Sarfaesia latest amendments and important rules

In General

Importance of financial sector in achieving overall progress of the country cannot be denied. Financial sector has been the key driver in the success of economy. With the introduction of prudential norms and accounting practices, it was felt that the banking industry in India does not have a level playing field when it comes to realization of its assets, mainly about taking possession of the securities and selling it. Immovable properties as securities are governed by Transfer of Property Act, under which, Banks are required to obtain a decree through Court and bring the mortgaged securities to sale. This resulted in slow pace of recovery and increasing trend in NPAs which was harmful to the health of the banking system. But Sarfaesia latest amendments and important rules had changed the entire law procedure as adopted earlier in a banking insdustry

Though there already existed a Debt Recovery Tribunals (DRTs) established under Recovery of Debts Due to Banks Act, 1993 (RDDB Act, 1993) to take care of bank‟s debts, need was felt to have one more legislation to strengthen the banks. Narasimhan Committee I & II and Andhyarujjana Committee also suggested enactment of a new legislation for securitization and empowering Banks and Financial Institutions to take possession of the securities and to sell them without intervention of Court. Accordingly SARFAESIA Act was passed by Parliament and received assent of the President on 17th December, 2002.Subsequently the said Act has under gone two major amendments i.e. Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (Act 30 of 2004) and Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 (Act 1 of 2013). The latest amendment in SARFAESI Act is as per THE ENFORCEMENT OF SECURITY INTEREST AND RECOVERY OF DEBTS LAWS AND MISC PROVISIONS (AMENDMENT) ACT, 2016.

SARFAESIA ACT, 2002 banking zone


Important Provisions of the Act


Sec 13(2) Issuance of 60 days Demand Notice

Sec.13 (3A)

Authorised Officer to reply, within 15 days, to any representation/objection received during 60 days period. (However, even after lapse of 60 days statutory period if the Authorised Officer receives any representation/objection the same should also be replied). The reply should be elaborate and touch all issues raised by the borrower and with due application of mind.
Sec. 13(4) right of secured creditors to take various measures including physical possession of secured property after expiry of 60 days
Section 13 (5-A) Right of secured creditor (Bank/FI) to bid for immovable property in case of postponement of sale for want of bid of an amount not less than reserve price.
Sec.13(7) Right of secured creditors to recover all such costs, expenses, charges incidental to action, incurred by them out of the sale proceeds of property
Sec 13(8) If dues of secured creditors are tendered by debtors in full any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets
Sec 13(9) Subject to the provisions of the Insolvency and Bankruptcy code, 2016 in the case of financing where more than one creditor has financed the financial asset, then the measures prescribed under Sec.13 (4) will be taken only when such secured creditors of 60% in value of the outstanding agree to initiate action under the above provision.
Sec 13(10) Where dues are fully met by sale of assets, secured creditors can file suit in DRT or any other competent court for


Sec 13(11) Without prejudice to the right against the debtor, creditor has right to proceed against the guarantor or sell the pledged assets
Sec 13(13) Debtor shall not transfer, alienate or sell the secured property mentioned in notice after issuance of notice u/s 13(2) without creditor‟s consent

Sec 14

Power of CMM or DM to take possession of such assets and handover such assets to the secured creditor. According to the recent amendment, secured creditor while approaching to CMM/DM to file an affidavit containing 9 point declaration.

On receipt of affidavit from AO, the DM/CMM shall pass suitable orders for the purpose of taking possession of the secured assets within a period of thirty days from application date, if due to reasons beyond his control order cannot be passed within 30 days then recording the reasons in writing order will be passed within next 30 days not exceeding aggregate sixty days.

Sec 14(3) No act of such CMM or DM shall be called in question in any court or before any authority

Sec 15 & 16

Regarding taking over of Management

Latest amendment – provided that if any secured creditor jointly with other secured creditors or any ARCs or financial institutions or any other assignee has converted part of its debt into shares and there by acquired controlling interest in the borrower company,such secured creditor shall not be liable to restore the management of the business to such borrower.

Sec. 17

Right to appeal – Any person including the borrower aggrieved by any of the measures taken by the secured creditor may approach DRT within 45 days of from the date of such measures. DRT if satisfied may restore the possession or order for such other relief. However, such cases to be disposed of within 60 days from the date of application. However, DRT may extend the period for reasons to be recorded in writing, not exceeding 4 months from the date of application.

