Valuation

The process of determining the fair market value or forced sale value of a secured asset before SARFAESI enforcement. RBI guidelines require banks to obtain valuations from empanelled valuers before initiating enforcement. The reserve price for auction must be based on the lower of the two independent valuations obtained. Inflated valuations are a major cause of banking fraud — Section 340 BNS (forgery of valuable security) and IPC S.467 are applied when valuers collude with borrowers.

In practice, valuation is both the foundation of a clean SARFAESI sale and a recurring fault line in disputes. RBI guidelines require banks to obtain valuations from empanelled valuers before enforcement, and the reserve price for the auction is fixed by reference to the independent valuations obtained — typically the lower of two — so that secured assets are not sold cheap. Borrowers routinely challenge enforcement on the ground that the valuation was understated and the property sold below worth, which is why banks keep contemporaneous valuation reports on record. The darker side is collusion: an inflated valuation used to obtain an oversized loan, or a deflated one to favour a connected buyer, can attract charges of forgery of valuable security under Section 340 BNS (and the analogous IPC Section 467) where a valuer conspires with the borrower. Sound process means independent valuers, documented methodology, and a defensible reserve price. Well-advised lenders confirm two independent valuations before fixing the reserve price.