SARFAESI Act, 2002: Summary

The Securitisation and Reconstruction of Financial Assets and Enforcement

of Security Interest (SARFAESI) Act, 2002 enables banks and financial
institutions to recover debts without court intervention.

Key Provisions:

1. Enforcement of security interest (Section 13)

2. Sale of secured assets (Section 14)

3. Application to Debt Recovery Tribunal (DRT) (Section 15)

4. Right to appeal (Section 17)

5. Protection of action taken in good faith (Section 18)

Sections:

Chapter I: Preliminary

1. Section 1: Short title, extent, and commencement

2. Section 2: Definitions

Chapter II: Registration of Security Interest

1. Section 3: Registration of security interest

Chapter III: Enforcement of Security Interest

1. Section 13: Enforcement of security interest

2. Section 13(2): Authorization to take possession

3. Section 13(4): Notice to borrower before taking possession

4. Section 14: Sale of secured assets

Chapter IV: Debt Recovery Tribunal

1. Section 15: Application to DRT

2. Section 16: Powers of DRT

Chapter V: Appeal and Revision

1. Section 17: Right to appeal

2. Section 18: Protection of action taken in good faith

Chapter VI: Miscellaneous

1. Section 19: Power to regulate

2. Section 20: Offenses and penalties

3. Section 21: Cognizance of offenses

4. Section 22: Appeals

5. Section 23: Amendments

Amendments:

1. Enforcement of Security Interest and Recovery of Debts Laws

(Amendment) Act, 2012

2. Insolvency and Bankruptcy Code (Amendment) Act, 2020

The SARFAESI Act provides a framework for banks and financial institutions
to recover debts efficiently, while protecting borrower rights.

Would you like more information on any specific section or amendment?

SARFAESI ACT-2002
1-Sarfaesi action may be taken in the following situations: -

a. The Account should be NPA as per RBI guidelines.

b. There should be security interest created in favour of the Bank

(Security interest means right, title and interest of any kind upon property
such as mortgage, charge, hypothecation.

c. Amount claimable from the borrower (including the accrued interest)

should be not less than ₹1.00 Lakh.

d. The amount due should be more than 20 % of the Principal Amount

and interest there on.

e. The security interest must have been registered under CERSAI.

B. Securities exempted from proceeding under the SARFAESI Act

Even if the Accounts are satisfying the above criteria mentioned under
Clause 2.A, Bank cannot proceed under SARFAESI Act against the following
Securities;

a. A lien on any goods, money or security given by or under the Indian

Contract Act, 1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or
any other law for the time being in force;

b. A pledge of movables within the meaning of Section 172 of the Indian

Contract Act, 1872.

c. Creation of any security in any aircraft as defined in clause (1) of

Section 2 of the Aircraft Act, 1934 (24 of 1934);

d. Creation of security interest in any vessel as defined in clause (55) of

Section 3 of the Merchant Shipping Act, 1958 (44 of 1958);

e. Any rights of unpaid seller under Section 47 of the Sale of Goods Act,
1930 (3 of 1930);

f. Any properties not liable to attachment (excluding the properties

specifically charged with the debt recoverable under this Act) or sale under
the first provision to sub-section (1) of Section 60 of the Code of Civil
Procedure, 1908 (5 of 1908);

g. Any security interest for securing repayment of any financial asset not
exceeding one lakh rupees;
h. Any security interest created in agricultural land;

i. Any case in which the amount due is less than twenty per cent of the
principal amount and interest thereon.

2. LIMITATION SARFAESI ACT HAS NO LIMITATION PERIOD

3. DECREED ACCOUNTS

Where a decree / Recovery Certificate have been obtained from civil

court/DRT and secured assets are available, Bank can still proceed under
SARFAESI Act, provided other eligibility criteria are satisfied.

SECTION 13/2

 The Authorized offier to be appointed under section 2.

 Demand Notice is sufficient to proceed under SARFAESI Act and issue

of Recall notice is not mandated/necessary.

 While proceeding against the secured assets given as security by the

guarantor or third party mortgagor/hypothecator (i.e. any person other than

the borrower), a demand notice to be issued, endorsing copies to borrower/
guarantor/third party as the case may be.
 the Authorized Officer may get the Demand Notice vetted by a Bank’s
legal officer/ Bank’s panel advocate. However, under no circumstances,
should the Demand Notice be issued through Panel Advocate.

