SARFAESI Act: Bank NPA Recovery, Security Enforcement and DRT Process

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act) enables banks and financial institutions to recover Non-Performing Assets (NPAs) by enforcing security interests without court intervention. It is the primary tool for secured lenders before resorting to IBC proceedings.

Applicability

• Secured creditors: Scheduled commercial banks, nationalised banks, HFCs, ARCs, NBFCs (with RBI approval)
• NPA classification: Loan classified as NPA (90 days overdue) or doubtful
• Minimum amount: Rs. 1 lakh outstanding
• Security interest: Mortgaged property, hypothecated assets

SARFAESI Recovery Process

1. Section 13(2) Notice: Bank issues notice demanding payment within 60 days. Notice must specify total outstanding, classification as NPA, and intent to enforce security
2. Borrower's objection: Borrower has 15 days to respond; bank must reply within 15 days of representation
3. Section 13(4) action (after 60 days):
   • Take possession of secured asset
   • Take over management of business
   • Appoint manager for the secured asset
   • Require debtors to pay amounts to bank directly
4. Notice of sale (30 days): Public auction notice in 2 newspapers
5. Auction: Property sold at or above reserve price; proceeds applied to outstanding

DRT — Debt Recovery Tribunal

Borrowers can challenge SARFAESI proceedings before DRT (under RDDBFI Act) within 45 days of possession/sale notice by depositing 25% of outstanding debt. DRT can stay SARFAESI proceedings on prima facie case.

SARFAESI vs IBC