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The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (Also Known As The SARFAESI Act)

The SARFAESI Act allows banks and financial institutions to enforce security interests without court intervention. It defines important terms like obligator and authorized officer. The process involves sending a demand notice, taking possession of secured assets if dues are unpaid, obtaining a court order for possession, valuation, serving a sale notice, conducting the sale, and recovering any balance from other means. The Supreme Court has held that the notice periods under Rules 8 and 9 are mandatory for a valid sale.

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27 views

The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (Also Known As The SARFAESI Act)

The SARFAESI Act allows banks and financial institutions to enforce security interests without court intervention. It defines important terms like obligator and authorized officer. The process involves sending a demand notice, taking possession of secured assets if dues are unpaid, obtaining a court order for possession, valuation, serving a sale notice, conducting the sale, and recovering any balance from other means. The Supreme Court has held that the notice periods under Rules 8 and 9 are mandatory for a valid sale.

Uploaded by

Naveen Shah
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities

Interest Act, 2002 (also known as the SARFAESI Act)

 Important Definitions
1. Obligator (S. 2 (q)) - means a person liable to the originator, whether under a
contract or otherwise, to pay a financial asset or to discharge any obligation in
respect of a financial asset, whether existing, future, conditional or contingent
and includes the borrower.
2. Authorised Officer (Rules, R. 2(a)) - means an officer not less than a chief
manager of a public sector bank or equivalent, as specified by the Board of
Directors or Board of Trustees of the secured creditor or any other person or
authority exercising powers of superintendence, direction and control of the
business or affairs of the secured creditor, as the case may be, to exercise the
rights of a secured creditor under the Act.
 Steps
• Bank/FI to give a Power of Attorney/ Letter authorising its concerned official to take
steps under the Act. {Sec. 13(12)}
• Sending of Demand Notice for enforcement of Security Interest. {Sec. 13(2) r/w Rule
2(b) & 3 – seek the liabilities to be met within 60 days from the date of notice.
• Borrower allowed for making representation / raising objection to the notice, which
is considered by the Secured Creditor who shall communicate to the Borrower in
case of non-consideration of the same within 7 days with reasons.
• Notice to take possession {Sec. 13(4)} – If borrower fails to repay liability within 60
days – Secured Creditor can (a) take possession of Secured Assets for realisation (b)
take over management of the business. Also, appoint manager to manage the
Secured Asset on taking the possession.
• File an application before the Chief Metropolitan Magistrate or District Magistrate
for taking actual possession of the property {Sec. 14 (1)} - when the Secured Asset is
required to be sold, Secured Creditor applies for the CMM to take possession of the
asset & related documents, and forward them to the Secured Creditor.
• Prepare notice of possession and deliver the same to the Borrower and affix -it on a
conspicuous place in the property. Also, publish the notice within 7 days in 2 leading
newspapers. Requisite insurance coverage is also to be arranged. {Rule 8(1-4)}
• Get a valuation of the property from an approved valuer. {Rule 8(5)}
• Serve notice of sale to the borrower. {Rule 8(6)}
• Sale takes place in accordance with Rule 8 & 9, and If the terms of payment have
been complied with, the Bank/FI shall issue a certificate of sale in favour of the
purchaser. {Rule 9(6)}
• In case the dues of the Bank/FI are not fully met with the sale proceeds of the
property, Bank/FI may file an application before Debt Recovery Tribunal or Court
having jurisdiction, for recovering the balance amount. {Sec. 13(10) r/w Rule 11}.
 Mathew Varghese vs. M. Amritha Kumar 1, the Supreme Court of India held that
notice to borrower under Rule 8 and 9 of the Security Interest (Enforcement) Rules,
2002 are mandatory requirements to conduct a valid sale of secured immovable
property by a secured creditor under the SARFAESI Act. On an analysis of the Act, the
Supreme Court held that the conditions in Rule 8 of the Rules have to be strictly
followed in the sale of secured assets. Consequently, if 30 days’ notice as mandated
under Rule 9 of the Rules is not provided to the borrower a valid sale cannot be
effected and the secured creditor cannot rely upon an earlier notification of sale as
such notification would be considered to have lapsed.

1
(2014) 5 SCC 610

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