SARFAESI Act: Supreme Court Clarifies Civil Court Jurisdiction and DRT Powers

Introduction

When a bank or asset reconstruction company takes possession of a property under the SARFAESI Act, the first question a borrower, guarantor or affected third party usually asks is: where can I challenge this? The answer matters because filing in the wrong forum can cost months, and the time limits before the Debts Recovery Tribunal (DRT) are short. The Supreme Court has once again said that challenges to SARFAESI measures belong before the DRT and the Debts Recovery Appellate Tribunal (DRAT), not the civil court.

That principle is important, but it is not absolute. The bar on civil courts under Section 34 applies to matters that the DRT or DRAT is empowered to determine. Disputes that fall outside those powers, such as an independent claim of title by a person who is neither the borrower nor claiming through the borrower, may still be decided by a civil court. This article explains both sides of that line.

What the SARFAESI Act, 2002 Does

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act) allows secured creditors, such as banks, notified financial institutions and asset reconstruction companies, to enforce a security interest without first filing a suit. In outline:

• When a loan account is classified as a non-performing asset, the secured creditor may issue a demand notice under Section 13(2), giving the borrower 60 days to discharge the liability.
• The borrower may raise objections; under Section 13(3A), the creditor must consider them and communicate its reasons if it does not accept them.
• If the dues remain unpaid, the creditor may take measures under Section 13(4), including taking possession of the secured asset, taking over management of the business, and selling or leasing the asset.
• Under Section 14, the creditor may seek the assistance of the Chief Metropolitan Magistrate or District Magistrate to obtain physical possession.

The Act does not apply to every secured loan. Section 31 excludes certain cases, including security interests in agricultural land, financial assets not exceeding one lakh rupees, and cases where the amount due is less than twenty per cent of the principal and interest. Whether the Act applies at all can itself be a ground of challenge.

The Supreme Court's Latest Ruling: International Asset Reconstruction Co. v. Jayant Vitamins

In International Asset Reconstruction Co. Pvt. Ltd. v. Jayant Vitamins Ltd. & Anr., arising from SLP (C) No. 12913 of 2024, a Bench of Justice B.V. Nagarathna and Justice Augustine George Masih considered a case in which a bank's dues, confirmed by a DRT recovery certificate, had been assigned to an asset reconstruction company. The company took possession under Section 13(4) and, in 2023, sold the borrower's hypothecated plant and machinery.

The borrower challenged the sale in a writ petition before the Madhya Pradesh High Court at Indore. On 9 February 2024, the High Court dismissed the petition and held that objections under the SARFAESI Act could be raised before the DRT and DRAT. On review, by order dated 8 May 2024, the High Court granted the borrower liberty to pursue other remedies, including, as reported, a suit for damages or criminal proceedings.

According to published reports of the judgment, the Supreme Court set aside the review order and restored the original order of 9 February 2024. Relying on Sections 32, 34 and 35, the Court held that:

• a civil court has no jurisdiction to entertain a suit or proceeding concerning matters that the DRT or DRAT is empowered to decide;
• a claim for damages based on action under the Act first requires a finding that the action was wrongly taken, and that finding is for the DRT, not the civil court;
• action taken in good faith under the Act is protected, so the High Court should not have widened the borrower's alternative remedy to include damages suits and criminal proceedings; and
• the borrower remained free to pursue its remedy under the SARFAESI Act, with all contentions left open before the DRT.

The ruling did not decide the merits of the borrower's objections. It decided the forum. That distinction runs through the rest of this article.

Section 34: The Bar on Civil Court Jurisdiction

Section 34 has two parts. First, no civil court may entertain any suit or proceeding in respect of any matter that the DRT or DRAT is empowered by or under the Act to determine. Second, no court or other authority may grant an injunction in respect of any action taken, or to be taken, under the SARFAESI Act or the Recovery of Debts and Bankruptcy Act, 1993.

