(This article gives the details like rights of secured creditors, Application of mind and care is required in the service of notice of SARFAESI DEMAND NOTICE, POSSESSION NOTICE & SALE NOTICE, Special care to be taken while taking possession of movable properties, method of sale of secured property by way of inviting tenders from the public or by holding the public auction and Supreme Court decision upholding Bank’s Contention on simultaneous action and other issues under SARFAESI Act. (Case study: M/S. Transcore Vs. Union of India & Indian Overseas Bank)
The SARFAESI ACT is the acronym of Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. The Act has been amended by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act 2004. The SARFAESI Act provides for Enforcement of Security Interest for the realization of the dues without the intervention of Courts or Tribunals which is treated as one of the most effective tools for recovery of NPAs under existing laws.
Rights of secured creditors under SARFAESI provisions:
The rights of secured Creditor (bank) to enforce this action arises only in respect of debt classified as NPA as per RBI norms. The Security Interest (Enforcement) Rules 2002 is notified by the Government of India on 20.09.2002. Banks have to follow certain protocols before they are able to repossess a property to and claim it to recover their dues.
The rules provide for exercising the rights of the secured creditor under the Act through the Authorised Officer. Under Rule 2a, the Security Interest (Enforcement) Rules 2002. The “Authorised Officer” means an officer not less than a Chief Manager of a public sector bank or equivalent as specified by the Board of Directors to exercise the rights of a secured creditor. The right to exercise the powers to invoke implement and act as a Secured Creditor is vested only with the Authorised Officer of the bank.
Once an account is classified as NPA, the bank would issue demand notice to the defaulting borrower and guarantor/s under section 13(2). ‘Demand Notice’ means the notice in writing issued by a secured creditor or authorized officer, as the case may be, to any borrower pursuant to section 13(2) of the Act (Rule 2b). The notice gives details of dues and calls upon them to discharge their dues to the bank within 60 days from the date of the notice. If the borrower makes any objection on receipt of the notice, the bank should communicate its reply within fifteen days (earlier one week). The communication shall convey the reason for the non-acceptance of the objection or representation. The Secured Creditor may take recourse to one or more of the following measures under Sec 13(4); in case the borrower fails to discharge the liability of the bank demanded under sec 13(2).
Under Sec13 (4) a: “Take possession of the secured asset of the borrower including the right to transfer by way of lease, assignment or sale.”
Under Sec 13(4)b: “Take over the management of the secured asset, provided a substantial part of the business is held as security and or the business is severable, take over whole or part of such business which is relatable to the security for the debt “.
Under Sec 13(4) c: “Appoint any person to manage the secured assets, the possession of which has been taken over by the secured creditor.”
Under Sec 13(4) d: “He/ She may require at any time by notice in writing to any person who has secured assets from the borrower and from whom any money is due or become due to the borrower to pay it to the secured creditor.” (Powers under sec.13(4)d can not be exercised until notice under sec.13(2) has been issued and the sixty days period has expired).
The SARFAESI Act prescribes the following procedure for issuance of sale notice when the sale is by way of inviting tenders from the public or by holding the public auction.
- The sale notice shall be published in two leading newspapers one in the vernacular language having sufficient circulation in the locality by setting out the terms of sale.
- Every notice of sale is affixed on a conspicuous part of the immovable property and may if the authorized officer deems it fit, put on the website of the secured creditor on the internet.
Further as per Ministry of Finance’s direction, all public sector banks, and financial institutions to upload all SARFAESI auction notices in the official website of the Government “tender.gov.in” to give wider publicity with a view of getting the better response.
Application of mind and care is required in the service of notice of SARFAESI DEMAND NOTICE, POSSESSION NOTICE & SALE NOTICE.
- Date of commencement of 60 days-demand notice period: The 60 days, notice period commences to run only from the date of service of notice/paper publication as the case may be. (Not from the date of the notice).
- Service of demand notice when the party is dead: Notice sent to the dead person is bad in law. The Authorized officer to ascertain the details of all the legal heirs and send notice to them.
