Once a bank takes symbolic or physical possession of a secured asset under the SARFAESI Act, 2002, the next and most decisive stage is the sale of the property through auction. This stage has serious and often irreversible consequences for borrowers, yet it is also heavily regulated by law.
This article explains the SARFAESI auction process after possession, the mandatory legal steps, and the rights and remedies available to borrowers.
When Can a Bank Proceed to Auction Under SARFAESI?
A bank can proceed to auction only after:
The loan account is classified as NPA
A Section 13(2) demand notice is issued
Measures under Section 13(4) are taken (possession)
👉 Auction without valid possession is illegal.
Legal Framework Governing SARFAESI Auctions
SARFAESI auctions are governed by:
Section 13(4) of the SARFAESI Act
Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002
These rules prescribe strict procedural safeguards to prevent arbitrary sale of property.
Step-by-Step SARFAESI Auction Procedure
Step 1: Valuation of the Secured Asset
Before sale, the bank must:
Obtain valuation from an approved valuer
Fix a reserve price based on valuation
⚠️ Undervaluation or mechanical fixation of reserve price is a common ground for challenge.
Step 2: Issuance of Sale Notice
The bank must issue a 30-day sale notice:
To the borrower, and
By publication in two newspapers (one vernacular)
The sale notice must disclose:
Description of the property
Reserve price
Date and mode of auction
Terms and conditions of sale
Step 3: Opportunity to Redeem the Property
Even after possession, the borrower has a right of redemption.
👉 Until the date of auction, the borrower can:
Pay the entire dues
Stop the auction
Reclaim the property
This right is statutory and cannot be denied.
Step 4: Conduct of Auction
Auction may be conducted by:
Public auction
E-auction
The process must be:
Transparent
Competitive
In strict adherence to the notified terms
Any deviation renders the sale vulnerable.
Step 5: Confirmation of Sale
After the highest bid is accepted:
Sale is confirmed subject to payment conditions
Balance amount must be paid within prescribed time
Failure to comply results in cancellation and forfeiture of deposit.
Step 6: Issuance of Sale Certificate
Once full payment is made:
A Sale Certificate is issued to the auction purchaser
Title passes to the purchaser
Stamp duty and registration are governed by local laws.
Borrower’s Remedies Against SARFAESI Auction
Remedy Before DRT – Section 17
Borrowers can challenge:
Auction notice
Valuation
Sale process
Confirmation of sale
before the Debt Recovery Tribunal (DRT).
⏳ Limitation: 45 days from the date of action.
Grounds Commonly Accepted by Courts
No valid possession before auction
Improper or no service of sale notice
Undervaluation of property
Violation of Rule 8 or Rule 9
Denial of right of redemption
Auction conducted with undue haste
Rights of Auction Purchasers (Brief Overview)
Auction purchasers have rights, but:
Their rights are subject to legality of the auction
If SARFAESI procedure is violated, the sale can be set aside
Purchasers must exercise due diligence before bidding.
Common Borrower Mistakes at Auction Stage
❌ Waiting until sale certificate is issued
❌ Assuming auction cannot be challenged
❌ Relying on verbal assurances
❌ Missing DRT limitation period
Auction stage demands urgent legal action.
Practical Guidance for Borrowers
Challenge valuation at the earliest
Preserve newspaper publications
Act before auction date if possible
File DRT application immediately after auction notice
Seek interim stay without delay
Conclusion
A SARFAESI auction is not a mere commercial sale—it is a statutory process bound by strict legal safeguards. While banks are empowered to sell secured assets after possession, any deviation from prescribed procedure can invalidate the entire auction. Borrowers who act promptly and assert their statutory rights can still protect their property, even at this advanced stage.
FAQs
Q. Can a SARFAESI auction be stopped after possession?
Yes, if dues are paid or serious procedural violations exist.
Q. Can auction be challenged after sale certificate?
Yes, though relief becomes more difficult.
Q. Is undervaluation a valid ground to set aside auction?
Yes, if properly established.