In the case of Bank of Baroda vs. E-Star Infotech Ltd. and Anr., the Debts Recovery Appellate Tribunal (DRAT) Mumbai addressed the nature of the obligation imposed on secured creditors under Section 13(3A) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
Brief Facts
E-Star Infotech Ltd. (the borrower) had availed financial assistance from the Bank of Baroda (the secured creditor). Upon default in repayment, the bank issued a demand notice under Section 13(2) of the SARFAESI Act, seeking recovery of the outstanding dues. In response, E-Star Infotech Ltd. submitted objections to the notice.
Legal Issue
The central question was whether the bank’s obligation under Section 13(3A) of the SARFAESI Act to respond to the borrower’s objections within the stipulated period is mandatory or directory.
Judgment
The DRAT Mumbai held that the scheme of the SARFAESI Act clearly states that the creditor must consider the borrower’s representation.
This judgment aligns with the Supreme Court’s stance in Kanaiyalal Lalchand Sachdev & Ors. v. State of Maharashtra & Ors., where it was held that while the secured creditor must consider the borrower’s representation or objection, the Act does not mandate that the creditor must accept the representation.
Therefore, the DRAT concluded that the requirement for the secured creditor to consider the borrower’s representation is mandatory, but the time frame stipulated for this consideration is directory.