Key points
- The 13(2) notice requires the account to be classified as an NPA and gives 60 days to discharge the full liability.
- The borrower can send a representation or objection under Section 13(3A); the bank must reply with reasons within 15 days.
- After measures under Section 13(4), the borrower can appeal to the Debt Recovery Tribunal under Section 17 within 45 days; a civil suit is barred.
The stages
SARFAESI applies to secured debts of one lakh rupees or more owed to banks and notified financial institutions, once the account is a non-performing asset. The 13(2) notice demands payment within 60 days. If the borrower does not pay, the bank can take symbolic or physical possession of the secured asset, take over management, or appoint a manager under Section 13(4), and then sell the asset by public auction after a further 30-day sale notice.
Responding to the notice
Section 13(3A) entitles the borrower to make a representation objecting to the notice, for example that the account was wrongly classified as NPA, the amount is incorrect, or the security was not validly created. The bank must consider it and communicate reasons for rejection within 15 days. Although the bank's reply is not appealable, a reasoned objection builds the record for the DRT.
The DRT appeal
Section 17 lets the borrower, guarantor or any aggrieved person apply to the Debt Recovery Tribunal within 45 days of any measure under Section 13(4). The DRT examines whether the bank followed the statutory procedure, including the Security Interest (Enforcement) Rules on notice, valuation and auction, and can restore possession or set aside a sale. Physical possession under Section 14 through the District Magistrate is also challengeable. A further appeal to the DRAT under Section 18 requires deposit of 50% of the debt, reducible to 25%.
Settlement
Banks have one-time settlement schemes and are generally receptive before auction. A proposal backed by a source of funds, made in writing, often achieves more than litigation.
Frequently asked questions
Can the bank take possession of my house if it is my only residence?
Yes, if it was mortgaged as security, but the bank must follow the Section 13(4) and Section 14 procedure, and the tribunal can intervene if it does not.
Is a civil suit possible against a SARFAESI action?
No. Section 34 bars civil courts from entertaining suits on matters the DRT is empowered to decide. The remedy is the Section 17 application.
Related practice area: Debt Recovery
This article is for general information and does not constitute legal advice. Laws, rules and limitation periods change and depend on the facts; please take advice on your own situation before acting. Reading this article does not create a lawyer-client relationship with Akhtars Legalitarian.