 A demand notice under SARFAESI Act shall give details of the amount
payable by the borrower (entire amount with cost and expenses) and the
secured assets intended to be enforced by the secured creditor in the event
of non-payment of secured debts by the borrower.

a. Suit filed cases

b. Non-Suit filed

 The Demand Notice must have a clause to the effect of informing the
Borrower that the secured assets may be redeemed any time before the
date of publication of sale notice, i.e., notice of Public auction or inviting
quotations or tender from public or private treaty for transfer by way of
lease, assignment or sale of the secured assets by the Bank.

 In respect of Consortium Accounts or joint financing of financial

asset/s by more than one banks/financial institutions, the Banks can
independently
issue demand notice under Section 13 (2), if there is any delay on the part of
the lead bank. The mandatory requirement of 60% consensus is only at the
time of issuing Section 13(4) notice.

 Where the Borrower is the body corporate, the demand notice shall be
served on the registered office or any of the branches of such body
corporate in the same manner as specified above.

 Where there is more than one borrower or guarantor, notices

mentioned herein above shall be served on each of them against
acknowledgement.

 In case of deceased borrowers/guarantors, demand notice should be

sent to the legal heirs.

Mode of dispatched of demand notice

a. Hand delivery against acknowledgement

b. By registered post acknowledgement due

c. By speed post

d. By courier

e. By fax message

f. By electronic mail service

Note: In case of fax or email, confirmatory copy shall be sent through

registered post.
SECTION 13/3 OF SARFAESI ACT-2002

Borrower/Guarantor/mortgagor within 15 (Fifteen) days from the date of

receipt of such representation or objection. Though the Act provides a
maximum of 15 days’ time, it shall be ensured that the
representation/objection is replied well before the 15th day. Please note
that non-replying/delayed replying to the representation/objection shall be
fatal to the SARFAESI action initiated by the Bank.

BANK’S RIGHTS : SECTION 13/4 OF SARFAESI ACT-2002

If the borrower fails to discharge his liability in full within 60 days from the
date of receipt of demand notice, Bank can take one or more of the
following recourses to recover its secured debts:

a. Take possession of the Secured Assets of the Borrower;

b. Take over the management of the business of the borrower;

c. Appoint any person, to manage the secured assets the possession of

which has been taken over by the secured creditor;

d. Banks have rights to recover the money from third party also.

e. Before proceeding with taking possession of secured assets, the

Authorized Officer has to analyze the practical aspects in respect of taking
possession and disposal of the same such as safe keeping of the asset,
marketability of the asset, nature of the asset etc.
f. If the movable secured assets are in the possession of borrower, the
Authorized Officer has to take the possession of such properties in the
presence of two witnesses, after preparation of a Panchnama and get it
signed by the witnesses.

g. The Authorized Officer (AO) may utilize the service of Enforcement

Agents empanelled with the Bank for assisting AO in taking possession of the
movable securities.

h- After taking possession, the Authorized Officer has to prepare an

inventory and deliver a copy of the same to the borrower or his agent/
representative.

I- The Borrower shall be intimated by a notice, enclosing the Panchnama

along with the inventory made. All the notices may be served upon the
borrower through electronic mode of service, in addition to the othermodes
of service.

i- After taking actual possession, the Authorized Officer has to keep the
property in his custody or any other person authorized by him and to take as
much care as that a man of ordinary prudence shall take care of his own
property.

k- If the asset is subject to speedy or natural decay or the expenses of

keeping such asset in custody are likely to exceed its value, the Authorized
Officer may sell such assets at once.
l- After taking actual possession, the Authorized Officer has to take steps
for the preservation and protection of asset and take insurance, if required
till its disposal.

m- On or immediately after taking actual possession or

constructive/symbolic possession either directly by the Authorized Officer or
through the Assistance of CMM or DM, the following mandatory procedural
requirements shall be completed:

1. Delivery of a possession notice to the borrower AND

2. Publishing the possession notice in two leading newspapers within 7

(seven) days of taking possession, out of which one should be in vernacular
language, having sufficient circulation in the locality.

ii. In case, the secured asset is a debt not secured by negotiable

instruments, the Authorized Officer shall obtain possession or recover the
debt by service of notice prohibiting the borrower from recovering the debt
or any interest thereon from the debtor from making payment thereof and
directing the debtor to make such payment to the Authorized Officer.

iii. In case, the secured asset is a share in a body corporate the Authorized
Officer shall obtain possession or recover the debt by service of notice
directing the borrower to transfer the same to the secured creditor and also
the body corporate from not transferring such shares in favour of any person
other than the secured creditor. A copy of the notice so sent may
be endorsed to the concerned body corporate Registrar to the issue or share
transfer agents, if any.

iv. In case, the secured asset is any other movable property not in the
possession of the borrower except the property deposited in or in the
custody of any court or any like authority, the Authorized Officer shall obtain
possession or recover the debt by service of notice calling upon the
borrowers and the person in possession to hand over the same to the
Authorized Officer. In case such movable secured assets are in the
possession of third parties, the Authorized Officer shall take custody of such
assets in the same manner as stated above.

v. In case of movable secured assets other than those covered above,the

Authorized Officer has to take possession of the same by taking possession
of the documents evidencing title of such secured assets.