The bar is wide in time. In Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, the Supreme Court explained that it covers not only action already taken, but also matters in respect of which action may be taken later. A borrower cannot avoid the bar by rushing to a civil court before the creditor acts under Section 13(4). The same judgment, however, recognised a narrow exception where allegations of fraud are made.

The bar is limited in subject matter. The key words are "empowered ... to determine". The question in every case is whether the DRT could decide the dispute and grant the relief claimed. If it could, the civil court cannot. If it could not, Section 34 does not shut the door.

Section 35: Overriding Effect, and Section 32: Good-Faith Protection

Section 35 gives the SARFAESI Act overriding effect over anything inconsistent in any other law in force, or in any instrument having effect under such a law. Where a conflict genuinely exists, the procedure and remedies under the SARFAESI Act prevail.

Section 32 protects the secured creditor and its officers from suits, prosecutions and other legal proceedings for anything done, or omitted to be done, in good faith under the Act. In Jayant Vitamins, this protection, read with Section 34, was central to the Court's view that a borrower cannot bypass the DRT by framing a challenge as a damages claim or criminal complaint. Good faith is not presumed to cover conduct that is unlawful; whether particular action was lawful is the very question the DRT is meant to examine.

Jurisdiction of the Debts Recovery Tribunal under Section 17

Section 17 is the primary remedy against SARFAESI measures. Its main features are:

• Who may apply: "any person (including borrower)" aggrieved by measures under Section 13(4). This can include guarantors, co-owners, tenants and others whose rights are affected.
• Time limit: 45 days from the date on which the measures were taken. Delay can seriously weaken a challenge, so this deadline should be treated as critical.
• What the DRT examines: whether the measures were taken in accordance with the Act and the Security Interest (Enforcement) Rules, 2002, including notice requirements, the classification of the account, the valuation and sale procedure, and whether the debt claimed is legally due.
• What the DRT can order: under Section 17(3), it may declare the measures invalid and restore possession or management of the secured asset to the borrower or other aggrieved person, and pass other appropriate orders. Since the 2016 amendments, Section 17(4A) also allows the DRT to examine claims by persons asserting a tenancy or leasehold right in the secured asset.

High Courts are generally reluctant to entertain writ petitions against SARFAESI measures when this statutory remedy is available, as the Supreme Court emphasised in United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110. Exceptional cases remain, but the DRT is ordinarily the first port of call. For guidance on these proceedings, see our page on DRT and banking law.

Appeal to the DRAT under Section 18

A person aggrieved by an order of the DRT under Section 17 may appeal to the Debts Recovery Appellate Tribunal under Section 18, ordinarily within 30 days of receiving the order. A borrower filing an appeal must make a pre-deposit of fifty per cent of the debt claimed by the secured creditor or determined by the DRT, whichever is less. The DRAT may reduce this to not less than twenty-five per cent for reasons recorded in writing. The pre-deposit requirement is a significant practical factor and should be planned for well before the appeal deadline.

When Civil Court Jurisdiction Is Excluded

Applying the "can the DRT decide this?" test, the Supreme Court has held civil suits to be barred in situations such as these:

• Challenges to the creditor's measures: suits questioning the validity of a Section 13 notice, the taking of possession or the auction sale, which the DRT can examine under Section 17.
• Persons whose grievance the DRT can redress: in Jagdish Singh v. Heeralal, (2014) 1 SCC 479, a suit seeking title, partition and possession was held barred on its facts, as the plaintiffs' grievance fell within the DRT's remedy and they had not raised objections at the appropriate stage. The Court stressed that the civil court is barred in respect of any matter that the DRT can decide.
• Guarantors disputing liability: in Electrosteel Castings Ltd. v. UV Asset Reconstruction Co. Ltd. (Civil Appeal No. 6669 of 2021, decided on 26 November 2021), a guarantor's suit arguing that its liability had ended after the borrower's insolvency resolution plan was held barred by Section 34. Whether the assignee was a secured creditor and whether any amount was due were questions for the DRT, and the guarantor was permitted to approach the DRT under Section 17.
• Collateral damages or criminal routes: as Jayant Vitamins shows, a borrower cannot avoid the DRT by seeking damages or initiating criminal proceedings for SARFAESI action without first obtaining a DRT finding that the action was wrongful.