- Effect service of possession notices properly by delivering the notice to the parties, affixing the possession notice on the outer door or such conspicuous place of the property and also published in two leading newspapers (one in vernacular language) having sufficient circulation in that locality within 7 days from the date of taking possession. Possession notice should mention correct dues.
- Effect service of sale notice, setting out terms of sale, by delivering the notice to the parties, affixing the sale notice on the outer door or such conspicuous place of the property and also published in two leading newspapers (one in vernacular language) having sufficient circulation in that locality. Sale notice should mention correct dues.
- The Authorized officer has to carefully preserve the proof of service (acknowledgment) of notices and proof for having sent (POD from a courier company, Registered notice receipt, Ack.Due, etc.)
In case of immovable properties, a brief notice about possession of the property should be painted on the outer door/compound walls. In case of actual possession of secured property could not be taken, the bank has to file an application before Chief Metropolitan Magistrate/District Magistrate seeking the order for possession. If the recovery made after enforcing action under the SARFAESI act, is not enough to cover the entire dues, the bank may further file the application before DRT/Court within the limitation period of loan documents. The mailing of a 30 days sale notice copy to the borrower/mortgagor after 20 days of taking possession, is to enable the aggrieved person (as a right) to file the application within 45 days before DRT for the stay of sale transaction of the secured property.
Action flow Chart:
Special care to be taken while taking possession of movable properties(The authorized officer has to act in the following manner).
- Take possession and execute Panchanama.( Under Rule 4(1) & 4(2)
- Take inventory.
- Keep safe custody of movables by him directly or through agents under rule 4(3).
- The Authorised officer can immediately sell the movables taken into possession, if it is subject to speedy or natural decay or if expenses for keeping exceed value under Rule 4(3).
- Take steps to protection, preservation, and insurance Rule 4(4).
- Obtain estimated the value of movables and fix reserve price in consultation with the appropriate authority of the bank.
- Can sell to secure the maximum price in one or more lots by obtaining quotations, inviting tenders, holding a public auction or by private treaty under Rule 6.
- Issue 30 days sale notice to the borrower under Rule 6(2).
- Issue newspaper advertisements setting out the terms of sale in case of public tender or public auction in two newspapers (one vernacular). The proviso to rule 6(2)
- Issue sale certificate of sale on receipt of full payment for movables sold.
The latest amendment to include NBFCs along with banks under the SARFAESI act. :
The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is set up under section 20 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Bill provides that secured creditors will not be able to take possession over the collateral unless it is registered with the central registry. Further, these creditors, after registration of security interest, will have priority over others in repayment of dues. Do read Amendment 2019 to SARFAESI Act, 2002 which is about the registration process, right of enforcement of securities, and priority of secured creditors.
The Finance Ministry, Government of India has in the exercise of its powers under the SARFAESI Act, 2002 notified on August 5, 2016,(SARFAESI Act, 2016) that all196 NBFCs are included under the definition of Financial Institutions as per the aforesaid Act. It was a major step in bringing out the NBFCs at par with the banks, focusing the manner in which recovery actions were taken by the NBFCs prior to this notification. In addition to 196 NBFCs covered under the SARFAESI Act, NBFCs notified as Public Financial Institutions by the Central Government were also brought under the purview of the SARFAESI Act to exercise their powers.
Case study:
Supreme Court decision upholding Bank’s Contention on simultaneous action and other issues under the SARFAESI Act. (Case study: M/S. Transcore Vs. Union of India & Indian Overseas Bank
Supreme Court judgment refers to the Recovery of Debts due to Banks and FI Act 1993 as the ‘DRT Act’ and SARFAESI Act as ‘ for brevity and framed the following three issues for consideration.
a) Whether banks or financial institutions having elected to seek their remedy in terms of DR Act 1993 can still invoke the SARFAESI Act,2002 for realizing the secured assets without withdrawing or abandoning the OA filed before DRT under the DRT Act?
b) Whether recourse to take possession of the secured assets of the borrower in terms of Section 13(4) of the NPA Act comprehends the power to take actual possession of the immovable property?
c) Whether ad Valorem Court fee prescribed under Rule 7 of the DRT(Procedure) Rules 1993 is payable on an application under Section 17(1) of the NPA Act in the absence of any rule framed under the Said Act?
