Borrowers facing loan recovery proceedings often hear two legal terms together: SARFAESI Act and DRT Act. While both deal with recovery of bank dues, their purpose, procedure, and scope are fundamentally different. Confusion between the two often leads to delayed or incorrect legal remedies.
This article clearly explains the difference between the SARFAESI Act and the DRT Act, in simple and practical terms.
Overview of the Two Laws
| Particulars | SARFAESI Act, 2002 | DRT Act, 1993 |
|---|---|---|
| Full Name | Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 | Recovery of Debts and Bankruptcy Act, 1993 |
| Primary Purpose | Enforcement of security without court intervention | Adjudication and recovery of bank dues |
| Nature | Enforcement law | Adjudicatory law |
Purpose of Each Act
SARFAESI Act
The SARFAESI Act empowers banks and financial institutions to enforce their security interest directly, without filing a civil suit. Its focus is speedy recovery through possession and sale of secured assets.
DRT Act
The DRT Act provides a judicial forum (Debt Recovery Tribunal) where banks can file applications to adjudicate disputes and recover debts from borrowers.
👉 In essence:
SARFAESI = Action by Bank
DRT = Decision by Tribunal
Who Initiates Proceedings?
Under SARFAESI
The bank or financial institution initiates action on its own, after declaring the account as NPA.Under DRT Act
The bank files an Original Application (OA) before the Debt Recovery Tribunal seeking recovery of dues.
Borrowers do not approach DRT initially under SARFAESI—they approach DRT only after enforcement action is taken.
Requirement of Security
| Aspect | SARFAESI Act | DRT Act |
|---|---|---|
| Secured Loan Required | Yes | No |
| Applies to Unsecured Loans | ❌ No | ✔ Yes |
| Agricultural Land | ❌ Exempt | ✔ Can be included |
👉 SARFAESI applies only to secured assets, while DRT Act applies to both secured and unsecured debts.
Nature of Proceedings
SARFAESI Proceedings
Administrative and enforcement-oriented
No prior adjudication by a court or tribunal
Bank takes possession, management, or sells assets
DRT Proceedings
Judicial / quasi-judicial
Evidence, pleadings, and hearings
Tribunal passes recovery orders and recovery certificates
Role of Debt Recovery Tribunal (DRT)
Interestingly, DRT plays different roles under both laws:
Under the DRT Act → DRT is the main forum for banks
Under the SARFAESI Act → DRT is the remedial forum for borrowers
Borrowers approach DRT under Section 17 of SARFAESI Act to challenge enforcement measures.
Timeline & Speed
| Factor | SARFAESI Act | DRT Act |
|---|---|---|
| Speed | Faster | Comparatively slower |
| Procedure | Summary enforcement | Detailed adjudication |
| Court Involvement | Minimal | Substantial |
This is why banks often prefer SARFAESI wherever applicable.
Remedies Available to Borrowers
Under SARFAESI Act
Objections under Section 13(3A)
Application before DRT under Section 17
Challenge illegal possession or auction
Under DRT Act
File written statements
Contest bank’s claim
Appeal against recovery certificate
Can Both Acts Be Used Simultaneously?
Yes. Banks can:
Initiate SARFAESI proceedings for enforcing security, and
File DRT applications for recovery of remaining dues
Courts have held that both remedies are complementary, not mutually exclusive.
Common Misconceptions
❌ SARFAESI replaces DRT
❌ DRT approval is required before SARFAESI action
❌ Borrowers have no remedy under SARFAESI
✔ In reality:
SARFAESI is enforcement-centric
DRT provides checks and balances
Borrower remedies are statutorily protected
Practical Illustration
A borrower defaults on a housing loan.
The bank declares the account NPA and takes possession of the house under SARFAESI.
The borrower challenges this action before DRT under Section 17.
Simultaneously, the bank may file a DRT case to recover any shortfall after auction.
Role of an Advocate
An advocate plays a critical role in:
Assessing whether SARFAESI action is legally valid
Identifying procedural violations
Choosing the correct forum
Obtaining interim protection before DRT or High Court
Strategically handling parallel proceedings
Conclusion
The SARFAESI Act and DRT Act serve distinct but interconnected purposes. While SARFAESI empowers banks with swift enforcement tools, the DRT Act ensures judicial oversight and borrower protection. Understanding the difference helps borrowers and practitioners take timely and effective legal action.
FAQs
Q. Can SARFAESI proceedings be initiated without approaching DRT?
Yes. SARFAESI allows direct enforcement without prior adjudication.
Q. Is DRT the only remedy for borrowers under SARFAESI?
Yes, except in exceptional cases where High Courts intervene.
Q. Which Act is more powerful?
SARFAESI is powerful for enforcement; DRT is crucial for adjudication and remedies.