Section 13(2) SARFAESI Notice
Your 60 Days, How to Reply, and What Comes Next

What Section 13(2) Says

Section 13(2) of the SARFAESI Act, 2002 reads: “Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, 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).”

Three conditions come before the notice: a security agreement, a default in repayment of the secured debt, and classification of the account as a non-performing asset by the lender. A proviso added by Act 44 of 2016 dispenses with the NPA classification for borrowers who raised funds through debt securities, and lets the debenture trustee enforce the security in their case.

“Borrower” is wider than the person who took the loan. Section 2(1)(f) includes anyone who has given a guarantee or created a mortgage or pledge as security for the financial assistance. A guarantor or a third-party mortgagor is therefore a borrower for the purposes of the notice.

The Sixty Days — How They Run

The Act counts the sixty days “from the date of notice”. Under section 9 of the General Clauses Act, 1897, where a period in a Central Act is described as running “from” a date, the first day is excluded. No measure under Section 13(4) can be taken until sixty days from the date of notice have passed; a notice that demands payment in thirty or forty-five days is open to challenge on that ground.

Two practical points follow. First, do not assume the period starts only when you open the envelope; work from the date the notice bears and take advice at once. Second, if a notice reached you so late that the sixty days had largely run, keep the envelope, the tracking record and the date of receipt — that is a point to be argued, with evidence, if the lender later takes a measure under Section 13(4).

To count the dates for your own notice, the SARFAESI timeline calculator works through Section 13(2), Section 13(3A), Section 14 and Section 17 from the enacted text.

What the Notice Must Contain — and What to Check

Section 13(3) is short: the notice “shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.” Rule 3(5) of the Security Interest (Enforcement) Rules, 2002 adds that the notice may draw the borrower’s attention to Section 13(8) and the time available to redeem the secured assets.

Read the notice against your loan papers and check, line by line:

• The amount: principal, interest, the rate and period applied, and charges. Ask for the statement of account if the figure cannot be reconciled.
• The NPA classification: the date the account was classified. The classification is a precondition in Section 13(2) itself.
• The secured assets: whether each property or asset listed matches the mortgage, hypothecation or pledge documents — and whether anything is listed that was never given as security.
• The period: that the notice gives sixty days, not fewer.
• The addressees: every borrower, including each guarantor and mortgagor, must be served (Rule 3(4)).
• Whether SARFAESI applies at all: Section 31 excludes a financial asset not exceeding one lakh rupees (clause (h)), security in agricultural land (clause (i)), and cases where the amount due is less than twenty per cent of the principal and interest (clause (j)). An NBFC that is not otherwise a financial institution under Section 2(1)(m) may use the Act only if notified under Section 2(1)(m)(iv) — currently NBFCs with assets of ₹100 crore or more, for secured debts of ₹20 lakh or more.
• Limitation: under Section 36, the lender cannot take any measure under Section 13(4) unless its claim is made within the period of limitation under the Limitation Act, 1963.

How the Notice Must Be Served — Rule 3

Rule 3(1) requires the notice to be delivered or transmitted at the place where the borrower, or an agent empowered to accept it, actually and voluntarily resides, carries on business or personally works for gain. The rule allows hand delivery, registered post with acknowledgment due, Speed Post, courier, or any other means of transmitting documents such as fax or electronic mail.

Where the authorised officer has reason to believe the borrower is avoiding service, or service cannot otherwise be made, the proviso to Rule 3(1) requires service by affixing a copy on the outer door or another conspicuous part of the building where the borrower resides or works, and by publishing the contents in two leading newspapers, one in the vernacular, circulating in that locality. No court order is involved. Where the borrower is a company or other body corporate, Rule 3(2) allows service at its registered office or any of its branches. Where there is more than one borrower, Rule 3(4) requires the notice to be served on each of them.

How to Reply — the Section 13(3A) Representation

Section 13(3A) gives the borrower the right to have an objection considered, and to reasons if it is rejected. If, on receiving the notice, you make a representation or raise an objection, the lender “shall consider such representation or objection”. If it concludes the objection is not acceptable or tenable, it “shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance”. The fifteen days replaced “one week” with effect from 15 January 2013.

Rule 3-A sets out the other outcome. If the lender is satisfied that the notice needs to be changed, it must modify the notice and serve a revised one, or pass other suitable orders, within fifteen days of receiving the representation.

