Reasons
➢NPA
➢Pending cases at DRT’s
➢Demand for enforcement of security interest
without intervention of courts/Tribunals
➢Need for ARC’s
➢The Narasimham Committee
➢The Andhyarujina Committee
Object & Scope
➢An Act to regulate securitization and reconstruction of
financial assets and enforcement of security interest and
for matters connected therewith or incidental thereto.
➢"An Act to regulate securitisation and reconstruction of
financial assets and enforcement of security interest and
to provide for a Central database of security interests
created on property rights, and for matters connected
therewith or incidental thereto.“(2016 amnd.)
➢SARFAESI Act enables and empowers the secured
creditors to take possession of their securities, to deal
with them without the intervention of the court and also
to authorize any Securitization or Reconstruction
Company to acquire financial assets of any Bank or
Financial Institution (FI).
Enforcement of security
interest
Secured asset & Secured creditor
Secured creditor – Bank or
Secured asset – Property on
financial institution or any
which security interest is
consortium or group of banks
created.
or financial institutions.
ENFORCEMENT OF
SECURITY INTEREST
If the borrower fails to discharge his liability within
the statutory time, the secured creditor is entitled to
a. Take possession of secured assets including right
to transfer by way of lease, assignment or sale for
realizing secured asset.
b. Take over management of the business of the
borrower including right to transfer by way of lease,
assignment or sale for realizing secured asset.
c. Appoint any person to manage the secured assets.
d. Require any person from whom any money is due
to a borrower to pay the secured creditor.
Authorised
Officer
Chief Manager and above
of the
Branch/Cell/Administrative
Office.
Limitation
Period
No secured creditor shall be entitled to take all
or any of the measures under 13(4) of the Act,
unless the claim in respect of the financial
asset is made within the period of the
limitation prescribed under the Limitation Act.
In terms of Art.62 of Limitation Act, 1963,
limitation period to enforce payment of money
secured by a mortgage or otherwise charged
upon immovable property is 12 years. The
period of limitation will be reckoned from the
date on which the money become due.
Protection of
action taken
in good faith
In terms of Section 32 of the Act,
no suit, prosecution or other
legal proceedings shall lie against
Bank or any of its officers or
managers exercising any of the
rights of the Bank by the
borrower for anything done or
omitted to be done in good faith
under the Act.
13(2)
Notice
If demand notice could not be served on the
borrower, a copy of the demand notice should be
The demand notice under s.13(2) should be
affixed on the outer door/other conspicuous place
delivered to the borrower by registered post with
where the borrower reside and the contents of the
ack. due or by speed post or by courier or any
notice should be published in two leading
means of transmission of documents like faxing
newspapers, one in vernacular having sufficient
message or electronic mail service.
circulation in that locality. The notice in vernacular
newspaper should be in vernacular language only.
Representation/objection
to 13(2) notice
In case, borrower makes any
representation/objection,
Bank should consider such
representation or objection
and if it is not acceptable or
tenable, Bank shall
communicate within fifteen
days of the receipt of such
representation or objection
under Section 13(3A).
13(4) Possession
Notice –
Immovable
Property
After expiry of 60 →publish in two
days notice, if the leading
→affix on the outer
borrower failed to newspapers, one in
→ delivered to the door or at such
discharge the debt, vernacular language
borrower conspicuous place
possession notice having sufficient
of the property
under s.13(4) is circulation in that
required to be locality.
13(4) Possession
Notice –movable
Property
Take possession Take steps to
in the presence After taking A copy of preserve, protect
of two witnesses possession, make inventory must & insure goods
after a Pachnama an inventory of be delivered to till they are sold
drawn and signed the property . the borrower. or otherwise
by the witnesses. disposed of.
Sale
Before effecting sale, the
authorised officer shall
obtain:-
→serve a notice of thirty
→ valuation of the
→ fix the reserve price of days to borrower for sale
property from an
the property. of the immovable
approved valuer.
secured assets .
Methods of Sale
by obtaining
quotation from the
persons dealing
by inviting tenders
with similar secured
from the public
assets or otherwise
interested in buying
such assets
by holding public
by private treaty
auction or
Terms of Sale
Balanced amount shall
Purchaser shall
be paid on or before 15th
immediately(on the
No sale shall be day of confirmation of
Sale shall be confirmed same day or not later
confirmed, if the offer sale or such extended
in favour of the highest than next working day)
amount is less than the period as agreed upon in
bidder. pay a deposit of 25% of
reserve price. writing between the
the amount of the sale
parties. (in any case not
price.
exceeding three months)
Terms of Sale
In default of payment of
On confirmation of
balance amount within In case of shortfall, an
terms of payment,
the stipulated time, the application for recovery
Certificate of Sale in
deposit shall be of balance amount shall
favour of the purchaser
forfeited and the be presented to DRT.
shall be issued.
property shall be resold.
