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1. The Hon’ble Supreme Court in the landmark judgment in ‘Mardia Chemicals’ case, while upholding the constitutional validity of Securitization, Reconstruction of Financial Assets & Enforcement of Security Interest Act 2002 (for brevity the Act) had held that secured creditor has to take higher degree of caution in exercising any of the rights under the Act in view of stringent nature of the provisions of the Act. The Action taken should be bona fide and transparent. Sec.32 of the Act provides for immunity to secured creditor or any of its officers against prosecution or other legal proceedings for bona fide action taken by him under the Act.  Bona fide action means action taken in good faith and in consonance to the provisions of the Act and Security Interest (Enforcement) Rules 2002 (for brevity “the Rules”) framed thereunder. However any negligent or fraudulent act of secured creditor cannot be said to be bona fide act and therefore is not covered by Sec.32 of the Act.

2. Sec.32 of the Act reads thus:  “No suit, prosecution or other legal proceedings shall lie against any secured creditor or any of his officers or manager exercising any of the rights of the secured creditor or borrower for anything done or omitted to be done in good faith under this Act”.

3. An authority clothed with statutory power cannot seek excuse for negligent acts as the borrower may suffer irreparable loss which cannot be compensated even in terms of money. Where something has gone seriously wrong, it is both inconvenience and distress. Distress includes embarrassment, anxiety, disappointment and loss of expectation. The degree of distress involved can vary widely which can be little more than a relatively minor annoyance. Distress and inconvenience often go hand in hand. Inconvenience includes incurring of any unwarranted expenditure of time and money to protect against wrongful action. Pain and suffering are considered as more extreme forms of distress and inconvenience. Compensation is meant to make good the loss by awarding damages to the party who suffered distress in an illegal action. These damages are meant specifically to compensate a person against negligent action or a deliberate act, of a statutory duty.

4. For that reason, Sec.19 is embodied in the Act as a safe guard against such harsh and unsavoury action. Perhaps for this reason, the Hon’ble Supreme Court in ‘Mardia Chemicals’ case also observed that there is no need for framing another law for fixing “Lender’s liability”. Sec.19 of the Act is extracted and reproduced hereunder:

“19. Right of borrower to receive compensation and costs in certain cases: If the Debts Recovery Tribunal or the Court of District Judge, on an application made under section 17 or section 17A or the Appellate Tribunal or the High Court on an appeal preferred under section 18 or section 18A, holds that the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act and rules made thereunder and directs the secured creditors to return such secured assets to the concerned borrowers, such borrower shall be entitled to the payment of such compensation and costs as may be determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High Court referred to in section 18B.”

5.  Sec.19 creates a statutory right in favour of borrower to receive compensation provided the following two conditions are fulfilled:

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i). if DRT/Dist.Court/DRAT/High Court under Secs.17/17A/18/18A  holds that possession of secured assets by the secured creditor is not in accordance with the provisions of the Act and the Rules made thereunder and

ii). directs the secured creditor to return the secured assets to the concerned borrowers.

6. The theory of damages is that a compensation is given in satisfaction for the injury sustained, in terms of money for reparation of the damages suffered which one would not have sustained but for the wrong done by the other party.Section 73 of the Contract Act is the general law governing all cases, resulting in loss or damage to the party who suffered damages.

7. The expression ‘compensation’ is not ordinarily used as an equivalent to damages, although compensation may often have to be measured by the same rule for breach of a contract. The word ‘Compensation’ is usually used interalia with ‘damages’, however the word ‘Compensation’ denotes a sum of money payable to a person on account of the loss or damage caused to him by the breach of a statutory duty. The damages on the other hand, mean the estimate of some loss and injury actually sustained. The expression ‘compensation’ is not ordinarily used as an equivalent to damages, although compensation may often have to be measured, by the same rule as damages are measured in action for a breach of contract.

8. The compensation is given only when actual loss or injury is suffered by the Claimant. The fundamental principle of law of damages is that the person injured shall have fair and just compensation commensurate with loss sustained in consequence of anything done wrong. “Punitive or exemplary damages” also can be awarded by DRT where a respondent acted in a reckless or violent manner.

