NCLT Powers Under IBC – A Complete Guide
- November 05, 2025
The Insolvency and Bankruptcy Code (IBC), 2016 transformed India’s corporate debt resolution strategy. The foundation of this scheme is the National Company Law Tribunal (NCLT) — a specialized quasi-judicial forum authorized to deal with insolvency, restructuring, and liquidation of firms.
This primer details NCLT’s powers and roles under IBC, landmark judicial interpretations, and why its jurisdiction is imperative in sustaining financial discipline in India’s corporate world.
What is the NCLT?
The National Company Law Tribunal (NCLT) was formed under Section 408 of the
Companies Act, 2013, and serves as the adjudicating authority for corporate insolvency
proceedings under the IBC.
Handles:
- Corporate Insolvency Resolution Process (CIRP)
- Liquidation proceedings
- Sanction of resolution plans
- Avoidance of fraudulent or preferential transactions
- Restoration of companies
Jurisdiction of NCLT Under the IBC
Handles:
- Corporate Insolvency Resolution Process (CIRP)
- Liquidation proceedings
- Sanction of resolution plans
- Avoidance of fraudulent or preferential transactions
- Restoration of companies
The NCLT has sole jurisdiction in corporate insolvency and liquidation proceedings. No civil court or other authority can intervene in the process.
- Quick recovery of NPAs
- Decrease in NPAs for financial institutions and banks
- Improvement in creditor rights
- Enhancing credit discipline of borrowers
- Promoting fiscal discipline and accountability
Who Can Use the SARFAESI Act?
The Act covers:
- Banks and NBFCs listed with the Reserve Bank of India (RBI)
- Asset Reconstruction Companies (ARCs) registered under the Act
Borrowers are individuals, firms, or companies that have defaulted on secured credit supported by collateral like property, machinery, or vehicles.
Step-by-Step Process Under SARFAESI Act
Step 1: Declaration of NPA
- The account becomes a Non-Performing Asset (NPA) if the borrower does not repay a loan for 90 days or more.
Step 2: Issue of Demand Notice (Section 13(2))
- The NBFC or bank gives a 60-day notice to the borrower demanding repayment of the due amount.
Step 3: Borrower’s Right to Respond
- Representations or objections may be filed by the borrowers within 60 days, which must be considered and responded to by the lender.
Step 4: Taking Possession (Section 13(4))
- If the borrower defaults, the lender can:
- Take possession of secured property, or
- Take over the management of the business of the borrower, or
- Appoint a manager to control the secured property.
Step 5: Sale of Secured Assets
- Following possession, the lender may sell or lease the properties by public auction or private sale to retrieve dues.
Step 6: Application to DRT (Debts Recovery Tribunal)
- Where the borrower is prejudiced by the action of the lender, he has the option of filing an appeal before the DRT within 45 days under Section 17 of the Act.
Rights of Borrowers
- To issue a valid demand notice under Section 13(2).
- To make representations within 60 days.
- To appeal to the Debt Recovery Tribunal (DRT) against wrongful possession or sale.
- To get balance sale proceeds (if any) upon recovery of the entire loan. borrowers
Landmark Judgments on SARFAESI
1. Mardia Chemicals Ltd. v. ICICI Bank Ltd. (2004)
The Supreme Court upheld the constitutionality of the SARFAESI Act, stating that it
does not violate borrowers’ rights as long as due process is followed.
2. Transcore v. Union of India (2006)
Clarified that lenders can simultaneously proceed under SARFAESI and DRT Acts for
recovery.
3. HDFC Bank Ltd. v. Satpal Singh Bakshi (2013)
Delhi High Court held that SARFAESI proceedings must maintain transparency and
fairness in asset valuation and auction.
4. Indian Overseas Bank v. Ashok Saw Mill (2009)
The Court ruled that borrowers’ right to approach DRT is a substantive safeguard against arbitrary lender actions.
Practical Insights for Banks & NBFCs
- Ensure Documentation Is Complete – Airtight loan and security documents to prevent future disputes.
- Ensure Documentation Is Complete – Airtight loan and security documents to prevent future disputes.
- Transparent Valuation – Asset pricing and auction process should be fair and well-documented.
- Engage Legal Professionals – To prepare and vet notices, handle DRT filings, and
monitor enforcement proceedings. - Avoid Overreach – The courts have warned lenders against exercising SARFAESI
powers in a coercive or punitive way.
Challenges in Implementation
- Delay in DRT proceedings owing to pendency of cases
- Obstruction or resistance in taking possession of property
- Valuation and sale disputes regarding assets
- Call for balance between creditor rights and borrower protection
Conclusion
The SARFAESI Act continues to be a pillar of India’s loan recovery system. For banks and NBFCs, awareness of the procedural and legal aspects of the Act helps recover funds at the earliest while complying with regulatory requirements and upholding fairness.
For legal support in matters related to recovery or enforcement under the SARFAESI Act, you may connect with Advocate Noor Yaqoob Shaikh.