Bombay High Court Sets Aside DRT, DRAT Interim Relief; Upholds IIFL Debt Assignment to ARC
The Bombay High Court has allowed a petition filed by ASREC (India) Ltd., an Asset Reconstruction Company (ARC), and set aside interim orders passed by the Debt Recovery Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT) in proceedings under the SARFAESI Act. The Court held that the tribunals had failed to properly examine the validity of the assignment of the debt and the balance of convenience before restraining the ARC from taking recovery steps.
The dispute arose from a loan of approximately ₹20 crore sanctioned by IIFL Wealth Finance Ltd. to Fastgrowth Hospitality LLP and connected parties in December 2017. The facility was subsequently enhanced to about ₹23 crore. Following default, IIFL issued a demand notice on June 25, 2020.
The debt was subsequently assigned by IIFL to ASREC through assignment agreements dated December 25, 2020 and February 12, 2021. After acquiring the debt, ASREC sought to exercise the rights of the secured creditor and proceed against the secured assets under the SARFAESI Act.
The borrowers and other respondents approached the DRT by filing a securitisation application under Section 17 of the SARFAESI Act. On June 2, 2022, the DRT granted ad-interim relief restraining ASREC from taking steps in respect of the secured assets.
ASREC challenged the DRT’s order before the DRAT. However, the DRAT dismissed the challenge on December 2, 2022, thereby continuing the restraint against the ARC. The matter was subsequently brought before the Bombay High Court.
The High Court found that the DRT had granted interim protection without adequately considering the validity and effect of the assignment of the debt from IIFL to ASREC. The Court also held that the question of balance of convenience was required to be considered before granting such ad-interim protection.
The Court consequently found the orders of both the DRT and DRAT unsustainable. It set aside the orders dated June 2, 2022 and December 2, 2022 and permitted ASREC to proceed with recovery of the assigned debt in accordance with law.
The ruling is significant for proceedings involving assignment of stressed loans to Asset Reconstruction Companies. Once an assignment is legally effected, the ARC’s status and enforcement rights cannot be disregarded while considering an application for interim protection under Section 17 of the SARFAESI Act.
The decision also underscores that interim relief before the DRT cannot be granted mechanically. The tribunal must examine the underlying rights of the parties, including the validity of the assignment and the balance of convenience, before restraining an ARC from exercising statutory recovery powers.
The Bombay High Court’s ruling therefore strengthens the position of ARCs in enforcement proceedings where the underlying debt has been validly transferred by the original financial institution, while reaffirming the requirement that DRTs undertake a proper judicial assessment before granting interim restraints.
