CHECKLIST FOR ACTION UNDER SARFAESI ACT

Authorized Officer who is given the statutory power has to exercise higher degree of
caution and care in following the prescription law while taking action under the Act.
Taking action in any other manner than the prescription is not permissible in law. This
cardinal principle is covered by Latin Maxim “expressio unius est exclusio alterius”.
This is followed by Supreme Court and High Courts as can be seen from catena of
judgments. The Authorised Officer may follow the check list for initiating the action. That
any error or omission on the part of the authorized officer, makes the action of the bank
liable to be striked down by DRT under Section 17 of the The Securitisation and
Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.

Sl.N. STAGE WISE ACTION SUGGESTION/ADVISE

Sec.13(2): Where any borrower, who is under a

liability to a secured creditor under a security
agreement, makes any default in repayment of
Sarfaesi Act poroceeds on the basis secured debt or any instalment thereof, and his
that borrower created security account in respect of such debt is classified by
interest in favour of bank and his the secured creditor as non-performing asset,
1
liability stood crystalised on account then, the secured creditor may require the
of his default and his account is borrower by notice in writing to discharge in full
classified as NPA 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 subsection(4)

The opinion Supreme Courtin Mardia Chemicals

Ltd. &Anr. Vs. Union of India &Ors.:AIR 2004 (4)
Initiation of action begins on service SCC 311)that the demand notice is show cause
1
of demand notice is clarified by Supreme Court in (Transcore Vs.
Union of India &Anr. AIR 2007 SC 712) as
initiation of action

2 How to calculate the quantum of Please ensure that, the balance outstanding in
claim amount in the demand notice the bank’s book and the un-debited portion of
interest accrued but not reflected in the bank’s
book (on account of status of the loan account
as NPA) are added and incorporated in the
demand notice. The Authorised Officer (for
short “A.O.”) need not approach any Court or
Tribunal for determination of the quantum of
amount of claim.
 i). Please ensure that the demand notice covers
all the details of the facilities granted to the
borrower(s), dues and securities and measures
to be taken in the event of default as stated in
3 Demand notice and its contents: the guide and all the borrowers are addressed
correctly as per the records.

ii). The Act or the Rules have not prescribed

any format of demand notice.

Whether action under RDDB & Fi Act

Action under RDDB & FI Act 1993 or a suit/claim
1993 or a suit/ claim already filed in
already filed in civil court/DRT/transferred from
4 civil court/drt/transferred from civil
civil court, does not save limitation for taking
court, saves limitation for initiating
action under SARFAESI Act.
action under SARFAESI Act

Whether action initiated under

SARFAESI Act 2002 saves limitation
9 No.
for filing claim for recovery of the
unrealised portion of debt.

There is no bar. Any number of notices can be

issued provided the security interest sought to
How many demand notices a secured
10 be enforced is not barred by limitation.
creditor can issue

No application. Action under the Act can be

11 Res Judicata taken any number of times if the secured debt
or security interest is not barred by limitation.

12 Service of demand notice: Please 3(1) The service of demand notice shall be made
note changes in the addresses of the by delivering or transmitting at the place where
borrowers if any before addressing the borrower or his agent, empowered to
the demand notice. Change of accept the notice or documents on behalf of the
address of borrower(s) must be borrower, actually and voluntarily resides or
obtained in writing. Oral information carries on business or personally works for gain,
is not reliable as it is construed as not by registered post with acknowledgement due,
born out of record. Servedemand addressed to the borrower (or his agent
notice as contemplated in Rule 3 of empowered to accept the service) or by Speed
Security Interest (enforcement) Rules Post or by courier or by any other means of
2002. transmission of documents like fax message or
electronic mail service.
 Proviso to Rule 3(1):Where authorised officer
has reason to believe that the borrower or his
agent is avoiding the service of the notice or
that for any other reason, the service cannot be
made as aforesaid, the service shall be effected
by affixing a copy of the demand notice on the
outer door or some other conspicuous part of
the house or building in which the borrower or
his agent ordinarily resides or carries on
ii). Procedure where borrower avoids business or personally works for gain and also
service of demand notice or for any by publishing the contents of the demand notice
reason notice could not be served. in two leading newspapers, one in vernacular
language, having sufficient circulation in that
locality.

