The SARFAESI Act, 2002 provides banks and financial institutions with a swift mechanism to recover secured debts without approaching civil courts. However, the process is not arbitrary. The Act prescribes a strict, step-by-step statutory procedure, and any deviation can render the proceedings invalid.
This article explains the complete SARFAESI procedure, beginning from NPA classification and ending with possession of the secured asset.
Step 1: Classification of the Loan Account as NPA
The SARFAESI process begins only after the loan account is classified as a Non-Performing Asset (NPA).
A loan becomes NPA when:
Instalments or interest remain overdue for more than 90 days, and
Classification is done in accordance with RBI prudential norms
⚠️ NPA classification is a jurisdictional requirement.
Without valid NPA classification, SARFAESI cannot be invoked.
Step 2: Issuance of Demand Notice – Section 13(2)
Once the account becomes NPA, the bank must issue a statutory demand notice under Section 13(2) of the Act.
The notice must:
Demand repayment of outstanding dues
Grant 60 days’ time to the borrower
Specify details of the secured asset
Warn of enforcement action in case of non-payment
Improper or vague notices are legally challengeable.
Step 3: Borrower’s Right to Objection – Section 13(3A)
After receiving the demand notice, the borrower has the right to:
Make representations or objections
Dispute incorrect amounts
Raise legal and factual issues
The bank is legally bound to:
Consider the objections, and
Communicate reasons if objections are rejected
Failure to comply with Section 13(3A) is a serious procedural lapse.
Step 4: Measures Under Section 13(4)
If the borrower fails to repay dues within 60 days, the bank may take enforcement measures under Section 13(4).
These include:
Taking possession of the secured asset
Taking over management of secured business
Appointing a manager
Proceeding for sale of secured assets
Most cases involve possession of immovable property.
Step 5: Symbolic Possession of Property
Initially, banks usually take symbolic possession, which involves:
Issuing a possession notice
Affixing it on the property
Publishing it in two newspapers (one vernacular)
At this stage:
Borrower may still be physically occupying the property
Legal possession shifts to the bank
Step 6: Borrower’s Remedy Before DRT – Section 17
Once action under Section 13(4) is taken, the borrower can:
File an application before the Debt Recovery Tribunal (DRT)
Within 45 days from the date of possession notice
The DRT can:
Examine legality of SARFAESI action
Grant interim stay
Restore possession if action is illegal
DRT is the primary forum for SARFAESI challenges.
Step 7: Physical Possession of Property
If:
Borrower does not vacate the property, or
Resistance is anticipated
The bank may proceed to take physical possession.
This may involve:
Police assistance
Locking and sealing the premises
Step 8: Application to District Magistrate – Section 14
For physical possession, banks often approach:
The District Magistrate (DM) or
The Chief Metropolitan Magistrate (CMM)
The Magistrate:
Verifies compliance of statutory requirements
Provides administrative assistance for possession
⚠️ The Magistrate does not adjudicate disputes.
Step 9: Taking Physical Possession
Upon approval under Section 14:
Police assistance may be provided
Borrower is dispossessed
Property is taken into actual control of the bank
This is the most critical and sensitive stage of SARFAESI proceedings.
Common Procedural Violations in SARFAESI
Borrowers often succeed where:
NPA classification is premature
Notice is defective or not served
Objections are ignored
Agricultural land is proceeded against
Section 14 order is mechanical
Each stage requires strict compliance.
Practical Advice for Borrowers
Do not ignore SARFAESI notices
Act promptly at the demand-notice stage
Raise objections with proper documentation
Approach DRT without delay
Seek legal advice early
Timely action can prevent loss of property.
Conclusion
The SARFAESI procedure is a structured legal process, not a single action. From NPA classification to physical possession, every step is regulated by law. While SARFAESI empowers banks with speedy recovery tools, it also provides adequate safeguards to borrowers. Awareness of each procedural stage is the key to effective legal protection.
FAQs
Q. Can possession be taken immediately after NPA classification?
No. A 60-day demand notice is mandatory.
Q. Can borrowers challenge symbolic possession?
Yes, after action under Section 13(4), before DRT.
Q. Is court permission required for SARFAESI possession?
Not initially, but Magistrate assistance may be required under Section 14.