The Act sets no deadline for the representation itself, but it should go in well within the sixty days. A representation that does its job:

• disputes the amount precisely, with figures, and asks for the statement of account;
• identifies any secured asset that is wrongly described or was never given as security;
• raises any Section 31 exclusion, limitation point or defect in classification or service;
• sets out any payment, restructuring or settlement already proposed or agreed;
• concedes nothing it does not have to — what you write is likely to be produced later before the DRT.

The answer matters later. When a lender applies to the Chief Metropolitan Magistrate or District Magistrate under Section 14 for help in taking possession, its authorised officer must swear an affidavit declaring, among other things, that the borrower’s objection or representation was considered and the reasons for non-acceptance were communicated. One limit to keep in mind: the rejection of your representation does not by itself let you apply to the DRT (proviso to Section 13(3A); Explanation to Section 17(1)). An application lies only once a measure under Section 13(4) is taken — and how your representation was dealt with can be argued in it.

What You Can and Cannot Do During the Sixty Days

• You cannot transfer the secured assets. Section 13(13) bars a borrower, after receipt of the notice, from transferring by sale, lease or otherwise (other than in the ordinary course of business) any secured asset referred to in the notice without the lender’s prior written consent.
• You can pay and redeem. Under Section 13(8), if the full dues, with all costs, charges and expenses, are tendered before the date of publication of the notice for public auction or for inviting quotations, tender or private treaty, the lender cannot transfer the assets, and can take no further step towards a transfer already begun.
• You can negotiate. Making a settlement proposal does not extend the sixty days. If the lender agrees to defer action or to restructure, get that agreement in writing before the period runs out.
• Check for an insolvency moratorium. If a corporate insolvency resolution process has been admitted against a corporate borrower, the moratorium under section 14(1)(c) of the Insolvency and Bankruptcy Code, 2016 prohibits any action to enforce a security interest created by it in respect of its property, including action under SARFAESI. It does not protect a guarantor, or property mortgaged by anyone other than the corporate debtor (sections 14(1)(c) and 14(3)(b)).

After Sixty Days — Possession, Section 14 and Section 17

If the liability is not discharged within sixty days, Section 13(4) lets the lender take one or more of four measures: (a) take possession of the secured assets, including the right to transfer them by lease, assignment or sale; (b) take over the management of the borrower’s business, subject to the provisos to that clause; (c) appoint a manager for secured assets taken into possession; and (d) require anyone who owes money to the borrower, having acquired secured assets, to pay the lender instead.

For immovable property, Rule 8 requires the authorised officer to take possession by delivering a possession notice to the borrower and affixing it on the property, and to publish it in two leading newspapers, one in the vernacular. If the occupant does not hand over, the lender applies under Section 14 to the Chief Metropolitan Magistrate or District Magistrate for help in taking physical possession — see the Section 14 guide.

The borrower’s remedy is an application to the Debts Recovery Tribunal under Section 17(1), open to any person (including borrower) aggrieved by a Section 13(4) measure, within forty-five days from the date on which the measure was taken. Section 17(1A) lets you file where the cause of action arises, where the secured asset is located, or where the branch maintaining the account is. The DRT examines whether the measures were taken in accordance with the Act and the Rules, so every defect in the notice, its service and the answer to your representation is argued there. The Section 17 application guide covers the grounds and procedure.

For Lenders — A Notice That Survives Section 17

The same provisions read from the other side tell a bank, NBFC or ARC what a Section 17 applicant will look for. Before a notice goes out, the firm checks:

• the account is classified as an NPA and the claim is within limitation (Sections 13(2) and 36);
• the amount and every secured asset are stated, and match the security documents (Section 13(3));
• every borrower — including each guarantor and mortgagor — is identified and served by a mode Rule 3 permits, with proof of service kept;
• no exclusion in Section 31 applies, and, for an NBFC, its notification covers the debt;
• no insolvency moratorium is in force against a corporate borrower;
• every representation that is rejected is answered with reasons within fifteen days of its receipt (Section 13(3A)); the Section 14 affidavit requires the authorised officer to declare that it was considered and the reasons communicated.

A notice that is right on each of these points leaves the Section 17 applicant little to argue. Our SARFAESI practice drafts and reviews notices for lenders and acts for borrowers and guarantors who have received them.