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Authorised Officer who is clothed with statutory power has to exercise higher degree of

caution and care in following the prescription law while taking action under the Act. Taking
action in any other manner than the prescription is not permissible in law. This cardinal
principle is covered by Latin Maxim expressio unius est exclusio alterius. This is followed
by Supreme Court and High Courts as can be seen from catena of judgments. The
Authorised Officer may follow the check list for initiating the action.

Sl.N.
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STAGE WISE ACTION


SUGGESTION/ADVISE
Sarfaesi Act poroceeds on the basisSec.13(2): Where any borrower, who is under a
that borrower created security interestliability to a secured creditor under a security
in favour of bank and his liabilityagreement, makes any default in repayment of
stood crystalised on account of hissecured debt or any instalment thereof, and his
default and his account is classified asaccount in respect of such debt is classified by the
NPA
secured creditor as non-performing asset, then, the
secured creditor may require the borrower by notice
in writing to discharge in full his liabilities to the
secured creditor within sixty days from the date of
notice failing which the secured creditor shall be
entitled to exercise all or any of the rights under
subsection(4)
Initiation of action begins on serviceThe opinion Supreme Courtin Mardia Chemicals
of demand notice
Ltd. &Anr. Vs. Union of India &Ors.:AIR 2004 (4)
SCC 311)that the demand notice is show cause is
clarified by Supreme Court in (Transcore Vs. Union
of India &Anr. AIR 2007 SC 712) as initiation of
action
How to calculate the quantum ofPlease ensure that, the balance outstanding in the
claim amount in the demand notice banks book and the un-debited portion of interest
accrued but not reflected in the banks book (on
account of status of the loan account as NPA) are
added and incorporated in the demand notice. The
Authorised Officer (for short A.O.) need not
approach any Court or Tribunal for determination
of the quantum of amount of claim.
Demand notice and its contents:

i). Please ensure that the demand notice covers all


the details of the facilities granted to the
borrower(s), dues and securities and measures to be
taken in the event of default as stated in the guide
and all the borrowers are addressed correctly as per
the records.
ii). The Act or the Rules have not prescribed any
format of demand notice.
Whether action under RDDB & FiAction under RDDB & FI Act 1993 or a suit/claim
Act 1993 or a suit/ claim already filedalready filed in civil court/DRT/transferred from

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in civil court/drt/transferred from civilcivil court, does not save limitation for taking
court, saves limitation for initiatingaction under SARFAESI Act.
action under SARFAESI Act
Whether action initiated underNo.
SARFAESI Act 2002 saves limitation
for filing claim for recovery of the
unrealised portion of debt.
How many demand notices a securedThere is no bar. Any number of notices can be
creditor can issue
issued provided the security interest sought to be
enforced is not barred by limitation.
Res Judicata

No application. Action under the Act can be taken


any number of times if the secured debt or security
interest is not barred by limitation.
Service of demand notice: Please note3(1) The service of demand notice shall be made by
changes in the addresses of thedelivering or transmitting at the place where the
borrowers if any before addressingborrower or his agent, empowered to accept the
the demand notice. Change of addressnotice or documents on behalf of the borrower,
of borrower(s) must be obtained inactually and voluntarily resides or carries on
writing. Oral information is notbusiness or personally works for gain, by registered
reliable as it is construed as not bornpost with acknowledgement due, addressed to the
out of record. Servedemand notice asborrower (or his agent empowered to accept the
contemplated in Rule 3 of Securityservice) or by Speed Post or by courier or by any
Interest (enforcement) Rules 2002. other means of transmission of documents like fax
message or electronic mail service.
ii). Procedure where borrower avoidsProviso to Rule 3(1):Where authorised officer has
service of demand notice or for anyreason to believe that the borrower or his agent is
reason notice could not be served.
avoiding the service of the notice or that for any
other reason, the service cannot be made as
aforesaid, the service shall be effected by affixing a
copy of the demand notice on the outer door or
some other conspicuous part of the house or
building in which the borrower or his agent
ordinarily resides or carries on business or
personally works for gain and also by publishing
the contents of the demand notice in two leading
newspapers, one in vernacular language, having
sufficient circulation in that locality.
Evidence of this exercise is to be reduced to writing
(record panchanama).
Preserve full page of the relevant Newspapers as
the same are required in evidence.
iii) Service of notice to wife ofIf borrowers marital relationship is not judicially
borrower is sufficient service
separated or dissolved by order of competent court

