What is the SARFAESI Act and who can use it?

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 permits secured creditors, including banks and notified non-banking financial companies, to enforce security interests without the intervention of a court or tribunal, subject to the conditions and procedure in the Act. It applies to secured debts classified as non-performing, subject to the exclusions set out in the statute.

What is a notice under Section 13(2) of the SARFAESI Act?

Section 13(2) requires a secured creditor to issue a written notice to the borrower calling upon the borrower to discharge the liabilities in full within sixty days, before taking measures to enforce the security. The notice is required to specify the amount claimed and the secured assets intended to be enforced. It is the first formal step in the enforcement process.

How can a borrower challenge SARFAESI enforcement?

Section 17 of the SARFAESI Act provides for an application to the Debts Recovery Tribunal by any person aggrieved by measures taken under Section 13(4), within the period prescribed. An appeal from the Tribunal lies to the Debts Recovery Appellate Tribunal under Section 18, subject to the pre-deposit condition in that section. Writ jurisdiction is ordinarily invoked only in limited circumstances given the availability of the statutory remedy.

What is the difference between DRT proceedings and SARFAESI enforcement?

Proceedings before a Debts Recovery Tribunal under the Recovery of Debts and Bankruptcy Act, 1993 are adjudicatory: the lender applies to the Tribunal, which determines the debt and issues a recovery certificate. SARFAESI enforcement is a self-help remedy in which the secured creditor acts first and the borrower approaches the Tribunal to challenge that action. The two may proceed in relation to the same account.

What happens to a secured creditor's rights when a borrower enters insolvency?

On admission of an application under the Insolvency and Bankruptcy Code, 2016, a moratorium takes effect which restricts the enforcement of security interests against the corporate debtor, including action under the SARFAESI Act. The secured creditor's remedy is then to submit a claim in the resolution process and participate in accordance with the Code. The position of a secured creditor in liquidation is governed by the distribution provisions of the Code.

Why is title verification carried out before a loan is sanctioned?

A title search establishes the chain of ownership of the property offered as security and identifies encumbrances, prior charges or defects that would affect the lender's ability to realise the security. Where title is defective or the security is imperfectly created, enforcement at a later stage may be resisted successfully. Verification is therefore preventive rather than procedural.

Can a guarantor be proceeded against separately from the borrower?

The liability of a guarantor under a contract of guarantee is generally co-extensive with that of the principal debtor unless the contract provides otherwise, and proceedings may be maintained against a guarantor. The position where the principal debtor is undergoing insolvency proceedings is governed by the relevant provisions of the Insolvency and Bankruptcy Code, 2016 and depends on the terms of the guarantee.

Banking, Finance & Debt Recovery

Banking and debt recovery practice concerns the enforcement of security interests and the recovery of dues by banks, non-banking financial companies and asset reconstruction companies, and the defence of borrowers and guarantors in those proceedings. Sagar & Sagar Law Offices advises and appears in matters under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), the Recovery of Debts and Bankruptcy Act, 1993, and related civil and criminal remedies, before Debts Recovery Tribunals, the Debts Recovery Appellate Tribunal, civil courts and the High Courts. The practice also covers pre-lending work, including security documentation, title verification and legal opinions.

Recovery of a secured debt in India is rarely confined to a single proceeding. A lender enforcing security under SARFAESI may simultaneously pursue an application before a Debts Recovery Tribunal, initiate proceedings under Section 138 of the Negotiable Instruments Act, 1881 on dishonoured instruments, and face a parallel insolvency petition affecting the same borrower. A borrower resisting enforcement may proceed under Section 17 of the SARFAESI Act, invoke the writ jurisdiction of a High Court, or raise the dispute in a civil suit. Each of these carries distinct limitation periods, forum requirements and consequences for the security itself.

The practice at Sagar & Sagar Law Offices covers this field on both sides of the ledger. Work extends from the pre-lending stage, where title and security documentation determine whether an account can be enforced at all, through classification and notice, enforcement and tribunal proceedings, to appeal and execution. Where an account moves into insolvency, the practice coordinates with the firm's Insolvency & Bankruptcy work so that the lender's position as a secured creditor is preserved.

