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Flow Chart- SARFAESI

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002


The provisions of this act are applicable only for secured NPA loans with outstanding above Rs. 1.00 lakh. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this act.


According to section 2(1)(f) of SARFAESI act "borrower" means any person who has been granted financial 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.


"secured debt" means a debt which is secured by any security interest; (zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31; mortgage of property financed.


Classification of the borrower’s account as a non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time.


Please ensure that, the balance outstanding in the bank’s book and the un-debited portion of interest accrued but not reflected in the bank’s book (on account of status of the loan account as NPA) are added and incorporated in the demand notice. The authorized officer (for short “A.O.”) need not approach any court or tribunal for determination of the quantum of amount of claim.


After classifying the account as NPA, the bank / Financial Institution may require the borrower by a notice in writing under Section 13 (2) of SARFAESI Act whereby the bank / Financial Institution calls upon the borrower to repay the entire amount of the loan as outstanding in his/ her /their loan account as on the date of NPA 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 Section 13 (4) of SARFAESI Act.


Demand notice.-
(1) the service of demand notice under Section 13 (2) shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail service: provided that where authorized officer has reason to believe that the borrower or his agent is 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.
(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).
(3) any other notice in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in this rule. (4) where there are more than one borrower, the demand notice shall be served on each borrower.


There is no bar. Any number of notices can be issued provided the security interest sought to be enforced is not barred by limitation.


The borrower has a right after the receipt of the notice under Section 13 (2) to make any representation or to raise any objection to the same under Section 13 (3A). And if the bank / Financial Institution comes to a conclusion that the representation or the objection is not tenable then it shall communicate within fifteen days of the receipt of the representation or the objection the reasons for non-acceptance of the same. The reasons so communicated shall not confer any right upon the borrower to file a SA under Section 17 before the DRT or under Section 17A before the District Judge.


In case the borrower fails to discharge his liability in full within the period specified in Section 13 (2), the Bank / Financial Institution may take recourse to one or more of the following measures to recover his secured debt, namely:--
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset: provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt.
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.

Usually the action taken under section 13 (4) is termed as symbolic possession of the property and the secured creditor for taking the physical possession of the property has to resort to the remedy available under Section 14.


Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the chief metropolitan magistrate or the district magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the chief metropolitan magistrate or, as the case may be, the district magistrate shall, on such request being made to him—
(a) take possession of such asset and documents relating thereto; and
(b) forward such assets and documents to the secured creditor.
(2) for the purpose of securing compliance with the provisions of sub-section (1), the chief metropolitan magistrate or the district magistrate may take or cause to be taken such steps and use , or cause to be used, such force, as may, in his opinion, be necessary.
(3) no act of the chief metropolitan magistrate or the district magistrate done in pursuance of this section shall be called in question in any court or before any authority.

After taking the possession of the property in terms of Section 14, the secured creditor shall sale the property as per the norms set in the SARFAESI Act and if there is any shortfall of secured debt then in that case the secured creditor has to resort to Section 13 (10).

Procedure of Sale and Auction under the SARFAESI Act,2002

A Sale Notice is required in the case of auctioning off of the secured asset if inviting tenders from the public, or by way of public auction. This sale notice shall be published in 2 leading newspapers, on the website of the secured creditor, and as per the Directions of the Ministry of Finance directions, upload the tender notice on

The sale notice or possession notice should be effectively served, I.e. in 2 newspapers in circulation in the area as provided for in the SECURITY INTEREST (ENFORCEMENT) RULES,2002.

More particularly, the procedure for an auction of immovable assets is given in Rule 8, Security Interest (Enforcement) Rules,2002. the methods of sale of the immovable secured assets include:
(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty (after the possession of the asset by a Bank or Financial Institution, they might be willing to sell it to an appropriate buyer through a private deal with a third party)

Procedure regarding payment by purchaser

The first step is determining the Reserve Price which is the minimum fair market value of the immovable asset as stipulated by the authorized officer, followed by the relevant notice according to the obligations enumerated in Rule 8 (6). The bidding process for public auction shall be done in accordance with Rule 9, Security Interest Rules, 2002 wherein the bidder shall deposit:
(1) Earnest money deposit (at the time of bidding)
(2) 25 per cent of the accepted sales price (including EMD) to be paid within 24 hours after successful bidding.
(3) 75 per cent of the balance amount within 15 days of the auction. (Said period can be extended upto 90 days from the date of successful bidding subject to approval from authorize officer of selling institution)

Upon completion of the above, the sale certificate shall be issued to him. Otherwise, any sale by any other method other than public auction shall be on terms and conditions as decided by the parties It is also mandated under the Security Interest Rules,2002 that the amount of sale shall not be less than the reserved price.


(1) an application for recovery of balance amount by any secured creditor pursuant to Section 13 (10) shall be presented to the debts recovery tribunal in the form annexed as appendix VI to these rules by the authorized officer or his agent or by a duly authorized legal practitioner, to the registrar of the bench within whose jurisdiction his case falls or shall be sent by registered post addressed to the registrar of debts recovery tribunal.
(2) the provisions of the debts recovery tribunal (procedure) rules, 1993 made under recovery of debts due to banks and financial institutions act, 1993 (51 of 1993), shall mutatis mutandis apply to any application filed by under sub-rule (1).
(3) an application under sub-rule (1) shall be accompanied with fee as provided in rule 7 of the debts recovery.

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