SECTION 13/4 OF SARFAESI AT-2002

Vi Branch has to make necessary enquires to find out the possibility of taking
possession and the arrangements to be made for protection/ custody of the
property after taking possession in consultation with the Authorized Officer.

vii. If the borrower/mortgagor is cooperative and gives the actual

possession of the property in a peaceful manner, the Authorized Officer
himself can take actual physical possession of the property;
viii. If the borrower/mortgagor is not cooperative and/or resists in taking
actual possession, the Branch shall make an application to Chief
Metropolitan Magistrate (CMM) or District Magistrate (DM) or Chief Judicial
Magistrate (CJM) [Ref: L&R Dept. Circulatory Letter No. 97 dated 24.09.2019
w.r.t. Civil Appeal No. 6295 of 2015 titled as “The Authorised Officer, Indian
Bank Vs. D. Visalakshi and Anr.” and connected matters in which Hon’ble
Supreme Court of India vide judgment dated 23.09.2019 held that the
substitution of functionaries (CMM as CJM) qua the administrative and
executive or so to say non- judicial functions discharged by them in light of
the provisions of Cr.P.C. would not be inconsistent with Section 14 of the
2002 Act] as the case may be for taking possession as per Section 14 of
SARFAESI Act.

Further, the application of the Branch shall be accompanied by an Affidavit

duly affirmed by the Authorized Officer.

ix. The Authorized Officer may utilize the service of Enforcement Agents
empanelled for SARFAESI in taking possession of the immovable properties.

x. Under Section 14 of SARFAESI Act, CMM or CJM or DM is bound to

take possession of secured assets and any documents relating to such assets
and hand over such assets and documents to the Bank within a period of
THIRTY DAYS from the date of application. The Branchthrough the
Authorized Officer has to follow up with the CMM or DM for taking
possession of the secured assets and its delivery to the Bank. The services of
the Enforcement Agents may also be utilized by the Authorized officer to
follow up with the office of District Magistrate for getting orders, if required.

xi. In Harsh Govardhan Sondagar Vs. International Asset reconstruction Co

(SC April 2014) the Hon’ble SC classified tenants into 3 categories: Category
1: Tenants as per tenancy agreement prior to mortgage. Category 2: Tenant
inducted into the property after mortgage but prior to issuance of demand
notice under Sec 13(2)

Category 3: Tenant inducted into the property after issuance of demand

notice.

• With respect to Category 1, court held that tenancy agreement is

binding on the bank and tenant can be evicted only by moving a civil court
under due process of law.

• With respect second category, the court held that if the tenancy
agreement is contrary to the provisions of Transfer of property Act and
contrary to the terms of mortgage deed executed, then they can be evicted
by the CMM before whom application is filed for actual possession.

• In the case of third category of tenants occupying the premises, since

the intention of the mortgagor is to defraud the secured creditor, such a
lessee could be evicted by the CMM on an application made by the secured
creditor seeking physical possession.

xii. As per the newly introduced Section 17 (4-A) of the SARFAESI Act (As
per 2016 amendment), Debt Recovery Tribunals are empowered to
decide on the issues related to tenancy/lease and no other Courts/Judicial
Forums has the jurisdiction to entertain any such litigations.

xiii. Bank shall be in order in claiming the rent from a Tenant whose
tenancy is protected under law.

xiv. On or immediately after taking actual possession or

constructive/symbolic possession either directly by the Authorized Officer or
through the Assistance of CMM or DM, the following mandatory procedural
requirements shall be completed:

1. Delivery of a possession notice to the borrower AND

2. Affixing the possession notice on the outer door or at such

conspicuous place of the property; AND

3. Publishing the possession notice in two leading newspapers within 7

(seven) days of taking possession, out of which one should be in vernacular
language, having sufficient circulation in the locality.