iv). If borrower is abody corporate

Rule 3(2): Where the borrower is a body corporate,


the demand notice shall be served on the registered
office or any of the branches of such body
corporate as specified under sub-rule (1).
v). The manner of service of anyRule 3(3): Any other notice [i.e. Possession notice
notice Rule 3(3) of S.I.(E) Rules
under 13(4) of SARFAESI Act or Rule 8(6) of S.I.
(E) Rules] in writing to be served on the borrower
or his agent by authorised officer, shall be served in
the same manner as provided in Rule 3.
See Sec.2 (2) of SARFAESI Act.
According to Section 2(1)(f) of SARFAESI Act
"borrower" means any person who has been
grantedFINANCIAL assistance by any bank or
financial institution or who has given any guarantee
or created any mortgage or pledge as security for
the financial assistance granted by
any bank or financial institution and includes a
person who becomes borrower of a securitisation
company or reconstruction company consequent
upon acquisition by it of any rights or interest of
any bank or financial institution in relation to such
financial assistance
According to Sec.2(2) of the Act the Words and
expressions used and not defined in this Act but
defined in the Indian Contract Act, 1872 (9 of 1872)
or the Transfer of Property Act, 1882 (4 of 1882) or
the Companies Act, 1956 (1 of 1956) or the
Securities and Exchange Board of India Act, 1992
(15 of 1992) shall have the same meanings
respectively assigned to them in those Acts.
It is advisable to inspect the secured asset(s) and
find out its/their status / situation.
The date of service of the demand notice or
publication of the demand notice after affixing it (as
stated in the proviso to Rule 3(1) of S.I.(E) Rules)
and the 60th day to be expired are to be excluded
for computing the 60 days.

Inspection of secured assets

Computation of 60 days

Representation/Objection: against theAfter service of the notice if the borrower makes


demand notice Sec13 (3A).
any representation or objection against the demand
notice the A.O. should immediately send it to the
Communication of reply is mandatorysecured creditor who in turn should send a reply or
in both the events.
advise the A.O. to communicate reply to the
borrower within fifteen days (recent amendment

substituted for one week) of receipt of such


representation or objection by registered post with
AD or Courier. Evidence of communication is to be
preserved for evidence.

Representation: seeking for extension of time for


payment or OTS.
Objection: Challenging the validity of the demand
notice on various grounds.
PROCEDURE
FOR
TAKINGTaking symbolic possession of movable secured
POSSESSION
OF
MOVABLEassets is not permissible in law. Procedure for
SECURED ASSETS
taking possession of movable secured assets is
different from the procedure relating to the
immovable secured assets.
i). In case the secured assets are movable, the A.O.
has to take possession of them in the presence of
two witnesses and draw a panchanama, as nearly as
possible as given in Appendix-I [ See Rule 4(2) of
S.I.(E) Rules]
(Evidence to be preserved).
INVENTORY REPORT
ii). After taking possession of the movable secured
assets, the A.O. has to record Inventory Report as
per AppendixII [See Rule 4(1) of S.I.(E) Rules]
and deliver it or caused to be delivered it to the
borrower any person entitled to receive on behalf of
borrower. In the inventory report the A.O. has to
mention the name of the person appointed by him
in whose custody the secured assets are preserved.
PRESERVATION
To take care to preserve movable secured assets
which owner of ordinary prudence would take. In
case of factories or stores the secured creditor has
to entrust the same for custody of an authorised
person or approved re-possessors / security persons.
INSURANCE COVER
A.O. has to take insurance cover if necessary until
sale is completed. Comprehensive policy with a
clause to pay the sum assured to the company
which would discharge the insurance company
against adverse claim of borrower if any.
CIRCUMSTANCES
FORThere are two circumstances for immediate sale of
IMMEDIATE SALE
movable secured assets.
1. If movable secured assets are subject to speedy
or natural decay
2. or the expense of keeping such property in
custody is likely to exceed its value, the authorised
officer may sell them at once.

