SARFAESI Act: Bank Seizes Property Without Court Order!

The SARFAESI Act is an important law in India, passed in 2002, officially called the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This law gives banks and fiscal institutions the power to recover bad loans (Non-Performing Assets or NPAs) without going to court.
In simple words, it allows lenders to take and reclaim the collateral from borrowers — portable or immovable property — without filing a recovery case. While this puts up the recovery process, it also creates fear among borrowers who realise they could lose their property at any time. Knowing the compass, procedure, and borrower protections under SARFAESI is inversely important for both lenders and borrowers.

Who Is Covered Under the SARFAESI Act?
The SARFAESI Act applies only to secured loans, those backed by assets such as land, buildings, vehicles, machinery, or funds. It doesn’t apply to unsecured loans or loans secured on farm land.

Important facts:
● Banks can invoke this Act only when dues are higher than ₹1 lakh and exceed 20% of the total loan amount sanctioned.
● It authorises scheduled banks, financial institutions, and asset reconstruction companies to seize secured assets and sell them to recover dues.
● After a Supreme Court ruling in 2021, cooperative banks also came under its control.
● Small loans or loans to economically weaker sections are exempt, with special protections provided by the government.

Issuance of Notice Under Section 13(2)
If a borrower defaults for more than 90 days, then the loan account is marked as an NPA. At this stage, the bank can issue a legal notice under Section 13(2) of the Act.
● The borrower is given a time bracket of 60 days to clear the dues.
● Within this time frame, they can either pay up the dues which are due or file a written objection against the notice, under Section 13(3A) of the Act.
● In case the borrower does not take action within this time or in case the bank is not convinced about the objections, it can also practice taking physical possession of the property according to Section 13(4).
● The case is crucial to the borrower because failure to respond may cause the person to lose his/her property.

Borrower’s Right to Respond Within 60 Days
Borrowers have the right to respond within the 60-day window under Section 13(3A):
● They may repay the dues or file written objections against the notice.
● The bank must reply within 15 days, stating whether the objections are accepted or rejected.
● If the borrower fails to act or if objections are rejected, the bank can take physical possession of the property under Section 13(4).

This stage is extremely critical because ignoring the notice can result in the borrower permanently losing their property.

Legal Remedies Through DRT and High Court
Even after the bank seizes property, borrowers still have remedies:
● The right has to go to the Debt Recovery Tribunal (DRT) under Section 17 of the Act within 45 days of the possession notice.
● The DRT may decide whether the actions of the bank are legal and may quash or dismiss the possession in case the due process has not been observed.
● In certain circumstances, especially those involving constitutional or fundamental rights, borrowers can also invoke Article 226 of the Constitution and approach the High Court.

Courts, however, usually advise borrowers to first exhaust remedies before the DRT.

Misuse of SARFAESI and Grounds for Challenge
While SARFAESI strengthens lenders, misuse has been common:
● Some banks issue Section 13(2) notices without properly classifying accounts as NPAs.
● Others bypass the objection process or use unlawful pressure to evict borrowers.
● Borrowers facing such actions can challenge them based on:
○ Procedural violations
○ Wrong property valuation
○ Lack of proper notice
○ Harassment

Courts have constantly ruled that banks can not misuse SARFAESI against the principle of natural justice. Borrowers must always have the right to be heard.

Conclusion
The SARFAESI Act plays a vital part in India’s banking and fiscal sector by ensuring the speedy recovery of secured loans. Still, its power must be exercised with direction, and borrowers must remain aware of their rights.

Key takeaways for borrowers:
● Understand the 60-day notice period and always respond.
● Approach the DRT if your property is wrongfully seized.
● Seek legal advice early to avoid losing your property unfairly.