The Supreme Court after analysing the entire schemes and provisions of both the DRT Act and the SARFAESI Act as well as the arguments of both the parties; had delivered the judgment. The Court held that “the withdrawal of the OA pending before DRT under the DRT Act is not a pre-condition for taking recourse to the SARFAESI Act. The discretion is vested with the Banks/Financial Institutions to apply for a leave of the DRT for withdrawal depending upon the circumstance of each case”. The court did not spell out those circumstances.
Originally posted on 23 July 2014 modified and reposted on 20.02.2023
Related article:
Key features of amendment 2016 to SARFAESI ACT 2002
Bank issued 13(2) notice on 5.12.2012. Some of these notices were dated 5.11.2012 for which the corrigendum was issued on 18.12.2012. !3(4) notice was issued on 11.2.2013. Issue for consideration :
a) 60 days period is to be counted from 5.12.2012 or 18.12.2012. (refer Anil kumar agrawal vs icici bank dt 17/10/2011 Chattisgarh High Court.
b) Is the notice u/s 13(4) legal. i.e issued before 60 days period if considered w.e.f 18/12/2012
The legal decision in the case of Anil kumar agrawal vs ICICI Bank Dated 17/10/2011 at Chattisgarh High Court, it is clear that the limitation prescribed under section 13(2) of the Act, 2002 would be computed from the date of the corrigendum letter in the instant case (18.12.2012) and not from the date the first notice under section 13(2) of the Act, 2002.
Will appreciate your opinion on item (b) I.e Corrigendum to notice u/s 13(2) notice was issued on 18/12/2012 and notice u/s 13(4) for possession was issued on 11/02/013 I.e before the expiry of mandatory 60 days period required u/s 13(2) of the Act. Can the action of the bank be termed as illegal.
I am not able to find the correct position under the statute. As per the opinion of my lawyer friends the secured creditor cannot rely on earlier notice as such notification to be treated as lapsed when the corrigendum to notice u/s 13(2) is issued. Some friends still argue that it is 60 days from original notice. Therefore, I am unable to provide you the correct legal position in the matter.
13(2) notice was issued on 5.11.2012. Corrigendum to 13(2) notice is issued on 18.12 2012. The bank issues a letter on 11.2.2013 that the possession of the mortgaged assets would be taken on 23.2.2013 u/s 13(4) of the sarfaesi act. On 20.2.2013 & 23.2.2013. the bank take physical possession & issues notice in Appendix -IV under rule 8(1) on 20.2.2013 & 23.2.2013. JPlease enlighten :
1. Whether cause of action u/s 13(4) has started on 11.2.2013.
2. If so , has the bank initiated action u/s 13(4) prematurely.
Refer : Analkumar Rajkishore Mishra vs. Dena Bank [AIR 2011, Guj. 187]
I (2012) BC 622 (Guj.) (DB)
Can DM re issue notice twice for same reason where first order has been declined by DRT? And the process is under DRT
I’m not sure about the legal position in the matter. I quote here the following judgement of Suprement Court, which may or may not relevant to your query.If not relevant, please ignore.
Supreme Court decision upholding Bank’s Contention on simultaneous action and other issues under SARFAESI Act. (Case study: M/S. Transcore Vs. Union of India & Indian Overseas Bank
Supreme Court judgment refers to the Recovery of Debts due to Banks and FI Act 1993 as ‘DRT Act’ and SARFAESI Act as ‘ for brevity and framed the following three issues for consideration.
a) Whether banks or financial institutions having elected to seek their remedy in terms of DR Act 1993 can still invoke the SARFAESI Act,2002 for realizing the secured assets without withdrawing or abandoning the OA filed before DRT under the DRT Act?
b) Whether recourse to take possession of the secured assets of the borrower in terms of Section 13(4) of the NPA Act comprehends the power to take actual possession of the immovable property?
c) Whether ad vaorem Court fee prescribed under Rule 7 of the DRT(Procedure) Rules 1993 is payable on an application under Section 17(1) of the NPA Act in the absence of any rule framed under the Said Act?