Evidence of this exercise is to be reduced to

writing (record panchanama).

Preserve full page of the relevant

Newspapers as the same are required in
evidence.

If borrower’s marital relationship is not judicially

iii) Service of notice to wife of
separated or dissolved by order of competent
borrower is sufficient service
court

Rule 3(2): Where the borrower is a body

corporate, the demand notice shall be served on
iv). If borrower is abody corporate the registered office or any of the branches of
such body corporate as specified under sub-rule
(1).

Rule 3(3): Any other notice [i.e. Possession

notice under 13(4) of SARFAESI Act or Rule 8(6)
v). The manner of service of any of S.I.(E) Rules] in writing to be served on the
notice Rule 3(3) of S.I.(E) Rules borrower or his agent by authorised officer,
shall be served in the same manner as
provided in Rule 3.

See Sec.2 (2) of SARFAESI Act. According to Section 2(1)(f) of SARFAESI Act
“borrower” means any person who has been
granted financial assistance by any bank or
financial institution or who has given any
guarantee or created any mortgage or pledge as
 security for the financial assistance granted by

any bank or financial institution and includes

a person who becomes borrower of a
securitisation company or reconstruction
company consequent upon acquisition by it
of any rights or interest of any bank or
financial institution in relation to such
financial assistance

According to Sec.2(2) of the Act the Words

and expressions used and not defined in this
Act but defined in the Indian Contract Act,
1872 (9 of 1872) or the Transfer of Property
Act, 1882 (4 of 1882) or the Companies Act,
1956 (1 of 1956) or the Securities and
Exchange Board of India Act, 1992 (15 of
1992) shall have the same meanings
respectively assigned to them in those Acts.

It is advisable to inspect the secured asset(s)

3 Inspection of secured assets
and find out its/their status / situation.

The date of service of the demand notice or

publication of the demand notice after affixing it
(as stated in the proviso to Rule 3(1) of S.I.(E)
Rules) and the 60th day to be expired are to be
4 Computation of 60 days excluded for computing the 60 days.

5 Representation/Objection: against After service of the notice if the borrower makes

the demand notice Sec13 (3A). any representation or objection against the
demand notice the A.O. should immediately
send it to the secured creditor who in turn
should send a reply or advise the A.O. to
Communication of reply is communicate reply to the borrower within
mandatory in both the events.
“fifteen days” (recent amendment substituted
for one week) of receipt of such representation
or objection by registered post with AD or
Courier. Evidence of communication is to be
preserved for evidence.
 Representation: seeking for extension of
time for payment or OTS.

Objection: Challenging the validity of the

demand notice on various grounds.

Taking symbolic possession of movable secured

PROCEDURE FOR TAKING assets is not permissible in law. Procedure for
6 POSSESSION OF MOVABLE SECURED taking possession of movable secured assets is
ASSETS different from the procedure relating to the
immovable secured assets.

i). In case the secured assets are movable, the

A.O. has to take possession of them in the
presence of two witnesses and draw a
panchanama, as nearly as possible as given in
Appendix-I [ See Rule 4(2) of S.I.(E) Rules]

(Evidence to be preserved).

ii). After taking possession of the movable

secured assets, the A.O. has to record ‘Inventory
Report’ as per Appendix–II [See Rule 4(1) of S.I.
(E) Rules] and deliver it or caused to be
INVENTORY REPORT delivered it to the borrower any person entitled
to receive on behalf of borrower. In the
inventory report the A.O. has to mention the
name of the person appointed by him in whose
custody the secured assets are preserved.

To take care to preserve movable secured assets

which owner of ordinary prudence would take.
In case of factories or stores the secured
PRESERVATION
creditor has to entrust the same for custody of
an authorised person or approved re-possessors
/ security persons.

A.O. has to take insurance cover if necessary

until sale is completed. Comprehensive policy
with a clause to pay the sum assured to the
INSURANCE COVER
company which would discharge the insurance
company against adverse claim of borrower if
any.

7 CIRCUMSTANCES FOR IMMEDIATE There are two circumstances for immediate sale
 of movable secured assets.

1. If movable secured assets are subject to

speedy or natural decay

2. or the expense of keeping such property

in custody is likely to exceed its value, the
authorised officer may sell them at once.

