SARFAESI, RDB Act and IBC Compared

A lender facing a defaulter can choose among three regimes: enforce its security under SARFAESI, seek a decree and recovery certificate under the RDB Act, or start a collective insolvency process under the IBC. Exams frequently ask for the differences and the interplay. This note sets them side by side and then explains how a lender chooses and how the regimes interact.

1. Side by Side

Figure 1: Three regimes compared

• Nature. SARFAESI: self-help enforcement of a security. RDB Act: adjudication of the debt and recovery. IBC: collective resolution of the debtor.
• Users. SARFAESI: secured creditors with a registered security interest. RDB: banks and financial institutions. IBC: financial and operational creditors, and the debtor itself.
• Thresholds. SARFAESI: secured debt of Rs 1 lakh and dues of at least 20%. RDB: Rs 20 lakh. IBC: default of Rs 1 crore.
• Forums. SARFAESI: no court to enforce, DRT and DRAT for challenges. RDB: DRT and DRAT. IBC: NCLT and NCLAT.
• Outcomes. SARFAESI: sale or lease of the asset. RDB: recovery certificate executed by the Recovery Officer. IBC: resolution plan or liquidation.

2. Choosing and Combining

• Fastest route to the security. A secured lender wanting its own collateral sold quickly uses SARFAESI (Topic 70)
• Debt beyond the security. To recover a shortfall or an unsecured debt, it uses the RDB Act, alongside SARFAESI under Transcore (Topics 51, 75)
• The whole company. To resolve a corporate debtor collectively, it files under the IBC; once admitted, the s.14 moratorium halts SARFAESI against the debtor (Topic 76)
• Guarantors. SARFAESI against a personal guarantor may continue during the company's CIRP, unless the guarantor's own insolvency begins (Topic 78)

3. Frequently Asked Questions

What is the basic difference between SARFAESI, the RDB Act and the IBC?

SARFAESI is a self-help regime: a secured creditor enforces its registered security interest itself, without a court, and the borrower's challenge lies to the DRT afterwards. The RDB Act is an adjudication-and-recovery regime: a bank obtains a decree and recovery certificate from the DRT, executed by the Recovery Officer, for debts of Rs 20 lakh and above. The IBC is a collective regime: on a default of Rs 1 crore, the NCLT admits a corporate debtor into a resolution process that ends in a resolution plan or liquidation.

Can a lender use more than one of these regimes?

Yes, within limits. A lender may pursue SARFAESI and an original application under the RDB Act at the same time, as held in Transcore v Union of India, and recover any shortfall through the DRT. Once an insolvency process under the IBC is admitted against the corporate debtor, however, the Section 14 moratorium bars further SARFAESI action against the debtor's property, and the IBC prevails under Section 238. Action against a personal guarantor's property may continue unless the guarantor's own insolvency proceedings begin.

4. Related Topics

• Topic 75: SARFAESI and the RDB Act. The RDB interface in detail.
• Topic 76: SARFAESI and the IBC. The IBC interface in detail.