AAP Tax Law - Indian legal information

SARFAESI Act, 2002 | Section 19

Section 19 of the SARFAESI Act: Right to Compensation and Costs

Section 19 provides a statutory remedy where a secured creditor has taken possession of secured assets contrary to the SARFAESI Act or the rules and the competent forum orders their return. In specified circumstances, the borrower or another aggrieved person is entitled to compensation and costs as determined by that forum.

Key distinction: An allegation of wrongful possession does not, by itself, establish entitlement to compensation under Section 19. The relevant adjudicatory finding and direction for return of the secured asset are central to the statutory remedy.

What Section 19 provides

Under Section 19 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, if the competent Tribunal or Court, on an application or appeal under the specified provisions, holds that possession of secured assets by a secured creditor is not in accordance with the Act and rules and directs the creditor to return those assets, the concerned borrower or other eligible aggrieved applicant is entitled to such compensation and costs as that forum determines.

The provision expressly refers to the Debts Recovery Tribunal, the Court of District Judge, the Appellate Tribunal and the High Court in the context of the associated remedies. The references to Sections 17A and 18B relate to former special arrangements for Jammu and Kashmir and must be read in light of subsequent statutory adaptation and omission; they should not be treated as generally available current remedies.

Conditions for claiming compensation under Section 19

  1. Secured creditor takes possession: The dispute concerns possession of a secured asset in the course of enforcement of security interest.
  2. Proceedings before a competent forum: The aggrieved person pursues the applicable statutory remedy, ordinarily an application under Section 17 and, where applicable, an appeal under Section 18.
  3. Finding of illegality: The forum holds that the secured creditor's possession is inconsistent with the Act or the applicable rules.
  4. Direction to restore possession: The forum directs the return of the secured asset.
  5. Determination of amount: Compensation and costs are assessed by the competent forum according to the circumstances and evidence.

Who may seek compensation?

Section 19 is not confined to the borrower alone. Following the amendment made by Act 44 of 2016, its language includes any other aggrieved person who has filed the relevant application or appeal and is covered by the direction for return of the secured asset. The applicant must establish the statutory conditions and the basis for the relief claimed.

Meaning of key legal terms

Secured asset and secured creditor

A secured asset is property on which a security interest has been created. A secured creditor includes categories of lenders and other entities recognised by Section 2(1)(zd) of the Act, subject to its statutory definition.

Measures under Section 13(4)

Section 13(4) authorises specified enforcement measures following the statutory process, including taking possession of secured assets. A challenge to such measures is ordinarily made under Section 17.

Debts Recovery Tribunal (DRT) and Appellate Tribunal (DRAT)

The DRT examines challenges to enforcement measures under Section 17, while the DRAT hears qualifying appeals from DRT orders under Section 18. The appeal is subject to the statutory time limit and, for a borrower, the applicable pre-deposit requirement.

How to pursue relief

  1. Collect the demand notice, possession notice, relevant loan and security documents, communications, valuation or sale records, and proof of loss.
  2. Challenge the enforcement measure within the applicable limitation period under Section 17, ordinarily 45 days from the date on which the measure was taken.
  3. Seek appropriate orders concerning the legality of possession and restoration of the secured asset.
  4. Where the statutory findings justify it, request compensation and costs, supported by specific evidence of loss and expenditure.
  5. If aggrieved by the DRT order, consider the Section 18 appellate remedy, ordinarily within 30 days from receipt of the order, subject to statutory requirements.

Compensation is not fixed at a uniform statutory rate. The amount and costs depend on the forum's determination on the material placed before it.

Amendment history and statutory interpretation

Section 19 was substituted by Section 14 of Act 30 of 2004, effective from 11 November 2004. Its coverage was expanded by Section 15 of Act 44 of 2016, effective from 1 September 2016, to include other aggrieved persons in the relevant statutory language.

The earlier page reproduced references to Section 18A as though it provided an appellate route. Section 18A actually deals with validation of fees levied; the operative ordinary appeal provision is Section 18. The text of Section 19 should therefore be checked against the latest official consolidated Act when assessing historical cross-references.

Frequently asked questions

Does every unlawful possession automatically result in compensation?

No. Section 19 requires the relevant statutory findings and a direction to return the asset. The competent forum determines the compensation and costs payable.

Can a person other than the borrower claim relief?

Yes, where that person qualifies as an aggrieved applicant under the amended provision and satisfies the other statutory conditions.

Does Section 19 specify a fixed compensation amount?

No. The amount is determined by the adjudicating forum on the facts and supporting evidence.

Official legal resources

This article is a general explanation of Section 19 and does not replace the statutory text, applicable rules, or advice based on the facts of a particular case.