SALE
(Issue sale notice but need not wait for
expiry of 30 days of the sale notice).

AO has to record reasons if necessary by

drawing a panchanama in this regard.

Plant and machinery should be treated as part

of the immovable secured asset if they are
fastened to the earth with cement and concrete
8
PLANT AND MACHINERY ATTACHED as on the date of taking possession. In the
TO EARTH possession notice (Appendix-IV) the same must
be mentioned specifically giving brief
description of the particulars of the machinery
vide separate annexure attached to it.

If Plant and machinery are detachable from

earth as on the date of taking possession then
A.O. has to record ‘Inventory Report’ as per
Appendix–II [See Rule 4(1) of S.I.(E) Rules] and
PLANT AND MACHINERY IF deliver it or caused to be delivered it to the
DETACHED FROM EARTH borrower any person entitled to receive on
behalf of borrower. In the inventory report the
A.O. has to mention the name of the person
appointed by him in whose custody the secured
assets are preserved.

VALUATION OF MOVABLE SECURED After taking possession under sub-rule (1) of

ASSETS rule 4 and in any case before sale, the
authorised officer shall obtain the estimated
value of the movable secured assets and
thereafter, if considered necessary, fix in
 consultation with the secured creditor, the
reserve price of the assets to he sold in
realisation of the dues of the secured creditor.

1. Application making a request to render

assistance.
REQUIREMENTS TO MOVE
8 2. List with copies of documents.
CMM/DMFOR ASSISTANCE

3. Affidavit disclosing all the particulars.

Take possession of immovable secured asses

(whether symbolic or physical), serve possession
notice (Appendix-IV) under Sec.13(4) read with
Rule 8(1) and(2), obtain acknowledgment of
PROCEDURE IN CASE OF IMMOVABLE
9 service, affix it to secured asset and publish it in
SECURED ASSETS
two leading newspapers(one in vernacular)
having sufficient circulation in the locality.

If borrower refuses to acknowledge service of

the possession notice, then the AO may send it
by registered post /courier and preserve
evidence and the same may be recorded at the
foot of the possession notice and obtain
signature of two witnesses.

VALUATION OF IMMOVABLE
SECURED ASSETS BY APPROVED
VALUER

Rule 8(5) of S.I.(E) Rules contemplates valuation

10 of immovable secured assets by approved
valuer before effecting sale.

11 APPROVED VALUER: 1.Registered under Sec.34AB

of Wealth Tax Act 1957

2.Approved by the Board of the

 company.

Valuation minus 15% or 20%

See Swastic Agency Vs. State Bank of India

12 RESERVE PRICE

The Authorised Officer shall serve to the

borrower a notice of thirty days for sale of the
13 SALE NOTICE-PERSONAL Rule 8(6) immovable secured assets, under sub-rule (5)

Sale notice must be served in the same manner

as the demand notice and possession notice are
served in the same manner as contemplated in
14 SERVICE OF SALE NOTICE the sub rule(1) of Rule 3 of S.I.(E) Rules 2002.
See Rule 3(3) demanding the borrowers to pay
the debt as demanded in the demand notice
and possession notice together with interest

15 PUBLICATION OF SALE NOTICE If the sale of such secured asset is being effected
by either inviting tenders from the public or by
holding public auction, the secured creditor
shall cause a public notice in two leading
newspapers one in vernacular language having
sufficient circulation in the locality by setting out
the terms of sale, which shall include, –

(a) the description of the immovable

property to be sold, including the details of
the encumbrances known to the secured
creditor

(a) the description of the immovable

property to be sold, including the details of
the encumbrances known to the secured
creditor;

(b) the secured debt for recovery of which

the property is to be sold;

(c) reserve price, below which the property

may not be sold;
 (d) time and place of public auction or the
time after which sale by any other mode
shall be completed;

(e) depositing earnest money as may be

stipulated by the secured creditor;

(f) any other thing which the authorised

officer considers it material for a purchaser
to know in order to judge the nature and
value

of the property.

Every notice of sale shall be affixed on a

conspicuous part of the immovable property
and may, if the authorised officer deems it fit,
16 AFFIXTURE OF SALE NOTICE put on the website of the secured creditor on
the Internet.

