Introduction

In today’s volatile financial landscape, a growing number of borrowers—be it small business owners, entrepreneurs, or individuals—are facing the serious consequences of their loans being classified as Non-Performing Assets (NPAs). According to RBI norms, when a borrower defaults on repayment for more than 90 days, the lender marks the account as NPA. This classification triggers a strict legal framework under the SARFAESI Act, 2002, empowering lenders to recover dues without needing court approval. Often, this includes initiating proceedings through the Debt Recovery Tribunal (DRT), with the potential of property seizure or auction.

While such developments may sound distressing, it's critical for borrowers to understand that an NPA classification is not a death sentence for their finances or property. Timely action, legal awareness, and expert support can help avoid harsh outcomes and steer the situation toward resolution.

The Debt Recovery Tribunal (DRT) was established to ensure swift resolution of loan disputes where the outstanding amount exceeds ₹20 lakhs. Once an account is declared NPA, banks typically issue a demand notice under Section 13(2) of the SARFAESI Act, giving the borrower 60 days to clear the dues.

If no satisfactory response is received, the lender can proceed under Section 13(4) to take physical possession of the property or begin auctioning it—without requiring court intervention. However, borrowers have the right to challenge these actions by filing an appeal under Section 17, which temporarily halts the recovery until the tribunal hears the case.

This is a crucial opportunity for the borrower to present evidence, question the bank’s procedures, and propose corrective actions.

Early Detection and Preventive Action

Most borrowers miss out on critical opportunities because they act late. Early identification of financial distress is essential. Signs include:

• Missed EMI payments
• Cheque bounces
• Penalty notices
• Bank warnings or downgraded credit ratings

Proactively initiating dialogue with the bank before NPA classification allows room to negotiate repayment restructuring, interest deferral, or even temporary moratoriums—options that are far more flexible before legal action begins.

Strategic Response to Section 13(2) Notice

Once the notice under Section 13(2) is served, the borrower has 60 days to submit a written objection or representation. This is not a formality—it is your first legal defense.

Your reply should include:

• Details of past repayment efforts
• Valid economic hardships (e.g., business loss, illness)
• Any prior correspondence or negotiated plans with the lender
• Supporting documents: repayment records, tax returns, income proofs, or medical bills

Importantly, banks are legally bound to reply to your representation within 15 days. This step alone can delay further enforcement or create a strong foundation for your DRT case.

Legal Grounds for Challenging Bank Action

Professional legal and financial support is essential at this stage. Experts analyze:

• Loan agreements and repayment records
• Validity of the NPA classification
• Whether notices were properly served
• Compliance with RBI guidelines and SARFAESI procedures

Even small procedural lapses—such as errors in calculation or delay in issuing notices—can become valid grounds for defense in DRT.

For example, if the bank skipped proper valuation before auction or failed to respond to your representation, these procedural errors can be contested to seek a stay or reversal of the recovery action.

Filing Appeal Before the DRT: Section 17 Explained

If the lender moves to take possession of the property under Section 13(4), the borrower should immediately file a Section 17 petition before the DRT. The tribunal assesses:

• Whether SARFAESI procedures were followed
• Validity of borrower’s claims and financial condition
• Possibility of an amicable resolution

Timing is critical—delays in filing weaken your case and limit available legal remedies. Attach all documentation and communicate your intent to resolve dues. A stay order from DRT can temporarily stop possession or auction, giving you room to act.

Financial Alternatives: OTS & Restructuring

In parallel with legal recourse, One-Time Settlement (OTS) and debt restructuring are powerful financial tools. Contrary to popular belief, banks are not keen on property takeovers—they prefer recovering their funds efficiently.

Borrowers who demonstrate:

• A partial repayment capacity
• Willingness to settle
• Genuine financial hardship can often negotiate a waiver on interest, penalties, or extended repayment periods.

A professionally drafted OTS proposal that includes:

• A payment schedules
• Partial upfront payment
• Additional collateral or guarantors is far more likely to be accepted by banks.

Role of Professional Advisors

Navigating an NPA case involves understanding banking regulations, legal rights, and financial strategy. Engaging professionals with expertise in NPA recovery, SARFAESI law, and DRT proceedings makes a significant difference. They help with:

• Preparing documentation
• Representing you at DRT
• Negotiating with banks and ARCs
• Ensuring compliance with RBI regulations

A well-argued case backed by expert opinion carries more weight and often leads to quicker, more favorable outcomes.

Maintain Professional Communication with Lenders

Throughout the process, maintain transparent, documented, and polite communication with the lender. A borrower who:

• Responds on time
• Provides written records
• Proposes practical resolutions is more likely to be viewed positively by banks and tribunals.

Even during legal disputes, submitting partial payments shows intent to resolve. Record every conversation, submit updates regularly, and maintain a collaborative tone.

DRT is Not a Punishment—It’s a Forum for Resolution

It’s vital to change the perception that DRT courts are punitive. In truth, they are platforms designed to ensure balance between lender rights and borrower protection. Borrowers who approach these proceedings with preparation, sincerity, and expert support often:

• Save their property
• Exit from NPA classification
• Restore their creditworthiness

Many borrowers who act early and follow structured guidance manage to regain financial stability—and even future loan eligibility.

While the SARFAESI process and DRT proceedings can feel overwhelming, they also offer a structured path to defend your rights. By:

• Taking early action
• Leveraging legal protections
• Exploring financial restructuring
• Engaging experienced advisors

you significantly improve your chances of protecting your property and resolving debt issues. Safeguard your assets. Don’t delay act now, act strategically, and most importantly, act with expert support.