Master the Complete SARFEASI Act Procedure: A Comprehensive Guide

Understanding the Complete SARFEASI Act Procedure

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is an Indian law that allows banks and other financial institutions to recover non-performing assets (NPAs) without the intervention of courts. This legislation empowers banks to seize and auction off assets that were used as collateral for loans, thereby providing a swift and efficient recovery mechanism for financial institutions.

Here's a step-by-step procedure under the SARFAESI Act:

1. Identification of Non-Performing Assets (NPA)

The process begins when a loan or an account becomes a Non-Performing Asset (NPA). As per RBI guidelines, an account is classified as NPA if the borrower fails to make interest or principal repayments for a period of 90 days.

2. Issuance of Demand Notice (Section 13(2))

Once an account is classified as an NPA, the secured creditor (bank or financial institution) issues a demand notice to the borrower under Section 13(2) of the SARFAESI Act. This notice must specify the outstanding amount due and demand repayment within 60 days.

Contents of the Demand Notice:

• Details of the outstanding amount.
• A demand for payment within 60 days.
• Information about the consequences of non-payment, including the right to seize the secured assets.

3. Objection by Borrower and Creditor's Reply

Within 60 days of receiving the demand notice, the borrower has the right to raise objections or make representations to the creditor. The secured creditor must respond to these objections or representations within 15 days of receipt.

4. Possession of Secured Assets (Section 13(4))

If the borrower fails to repay the amount within the 60-day period, the secured creditor can take one or more of the following actions under Section 13(4) of the SARFAESI Act:

• Take possession of the secured asset of the borrower, including the right to transfer by way of lease, assignment, or sale for realizing the secured asset.
• Take over the management of the secured asset, which may include the right to transfer by way of lease, assignment, or sale for realizing the secured asset.
• Appoint any person (such as a manager) to manage the secured assets, the possession of which is taken over by the secured creditor.
• Require 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.

5. Publication of Possession Notice

Upon taking possession of the asset, the creditor must publish a possession notice in two leading newspapers (one of which must be in the local vernacular language) within 7 days from the date of taking possession.

6. Valuation and Sale of Assets (Section 13(6))

The secured creditor must obtain the valuation of the seized asset from an approved valuer and then fix a reserve price. Following this, the asset is sold through auction or by inviting tenders. The sale proceeds are used to repay the outstanding debt, and any surplus is returned to the borrower.

Methods of Sale:

• Public Auction: The asset is auctioned to the highest bidder.
• Private Treaty: Direct negotiation and sale to an interested buyer.

7. Issuance of Sale Certificate

Once the asset is sold, a sale certificate is issued to the buyer, and the sale proceeds are adjusted against the outstanding debt of the borrower.

8. Recovery of Remaining Dues

If the sale proceeds are insufficient to cover the outstanding dues, the secured creditor may file an application before the Debt Recovery Tribunal (DRT) for the recovery of the remaining amount.

9. Appeal to Debt Recovery Tribunal (Section 17)

The borrower, if aggrieved by any of the actions taken by the secured creditor under the SARFAESI Act, can file an appeal before the Debt Recovery Tribunal (DRT) under Section 17 within 45 days from the date of action.

10. Appeal to Appellate Tribunal (Section 18)

If the borrower or any other aggrieved party is dissatisfied with the decision of the DRT, they can file an appeal to the Appellate Tribunal within 30 days of receiving the DRT's order.

11. Final Recovery Process

The SARFAESI Act also empowers the secured creditor to request assistance from the Chief Metropolitan Magistrate or the District Magistrate for taking possession of the secured asset. This provides a swift and efficient recovery process, bypassing the lengthy litigation process usually associated with debt recovery.

12. Conclusion of Proceedings

The proceedings under the SARFAESI Act are considered complete once the secured creditor has recovered the due amount through the sale of secured assets, or when the DRT or Appellate Tribunal passes a final order.