(Issue sale notice but need not wait for expiry of 30


days of the sale notice).
AO has to record reasons if necessary by drawing a
panchanama in this regard.
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PLANT
AND
MACHINERYPlant and machinery should be treated as part of the
ATTACHED TO EARTH
immovable secured asset if they are fastened to the
earth with cement and concrete as on the date of
taking possession. In the possession notice
(Appendix-IV) the same must be mentioned
specifically giving brief description of the
particulars of the machinery vide separate annexure
attached to it.
PLANT AND MACHINERY IFIf Plant and machinery are detachable from earth as
DETACHED FROM EARTH
on the date of taking possession then A.O. has to
record Inventory Report as per AppendixII [See
Rule 4(1) of S.I.(E) Rules] and deliver it or caused
to be delivered it to the borrower any person
entitled to receive on behalf of borrower. In the
inventory report the A.O. has to mention the name
of the person appointed by him in whose custody
the secured assets are preserved.
VALUATION
OF
MOVABLEAfter taking possession under sub-rule (1) of rule 4
SECURED ASSETS
and in any case before sale, the authorised officer
shall obtain the estimated value of the movable
secured assets and thereafter, if considered
necessary, fix in consultation with the secured
creditor, the reserve price of the assets to he sold in
realisation of the dues of the secured creditor.
REQUIREMENTS
TO
MOVE1. Application making a request to render
CMM/DMFOR ASSISTANCE
assistance.
2. List with copies of documents.
3. Affidavit disclosing all the particulars.
PROCEDURE
IN
CASE
OFTake possession of immovable secured asses
IMMOVABLE SECURED ASSETS (whether symbolic or physical), serve possession
notice (Appendix-IV) under Sec.13(4) read with
Rule 8(1) and(2), obtain acknowledgment of
service, affix it to secured asset and publish it in
two leading newspapers(one in vernacular) having
sufficient circulation in the locality.
If borrower refuses to acknowledge service of the
possession notice, then the AO may send it by

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registered post /courier and preserve evidence and


the same may be recorded at the foot of the
possession notice and obtain signature of two
witnesses.
VALUATION OF IMMOVABLERule 8(5) of S.I.(E) Rules contemplates valuation
SECURED
ASSETSof immovable secured assets by approved valuer
BY APPROVED VALUER
before effecting sale.

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APPROVED VALUER:

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RESERVE PRICE

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SALE NOTICE-PERSONAL RuleThe Authorised Officer shall serve to the borrower


8(6)
a notice of thirty days for sale of the immovable
secured assets, under sub-rule (5)

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SERVICE OF SALE NOTICE

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1.Registered under Sec.34AB


of Wealth Tax Act 1957
2.Approved by the Board of the
company.
Valuation minus 15% or 20%
See Swastic Agency Vs. State Bank of India

Sale notice must be served in the same manner as


the demand notice and possession notice are served
in the same manner as contemplated in the sub
rule(1) of Rule 3 of S.I.(E) Rules 2002. See Rule
3(3) demanding the borrowers to pay the debt as
demanded in the demand notice and possession
notice together with interest
PUBLICATION OF SALE NOTICE If the sale of such secured asset is being effected by
either inviting tenders from the public or by holding
public auction, the secured creditor shall cause a
public notice in two leading newspapers one in
vernacular language having sufficient circulation in
the locality by setting out the terms of sale, which
shall include, (a) the description of the immovable property to be
sold, including the details of the encumbrances
known to the secured creditor
(a) the description of the immovable property to be
sold, including the details of the encumbrances
known to the secured creditor;
(b) the secured debt for recovery of which the
property is to be sold;
(c) reserve price, below which the property may not

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AFFIXTURE OF SALE NOTICE

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SALE BY OTHER METHODS

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be sold;
(d) time and place of public auction or the time
after which sale by any other mode shall be
completed;
(e) depositing earnestMONEY as may be
stipulated by the secured creditor;
(f) any other thing which the authorised officer
considers it material for a purchaser to know in
order to judge the nature and value
of the property.
Every notice of sale shall be affixed on a
conspicuous part of the immovable property and
may, if the authorised officer deems it fit, put on the
website of the secured creditor on the Internet.

