Financial crisis. Vector Bank building with sign default. Banking crisis illustration. Default stamp.

By Karan Parihar, Advocate at Rajasthan High Court

Who is covered under this Act

Let’s first understand who is borrower, who comes under the purview of the SARESI Act. It includes any person who has been:-

  1. granted financial assistance by any bank or financial institution or
  2. who has given any guarantee (guarantor) or
  3. created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution.

What is Non Performing Asset (NPA)

It means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank.

When SARFESI proceedings can be initiated-

Upon Declaration of non-performing asset– Non-payment of any debt or any other amount payable by the borrower (including guarantor) to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor.

After declaration of NPA


Bank or Financial Institution will send Notice under Section 13(2) of The Securitisation and Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002.

Section 13- Enforcement of security interest

(2) Where any borrower,

  1. who is under a liability to a secured creditor under a security agreement,
  2. makes any default in repayment of secured debt or any instalment thereof,
  3. and his account in respect of such debt is classified by the secured creditor as non-performing asset,
  4. 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 sub-section (4).


Symbolic Possession under Section 13(4)

13 (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor 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 realising 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 realising the secured asset:


Taking Physical Possession under Section 14

Section 14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.

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 asset and documents to the secured creditor.

Process under SARFESI to take Possession of the Secured Property:-

Bank will send Notice under Section 13(2) for discharging the liabilities (60 Days Period)  
Representation or Objection by Debtor under Section 13(3A) against 13(2) Notice, if any  
Bank will send Possession Notice under Section 13(4)  
Taking over of the Physical Possession under Section 14  


Remedy Available with the Borrower

One who agrrived by the decision of the Bank/ FI can:-

  1. Borrower can make representation or objection to the secured Creditor under Section 13(3A) of the SARFESI and secured creditor either has to accept or reject the proposal cum representation or objection, if Secured Creditor rejects then it has to give the reasons for the rejection within 15 days from receiving it,
  2. He can filed an application under Section 17 to the Debt Recovery Tribunal (DRT) against measures to recover secured debts within forty-five days from the date on which such measure had been taken.
  3. He can file appeal to the Appellate Tribunal under Section 18 of the SARFESI Act within thirty days from the date of receipt of the order of Debts Recovery Tribunal.
  4. Writ Petition under Article 226 in exceptional and extreme situation.

Moreover Supreme Court in its recent order allowed aggrieved person (debtor) to directly move to the High Court in their extra-ordinary jurisdiction under Article 226 of the Indian Constitution, if DRT/ DRAT is not functional in that area.

Rights of Tenants or Leaseholder under SARFESI– They can make an application before DRT under Section 17(4A) of the SARFESI