SARFAESI

SARFAESI Act, 2002

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Allows secured creditors (banks, NBFCs, HFCs) to enforce security interests — take possession of and sell secured assets — without approaching a court, upon a borrower's default and NPA classification. The most powerful extrajudicial recovery tool in India.

In practice, SARFAESI — the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — is the most powerful extrajudicial recovery tool available to secured creditors, because it lets a bank, qualifying NBFC or HFC take possession of and sell a secured asset without first suing the borrower in court. The trigger is twofold: the borrower must have defaulted and the account must be classified as NPA. The creditor then moves through the statutory steps — the demand notice, possession, and sale — while the borrower's remedy is to approach the DRT rather than the civil court. For lenders, SARFAESI is fast but procedurally exacting: any deviation from the notice, valuation or sale requirements gives the borrower a ground to have the action set aside. It is frequently run in parallel with a DRT application, which captures the personal liability and any deficiency after sale. Borrowers contest classification, service of notice and sale irregularities. Well-advised creditors confirm valid NPA classification before issuing the first notice.