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Section 16: Resolution of disputes

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 2002
Section 15 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 17

Legal Commentary & Landmark Judgments: Section 16

Section 16 of the SARFAESI Act, 2002 creates an absolute statutory bar prohibiting displaced managing directors, directors, or managers from claiming damages or compensation for loss of office resulting from a management takeover under the Act.

  • Categorical Bar on Compensation: No managing director, director, or manager displaced by a Section 15 management takeover is entitled to any compensation for loss of office or premature termination of contract.
  • Overriding Non-Obstante Effect: Section 16 operates notwithstanding any contract, memorandum or articles of association, or the Companies Act.
  • Extinguishment of Contractual Breach Remedies: Displaced managerial personnel are legally precluded from maintaining civil suits or arbitration for salary, commission, or damages for wrongful termination.
Key Landmark Precedents:
  • Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 31: The Supreme Court upheld the statutory architecture subordinating private contractual rights of errant management to the overarching public interest of debt recovery and financial discipline.
  • Radhey Shyam v. Oriental Bank of Commerce, 2007 SCC OnLine DRAT Del 52: The DRAT Delhi confirmed that directors removed pursuant to Section 15 cannot maintain civil claims, arbitration, or company law petitions for damages or compensation against the secured creditor or new administrator.
Courtroom Practice & Strategic Litigation Guidance:

When defending banks or ARCs against wrongful termination or compensation suits filed by ousted promoter-directors, raise Section 16 as an absolute statutory bar; file an application under Order VII Rule 11 CPC or Section 34 SARFAESI for summary rejection of the plaint.

Section 15 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 17