As per latest amendment the application can be filed before the DRT within the local limit of whose jurisdiction-

1. The cause of action,wholly or in part arises

2. Where the secured asset is located

3. The branch or any other office of a bank or FI where account is maintained and debt claimed is outstanding.


Sect 17 (3) In the event DRT coming to the conclusion that measures under 13 (4) taken by secured creditor are not in accordance with provisions of the Act and Rules, the Tribunal may pass order in favour of borrower or other aggrieved person.
Sect 17( 4-A) Jurisdiction of Tribunal to entertain and decide tenancy or leasehold rights claimed by a person other than borrower over the secured assets.
Sect 17-A In State of J & K section 17 application shall be made to District Judge in the State having jurisdiction.
Sec 17(6) Aggrieved party (if DRT has not disposed of case within 4 months) may make an appeal to DRAT

Sec. 18

Aggrieved party against orders of DRT, may approach DRAT within 30 days of receipt of orders – subject to paying fees and also depositing 50% of the amount determined as dues by DRT (DRAT may reduce this amount to not less than 25% duly recording the reasons)
Sec.18(C) Where an application or an appeal is expected to be made or has been made under sec. 17 of the Act the secured creditor or any person claiming a right to appear before the Tribunal or the Court of Dist. Judge or the Appellate Tribunal or High Court may lodge a caveat in respect thereof. [Inserted by the Enforcement of Security Interest and Recovery of Debts Laws (Amndt.) Act, 2004 w.e.f 03.01.2013.]

Sec 19

when possession by secured creditor is reversed by a court/DRT for any reason, borrower is entitled for compensation
Sec 20 – 30 Establishment of central registry & related provisions. (YET TO BE NOTIFIED)

Sec 31

Exclusions – non applicability of the Act in case of

Lien on any goods, pledge of moveables, aircraft, vessel, rights of unpaid seller, properties not liable for attachment as per Sec.60 of Civil Procedure code(tools of artisans, residential house of agriculturists, pension etc.), agricultural land, where dues are less than 1.00 lac and 20% of the principal and interest.

Sec 32 Protection of action taken in good faith.

No suit or prosecution or other legal proceedings shall lie against the Reserve bank or the Central Registry or any secured creditor or any of his officers or managers for anything done or omitted to be done in good faith under this Act.


Civil Court not to have jurisdiction
Sec.35 This act overrides other laws in force

Sec 36

Limitation – documents to be within the limitation period(as per Limitation Act 1963) to take action under this Act
Sec 37 – 42 Other miscellaneous provisions



a. Lien on goods, money or security under S.172 of Indian Contract Act 1872.
b. Pledge of moveable under S.172 of Indian Contract Act 1872.
c. Aircraft (as per sec 2 of Aircraft Act, 1934.)
d. Shipping vessel(as per sec 3 of merchant shipping Act,1958)
e. Rights of unpaid seller under section 47 of sale of goods Act,1930
f. Goods/properties are exempted under Section.60 of C.P.C. such as wearing apparels, vessels, tools of artisan, books of a/c, part of salary etc.
g. Agricultural land [ As per various judicial pronouncements and interpretation of law though the land may be shown as Agricultural land in the revenue records, however, seeking exemption under SARFAESI Act, 2002 it is the actual agricultural use of the land which is to be established. Hence, when it is found that the land is used for other commercial activities action can be taken under the Act. Branches/Authorized Officers to take action on case to case basis after taking legal opinion from the empanelled advocate and consulting Law Officer attached to each R.O.)
h. Amount due is only 20% or less of the principal & interest thereon
i. Outstanding in the account is Rs.1.00 lac or less

Procedure for taking sale of secured assets adopted under the Act

  • Demand notice is issued to borrower after his account becomes NPA in which it is asked to pay off the entire outstanding dues
  • Service of notice should be through registered post or by hand delivery. In both the cases acknowledgement of borrower is must. In case notice sent through registered post is return, fix it in the mortgage property and take photographs. Then after publish it in two newspaper out of which one should be in vernacular language
  • After 60 days possession is taken if borrower/guarantor fails to pay the amount
  • Assistance of District Magistrates is taken if Authorised Officer finds difficulty in taking possession. Authorised person(not below the rank of Chief Manager) is a person authorised to take possession and to sell the property.
  • Authorised Officer must within 15 days, to any representation/objection received during 60 days period
  • Property is sold after taking possession. Various methods are followed to sold the property like inviting public tender, through public auction, obtaining quotation from the interested party and by private treaty
  • Total dues are recovered after sale and the balance amount is return to borrower

Time to be provided to defaulter in entire process

  • 60 days time period is provided to borrower through demand notice
  • If not paid, Possession is taken and possession notice is published in two newspaper out of which one should be vernacular
  • 30 days’ sale notice is issued
  • In the entire process roughly 100 days and above time is provided to defaulter


That’s all for Sarfaesia latest amendments and important rules. Hope you have understood better. Thanks for visiting us !




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