xv. After taking actual possession, the Authorized Officer has to keep the
property in his custody or any other person authorized by him and to take as
much care as that a man of ordinary prudence shall take care of his own
property.
xvi. The Authorized Officer, after taking permission from Zonal manager/
FGM, may appoint Security Guards for safeguarding the property after taking
of actual physical possession.

xvii. After taking actual possession, the Authorized Officer has to take steps
for the preservation and protection of property and take insurance, if
required till its disposal.

xviii. Whenever, the Authorized Officer is taking possession of the property,

he must personally be present at the venue.

xix. The Authorized Officer shall not take possession by using force.

xx. If the property is a building kept under lock and key by the borrower,
the Authorized Officer shall not break open the premises. Instead,the
Authorized Officer can ask the borrower to open the lock to enable the Bank
to take possession. If he refuses or resists, assistance of CMMor DM should
be sought. The CMM or DM is empowered to use force, if required for taking
possession of secured assets under SARFAESI Act.

xxi. After taking actual possession and completion of procedural

requirements, it is advisable to display a banner/board on the property
stating that “PROPERTY UNDER POSSESSION OF PUNJAB & SIND BANK
TRESPASSERS SHALL BE PROSECUTED .BY. AUTHORIZED OFFICER, XYZ BANK.”.
Display of such boards shall be helpful in getting more offers for the
property.
The Authorized Officer shall not proceed with disposal of theproperty

“Annexure II” DRAFT LEGAL/DEMAND NOTICE TO BE SENT TO THE PARTIES

UNDER THE PROVISIONS OF SECTION 13(2) OF SECURITIZATION AND
RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST ACT, 2002 FOR NON-SUIT FILED CASES

Please note: The facts of each case are different, therefore, the same be
incorporated accordingly and duly verified by the Authorized and
empowered person.

(On Bank’s Letter Head) Registered AD/ Speed Post

Dated:

1. Shri/Smt./ M/s

2.
3.

4.

REG:

NOTICE

UNDER SECTION 13(2)

OF

SECURITIZATION

AND

RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT

OF SECURITY INTEREST ACT, 2002 [SARFAESI ACT, 2002]

Dear Sirs/Madam,

1. That you addressee(s) No.1/ doing the business of requested the

Bank for financial assistance and upon the request the Bank sanctioned and
allowed the following facility(s) to you in the month of
 .

(The details of facilities be mentioned in this paragraph)

The above loan facilities were duly secured by way of hypothecation of

(Details of hypothecated goods/items/details, CERSAI ID, its nature, plant

and machineries, fixed assets etc., as far as possible, must be specific) and
the same was also secured by way of equitable mortgage/mortgage/Charge
in respect of immovable property i.e.

(details of immovable property be given along with CERSAI ID)

belonging to addressee No. .

(In case of Companies, the details of assets charged and noted in the office
of Registrar of Companies be given)

2. That you addressee No.1/ executed the various loaning documents

in respect of the above facilities on

and also agreed to pay the rate of interest at the rate of percent per
annum with quarterly rests and guidelines of the Bank from time to time, in
respect of the above said facilities. (If there are more than one facility and
rate of interest are different, then different rate of interest are to be
mentioned).

3. That you addressee No. to stood as guarantor(s)

for addressee No.1 in consideration of the above said loan facilities and
executed the deed of continuing guarantee on in favour of the Bank
and thus the liability of addressee(s) No. to No. is co-
extensive and continuing with addressee No.1 and you all are jointly and
severally liable to pay the dues including interest, costs and other usual Bank
charges to the Bank.

4. That you addressees No. created equitable mortgage/

mortgage/ Charge in respect of immovable property
bearing No.

, to secure the dues of the Bank, in consideration of the above said

loan facilities to addressee No.1.

The details of the property mortgaged are as under: -

a. Name of the mortgagor: Addressee No. (Give name)

b. Mortgagee: Punjab & Sind Bank

c. Sum Secured: {Give sanctioned/loan documents Amount(s)}

d. Rate of Interest:
e. Details of the property mortgaged: (Give details/ property No., CERSAI
ID)

f. Details of the title deed(s): {Give details of the title deed/ Sale Deed/
any other document(s)}.

g. Property bounded as: North:

West:

East:

South:

h. Present Sum Due:

5. The said Term Loan Amount was repayable in installments/ equated

monthly installments with interest. Besides interest at the rate of per
annum with quarterly rests, till the date of payment in full. (In case of Term
Loan only)

6. That you agreed to pay the additional interest at the rate of

percent per annum over and above the normal agreed rate of interest with
quarterly rests, in case of default in terms and conditions of the sanction and
loaning documents.