The Supreme Court after analysing the entire schemes and provisions of both DRT Act and SARFAESI Act as well as the arguments of both the parties; had delivered the judgment. The Court held that “the withdrawal of the OA pending before DRT under the DRT Act is not a pre-condition for taking recourse to the SARFAESI Act. The discretion is vested with the Banks/Financial Institutions to apply for leave of the DRT for withdrawal depending upon the circumstance of each case”. The court did not spell out those circumstances.
Amendments Bill 2016 to the SARFAESI Act 2002: The amendment to this law provides that the Courts and Tribunals shall not interfere in Secured Creditors taking possession of the security offered by the borrower/guarantor under SARFAESI Act 2002. The Bill further provides that the District Magistrate has to assist in the recovery process of the secured creditors and complete the above process within 30 days.
Sir
I have received notice of 13(2) at 23-10-2017 for rs 1650000
Against my home loan 1592000 .
I can not pay full amount but I am ready to pay all my overdue installment. Please….reply me can I do so…
Sir, contact the branch manager and inform him in writing of your intention of clearing overdue amount and also assure him that you would remit future installment regularly. Take the money/cheque to adjust the overdue amount. I don’t think there will be any problem if you regularise the loan account. Keep the acknowledgement from the bank on the copy of the letter submitted by you. In spite of your clearing the overdue amount if bank continues to attach your property (normally such action will not be taken by the bank) you may bring a stay order from the court against bank’s action.
we have a loan of Rs. 70 lac (CC and TL)
got NPA on 30.11.17. over due by 6.1 lacs
notice for recovery served by bank on 1.12.17 for full dues within 15 days. we deposited 2.5 lacs and had asked for gew more days for depositing balance overdue amt.
but the bank is unusually harsh and threatening to take possession of assets.
ps – notice does not mention Sarfaese Act but terms us as a wilful defaulter
From your comments, it appears that Bank has not issued notice to you under SARFAESI Acts sec 13(2). I don’t know the reasons why they have treated you as a wilful defaulter. However, please note that the SARFAESI act or rules have not prescribed any format of the notice. The notice should cover all the details of the facilities granted to the borrower, dues and securities and measures to be taken in the event of default and all the borrowers are addressed correctly.Further, there is no bar, bank can send any number of demand notices provided security interest sought to be enforced is not time barred.
Anyways, if you have representation/objection against the notice of the Authorised officer, you should immediately send your reply to the above notice. The representation may be for extension of repayment time or for OTS. Objection may be for challenging the validity of the notice on various grounds. The Authorised officer is required to reply to your representation/objection within 15 days(earlier it was one week).A ‘wilful default’ would be deemed to have occurred if the unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations.Probably, the bank might be under the impression that you have deliberately avoiding repayment or diverted the funds granted by them for working capital to some other purpose/s.
I read your comments. These are very help full
Sir,mine is a private limited company and it became technical NPA due to non submission of required documents.My CC cash credit account is regular and there is no overdrawn amount.As of 31st March 18 I submitted all the necessary documents for renewal of my CC account at the branch got acknowledge of receipt of renewal application .I already repaid the term loan amount and my cc account is of 5lacs.when I went to submit the renewal papers before 31st March they were hesitant to take papers,then I made online complaint after which they accepted the paper.But even after submitting they didn’t activate my CC as well as current accounts.and 4 days back I got 13(2) notice.I am well placed of clearing the dues of 5 lacs.should I wait and lodge an obdusman complaint or explore legal options against banks for harassment and defamation . kindly advice.
First reply to 13(2) notice objecting the bank’s action and demand for your right to operate the action. If you do not receive a proper reply from the bank, file a complaint at consumer forum for deficiency of service. You may appoint a lawyer or personally attend the hearing.
Thanks sir ,I am drafting a reply to the branch manager of the bank and also sending to RBO and zonal office hard copy via registered post .just have a question in mind though if it is issued by the Chief manager than will it be helpful.
