SARFAESI Act 2002

December 15, 2013 44 Comments

The full form of SARFAESI Act as we know is Securitisation and Reconstruction
Financial Assets and Enforcement of Security Interest Act, 2002. Banks utilize this act
an effective tool for bad loans (NPA) recovery. It is possible where non-performing
assets are backed by securities charged to the Bank by way of hypothecation
mortgage or assignment.
Upon loan default, banks can seize the securities (except agricultural land)
intervention of the court.
SARFAESI is effective only for secured loans where bank can enforce the underlying
security eg hypothecation, pledge and mortgages. In such cases, court intervention
is not necessary, unless the security is invalid or fraudulent. However, if the asset
question is an unsecured asset, the bank would have to move the court to file civil
case against the defaulters.
Contents [hide]
How it works?
Background of the act
Rights of Borrowers
Pre-conditions
Methods of Recovery
Powers of Debt Recovery Tribunal
Role of Chief Metropolitan Magistrate or District Magistrate
Role of High Court:
Proposed amendments to the Act

How it works?

The SARFAESI Act, 2002 gives powers of seize and desist to banks. Banks can give
notice in writing to the defaulting borrower requiring it to discharge its liabilities
60 days. If the borrower fails to comply with the notice, the Bank may take recourse
one or more of the following measures:
Take possession of the security for the loan
Sale or lease or assign the right over the security
Manage the same or appoint any person to manage the same
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The SARFAESI Act also provides for the establishment of Asset Reconstruction
Companies (ARCs) regulated by RBI to acquire assets from banks and financial
institutions. The Act provides for sale of financial assets by banks and financial
institutions to asset reconstruction companies (ARCs). RBI has issued guidelines
banks on the process to be followed for sales of financial assets to ARCs.

Background of the act

The previous legislation enacted for recovery of the default loans was Recovery of
Debts
due to Banks and Financial institutions Act ,1993. This act was passed after
recommendations of the Narsimham Committee I were submitted to the
government.
This act had created the forums such as Debt Recovery Tribunals and Debt Recovery
Appellate Tribunals for expeditious adjudication of disputes with regard to ever
increasing non-recovered dues. However, there were several loopholes in the act
these loopholes were mis-used by the borrowers as well as the lawyers. This led to
government introspect the act and this another committee under Mr. Andhyarujina
appointed to examine banking sector reforms and consideration to changes in the
legal
system .
This committee recommended to enact a new legislation for the establishment
securitisation and reconstruction companies and to empower the banks financial
institutions to take possession of the Non performing assets.
Thus, via the Sarfaesi act, for the first time, the secured creditors were empowered
recover their dues without the intervention of the court.
However, as soon as the act was passed, its implementation was challenged in court
and this delayed its coming into force for 2 years. In the Mardia Chemicals Union of
India, the Supreme Court upheld the validity of the SARFAESI act was
upheld.

Rights of Borrowers
The above observations make it clear that the SAFAESI act was able to provide
effective measures to the secured creditors to recover their long standing dues from
Non performing assets, yet the rights of the borrowers could not be ignored, and
have
been duly incorporated in the law.
The borrowers can at any time before the sale is concluded, remit the dues and
avoid loosing the security.
In case any unhealthy/illegal act is done by the Authorised Officer, he will be liable
for penal consequences.
The borrowers will be entitled to get compensation for such acts.
For redressing the grievances, the borrowers can approach firstly the DRT thereafter
the DRAT in appeal. The limitation period is 45 days and 30 days
respectively

Pre-conditions
The Act stipulates four conditions for enforcing the rights by a creditor.
The debt is secured
The debt has been classified as an NPA by the banks
The outstanding dues are one lakh and above and more than 20% of the principal
loan amount and interest there on.

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The security to be enforced is not an Agricultural land.