The Supreme Court also referred to Section 34 as a bar on civil suits in Robust Hotels Pvt. Ltd. v. EIH Ltd., (2017) 1 SCC 622, where challenges connected with SARFAESI measures were held to fall within the statutory scheme.

Important Limits and Exceptions: Where Civil Courts Retain Jurisdiction

It would be incorrect to say that every dispute touching a SARFAESI action is barred from the civil court. The Supreme Court has recognised several important limits.

1. Independent Title Claims by Third Parties: Central Bank of India v. Prabha Jain

In Central Bank of India v. Smt. Prabha Jain, 2025 INSC 95 (Civil Appeal No. 1876 of 2016, decided on 9 January 2025 by Justice J.B. Pardiwala and Justice R. Mahadevan), the plaintiff claimed a share in land that had been sold by a co-owner without partition. The purchaser had mortgaged the plot to the bank, defaulted, and the bank took possession under the SARFAESI Act. The plaintiff sued for a declaration that the earlier sale deed and the mortgage were void, for possession and for damages. The bank sought rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, relying on Section 34.

The Supreme Court dismissed the bank's appeal and allowed the suits to proceed. It held that:

• the DRT is a creature of statute and its examination under Section 17 is limited to the validity of measures under Section 13(4). It cannot decide whether an earlier sale deed, on which the mortgage depends, is valid;
• the DRT's power under Section 17(3) is to restore possession to the person who held it when the bank acted. It cannot hand over possession to someone whose claim is independent of and adverse to the borrower and who was never in possession;
• because the declaratory relief was outside the DRT's competence, the civil court's jurisdiction was not ousted; and
• a plaint cannot be rejected in part under Order VII Rule 11, so if even one relief survives, the suit must proceed.

The Court also observed that banks should be careful about inadequate title clearance reports, and suggested that the Reserve Bank of India and other stakeholders work towards a standardised approach to title searches before loans are sanctioned.

2. Claims the DRT Cannot Adjudicate: Leelamma Mathew v. Indian Overseas Bank

In Leelamma Mathew v. Indian Overseas Bank (Civil Appeal No. 7128 of 2022, decided on 17 November 2022), an auction purchaser paid for 54 cents of land under a bank auction but received a smaller area, because part of the land had been transferred before the mortgage. Her civil suit for damages was dismissed by the High Court as barred by Section 34. The Supreme Court reversed that decision, held that Section 34 applies only where the DRT or DRAT is empowered to decide the matter, restored the trial court's decree and imposed costs on the bank.

3. Fraud

Since Mardia Chemicals, a narrow exception has been recognised for allegations of fraud. This is not a route to avoid the DRT simply by using the word "fraud". Courts look at whether the plaint makes out a genuine, specific case, and many disputes framed this way are still sent back to the DRT.

Reconciling the Cases

Jayant Vitamins and Prabha Jain are consistent. Both apply the same test. In Jayant Vitamins, the borrower's grievance was about the creditor's enforcement action, which the DRT can decide, so the civil court and collateral proceedings were excluded. In Prabha Jain, the plaintiff was a stranger to the loan asserting independent title, which the DRT cannot decide, so the civil court retained jurisdiction. The deciding factor is the nature of the dispute and the relief claimed, not merely the presence of a SARFAESI action in the background.

Practical Implications

For Borrowers

• Respond to the Section 13(2) notice in writing and keep proof of delivery. Objections raised at this stage can matter later.
• Calculate the 45-day limit for a Section 17 application from the date the Section 13(4) measures were taken, and file before the DRT rather than a civil court.
• Do not assume that a damages suit or criminal complaint can replace the DRT remedy.
• If an appeal to the DRAT is likely, plan early for the pre-deposit.