Sale by any methods other than public auction or


public tender, shall be on such terms as may be
settled between the parties in writing.
SALE CANNOT BE EFFECTEDNo sale of immovable property under these rules
BEFORE EXPIRY OF THIRTYshall take place before the expiry of thirty days
DAYS
from the date on which the public notice of sale is
published in newspapers as referred to in the
proviso to sub-rule (6) or notice of sale has been
served to the borrower.
IDENTIFICATION
SUCCESSFUL BIDDER

OFA bidder who has offered highest prize shall be


identified as successful bidder and he has to deposit
25% of the bid amount immediately
CONFIRMATION OF SALE BYThe sale shall be confirmed in favour of the
SECURED CREDITOR
purchaser who has offered the highest sale price in
his bid or tender or quotation or offer to the
authorised officer and shall be subject to
confirmation by the secured creditor
SALE BELOW RESERVE PRIZE No sale shall be confirmed, if the amount offered is
less than the reserve price
PAYMENT BY BIDDER IN WHOSEThe balance amount of purchase price payable shall
FAVOUR THE BID IS CONFIRMED be paid by the purchaser to the authorised officer on
or before the fifteenth day of confirmation of sale
of the immovable property or such extended period
as may be agreed upon in writing between the
parties.
BIDDERS NOMINEE
Bidder cannot appoint nominee for obtaining sale
certificate
FORFEITURE AND RESALE OFIn default of payment within the period mentioned

SECURED ASSET

in sub-rule (4), the deposit shall be forfeited and the


property shall be resold and the defaulting
purchaser shall forfeit all claim to the property or to
any part of the sum for which it may be
subsequently sold.
If the authorised officer fails to obtain a price
higher than the reserve price, he may, with the
consent of the borrower and the secured creditor
effect the sale at such price.

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CONSENT OF BORROWER

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PARTIPATION
OF
THEBorrower can participate as tenderer / bidder to
BORROWER IN THE PROCESS OFpurchase the secured asset in the process of sale
SALE AS TENDERER/BIDDER
PARTIPATION
OF
THEBorrower cannot participate as spectator or witness
BORROWER IN THE PROCESS OFin the process of sale
SALE
AS
SPECTATOR
OR
WITNESS
SALE CRTIFICATE
On confirmation of sale by the secured creditor and
if the terms of payment have been complied with,
the authorised officer exercising the power of sale
shall issue a certificate of sale of the immovable
property in favour of the purchaser in the Form
given in Appendix V to these rules.
(Note: The sale is caused under the Act in as it is
what it is and where it is basis. Hence the S.I.(E)
Rules devised the sale certificate. Sale Certificate
does not contain any indemnity clause as in case of
sale deed and the rule sans recourse is not
applicable to the sale i.e. the secured creditor is not
answerable for any defects in the title to the secured
asset sold). The sale certificate shall be the prima
facie evidence of title of the purchaser
ENCUMBERANCES
The purchaser has to deposit the encumbrances if
any in respect of the secured asset sold. Where the
immovable property sold is subject to any
encumbrances, the authorised officer may, if he
thinks fit, allow the purchaser to deposit with him
theMONEY required
to
discharge
the
encumbrances and any interest due thereon together
with such additional amount that may be sufficient
to meet the contingencies or further cost, expenses
and interest as may be determined by him.
NOTICE
TO
PERSONSOn such deposit of money for discharge of the
INTERESTED IN THE AMOUNTencumbrances, the authorised officer shall issue
OF
(CROWN
DEBTS)notices to the persons interested in or entitled to the

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ENCUMBRANCES

money deposited with him and take steps to make,


the payment accordingly
The following are not crown debts:
1.Electricity dues
2.Custom & Excise Duty
3.Income Tax dues prior to creation of mortgage

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NON PRIORITY DUES

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PAMENT OF SURPLUS TO THEProvided that if after meeting the cost of removing


PURCHASER
encumbrances and contingencies there is any
surplus available out ofMONEY deposited by the
purchaser such surplus shall be paid to the
purchaser within fifteen day, from date of
finalisation of the sale.

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