Methods of Recovery
According to this act, the registration and regulation of securitization companies
reconstruction companies is done by RBI. These companies are authorized to raise
funds by issuing security receipts to qualified institutional buyers (QIBs), empowering
banks and Fls to take possession of securities given for financial assistance and sell
lease the same to take over management in the event of default.
This act makes provisions for two main methods of recovery of the NPAs as follows:
Securitisation: Securitisation is the process of issuing marketable securities backed
by a pool of existing assets such as auto or home loans. After an asset is converted
into a marketable security, it is sold. A securitization company or reconstruction
company may raise funds from only the QIB (Qualified Institutional Buyers
forming schemes for acquiring financial assets.
Asset Reconstruction: Enacting SARFAESI Act has given birth to the Asset
Reconstruction Companies in India. It can be done by either proper management the
business of the borrower, or by taking over it or by selling a part or whole of business
or by rescheduling of payment of debts payable by the borrower
enforcement of security interest in accordance with the provisions of this Act.
Further, the act provides Exemption from the registration of security receipt. This
means
that when the securitization company or reconstruction company issues receipts,
holder of the receipts is entitled to undivided interests in the financial assets and
there not need of registration unless and otherwise it is compulsory under the
Registration 1908.
However, the registration of the security receipt is required in the following cases:
There is a transfer of receipt
The security receipt is creating, declaring, assigning, limiting, extinguishing any right
title or interest in a immovable property.
Is Mortgaged House exempted?
The Sarfaesi act covers any asset, movable or immovable, given as security whether
way of mortgage, hypothecation or creation of a security interest. There are some

exceptions in the act such as personal belongings. However, only that property given
security can be proceeded under the provisions of SARFAESI Act. If the property of
borrower is his own mortgaged residential house, it is also NOT exempted from
Sarfaesi act.

Powers of Debt Recovery Tribunal

The debt Recovery Tribunals have been empowered to entertain appeals against
misuse of powers given to banks. Any person aggrieved, by any order made by the
Debts
Recovery Tribunal may go to the Appellate Tribunal within thirty days from the date
receipt of the order of Debts Recovery Tribunal.

Role of Chief Metropolitan Magistrate or District Magistrate

The Chief Metropolitan Magistrate or District Magistrate has been mandated to assist
secured creditor in taking possession of secured asset. These officers will make sure
that once the creditor has given him in writing that all other formalities of the act
have
been done, the CMM or DM will take possession of such asset and documents
relating
thereto; and forward such assets and documents to the secured creditor. Now, here,

Advertisement
Anonymous August 30, 2009 Reply
laudable presentation of topic..
hats off to GK today team.
have to note that such an act of the CMM or DM can not be called in question in
court or before any authority.

Role of High Court:

The act allows taking the matter to high courts only in some matters related to
implementation of the act in Jammu & Kashmir. However, High Courts have been
entertaining writ petitions under article 226 (Power to issue writs) of the constitution
India.

Proposed amendments to the Act

The government had approved bill to amend the act. The Enforcement of Security
Interest and Recovery of Debts Laws (Amendment) Bill, 2011, amends two Acts
Sarfaesi Act 2002, and Recovery of Debts Due to Banks and Financial Institutions Act,
1993 (DRT Act). Via these amendments:
Banks and asset reconstruction companies (ARCs) will be allowed to convert part of
the debt of the defaulting company into equity. Such a conversion would
imply that lenders or ARCs would tend to become an equity holder rather than being
a creditor of the company.
The amendments also allows banks to bid for any immovable property they have out
for auction themselves, if they do not receive any bids during the auction. such a
scenario, banks will be able to adjust the debt with the amount paid for this
property. This enables the bank to secure the asset in part fulfillment of defaulted
loan.
Banks can then sell this property to a new bidder at a later date to clear off the debt
completely.
However lenders will be able to carry this property on their books only for seven
years,
as per the Banking Regulation Act, 1949.

Comments
SANGAMESWARA RAO DHUPAM May 9, 2011 Reply
I have got doubt whether under SARFAESI Act can the Bank/financial
Institutions execute a Sale Certificate under Section 89 of the Registration
Act, 1908 as the section provides to execute a Sale Certificate only to Courts