Scope of work

SARFAESI enforcement

Enforcement of security interests by secured creditors under the SARFAESI Act, 2002, and the defence of borrowers in those proceedings.

Advice on classification of an account and eligibility for enforcement under the Act
Drafting and issue of demand notices under Section 13(2)
Response to borrower representations and objections under Section 13(3A)
Measures under Section 13(4), including possession and sale of secured assets
Applications before the District Magistrate or Chief Metropolitan Magistrate under Section 14 for assistance in taking possession
Conduct of and advice on auction, sale notices and confirmation of sale
Securitisation applications by borrowers and guarantors under Section 17 before the Debts Recovery Tribunal
Appeals under Section 18 before the Debts Recovery Appellate Tribunal
Writ proceedings before the High Courts arising from SARFAESI action, including on maintainability where a statutory remedy exists
Advice on interplay between SARFAESI enforcement and the moratorium under the Insolvency and Bankruptcy Code, 2016

Debts Recovery Tribunal proceedings

Recovery of debts due to banks and financial institutions under the Recovery of Debts and Bankruptcy Act, 1993.

Original applications for recovery of dues before the Debts Recovery Tribunal
Defence of original applications on behalf of borrowers, guarantors and mortgagors
Applications for interim relief, including attachment and injunction
Counterclaims and set-off
Proceedings on issue and execution of recovery certificates
Appeals before the Debts Recovery Appellate Tribunal, including on pre-deposit
Proceedings concerning guarantors and third-party security providers

Civil and criminal recovery remedies

Remedies pursued outside the tribunal framework, frequently in parallel.

Suits for recovery of money, including summary suits under Order 37 of the Code of Civil Procedure, 1908
Proceedings under Section 138 of the Negotiable Instruments Act, 1881 on dishonour of cheques
Applications under Section 9 of the Arbitration and Conciliation Act, 1996 for interim protection, where the facility documents contain an arbitration clause
Arbitration proceedings arising from loan and facility agreements
Execution proceedings and enforcement of decrees, awards and recovery certificates
Criminal complaints in cases involving alleged fraud, forgery or diversion of funds
Proceedings concerning wilful defaulter classification under the applicable Reserve Bank of India framework

Security documentation, title and pre-lending advisory

Work undertaken before disbursement, which determines enforceability later.

Title search and title verification in respect of properties offered as security
Search at the office of the Sub-Registrar and examination of the chain of title
Legal opinions on the marketability of title and creation of security
Drafting and vetting of loan agreements, facility documents, hypothecation and mortgage deeds
Advice on creation and perfection of security, including equitable and registered mortgage
Advice on guarantees, indemnities and third-party security
Legal due diligence in respect of borrower entities
Advice on registration of charges under the Companies Act, 2013

Distressed assets and asset reconstruction

Work relating to non-performing accounts and their transfer.

Advice on assignment of debts to asset reconstruction companies
Legal due diligence on portfolios of non-performing accounts
Advice and representation for asset reconstruction companies in enforcement and recovery
Restructuring and settlement documentation, including one-time settlements
Advice on the position of secured creditors where a borrower enters insolvency
Advisory on distressed asset acquisition

Regulatory advisory for lenders

Advisory work arising from the regulatory framework applicable to lending.

