DRT Has Jurisdiction Even Where SARFAESI Action Is Alleged to Be Invalid: Karnataka High Court

“Availability of Statutory Remedy Under Section 17 of SARFAESI Cannot Be Bypassed Merely by Alleging Action Is Ab Initio Void” –  In a significant judgment reinforcing the primacy of statutory remedies under the SARFAESI Act, the Karnataka High Court upheld the dismissal of a writ petition filed by Chandradhara Rice Mill, a registered Small Enterprise under the MSMED Act, which had sought to challenge enforcement proceedings initiated by Union Bank of India under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

A Division Bench comprising Chief Justice Vibhu Bakhru and Justice C.M. Poonacha, in Writ Appeal No. 1753 of 2025 (GM-DRT), held that even where the borrower alleges that SARFAESI proceedings are unlawful or should not have been initiated, the appropriate forum is still the Debt Recovery Tribunal (DRT) under Section 17(1) of the Act. The appeal was dismissed on the ground that an alternative statutory remedy was available, and the writ petition was rightly not entertained by the learned Single Judge.

“Jurisdiction of DRT Is Not Ousted Merely Because Petitioner Questions Applicability of SARFAESI Act” – Court Clarifies Scope of Section 17(1)

The core contention of the appellant enterprise, represented by its proprietor Mrs. Anitha R, was that the Bank had acted prematurely under SARFAESI, without complying with the rehabilitation framework under RBI's 2015 guidelines for distressed MSMEs. It argued that since no steps were taken to rehabilitate the unit as required under RBI Notification dated 29 May 2015, any SARFAESI action was void ab initio, and DRT lacked jurisdiction to adjudicate the matter, necessitating writ jurisdiction under Article 226.

Rejecting this argument, the Bench observed:

“It is clear from the plain language of Section 17(1) of the SARFAESI Act that any person aggrieved can move an application before the DRT in respect to any measures taken by the Bank under Section 13(4)...”

The appellant's grievance arose from the Bank’s notice dated 29.04.2023 under Section 13(2), followed by possession notice under Section 13(4) dated 06.09.2023, regarding mortgaged assets. The Bench held that even if a borrower contends that SARFAESI should not have been invoked at all, the remedy under Section 17(1) continues to exist, and the matter falls squarely within DRT’s jurisdiction.

“Factual Disputes Must Be Adjudicated Before the DRT – Writ Court Cannot Be Invited to Conduct Factual Enquiry”

The High Court acknowledged that while the learned Single Judge made some observations favourable to the petitioner regarding the rehabilitation norms, it was ultimately correct in relegating the petitioner to the appropriate statutory forum, as resolution required factual findings which the High Court could not undertake in writ jurisdiction.

“The writ petition was not entertained on the ground that some of the issues required a factual enquiry and therefore, the petitioner must necessarily avail its alternate remedies.”

This observation aligns with the established principle that writ jurisdiction should not be exercised where an effective alternative remedy exists, especially under a special statute like SARFAESI, which provides a comprehensive adjudicatory mechanism.

“Merely Labeling SARFAESI Action as Void Cannot Confer Jurisdiction on the Writ Court”

Clarifying the misinterpretation often raised by borrowers, the Division Bench held:

“We find no merit in the contention that the DRT did not have the jurisdiction to entertain an application against the measures instituted by the Bank.”

This is a reaffirmation of the principle that jurisdiction under Section 17 is triggered by any grievance arising from action taken under Section 13(4), irrespective of whether the borrower alleges procedural impropriety, non-compliance with RBI guidelines, or even complete invalidity of action.

Thus, even when a borrower challenges the legality, necessity, or timing of SARFAESI measures, such matters must be first placed before the Debt Recovery Tribunal, and not directly before the High Court.

Conclusion: Borrowers Must Approach DRT First for SARFAESI Grievances – High Court Dismisses Writ Appeal

Summarising its findings, the Karnataka High Court held:

“In this view, we find no merit in the contention that the DRT did not have the jurisdiction to entertain an application against the measures instituted by the Bank. We find no grounds to fault the decision of the learned Single Judge in relegating the petitioner to avail its alternate remedies.”

Accordingly, the appeal was dismissed with liberty to the appellant to approach the appropriate forum.

This judgment provides important guidance to MSMEs and other borrowers who may seek relief against SARFAESI action based on RBI rehabilitation norms. It makes it clear that the existence of a regulatory breach (such as non-compliance with RBI guidelines) does not negate the remedy under Section 17, and borrowers must first exhaust that remedy before invoking writ jurisdiction.

Date of Decision: 28 October 2025