under C.P.C. or by Revenue Officials or by Debt Recovery Tribunal. Under Act a

Bank/Financial Institution, in my opinion, is not a court to execute same. Please
enlighten me in this regard.
anil September 9, 2011 Reply
WHAT TYPE OF NEWS PAPERS THESE NOTICES SHOULD BE PUBLISHED?
kishor vig, advocate February 4, 2014
any two local leading news papers; one in english and other
vernacular
rohit khajuria January 3, 2014 Reply
Can we enforce this act for NPA car loans and other personal loans.
kishor vig, advocate February 4, 2014
the recovery amount should be more than Rs. 1.00 lacs and below the 20% of total
disbursed loan. the car sought to enforced should form security whilst disbursing the
loan.
secondly, you cannot enforce this act for recovery of personal
loans as there is no any security offered in such loans.
nash January 26, 2014 Reply
i think the new papers is Business line.
R.K.Menon February 21, 2014 Reply
I have till date paid all my installments on time fir a home loan taken from
idbi bank never defaulted
I have only outstanding of 2.26 lacs against loan of 19 lacs I had taken 2002
Bank has sent me documents which state sarfesi act and asking me to sign
and give it to them
Should I sign and give ? Will it be misused by the bank ?
Santosh June 22, 2014
No, As per law only applicable on those loan account which is NPA
(i.e. no repayment within 90 days).
SAMUEL ANAND KUMAR May 11, 2014 Reply
The Bank failed to reply to my objections and sold away the property 18.10.2012
violating Section 13-3A of the Sarfaesi Act 2002.
Limitation period exceeded as I did not proceed due to paucity of funds.
Can I challenge this now?
Sridhar June 12, 2014
In corrupted India, all acts are on paper only. Practically nothing
will workout. Discussing about banking and RBI policies is value. It is waste.
KSVPrasad October 13, 2014
Approach Ombudsmen
Nishant June 20, 2014 Reply
Thank you GK today
Vaibhav Agarwal June 20, 2014 Reply
Is a Barren Land SARFAESI Complaint?? Can a Bank Make commercial loans
on the Barren Land.
Santosh June 22, 2014 Reply
As per Act what is the area covered by this law.
Is the Act applicable on all banks(i.e RRBs, Co-OP Banks,Foreign banks etc. in all
states ?
Pl. clarify the issue.
kalyan maheshwari June 26, 2014 Reply
Can Banks sale any property security at a price much below the market
price? A house property which is worth Rs. 200.00 lacs as per the market
price but bank proposed to sale it for Rs. 120.00 lacs. Is there any option
available to the borrower.
S. Iliyas December 9, 2014

No. U can challenge it before high court n obtain stay till u sell at own to market
price n discharge the loan.
sumit July 2, 2014 Reply
Dear sir plz tell me that any person (owner of property) can challenge that
sale deed which had done by bank/NBFC to the third person ( new owner) sarfaesi
act.
thanks
ALOKKUMAR KASLIWAL July 6, 2014 Reply
Some Banks & Financial Institutions themselves create loopholes safeguard interest
of the creditors who are paid handsomely under the table.
When a corporate takes loan and mortgages ones property to one bank when the
same corporate appears another bank and mortgages the same
property previously mortgaged to the previous bank, then why does the latter
bank give loan against the already mortgaged property and when dispute
arises, both the banks do not give noc to each other and the culprits continue
to enjoy. Is this not a conspiracy between banks and the corporate taking
loans against same property from two or more banks. SKUMARSSHRI
ALOKKUMAR KASLIWAL 9820081968
Parminder Singh November 20, 2014
On the time of loan borrower has to submit the original registry the bank
how can 2 copies of one property.
bank does nt accept photocopies of of registery,,,
anil November 29, 2014
actually rbi created central registry to overcome this loophole,
banks need to provide those mortage asset details to that registry
so if a person approach any other bank with same mortage details
they can caught ..
nitish pandey July 11, 2014 Reply
thank you GK today good information
KSVPrasad October 13, 2014 Reply
Sir
My self and my brother staying in two portions side by side in the first floor
of a residential house.Owner resides in the 1st floor.Because our land lord default
borrower bank got 14(1) section permission on the house.Vacating house will take
three months.Whom we have to approach to safeguard
ourselves.Very urgent suggestion is required
Thanking you
KSVPrasad
Cell:9440276121
Nalluru Ravikumar October 13, 2014 Reply
Respected sir
Land lord of 15 portioned apartment is not repaying the loan to the bank.The
bank collection agents threatening the tenants to vacate the portions since
the bank got the physical possession pemission from District Magistrate.The
auction sale was not performed.How the DM pass the possession
permission to the bank before auction sale.Please suggest a solution
Thanks
NRavikumar
naren November 4, 2014 Reply
after publishing in newspaper how many days after will the bank post sarfaesi sticker
to house. And after posting the sarfaesi sticker on wall what
are the legal things done by banks and duration of each. Plz
Ashwani November 14, 2014 Reply

