil Court Jurisdiction Over Matters Within DRT, DRAT's Powers: Supreme Court

The Supreme Court has held that civil courts have no jurisdiction to entertain any suit or proceeding concerning matters which a Debts Recovery Tribunal (DRT) or the Debts Recovery Appellate Tribunal (DRAT) is empowered to determine under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

A Bench of Justices B V Nagarathna and Augustine George Masih said that any challenge to actions taken in exercise of powers conferred under the SARFAESI Act, must be adjudicated by the designated tribunals, as the jurisdiction of civil courts is expressly barred.

Court made the observation while allowing an appeal filed by International Asset Reconstruction Co Pvt Ltd and holding that the Madhya Pradesh High Court at Indore erred in granting liberty to the respondent to pursue civil and criminal remedies against actions taken under the SARFAESI Act.

Why can civil courts not interfere in SARFAESI proceedings?

Court relied on Sections 32, 34 and 35 of the SARFAESI Act to hold that challenges to actions taken under the Act must be raised before the DRT or the DRAT, and not before a civil court.

Section 34 expressly bars the jurisdiction of civil courts in respect of matters which the DRT or Appellate Tribunal is empowered to determine. Court also noted that Section 35 gives the SARFAESI Act an overriding effect over any other law that is inconsistent with its provisions.

The Bench further underscored that no suit, prosecution or other legal proceeding would lie against a secured creditor or its officers for anything done or omitted to be done in good faith under the Act.

"Proceedings seeking damages for actions taken under the Act are untenable if the actions were protected by the good faith provision," the Bench said.

Court stressed that this protection extends to actions taken in good faith under the SARFAESI Act and protects such actions from civil or criminal litigation.

The dispute

Certain credit facilities had been extended to respondent No.1 by respondent No.2-bank. As security for the facilities, charges and encumbrances in the nature of mortgage and hypothecation were created over the movable and immovable properties of respondent No.1 in favour of the bank.

Following non-payment of the dues, the account of respondent No.1 was classified as a Non-Performing Asset.

In 1996, the bank filed a suit before the Bombay High Court, which was subsequently transferred to the Debts Recovery Tribunal-II, Mumbai.

On October 17, 2005, the DRT allowed the application and directed respondent No.1 to pay the bank a sum of Rs 28,28,56,282.49, along with future interest at the rate of 12% per annum. Pursuant to the order, a recovery certificate was issued on December 5, 2005, and recovery proceedings were initiated against respondent No.1.

Thereafter, the bank entered into a deed of assignment with International Assets Reconstruction Co Pvt Ltd, under which the debts, assets and liabilities of respondent No.1 were transferred to the appellant.

The appellant subsequently initiated recovery proceedings. A notice under Section 13(2) of the SARFAESI Act was issued to respondent No.1 on January 16, 2009, following which the appellant took possession of the secured property under Section 13(4) of the Act.

On June 21, 2023, an offer of Rs 189 lakh was received from Apexter Corporation. The offer was subsequently enhanced to Rs 284 lakh and was accepted by the appellant. The sale was confirmed in favour of Apexter Corporation through an acceptance letter dated July 11, 2023.

The possession of the hypothecated property, comprising plants and machinery, was thereafter handed over to the successful purchaser and a sale certificate was issued.

What did the high court hold?

Aggrieved by the sale, respondent No.1 approached the Madhya Pradesh High Court at Indore, seeking, among other reliefs, setting aside of the sale on the ground that it was null and void, arbitrary and fraudulent.

The high court dismissed the writ petition on February 9, 2024, observing that the sale proceedings had already been completed and the entire movable property of respondent No.1 had been sold.

It further observed that any objection regarding irregularities in the procedure followed under the SARFAESI Act by the appellant could be raised by availing the alternative remedy before the DRT and the DRAT.

Respondent No.1 thereafter filed a review petition.

On May 8, 2024, the high court allowed the review petition and modified its earlier order by granting liberty to respondent No.1 to avail the alternative remedy or pursue appropriate proceedings in accordance with law.

The appellant challenged this order before the Supreme Court.

High court could not permit civil and criminal proceedings

The Supreme Court held that the high court was not justified in granting liberty to respondent No.1 to file a suit seeking damages or to pursue criminal proceedings in relation to actions taken under the SARFAESI Act.

"We find that the high court was not right in reserving liberty to respondent No.1 herein to seek remedies by filing a suit for claiming damages etc or for pursuing criminal proceedings while allowing review petition and by modification of its earlier order," the Bench said.

Court noted that its February 9, 2024 order had already disposed of the writ petition on the ground that an alternative remedy was available to challenge the actions allegedly taken by the appellant under the SARFAESI Act.

"In the review petition, the high court instead of reiterating the said order, has granted further liberty to respondent No.1 herein which in our view is not right. We say so for the reason that the high court has not taken into consideration Sections 32 and 34 of the SARFAESI Act," the Bench said.

Court pointed out that any action taken under the SARFAESI Act in good faith, as well as any omission under the Act, is protected.

"Similarly, a challenge to an action taken under the provisions of the SARFAESI Act can be assailed only under the provisions of the said Act and the Civil Court does not have jurisdiction to entertain any suit or other proceedings in respect thereof," the Bench said.

Court further noted that under Section 35 of the SARFAESI Act, its provisions have effect notwithstanding anything inconsistent contained in any other law for the time being in force or any instrument having effect by virtue of such law.

It held that if respondent No.1 sought damages for the actions initiated by the appellant under the SARFAESI Act, there first had to be a finding that those actions were wrongly initiated so as to make respondent No.1 entitled to damages.

Such a finding, the Court said, could only be made by the DRT and not by a civil court, in view of the express bar under Section 34 of the SARFAESI Act.

The Bench further observed that criminal proceedings in respect of actions taken or omitted to be taken under the SARFAESI Act would also be protected where such actions were undertaken in good faith under the Act.

"We do not find that the high court was right in enlarging the scope of the alternative remedy available to respondent No.1 herein," the Court said.

The Supreme Court accordingly set aside the order passed by the high court in the review petition and restored its original order dated February 9, 2024.

Allowing the appeal, Court clarified that its order would not prevent respondent No.1 from pursuing an appropriate remedy against the appellant under the provisions of the SARFAESI Act.

All contentions of both sides were left open to be raised before the DRT, Court further clarified.

Case Title: International Asset Reconstruction Co Pvt Ltd Vs Jayant Vitamins Ltd & Anr

Bench: Justices B V Nagarathna and Augustine George Masih 

Date of Judgment: September 17, 2026