For Guarantors

A guarantor whose property is targeted is an aggrieved person under Section 17. Defences such as discharge of the guarantee, extinguishment of the debt or an invalid assignment will ordinarily need to be raised before the DRT, as Electrosteel illustrates.

For Banks, Financial Institutions and Asset Reconstruction Companies

The protection of Sections 32 and 34 is strongest where the procedure under the Act and the Rules has been followed carefully and in good faith. Prabha Jain is a reminder that thorough title due diligence before sanction is essential. A defective title chain can expose the lender to civil litigation that SARFAESI cannot block. Assignees should also verify the documentation supporting the assignment.

For Third Parties, Co-owners, Tenants and Auction Purchasers

Begin by identifying the nature of your claim. If you claim through the borrower, or your grievance concerns the manner in which the creditor acted, the DRT is likely to be the correct forum. Tenants should note the specific mechanism under Section 17(4A). If you assert an independent title adverse to the borrower, for example as an unpaid co-owner or prior purchaser, a civil suit may be maintainable. Many cases involve both kinds of claim, and the choice of forum should be assessed carefully. Our property disputes team regularly considers such overlapping claims.

Frequently Asked Questions

Can I file a civil suit to stop a SARFAESI auction?

Generally, no. Section 34 bars civil courts from matters the DRT can decide and prohibits injunctions against action under the Act. A borrower's challenge to an auction should normally be brought before the DRT under Section 17.

Is a civil court always barred when SARFAESI proceedings are pending?

No. The bar applies only to matters within the DRT's or DRAT's powers. Independent title disputes and certain claims the DRT cannot adjudicate, as recognised in Prabha Jain and Leelamma Mathew, may still be heard by a civil court.

What is the time limit to approach the DRT?

An application under Section 17 must be filed within 45 days from the date on which the measures under Section 13(4) were taken. An appeal from the DRT to the DRAT under Section 18 is ordinarily to be filed within 30 days.

Can a guarantor challenge SARFAESI action?

Yes. A guarantor is an aggrieved person and may apply to the DRT under Section 17, but should ordinarily do so before the DRT rather than through a civil suit.

Conclusion

The Supreme Court's position is clear and consistent: if the DRT or DRAT can decide a dispute arising from SARFAESI action, the civil court cannot. Jayant Vitamins confirms that this cannot be avoided by recasting a challenge as a damages claim or a criminal complaint. Equally, Section 34 is not a blanket ban. Where a dispute lies outside the DRT's statutory powers, particularly an independent title claim by a third party, the civil court remains available, as Prabha Jain shows. Borrowers, guarantors, lenders and affected third parties should identify the correct forum early and act within the short statutory time limits. For advice on a specific matter, you can consult our SARFAESI and bank recovery team or contact PlanetLex.

Legal References

• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Sections 13, 14, 17, 18, 31, 32, 34 and 35
• International Asset Reconstruction Co. Pvt. Ltd. v. Jayant Vitamins Ltd. & Anr., SLP (C) No. 12913 of 2024 (Supreme Court, 2026)
• Central Bank of India & Anr. v. Smt. Prabha Jain & Ors., 2025 INSC 95 (Civil Appeal No. 1876 of 2016, decided 9 January 2025)
• Leelamma Mathew v. Indian Overseas Bank & Ors., Civil Appeal No. 7128 of 2022 (decided 17 November 2022)
• Electrosteel Castings Ltd. v. UV Asset Reconstruction Co. Ltd. & Ors., Civil Appeal No. 6669 of 2021 (decided 26 November 2021)
• Robust Hotels Pvt. Ltd. v. EIH Ltd., (2017) 1 SCC 622
• Jagdish Singh v. Heeralal, (2014) 1 SCC 479
• United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110
• Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311

Legal Disclaimer

This article is published for general legal awareness. It summarises statutory provisions and judicial decisions in general terms, and the account of the 2026 Jayant Vitamins decision is based on published reports of the judgment. It is not legal advice and does not create an advocate-client relationship. The correct forum, remedy and time limit in any matter depend on the facts, the documents, the nature of the relief sought and the procedural stage of the case.

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