Although the article is commendable, but the website authors mentality damn poor,
you have locked the whole webpage so that no one is able copy or print the content
here, what type of sharing of knowledge is this? You
are a really sick person.!
B.N.Chandra sekhar November 21, 2014 Reply
This is regarding a legal question on bankers who have done an e auction
after proper notices to the defaulters and done through adv. We have been
declared as the successful bidder by the bankers after auction.later on defaulter has
gone to hon court and got a stay and time to pay balance..we the official bidders
who were declared officially and now bankers are colliding with the other party and
rendering time to defaulters showing the court orders.pls suggest the ways to move
on bankers in a legal wayand the rights of the successful bidder
G V B MURTY November 30, 2014 Reply
If any bank finances, construction of Building and furniture in the new
building, if that a/c becomes NPA, what is the position of the Banker.
Because Sarfaesi act is applicable only for Immovable goods
deepak kumar December 1, 2014 Reply
how to recive order to d.m in fast action
Ashim December 7, 2014 Reply
I have invested in a apartment in Bangalore , when apartment is 80 complete ,
Builder asked for 40% escalation charges , Due to which
consumers put a case in consumer court , While case was going builder
defaulted the bank loan , Now bank is acquriring the property under sarfaesi
act 2002 , In case bank is successful in acquiring the property from builder
.what is the safe gaurd for the 1000 + appartment owners , what will be their
status.
SUBRATA DUTTA December 8, 2014 Reply
WHETHER SARFAESI ACT APPLICABLE TO URBAN COOPERATIVE BANK
subrata dutta December 8, 2014
WHETHER SARFAESI ACT APPLICABLE TO URBAN COOPERATIVE
BANK
Raja December 13, 2014 Reply
I have availed home loan from nationalised bank.
My account classified NPA and sarfeasi notice issued than I have paid
overdue amount completly..
account has been regular.After one year same sarfeasi notice again sent me I am
unable to repay the amount
Than possesion notice sent to me by the banktill now unable to pay amount ..so
how to appeal tribunal court such amount reduce my account
than I wish to OTS scheme..
Pls give suggesion
RAJA December 23, 2014 Reply
While SA cases are supposed to be disposed within 6 months, cases dragged by filing
IAs by defaulters. What is the remedial action to be taken
by creditors?
BABU January 1, 2015 Reply
One of the property is leased to a private Bank which is unregistered for period of 10
years and is under mortgage in other bank by the landlord. Can
it be enforceable when the borrower defaulted!
Manojkumar G January 11, 2015
Yes!! Whene ever it was mortgaged, the rights of property vested with the bank. So it
can take any type of decision.
vicky January 5, 2015 Reply
i got the possession notice from the bank. and cmm ordered and appointed
a advocate to take possession .. can i still pay half or full amount and come

over this trouble? please suggest the best way.. the circle rate of the property
is five times higher then the loaned amount and market value is 10 times
higher
Manojkumar G January 11, 2015
Yes.. U can still repay and stop all the processes no need to the entire amount
even. Regularise the account first and then
continue by repaying EMIs
G.R.Krishna January 10, 2015 Reply
Is it safe to buy a auctioned flat were the borrower has absconded and I the lesse of
the flat since 9 years. What are the implications.
r c garg January 12, 2015 Reply
1.can the appeal before d.r.t. be filed after the date of auction for sale under
sarfaesi act2002 ? 2. can d.r.t. cancel the sale deed already registered
sarfaesi act ?
hemant khadke January 30, 2015 Reply
Sir, if memorandum of deposdeposits title is not executed in that case bank issue a
demand notice and further action like physical possession
under SARFAESI Act . please reply on mail id
Mahaveer February 2, 2015 Reply
I am pursuing a property which was purchased from the bank under surface
act now there was a typographical error while issuing the sale certificate the survey
number was wrongly mentioned on it . Now after six years
fighting with the bank they are finally ready to give an addendum but based
on the rules the sale certificate needs to be registered within 120 days now
since there was this typographical error the sub registrar refused to register
the same. Now my doubts are
a.can this document still be registered..????
b.What if the said document couldnt be registered how can i posses same. what
would be the procedure to follow.
c.Will there be any complications as the property is not yet transferred to rightful
owners due to the negligence of the bank, also the bank is not ready
to issue a fresh certificate they said they can just issue an addendum.
I am desperately in need of the property but need to follow the rules and then
acquire please help
rishi raj February 2, 2015 Reply
in year 2002 i had given a guarantee to a company for the value of property
worth 30cr . it was a continuing guarantee , in year 2009 given notice to bank
to withdraw my guarantee ,on the day of notice bank didnt apply CLYTON
rule and adamant that a continuing guarantee cannot be revoked . later inspection of
documents in the bank it was discovered that my signature guarantee deed yr 2009
and some other concerned documents were found
to be forged . forgery also proven by govt lab . FIR against the bank officials
also lodged and investigation in process. year 2013 CDR package proposed
and i didnt participate and sign . case in DRT . we also approached civil court
. recently bank given auction notice in newspaper to sell property without
informing me . please comment . what is jurisdiction of court ?
rj February 12, 2015 Reply
In case of assets sold under the ACT what happens to the employees
working in the asset (immovable property) prior to the sale?
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