Advice on Reserve Bank of India directions applicable to lending and recovery
Advice on income recognition, asset classification and provisioning norms as they affect enforcement
Advice on fair practices and recovery conduct requirements
Advice on documentation and compliance requirements for non-banking financial companies
Advisory on digital lending arrangements and associated documentation

Forums and authorities

Debts Recovery Tribunals
Debts Recovery Appellate Tribunal
District Magistrates and Chief Metropolitan Magistrates, in proceedings under Section 14 of the SARFAESI Act, 2002
Civil Courts and Commercial Courts
Courts of Magistrates, in proceedings under the Negotiable Instruments Act, 1881
National Company Law Tribunal and National Company Law Appellate Tribunal, where recovery intersects with insolvency
High Courts, in writ and appellate jurisdiction
Supreme Court of India
Reserve Bank of India, in regulatory and advisory matters
Arbitral tribunals constituted under facility documentation

Who we act for

Banks, including public sector and private sector banks
Non-banking financial companies
Housing finance companies
Asset reconstruction companies
Financial institutions and lenders in structured transactions
Borrower companies, promoters and guarantors
Purchasers of secured assets in enforcement sales
Investors in distressed assets

How we approach this work

Enforceability assessed from the documentation upward.

Whether an account can be enforced is usually settled long before default, in the title and security documents. Pre-lending work is treated as part of the recovery practice, not separate from it.

Parallel proceedings mapped at the outset.

SARFAESI action, tribunal proceedings, cheque dishonour complaints and insolvency petitions frequently run together. The sequence and interaction of these are considered before the first notice issues.

Attention to procedural compliance in enforcement.

Notice, service, valuation and sale under the SARFAESI Act are the points at which enforcement is most often challenged. Each step is conducted with that challenge anticipated.

Continuity into insolvency.

Where an account moves to the National Company Law Tribunal, the secured creditor's position, security interest and claim are carried forward without a break in conduct.

Frequently asked questions

What is the SARFAESI Act and who can use it?: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 permits secured creditors, including banks and notified non-banking financial companies, to enforce security interests without the intervention of a court or tribunal, subject to the conditions and procedure in the Act. It applies to secured debts classified as non-performing, subject to the exclusions set out in the statute.
What is a notice under Section 13(2) of the SARFAESI Act?: Section 13(2) requires a secured creditor to issue a written notice to the borrower calling upon the borrower to discharge the liabilities in full within sixty days, before taking measures to enforce the security. The notice is required to specify the amount claimed and the secured assets intended to be enforced. It is the first formal step in the enforcement process.
How can a borrower challenge SARFAESI enforcement?: Section 17 of the SARFAESI Act provides for an application to the Debts Recovery Tribunal by any person aggrieved by measures taken under Section 13(4), within the period prescribed. An appeal from the Tribunal lies to the Debts Recovery Appellate Tribunal under Section 18, subject to the pre-deposit condition in that section. Writ jurisdiction is ordinarily invoked only in limited circumstances given the availability of the statutory remedy.
What is the difference between DRT proceedings and SARFAESI enforcement?: Proceedings before a Debts Recovery Tribunal under the Recovery of Debts and Bankruptcy Act, 1993 are adjudicatory: the lender applies to the Tribunal, which determines the debt and issues a recovery certificate. SARFAESI enforcement is a self-help remedy in which the secured creditor acts first and the borrower approaches the Tribunal to challenge that action. The two may proceed in relation to the same account.
What happens to a secured creditor's rights when a borrower enters insolvency?: On admission of an application under the Insolvency and Bankruptcy Code, 2016, a moratorium takes effect which restricts the enforcement of security interests against the corporate debtor, including action under the SARFAESI Act. The secured creditor's remedy is then to submit a claim in the resolution process and participate in accordance with the Code. The position of a secured creditor in liquidation is governed by the distribution provisions of the Code.
Why is title verification carried out before a loan is sanctioned?: A title search establishes the chain of ownership of the property offered as security and identifies encumbrances, prior charges or defects that would affect the lender's ability to realise the security. Where title is defective or the security is imperfectly created, enforcement at a later stage may be resisted successfully. Verification is therefore preventive rather than procedural.
Can a guarantor be proceeded against separately from the borrower?: The liability of a guarantor under a contract of guarantee is generally co-extensive with that of the principal debtor unless the contract provides otherwise, and proceedings may be maintained against a guarantor. The position where the principal debtor is undergoing insolvency proceedings is governed by the relevant provisions of the Insolvency and Bankruptcy Code, 2016 and depends on the terms of the guarantee.

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Overview