Sale by any methods other than public auction

17 SALE BY OTHER METHODS or public tender, shall be on such terms as may
be settled between the parties in writing.

No sale of immovable property under these

rules shall take place before the expiry of thirty
days from the date on which the public notice of
SALE CANNOT BE EFFECTED BEFORE sale is published in newspapers as referred to in
18
EXPIRY OF THIRTY DAYS the proviso to sub-rule (6) or notice of sale has
been served to the borrower.

A bidder who has offered highest prize shall be

IDENTIFICATION OF SUCCESSFUL
19 identified as successful bidder and he has to
BIDDER
deposit 25% of the bid amount immediately

The sale shall be confirmed in favour of the

purchaser who has offered the highest sale price
CONFIRMATION OF SALE BY SECURED
20 in his bid or tender or quotation or offer to the
CREDITOR
authorised officer and shall be subject to
confirmation by the secured creditor

21 SALE BELOW RESERVE PRIZE No sale shall be confirmed, if the amount

 offered is less than the reserve price

The balance amount of purchase price payable

shall be paid by the purchaser to the authorised
PAYMENT BY BIDDER IN WHOSE officer on or before the fifteenth day of
22
FAVOUR THE BID IS CONFIRMED confirmation of sale of the immovable property
or such extended period as may be agreed upon
in writing between the parties.

Bidder cannot appoint nominee for obtaining

23 BIDDER’S NOMINEE
sale certificate

In default of payment within the period

mentioned in sub-rule (4), the deposit shall be
FORFEITURE AND RESALE OF forfeited and the property shall be resold and
24
SECURED ASSET the defaulting purchaser shall forfeit all claim to
the property or to any part of the sum for which
it may be subsequently sold.

If the authorised officer fails to obtain a price

higher than the reserve price, he may, with the
consent of the borrower and the secured
25 CONSENT OF BORROWER
creditor effect the sale at such price.

PARTIPATION OF THE BORROWER IN Borrower can participate as tenderer / bidder to

26 THE PROCESS OF SALE AS purchase the secured asset in the process of
TENDERER/BIDDER sale

PARTIPATION OF THE BORROWER IN

Borrower cannot participate as spectator or
THE PROCESS OF SALE AS SPECTATOR
witness in the process of sale
OR WITNESS

27 SALE CRTIFICATE On confirmation of sale by the secured creditor

and if the terms of payment have been
complied with, the authorised officer exercising
the power of sale shall issue a certificate of sale
of the immovable property in favour of the
purchaser in the Form given in Appendix V to
these rules.

(Note: The sale is caused under the Act in

“as it is what it is and where it is basis.
Hence the S.I.(E) Rules devised the sale
certificate. Sale Certificate does not contain
any indemnity clause as in case of sale deed
and the rule “sans recourse” is not applicable
 to the sale i.e. the secured creditor is not
answerable for any defects in the title to the
secured asset sold). The sale certificate shall
be the prima facie evidence of title of the
purchaser

The purchaser has to deposit the encumbrances

if any in respect of the secured asset sold.
Where the immovable property sold is subject
to any encumbrances, the authorised officer
may, if he thinks fit, allow the purchaser to
28 ENCUMBERANCES deposit with him the money required to
discharge the encumbrances and any interest
due thereon together with such additional
amount that may be sufficient to meet the
contingencies or further cost, expenses and
interest as may be determined by him.

On such deposit of money for discharge of the

NOTICE TO PERSONS INTERESTED IN encumbrances, the authorised officer shall issue
29 THE AMOUNT OF (CROWN DEBTS) notices to the persons interested in or entitled
ENCUMBRANCES to the money deposited with him and take steps
to make, the payment accordingly

The following are not crown debts:

1.Electricity dues

2.Custom & Excise Duty

30 NON PRIORITY DUES
3.Income Tax dues prior to creation of
mortgage

Provided that if after meeting the cost of

removing encumbrances and contingencies
PAMENT OF SURPLUS TO THE there is any surplus available out of money
31
PURCHASER deposited by the purchaser such surplus shall be
paid to the purchaser within fifteen day, from
date of finalisation of the sale.

What went wrong with Yes Bank?SARFAESI ACT, 2002- Applicability, Objectives, Process,
Documentation