SARFAESI vs DRT vs Lok Adalat: The Three Routes Compared
Three legal routes, three questions: is it secured, how much is due, will the borrower settle?
When a loan turns bad, a bank has three main legal routes beyond calling and visiting the borrower: SARFAESI (enforce the security without court), the Debts Recovery Tribunal (DRT, a special tribunal for large debts) and the Lok Adalat (settlement by agreement). Which one fits depends on three facts: is the loan secured, how much is due, and is the borrower willing to settle.
This page lines them up side by side. For how each works in detail, see its own page.
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The Three Routes Side by Side
Law
SARFAESI
SARFAESI Act, 2002
DRT
Recovery of Debts and Bankruptcy Act, 1993
Lok Adalat
Legal Services Authorities Act, 1987
Who decides
SARFAESI
The lender's authorised officer acts; no court needed to start
DRT
Presiding Officer of the tribunal
Lok Adalat
Lok Adalat members help both sides agree
Security needed?
SARFAESI
Yes, a security interest (not pledge or farm land)
DRT
No, secured or unsecured
Lok Adalat
No
Amount
SARFAESI
Above ₹1 lakh, and dues at least 20% of principal and interest (NBFCs: only as notified)
DRT
₹20 lakh or more
Lok Adalat
Bank cases up to ₹20 lakh (RBI, 2004)
Borrower's consent
SARFAESI
Not needed
DRT
Not needed
Lok Adalat
Needed; no agreement, no award
Key time limit
SARFAESI
60-day demand notice first
DRT
Aim to decide within 180 days
Lok Adalat
No fixed period; ends when both agree or talks fail
Result
SARFAESI
Possession and sale of the asset
DRT
Recovery certificate, executed by a Recovery Officer
Lok Adalat
Award deemed a civil court decree
Challenge or appeal
SARFAESI
To DRT within 45 days, then DRAT
DRT
To DRAT within 30 days, 50% deposit (can be cut to 25%)
Lok Adalat
No appeal
| Point | SARFAESI | DRT | Lok Adalat |
|---|---|---|---|
| Law | SARFAESI Act, 2002 | Recovery of Debts and Bankruptcy Act, 1993 | Legal Services Authorities Act, 1987 |
| Who decides | The lender's authorised officer acts; no court needed to start | Presiding Officer of the tribunal | Lok Adalat members help both sides agree |
| Security needed? | Yes, a security interest (not pledge or farm land) | No, secured or unsecured | No |
| Amount | Above ₹1 lakh, and dues at least 20% of principal and interest (NBFCs: only as notified) | ₹20 lakh or more | Bank cases up to ₹20 lakh (RBI, 2004) |
| Borrower's consent | Not needed | Not needed | Needed; no agreement, no award |
| Key time limit | 60-day demand notice first | Aim to decide within 180 days | No fixed period; ends when both agree or talks fail |
| Result | Possession and sale of the asset | Recovery certificate, executed by a Recovery Officer | Award deemed a civil court decree |
| Challenge or appeal | To DRT within 45 days, then DRAT | To DRAT within 30 days, 50% deposit (can be cut to 25%) | No appeal |
Which Route Fits: A Quick Decision Path
A simplified guide for exam questions. Real choices also depend on the bank's recovery policy.
- 1
Is the borrower willing to settle?
If yes and the amount is within the ceiling, a Lok Adalat can close the case quickly and finally.
- 2
Is there a security interest SARFAESI covers?
If the loan is secured by a mortgage or hypothecation, is above ₹1 lakh, and is an NPA, SARFAESI lets the bank act without court.
- 3
Is ₹20 lakh or more due?
If yes, the bank can file at the DRT, whether or not the loan is secured.
- 4
None of the above?
The bank files a civil suit in the ordinary or commercial court.
Three Worked Examples
Home loan, ₹30 lakh due, NPA for 6 months
Likely route
SARFAESI, and DRT for any shortfall
Why
Secured by mortgage, above every threshold
Personal loan, ₹4 lakh due
Likely route
Lok Adalat or civil suit
Why
Unsecured, so no SARFAESI; below ₹20 lakh, so no DRT
Two-wheeler loan, ₹70,000 due, 95 days overdue
Likely route
Settlement, Lok Adalat or civil suit
Why
SARFAESI excludes loans of ₹1 lakh or less
| Case | Likely route | Why |
|---|---|---|
| Home loan, ₹30 lakh due, NPA for 6 months | SARFAESI, and DRT for any shortfall | Secured by mortgage, above every threshold |
| Personal loan, ₹4 lakh due | Lok Adalat or civil suit | Unsecured, so no SARFAESI; below ₹20 lakh, so no DRT |
| Two-wheeler loan, ₹70,000 due, 95 days overdue | Settlement, Lok Adalat or civil suit | SARFAESI excludes loans of ₹1 lakh or less |
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Routes Can Run Together
Section 37 says SARFAESI is in addition to the RDB Act and other laws, not a replacement. A bank can enforce its security under SARFAESI and also pursue the DRT for the debt, and section 13(10) sends any shortfall after sale to the DRT or a competent court.
How the DRA Exam Tests This
Comparison questions give a short case and ask which forum applies, or ask which statement is true of one route only. The common traps: saying a Lok Adalat award can be appealed (it cannot), saying SARFAESI needs a court order to begin (it does not), and using the old ₹10 lakh DRT floor instead of ₹20 lakh.
Read the amount and the security type in the question first. Those two facts settle most of these questions.
FAQs
Which is faster, DRT or Lok Adalat?expand_more
A Lok Adalat is usually faster because it works by agreement, and its award cannot be appealed. A DRT decides contested cases and its orders can be appealed to the DRAT.
Can a bank use SARFAESI and DRT at the same time?expand_more
Yes. SARFAESI is in addition to the RDB Act. A bank can enforce its security and also pursue the debt at the DRT, and recover any shortfall there after the sale.
Which route is used for a small unsecured loan?expand_more
Usually a Lok Adalat or a civil suit. SARFAESI needs security and the DRT needs at least ₹20 lakh.
Do I need to agree for a Lok Adalat settlement?expand_more
Yes. A Lok Adalat award comes only from a compromise both sides accept. SARFAESI and DRT do not need the borrower's agreement.
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