IBC vs SARFAESI and RDB Act: Creditors' Remedies Compared

An Indian bank facing a defaulting borrower has three principal statutory remedies. It may sue in a Debts Recovery Tribunal under the RDB Act, enforce its security directly under the SARFAESI Act, or start insolvency under the Code. The first two are individual recovery tools; the Code is a collective process for the debtor's resolution. This note compares them and explains how they interact, especially when a CIRP begins.

1. Three Remedies at a Glance

Figure 1: The three remedies compared

Figure 2: How lenders' remedies developed

2. The RDB Act

• Purpose. Enacted in 1993 to move bank recovery suits from civil courts to specialised Debts Recovery Tribunals, with appeals to the Debts Recovery Appellate Tribunals.
• Scope. Applications by banks and financial institutions for recovery of debts of twenty lakh rupees or more, the threshold notified in 2018.
• Outcome. The tribunal issues a recovery certificate, executed by its recovery officer through attachment and sale of the debtor's property.
• Under the Code. The DRT is also the Adjudicating Authority for individuals and firms under Part III (section 179)

3. The SARFAESI Act

• Purpose. Enacted in 2002 to allow secured creditors to enforce security without the intervention of a court.
• Process. After a 60-day notice under section 13(2), the secured creditor may take possession of the secured asset, take over management, appoint a manager or require debtors of the borrower to pay it under section 13(4)
• Limits. It does not apply to agricultural land, to security for debts below one lakh rupees, or where the amount due is less than 20 per cent of principal and interest; where several secured creditors share security, enforcement needs the consent of those holding at least 60 per cent in value.
• Challenge. The borrower may apply to the DRT under section 17; in Mardia Chemicals v Union of India (2004), the Supreme Court upheld the Act but struck down the requirement of a 75 per cent pre-deposit for that remedy as it then stood.

4. How They Interact with the Code

Figure 3: Key points of interaction

• Before a CIRP. A creditor may choose any remedy, and may pursue SARFAESI and DRT proceedings together; it may also file under the Code while other proceedings are pending.
• During a CIRP. The section 14 moratorium bars SARFAESI enforcement under clause (c) and continuation of DRT proceedings and execution of recovery certificates under clause (a); secured creditors then participate through the committee.
• In liquidation. A secured creditor may realise its security outside the estate under section 52, including through the SARFAESI Act, subject to the 2026 rules on notice, shared security and deductions (Topic 56)
• Recovery certificates. In Dena Bank v C. Shivakumar Reddy (2021) and Kotak Mahindra Bank v A. Balakrishnan (30 May 2022), the Supreme Court held that a recovery certificate gives a fresh cause of action, and its holder is a financial creditor who may apply under section 7 within three years of the certificate.
• Overriding effect. Where the Code conflicts with these laws, section 238 gives it precedence (Topic 77)

5. Not a Recovery Mechanism

The Supreme Court has repeatedly stressed, in Swiss Ribbons (2019) and later cases, that the Code is a process for the resolution of the debtor, not a tool for an individual creditor to recover its dues. A creditor that files under the Code puts the company's fate in the hands of all financial creditors and gives up individual enforcement. The RDB and SARFAESI Acts, by contrast, serve the individual creditor's recovery. Settlements that use a CIRP merely as leverage are controlled by the 90 per cent rule in section 12A and, since 2026, penalties for frivolous proceedings under section 64A.

6. Frequently Asked Questions

Can a bank take possession of a mortgaged factory under SARFAESI after a CIRP has been admitted?

No. Section 14(1)(c) bars any action to enforce a security interest, including under the SARFAESI Act, during the moratorium.

A bank got a recovery certificate from the DRT four years after default. Is a section 7 application time-barred?

Not if it is filed within three years of the recovery certificate. Dena Bank (2021) and A. Balakrishnan (2022) held that the certificate gives a fresh cause of action.

Can a creditor pursue SARFAESI and the Code at the same time?

Before admission, yes. Once the CIRP is admitted, the moratorium suspends SARFAESI enforcement.

Which remedy is available to an operational creditor such as a supplier?

Not SARFAESI or the RDB Act, which are for secured creditors and banks or financial institutions. The supplier may sue in a civil or commercial court or apply under section 9 of the Code.

7. Related Topics

• Topic 2: Pre-IBC Regime. SICA, BIFR, RDB Act and SARFAESI.
• Topic 18: Limitation. Section 238A and Article 137.
• Topic 56: Section 52. Secured creditors in liquidation.