DEBTS RECOVERY TRIBUNAL CANNOT INITIATE A PROCEEDING FOR CONTEMPT OF COURT

The Debt Recovery Tribunal (‘DRT’ for short) is a specialized, quasi-judicial body in India established under the Recovery of Debts and Bankruptcy Act, 1993, to expedite the recovery of dues for banks and financial institutions. Key features include jurisdiction over claims above Rs. 20 lakh, adherence to natural justice rather than strict civil procedure, and power to issue recovery certificates and appoint receivers. A DRT, though a quasi-judicial body, possesses powers similar to civil courts, including summoning witnesses, examining evidence on affidavit, and enforcing document production.

The DRT does not have inherent jurisdiction to punish for contempt under the Contempt of Courts Act, 1971, as it is not considered a 'Court' within the meaning of that Act. While the DRT has statutory authority to adjudicate financial disputes, the power to punish for contempt lies with the High Courts and the Supreme Court.   If a party wilfully disobeys a DRT order, the aggrieved party should approach the High Court, which can exercise its power to punish for contempt regarding its subordinate tribunals under Articles 215 or 227 of the Constitution.

In Sundarraj Kanagaraj and Anr. Versus Chief Judicial Magistrate and Anr. - 2026 (4) TMI 1801 - THE DEBT RECOVERY TRIBUNAL, MADURAI, the applicants availed home loan from Aspire Home Finance Corporation Limited to the tune of Rs.15,76,763/-.  The Corporation invoked the provisions of SARFAESI, declaring the loan account as Non-Performing Asset (‘NPA’ for short).  The applicants paid the dues regularly.  Instead the Corporation issued the alleged demand notice.  The closed the account without giving an opportunity to the applicants.  The applicant/appellant filed an appeal before the DRT, Madurai with the prayer to set aside all the proceedings initiated under SARFAESI and also set aside the impugned order dated 10.02.2023.

The appellants submitted the following before the DRT-

• The defendant bank, without giving any opportunity to settle down after suffering heavily due to COVID – 19 issued demand notice and possession notice on 15.05.2019.
• The bank further directed the applicants to pay the entire amount of the loan and close the accounts without giving any opportunity of being heard.
• The appellants regularly paid the amount to the bank as per the repayment schedule without any break or hindrance.
• Due to COVID -19 the business of the appellants badly hit and sustained huge loss.  Despite this the appellants repaid the loan amount to the extent of Rs.9.50 lakhs.
• The bank did not wait for the regaining of the appellants but charged interest on interest and penal interest.
• Since the appellants paid the loan amount regularly the declaration of the loan amount as NPA is arbitrary, perverse and illegal.
• The levy of interest on interest, penal interest etc., caused the appellants to survive against harsh economic realities.
• The appellants are having right to question the issue of classification of NPA if he can establish that the Bank has acted unreasonably or the classification is perverse on the face of it.
• The appellants requested for the waiver of interest  during COVID – 19 under Reserve Bank of India circular.  But the Bank did not consider the request of the appellants.
• Without considering the request for waival of interest the bank obtained the impugned order from the Chief Judicial Magistrate by concealing the real facts.
• In the possession notice the authorized officer totally suppressed the measurement of the huge building in the schedule of property in a manner unknown to law.
• The amount shown as outstanding and interest charged in the impugned order is exorbitant, unreasonable and against all fundamental norms and rules.
• The NPA declared in the demand notice is illegal and against the guidelines issued by Reserve Bank of India.
• The action initiated  assuming and claiming that the account has become NPA are all illegal and liable to be set aside.
• The outstanding amount shown in the demand notice dated 18.01.2019 is incorrect.
• The possession notice was not served to all the applicants and also not published in the two leading newspapers within 7 days as required in the Rules and has also not affixed on the property.
• The Chief Judicial Magistrate, Trichy passed the impugned order mechanically under Section 14 of the SARFAESI Act.
• The impugned order is not a speaking order.
• The Chief Judicial Magistrate has failed to verify as to whether the provisions of the Act had been complied with by the defendant prior to the application under Section 14 of the SARFAESI Act.
• The defendant bank has no locus to file the application as it has to be filed by the secured creditor.
• The application does not contain the necessary particulars, annexure and affidavit which are mandatory.
• Because of negative aspects in the applicants, the Chief Judicial Magistrate ought to reject the application.
• The impugned property is a residential property.  The impugned order would adversely affect his family.
• The defendant bank failed to mention the proper measurement of schedule of property in the possession notice which was not served on all the applicants.

Therefore, the appellants prayed the DRT to stay of all further proceedings in the impugned order.

An Interim application was also filed as contempt petition seeking relief against the impugned order of Chief Judicial Magistrate.  The DRT ganted a stay imposing conditions on the applicants.  The appellants were directed to make 50% of the total amount divided in two instalments.   The appellants paid the amount as ordered by DRT.  The main grievance of the appellants is that despite the stay order the bank issued an auction sale notice on 07.12.2023 which specified the sale date as 11.01.2024.  This notice is in contravention of the stay order and clearly disobeyed the DRT’s clear instructions.  Therefore, appellants filed the present contempt petition.   It was prayed to punish the authorised officer as per Section 19(7) of the Recovery of Bank and Financial Department due to Institution Act for the disobedience and breach of the terms on which the order was made. It was also prayed that restore the original position as it was at the time stay was granted.

The bank did not attend the hearings.  The DRT considered the submissions of the appellants and framed the following questions to be considered in this case-

• Whether the applicant is entitled to get reliefs as prayed for in the main SA?
• Whether the defendant bank has violated the order of DRT and is liable for any contempt proceedings?

The DRT analysed the facts of the case.  The DRT found that the applicants has not filed any evidence to show that he has filed any objections or representations under Section 13(3-A) of SARFAESI Act.  The bank did not appear before DRT despite the service of notice to produce the evidence and to rebut the allegations of the appellants.  Therefore, the DRT arrived at the conclusion that the applicants have proved their case in their favour.  Further the applicants have complied with the order to pay Rs.8 lakhs in two instalments as directed by the DRT. 

The DRT also observed that despite the stay order the bank has issued sale notice which is in contravention of the stay order of DRT.  Further DRT observed that DRT is not a court and therefore cannot initiate a contempt petition and as such the DRT cannot entertain the contempt petition filed by the petitioners.  Therefore, the DRT closed the contempt petition.

The DRT allowed the appeal and set aside the possession notice issued by the bank.  The DRT also set aside the impugned order of Chief Judicial Magistrate.  The DRT further directed the bank not to include the expenditures incurred in respect of possession notice and sale notice in the loan account of the applicants.  The DRT gives liberty to the bank to initiate fresh action against the applicants as per the SARFAESI Acts and Rules.