You have to address the letter (Registered Post Ack.due) to Authorised Officer (Authorised Officer is appointed by the bank from officers of Chief Manager and above grade). If the account is treated as NPA because the revival letter not signed by you, the loan documents signed by you are invalid (the bank cannot file a suit against you with the time-barred documents held by it).
Sir need your guidance: Through SARFAESI Act, I have bought a site from RELIGARE (A private financial institute). They have followed all the procedure as part of SARFAESI act and finally issued Sale Certificate. Do I then need to take any action post I receive the Sale Certificate? Do I need to apply for Execution procedure through court? please guide me
The Finance Ministry, Government of India has in the exercise of its powers under SARFAESI Act, 2002 (Further amended by SARFAESI Act, 2016) has notified on August 5, 2016, that 196 NBFCs are included under the definition of Financial Institutions as per the aforesaid Act.No problem if you have taken physical possession of the property. But in certain cases, it is not feasible for the bank to take physical possession because of the borrower or his tenant occupied the property. The secured creditor (lender)issues symbolic possession notice and then proceed with the auction based on symbolic possession.The secured creditor can undertake the process to take possession with the help of district magistrate. But after recent amendment, this process will be completed within 30 days by the district magistrate without the intervention of court or tribunals. Now the borrower or defaulter cannot approach court or tribunal for an injunction order on the possession of the property. The most common ground for such stay order is a commitment to clear loan liabilities. This amendment will help successful bidders of properties with symbolic possession.
However, to avoid any future complications in the matter, it is advisable to take professional help or hire a local lawyer who can help you in the entire process. The due diligence plays a very crucial role in a bank or NBFC auction property.
ok. ThanKs for the detail Sir
Actually I got possession notice on 2018 after that I went to bank spoke with manager and I have cleared all dues up to date. Then till now my a/c is regular only not get NPA November 2020 only got one notice irregularity notice then I have dues. Now I have cleared all outstanding and I got closer certificate in sbi branch and then branch reffere to RACPC for discharge Now I m asking discharge they will not given and asking for NPA charges around 2.4lak. what we can do pls help me any chances to waive off that charges.
The closure certificate is issued. It means there is no due from you for a closed account. you may complain to the consumer forum. read https://bankingschool.co.in/legal-and-regulatory-aspects-of-banking/what-is-ncdrc/
Sir
I had taken a home loan of Rs six lakh under fixed [email protected]% p.a.for a period of ten years during feb 2006 and emi of Rs 7614/- fixed for 120 months and insurance cover for loan was obtained by bank from Bajaj Allianz. However I have been paying my emi totalling Rs 780581/- upto feb 2015 when my house was partially collapsed. And tilted making it risky to reside even the land authority has processed to resume their plot for seroius building bylaws violations. As such after discussion with bank officials I have submitted my claim papers to Bajaj Allianz for settlement but after keeping my papers for more than three months company has rejected the claim. Since my loan balance could have been outstanding Rs 133099/- up to the end of loan period but bank has started demanding Rs 371171/- from us for which we have been requesting them to provide statement of a/c which they do not want to provide. Further during oct. 2017.they lodged court case against us and the guarantors. However during oct 2018 they have lodged case directly to DM office overruling our demand of audit of a/c but bank manager is not ready to listen and says we are going to take over your house by force. Even. Police case was lodged and hired private. Recovery agents who comes and threaten. I am not able to understand what type of law is this while on the other hand BJP claims housing for all by 2022 but not ready to listen the problem of borrower. Now what should I do for this case and how I claim my losses from insurance and my neighbor due to him I am facing all these problem. Pse advise
You can lodge your complaint to Insurance Ombudsman if you have first approached your insurance company with the complaint and they have rejected it an either partially or total repudiation of claims by the General insurer or not resolved it to your satisfaction. However, your complaint pertains to any policy you have taken in your capacity as an individual and the value of the claim including expenses claimed is not above Rs 30 lakhs. Regarding your problem with the problem, you may approach consumer forum or the court or banking ombudsman for the redressal.