9. Entitlement of compensation and costs may be decided by DRT/Dist.Court/DRAT/High Court under Secs.17/17A/18/18A. This Section does not impose any mandatory duty to DRT to award compensation in each and every case. This is obvious from the word “may” appearing in the language of the section. Therefore it is advisable that, borrower seeks for this relief specifically and invariably in the Sec.17 application itself and produce evidence or rely on evidence to prove the damages suffered. There is no need to file any separate application under Sec.19 of the Act. It is settled law that if no relief is claimed, the authority has no power to grant relief.

10.  Sec.19 of the Act is ambiguous as to whether this right is available to aggrieved person (eg. third party or bona fide tenant) also or not. In many cases third parties also face crucial position at the time of forceful / physical dispossession under Sec.14 of the Act. Of course the aggrieved persons are entitled to costs of the application under Sec.17 of the Act but entitlement to compensation is not obvious from the reading of the Section. DRT has no power as it cannot supplement law in this regard as a legislator (casus omissus= When a statute or an instrument of writing undertakes to foresee and to provide for certain contingencies, and through mistake, or some other cause, a case remains to be provided for, it is said to be a casus omissus)

These are my personal views and I welcome for sharing valuable views and suggestions from all readers. 


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Comments

2 years ago Yaatri Shah

Hello sir. thank you for your insights. i had a doubt, can the applicant claim for compensation under s.19 after the case has been adjudicated and disposed off? (as the applicant forgot to ask for compensation in the original application, the court also did not grant the same).


12 years ago shastibrata

What a well thought out and written article by Shri.Ramachary sir!In a day and age where not just well meaning advocates, but also DRT P.O's are ignorant of the Act and routinely pass orders without application of mind, articles such as these help not just lawyers and DRT P.O, but also lay people who are fortunate enough to follow this forum!The issue of seeking compensation under sec.19 has not been illuminated in any published article as has been done by Ramachary sir in this forum!


12 years ago c.p.s. ramachary

A loan account is construed as NPA if the loan is defaulted on due date and such default crosses the 90 days in case of loan repayable in installments and in case of cash credit or overdraft becomes overdue and such status crosses 90 days according to RBI norms.


12 years ago Mohinder Singh

The article is rich in information, but can you state as to when an account is construed to be a NPA account.


12 years ago c.p.s. ramachary

Sec.19 is clear and no citation is necessary.


12 years ago Sameer Kakar

Dear Mr. Rmachary, Indeed your article is very informative on the topic and thought provoking. Kudos to you. I would like to know a precedent by way of a case law where the borrower received damages in terms of S. 19 of the Act. This will go a long way. Regards,


12 years ago c.p.s. ramachary

Dear Mr. Tarveen If possession of car is taken under SARFAESI Act, then the DRT u/s 17 of the Act. If possession is taken without invoking SDARFAESI Act,based on the terms of hypothecation agreement, illegally, then, it is Civil Court (for filing suit against bank) for damages u/s 73 of Indian Contract Act.


12 years ago Tarveen

Can you guide me, my question is under which Act we can seek relief if the bank take over the car against which the loan was due and ask as for the balance amount. kindly reply as soon as possible.


12 years ago AJIT KUMAR SATAPATHY

Thanks Sir, Very informative writing.


12 years ago c.p.s. ramachary

Mr.Prakash, Purchaser knows very well that he is purchasing the property at distress sale and his right to property is subject to tribunal's final verdict. If the bank's action in selling the secured asset is not in accordance with law, he knows that the tribunal is not powerless to restore the possession even if it is made over to purchaser(See Judgment of Supreme court in Indian Overseas Bank Vs.Ashok Saw Mills). It is for the purchaser to take appropriate action against the bank for financial loss if any he sustains by participating in the tender/bid for its wrong action in selling the asset in breach of provisions of SARFAESI Act. Sec. 19 is silent about compensation to purchasers as well as injured third parties.


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