7. (Give details/facts in case of enhancement with amount, rate of

interest, extension of Charge/ mortgage etc.)

8. {Give date on which the account was classified as Non-Performing

Assets, within the definition of Section 2(o) of the Act}.

9. That my Bank maintains the regular books of account and now a sum
of Rs. in account and Rs. in Account No. and thus a total sum of Rs.
inclusive of interest upto

, is legally due and recoverable from you above named addressees and
you all are jointly and severally liable to pay the above said dues to the Bank
with interest cost and other usual Bank charges till the date of payment in
full.

10. That the rate of interest varies from time to time as per internal
guidelines of the Bank and the present rate of interest is percent per
annum with monthly rests
w.e.f. 01.04.2002 as per the Reserve Bank of India directives.

11. That you have defaulted in the repayment of the dues of the Bank
which is secured as mentioned above.

12. You are also put on notice that in terms of sub section 13 of section 13
you shall not transfer by sale, lease or otherwise the said secured assets
detailed in this notice without obtaining written consent of the Bank.

13. The Bank reserves its rights to call upon you to repay the liabilities that
may arise under the outstanding Bills Discounted, Bank Guarantee and Letter
of Credit issued and established on your behalf as well as other contingent
liabilities.(* strike out, if not applicable)

14. Your kind attention is invited to the provisions of sub-section (8) of

Section 13 of the SARFAESI Act where under you can tender the entire
amount of outstanding dues together with all costs, charges and expenses
incurred by the Bank only till the date of publication of the notice for sale of
the secured asset(s) by public auction, by inviting quotations, tender from
public or private treaty. Please also note that if the entire amount of
outstanding dues together with the costs, charges and expenses incurred by
the Bank is not tendered before publication of notice for sale of the secured
assets by public auction, by inviting quotations, tender from public or by
private treaty, you may not be entitled to redeem the secured assets.

15. Please also note that this notice is sent to you without prejudice to the
other rights and remedies available to the bank including initiation of the
appropriate legal proceedings before appropriate Courts and/or Tribunals for
recovery of the above said outstanding amounts. This notice is also without
prejudice to the Bank’s right for undertaking the prosecution of any
complaint filed by bank under Section 138 of Negotiable Instrument Act,
1881 as amended and/or Payment of Settlement Act 2007 as amended.

I, therefore, by virtue of this legal notice, hereby call upon all of you i.e.
addresses No… to…., jointly and severally and to make the payment and
discharge in full

liabilities amounting to Rs… as per details mentioned in

Para 9 above + future interest + charges w.e.f.01.04.2017 with monthly rests,

to the Bank within 60 days from the receipt of this notice, failing which the
Bank shall be constrained to take measures under the provisions of chapter
III of SARFAESI

Act, 2002, for recovery of above secured dues and in that case you shall be
jointly and severally liable to pay for all cost and other expenses arising there
from.

Please note that the copy of this notice has been retained in our office. Yours
sincerely,

Punjab & Sind Bank (Authorized Officer)

“Annexure-V”

APPENDIX IV

POSSESSION NOTICE

(for immovable property)

Whereas

The undersigned being the authorised officer of the Punjab & Sind Bank
under the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (54 of 2002) and in exercise of
powers conferred under section 13(12) read with rule 3 of the Security
Interest (Enforcement) Rules, 2002 issued a demand notice dated
……...................... calling upon the borrower Shri

............................................................ /M/s……………..………….... to repay the

amount mentioned in the notice being Rs. ...........................

(in words

……………………………………….... ) within 60 days from the date of receipt of the

said notice.
The borrower having failed to repay the amount, notice is hereby given to
the borrower and the public in general that the undersigned has taken
possession of the property described herein below in exercise of powers
conferred on him under sub section (4) of section 13 of the Act read with
rule 8 of the Security Interest Enforcement Rules, 2002 on this ...........day of
………..... of the year .................

The borrower in particular and the public in general is hereby cautioned not
to deal with the property and any dealings with the property shall be subject
to the charge of the Punjab & Sind Bank for an amount
Rs. ......................................... and interest thereon.

The borrower’s attention is invited to provisions of sub-section (8) of section

13 of the Act, in respect of time available, to redeem the secured assets.

Description of the immovable property

All that part and parcel of the property consisting of Flat No. /Plot

No………….. In Survey No. ………….... /City or Town Survey No… /

Khasra No…………...... within the registration Sub-district……………………………....

and District ………………….......
Bounded:

On the North by On the South by On the East by On the West by

Date……………………….

Place…………………