Borrowers Can Be Granted Opportunity To Clear Loan Overdues In Installments To Prevent Coercive Action Under SARFAESI Act: Kerala High Court

Kerala High Court, in a significant ruling, held that borrowers facing recovery proceedings under the SARFAESI Act can be granted an opportunity to clear their outstanding and overdue amounts in monthly installments. A bench of Justice P.V. Balakrishnan observed that permitting such a repayment schedule is often beneficial to the banking institutions while providing necessary relief to the petitioner. The court emphasized that if the petitioner complies with the court-ordered installment plan, no coercive steps shall be taken by the respondent bank.

The petitioner approached the court aggrieved by the coercive actions initiated by the respondent bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The dispute centered on three separate accounts: a Kisan Credit Card (KCC) account, a Guaranteed Emergency Credit Line (GECL) loan account, and an Overdraft (OD) account. The petitioner sought the court's intervention to clear the entire outstanding and overdue amounts through a structured installment plan.

The primary question before the court was whether a petitioner could be permitted to settle loan overdues and outstandings through installments despite the initiation of recovery measures under the SARFAESI Act. The court was also called upon to determine the conditions under which coercive recovery steps by the bank could be stayed.

Bank Expresses No Objection To Repayment In Installments

During the hearing, the counsel representing the respondent bank submitted that the bank had no objections to allowing the petitioner to clear the entire dues through installments. The bank noted that such a repayment arrangement would ultimately be beneficial to the institution's recovery interests. The bank's records indicated a total outstanding of Rs. 8,12,185 in the KCC account and an overdue amount of Rs. 2,41,002 across the GECL and OD accounts.

Court Exercises Discretion To Facilitate Loan Regularisation

After considering the submissions from both parties, the court held that the petitioner should be granted a fair opportunity to regularize the accounts. The bench established a specific timeline for the payments, starting with the GECL and OD overdues. The court directed that these specific overdues, totaling Rs. 2,41,002 plus interest, be remitted in two equal monthly installments commencing from July 2026.

Specific Repayment Schedule For Different Loan Categories

The court further detailed the repayment plan for the KCC account, which carried a larger outstanding balance. It ordered the petitioner to remit the sum of Rs. 8,12,185 along with accrued interest and charges in eight equal monthly installments. This second phase of repayment was scheduled to begin in September 2026, immediately following the completion of the payments for the GECL and OD accounts.

Default In Installments To Revive Coercive Recovery Measures

The court made it clear that the stay on coercive action was strictly conditional upon the petitioner's adherence to the payment schedule. The bench observed that in the event of a default in any single installment, the bank would be at liberty to resume the coercive recovery steps already initiated under the law. "If the petitioner complies with the afore order, no coercive steps shall be taken by the respondent," the judgment noted.

"In the event of default of any one installment, the bank can continue with the coercive steps already taken as per law."

The Kerala High Court disposed of the writ petition by providing a ten-month window for the petitioner to settle all dues across multiple loan accounts. This judgment reaffirms the court's power to balance the statutory rights of secured creditors under the SARFAESI Act with the equitable concerns of borrowers seeking to clear their debts. By structuring the payments into manageable installments, the court ensured a pathway for debt recovery without immediate displacement or coercive seizure.

Date of Decision: 06 July 2026