If the borrower defaults on the loan, the bank or other financial institution can sue the borrower to recover what it is owed. In such a case, two terms are used, i.e., the DRT and SARFAESI. Both are related to recovery of loans but have different purposes and procedures.
Understanding the difference is important for borrowers, guarantors, property owners and lenders because the nature of the proceedings, the role of the tribunal and the remedies available to an affected person can vary.
What Is DRT?
DRT stands for Debt Recovery Tribunal. It provides a specialized platform for issues relating to recovery by banks and financial institutions. The tribunal provides a specialist forum for the resolution of claims for outstanding debts and for the resolution of related recovery proceedings.
Generally, a DRT proceeding is initiated when a bank or a financial institution approaches the tribunal for recovery of money due from a borrower. The tribunal considers the claim and the response of the concerned parties before passing an appropriate order.
The important point is that DRT refers to the tribunal and its proceedings, rather than to a method of taking possession of a secured property.
What Is SARFAESI?
SARFAESI is a separate recovery mechanism. It is mainly concerned with enforcement of security interests. It provides a statutory process for secured creditors to enforce their security on the default of the borrower subject to such conditions and procedures as may be laid down by the applicable law.
This mechanism can be particularly relevant where a loan has been secured against property or some other asset. Instead of making recovery dependent entirely on obtaining a traditional court decree first, the secured creditor may take prescribed measures to enforce the security.
The process can involve steps relating to possession and sale of the secured asset. Therefore, SARFAESI proceedings can have a direct impact on property offered as security for a loan.
The Main Difference Between DRT and SARFAESI
The simplest way to understand the difference is to think of their roles.
DRT is a specialised tribunal, while SARFAESI is a mechanism for enforcing security.
The general problem of a bank going to the DRT is recovery of debt. The tribunal examines the matter and exercises its powers within its jurisdiction.
In contrast, SARFAESI emphasizes the right of the creditor to enforce a qualifying security interest. The secured creditor can take the measures permitted under the relevant provisions after following the required procedure.
Therefore, these terms should not be treated as two names for the same recovery process. They represent different parts of the legal framework used in dealing with loan defaults.
How SARFAESI Proceedings Can Lead to DRT Proceedings
One of the reasons people often confuse DRT and SARFAESI is that the two can become connected.
A borrower or another person affected by certain measures taken by a secured creditor under SARFAESI can approach the DRT to challenge those measures. The tribunal can examine whether the creditor followed the applicable legal requirements.
If the tribunal finds that the measures were not taken in accordance with the applicable provisions and rules, it shall have the power to declare the action invalid and, if appropriate, to order the restoration of possession or management of the secured asset.
This means that DRT does not simply operate as an alternative to SARFAESI. In some situations, it acts as the forum where an affected person can challenge action taken through the SARFAESI route.
In a DRT recovery matter, the focus is instead on the lender’s claim for recovery of the outstanding debt. The borrower shall have the right to respond to the claim and to submit to the tribunal the relevant documents and objections.
Is SARFAESI compatible with DRT?
Yes. These two mechanisms may interact with each other in recovery.
A secured creditor can invoke the provisions of SARFAESI to enforce the security and DRT intervenes when the enforcement is challenged by an aggrieved party. Depending on the circumstances, proceedings before the DRT or other competent forum may also be required to recover any outstanding amount after enforcement of the secured asset.
This relationship explains why a borrower may encounter both terms during the same loan-recovery dispute.
DRT vs SARFAESI: A Clear Understanding
The distinction can be summed up as follows. DRT is the specialised tribunal that handles specified debt-recovery matters and also hears challenges to certain SARFAESI measures. SARFAESI is the mechanism through which eligible secured creditors can enforce their security interests after following the prescribed process.
For borrowers, the most important step is to identify exactly what type of notice or proceeding they have received. A DRT proceeding, a SARFAESI demand and an enforcement action are not identical. Each can require a different response.
Because loan recovery proceedings can affect finances, property and legal rights, anyone facing such action should examine the documents carefully and obtain appropriate legal advice before deciding how to respond.
