What is the SARFAESI Act?
The SARFAESI Act allows banks and financial institutions to:
Take possession of secured assets (like houses, land, vehicles)
Auction the property
Recover outstanding dues
without needing court intervention
It was introduced to control rising NPAs (Non-Performing Assets) and strengthen India’s credit system.
Why Was the SARFAESI Act Introduced?
Before SARFAESI, banks had to file cases in civil courts or DRTs (Debt Recovery Tribunals) to recover loans, which took years.
This led to:
Increase in NPAs
Delays in recovery
Misuse by wilful defaulters
SARFAESI created a faster, legal framework for recovery.
When Can Banks Use SARFAESI?
Banks can invoke SARFAESI only when:
The loan becomes NPA
Outstanding amount is ₹1 lakh or more
Secured asset exists (like a property mortgage)
The account is not classified under agricultural loans
Cooperative banks can also use SARFAESI after amendments.
Types of Assets Covered Under SARFAESI
SARFAESI covers:
Home loans
Loan Against Property (LAP)
Business loans with property security
Secured vehicle loans
Industrial, commercial, residential properties
It does not apply to:
Unsecured loans
Agriculture land
Assets where charges are not registered
1. Notice Under Section 13(2)
Bank issues a 60-day demand notice asking the borrower to repay dues.
Notice includes:
Outstanding amount
Details of security asset
Consequences if not paid
2. Borrower Representation (Within 60 days)
Borrower can:
Raise objections
Ask for clarity
Propose restructuring
Bank must reply with reasons if objections are rejected.
3. Action Under Section 13(4)
If payment is not made in 60 days, bank can:
Take possession of the property
Take over management
Appoint a manager
Recover money from third parties (if applicable)
4. Possession Notice
Bank publishes possession notice in newspapers and affixes it on the property.
5. Valuation & Reserve Price
Property is valued
Reserve price is set
Borrower can also bring a buyer to settle dues
6. Auction/Sale of Property
Bank conducts e-auction or direct sale to recover dues.
7. Sale Certificate Issued
After sale:
Buyer gets sale certificate
Bank adjusts the amount
Excess (if any) is returned to borrower
Rights of Borrowers Under SARFAESI
Many borrowers believe they have no rights under SARFAESI.
That’s not true — the law protects both sides.
Key Rights for Borrowers
Right to receive 60-day notice
Right to object under Section 13(3A)
Right to fair valuation of property
Right to be informed of auction details
Right to redeem the property before auction by clearing dues
Right to appeal to DRT under Section 17
Right to appeal DRAT if not satisfied
The borrower can stop recovery by:
Paying dues
Settling the account
Proving procedural lapses
Role of CERSAI Under SARFAESI
CERSAI (Central Registry) acts as a national database of mortgages and security interests.
Banks must:
Register mortgage details on CERSAI
Update status when loan is closed
Use it to avoid duplicate lending
This ensures transparency in the loan system.
Advantages of the SARFAESI Act
For Banks
Fast recovery
Reduced NPAs
Strong legal backing
For Borrowers
Clear timelines
Transparency in recovery
Opportunity to settle accounts
Protection from arbitrary valuation
For Economy
Healthier banking system
Controlled bad debts
Improved credit availability
Criticism of SARFAESI
The Act is powerful, but has faced criticism such as:
Banks sometimes skip due process
Valuation errors during sale
Borrowers feel pressured
Limited protections for MSMEs
Courts have repeatedly reminded banks to follow rules strictly.
Frequently Asked Questions (FAQ)
1. Can banks take property without court order?
Yes, for secured loans under SARFAESI — after the 60-day notice.
2. Can borrowers stop the auction?
Yes, by settling dues before the sale.
3. Does SARFAESI apply to credit cards?
No, because they’re unsecured loans.
4. Can agricultural land be attached?
No, SARFAESI excludes agricultural land.
5. What if the bank violates procedure?
Borrowers can immediately approach DRT.
Conclusion
The SARFAESI Act is a crucial law that balances the rights of banks and borrowers.
It ensures faster recovery for lenders while giving borrowers clear rights, timelines, and opportunities to resolve their dues.
For anyone dealing with property-backed loans, understanding SARFAESI helps avoid panic and ensures informed decision-making.