Application
before DRT
Any person aggrieved by any measure taken by the Bank may file an
application to DRT within 45 days from the date of such measure by the
Bank. Refer section 17 and 17(1A ) for SA and its territorial jurisdiction
The jurisdiction of civil court is barred under section 34 of the Act.
➢Caveat Emptor v Caveat Venditor
➢V. Sambandhan v.PNB (2009)
➢Jai Logistics v. The Authorised Officer, Syndicate Bank(2010)
➢Chemstar Chemicals & Intermediates (p)Ltd. v. The Commercial Tax Officer,
Chennai and State Bank of Mysore
➢ Mandava Krishna Chaitanya v. UCO Bank, Asset Management Branch
(2018) The Andhra Pradesh High Court opined that the “concept of as is
where is and as is what is basis has lost its significance in the current
commercial milieu, and the principle of caveat venditor is more on the rise as
compared to the outdated principle of caveat emptor.” In this case, the bank
completely relied on this clause for immunity and did not undertake
the basic due diligence on the secured asset before the auction. In this
case, the bank completely relied on this clause for immunity and did
not undertake the basic due diligence on the secured asset before the
auction. It further ruled that the secured creditor is barred from
dealing with the secured asset arbitrarily. It held that Rules 8 and 9 of
the Security Interest (Enforcement) Rules, 2002 are mandatory
provisions, which means that informing the purchaser of the secured
asset about the nature of the property, liability, encumbrances, etc., is
also mandatory.
➢Chief Metropolitan Magistrate or District
Magistrate to assist secured creditor in taking
possession of secured asset(sec.14)
➢Hashvardhan Govardhan Das v. International Asset
Reconstruction company(2014)
➢Vishal N. Kalsaria v. Bank of India& Ors.(2016)
➢ Agarwal Tracom (P) Ltd. v. Punjab National Bank,
(2018)-Auction purchaser as an aggrieved person
Phoenix ARC Private Limited v.
Vishwa Bharati Vidya Mandir and Ors
(2022)
The Hon’ble SC held, if proceedings are
initiated under the SARFAESI Act and/or
any proposed action is to be taken and the
borrower is aggrieved by any of the actions
of the private bank/bank/ARC, borrower
has to avail the remedy under the
SARFAESI Act and no writ petition would
lie and/or is maintainable and/or
entertainable.
Balkrishna Rama Tarle Dead thr LRS & anr v. Phoenix ARC Pvt. Ltd. & Ors.
(2022)
Hon’ble Supreme Court held that the powers exercisable by CMM/DM
under Section 14 of the SARFAESI Act are ministerial step and Section 14
does not involve any adjudicatory process qua points raised by the borrowers
against the secured creditor taking possession of the secured assets. In that
view of the matter once all the requirements under Section 14 of the
SARFAESI Act are complied with/satisfied by the secured creditor, it is the
duty cast upon the CMM/DM to assist the secured creditor in obtaining the
possession as well as the documents related to the secured assets At that
stage, the CMM/DM is not required to adjudicate the dispute between the
borrower and the secured creditor and/or between any other third party and
the secured creditor concerning the secured assets and the aggrieved party to
be relegated to raise objections in the proceedings under Section 17 of the
SARFAESI Act, before the Debts Recovery Tribunal.
Right of redemption
▪ Pal Alloys & Metal India Private Limited v. Allahabad Bank (2021
SCC OnLine P&H 2733)
▪ The right of redemption under Section 13(8) of SARFAESI is always
available till the date of sale – S.Kasthuri v. The Authorised Officer,
Canara Bank – Madras High Court
▪ Now, SC in Celir LLP v Bafna Motors (Mumbai) Pvt. Ltd (2023)
▪ The Apex Court, in Celir Llp (Supra), held the rulings in Pal Alloys
and Metal India Private Limited to be contrary to the provision of
amended section 13(8)
▪ “only stipulating a restriction upon the secured creditor and not on
the borrower’s right of redemption would lead to a very chilling
effect, where no auction conducted under the SARFAESI Act would
have any form of sanctity, and in such a situation no person would
be willing to come forward and participate in any auction due to the
fear and apprehension that despite being declared a successful
bidder, the borrower could still at any time come and redeem the
mortgage and thereby thwart the very auction process.”
Exemptions
Lien on any goods, money or security ( General lien of bankers
under S.171 of Contract Act).
Pledge of movables ( Under S.172 of Contract Act).
Any security interest for securing repayment of any financial
asset not exceeding one lakh rupees.
Any security interest created in agricultural land.
Any cases in which the amount due is less than 20% of the
principal amount and interest thereon(i.e. where borrower
has repaid more than 80% of principal amount and interest).
