The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, enacted in 2002, empowers banks and financial institutions to recover non-performing assets (NPAs) efficiently. One of the key features of the SARFAESI Act is the ability to seize and auction secured assets without court intervention. Here’s a detailed, step-by-step guide on the asset seizure process under the SARFAESI Act.
Step 1: Issuance of Demand Notice
When a borrower defaults on loan repayments, the lender (usually a bank or financial institution) issues a demand notice under Section 13(2) of the SARFAESI Act. This notice informs the borrower of the default and provides them with a period of 60 days to clear the dues. If the borrower fails to respond or settle the amount within this timeframe, the lender proceeds to the next step.
Step 2: Objection Handling
During the 60-day notice period, the borrower can raise objections or challenge the demand notice, stating reasons why the bank should not proceed with the seizure. If the borrower files an objection, the lender must respond within seven days, either accepting or rejecting the claims. The bank’s decision, however, is final, and if rejected, the asset seizure can proceed.
Step 3: Possession of the Asset
After the 60-day period expires and no settlement is reached, the lender can take possession of the secured asset under Section 13(4) of the Act. This step can involve symbolic possession (documentary control) or physical possession (taking over the property or collateral). To avoid legal challenges, the bank must follow all formalities, including publishing the possession notice in local newspapers.
Step 4: Valuation and Auction Notice
Once the asset is seized, the lender must conduct a proper valuation of the asset by an authorized valuer. This ensures that the asset’s fair market value is determined for sale. Following this, an auction notice is published, specifying the auction date, time, base price, and other details. The borrower may still clear the dues at this stage and reclaim the asset before the auction.
Step 5: Auction and Sale
If the borrower fails to clear the outstanding dues, the bank proceeds with the auction as per the SARFAESI guidelines. The asset is sold to the highest bidder, and the sale proceeds are used to settle the loan. If the sale amount exceeds the outstanding loan, the excess is refunded to the borrower. Conversely, if the sale doesn’t cover the full debt, the borrower remains liable for the remaining amount.
Conclusion
At Finlender, we guide businesses and individuals in navigating the complexities of asset recovery and debt resolution. Understanding the SARFAESI Act is crucial for borrowers and lenders alike, ensuring that legal steps are followed for fair asset seizure and recovery.
