SARFAESI Enforcement — Complete FAQ

What is the complete SARFAESI enforcement process?

The SARFAESI enforcement process begins with NPA classification. Once an account is overdue for more than 90 days, the bank classifies it as an NPA. Step 1: The secured creditor issues a Section 13(2) demand notice to the borrower and guarantors requiring repayment of the entire outstanding dues within 60 days. Step 2: The borrower may file an objection within 15 days. The creditor must respond within 7 days under Section 13(3A). Step 3: If dues are not paid within 60 days, the creditor issues a notice of possession under Section 13(4) and takes symbolic or physical possession of the secured asset. Step 4: If the borrower resists physical possession, the creditor can approach the CMM/DM under Section 14 for enforcement assistance. Step 5: The creditor conducts a public e-auction under the Security Interest (Enforcement) Rules, 2002, giving 30 days notice. Step 6: Auction proceeds are applied first to auction costs, then to the outstanding dues.

Can a borrower get a stay on SARFAESI possession?

A borrower can challenge SARFAESI enforcement by filing an application under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal. The DRT has power to examine whether the bank's action was in accordance with law and can grant stay of auction proceedings pending such examination. However, the Supreme Court has consistently held in cases including United Bank of India v. Satyawati Tondon (2010) that High Courts should not entertain writ petitions challenging SARFAESI actions when the Section 17 DRT remedy is available. The borrower must approach the DRT, not the High Court, as the first forum.

What is the Section 14 procedure before CMM/DM?

When a borrower or any person acting on behalf of the borrower resists physical possession of the secured asset, the secured creditor can approach the Chief Metropolitan Magistrate (in metropolitan areas) or the District Magistrate (in other areas) under Section 14 of the SARFAESI Act. The application must be accompanied by an affidavit and relevant documents. The CMM/DM is required to pass an order within 30 days from the date of application, which may be extended to 60 days for reasons to be recorded. Upon being satisfied that the creditor is entitled to possession, the CMM/DM directs the borrower to hand over possession and may direct the local police to assist the creditor in taking possession.

What are the grounds for challenging SARFAESI action under Section 17?

Under Section 17 of the SARFAESI Act, any person (including the borrower, guarantor, or any aggrieved person) can file an application before the DRT within 45 days of taking of possession of the secured asset. The DRT can examine whether: (1) the secured creditor has followed the correct procedure under Sections 13 and 14; (2) the account was correctly classified as NPA; (3) proper notice was given; (4) the objection under Section 13(3A) was properly considered; (5) the security interest was validly created. If the DRT finds that the creditor acted improperly, it can restore possession to the borrower and direct the creditor to pay compensation.

Can SARFAESI and DRT proceedings run simultaneously?

Yes — and this is in fact the recommended dual-track approach for creditors with large NPA accounts. SARFAESI enforcement is extrajudicial — it operates outside the court system. The DRT O.A. under the RDDB Act is a parallel judicial proceeding. Running both simultaneously maximizes pressure on the borrower: SARFAESI creates immediate threat to their physical assets while the DRT proceeding creates a personal decree against them. The DRT Recovery Certificate can be executed against all assets of the borrower — not just the mortgaged security. Many borrowers settle when faced with this dual enforcement pressure.

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