The measures under Section 13(4)
Once the 60-day period of the Section 13(2) notice has expired, the secured creditor may:
- take possession of the secured asset, including the right to transfer it by lease, assignment or sale;
- take over the management of the borrower’s business;
- appoint a manager for the asset;
- require any person who owes money to the borrower on account of the secured asset to pay the creditor instead.
In practice, for a mortgaged house, shop or factory, this means a possession notice under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 (symbolic possession), published in two newspapers, followed by an application to the Chief Metropolitan Magistrate or District Magistrate under Section 14 for assistance in taking physical possession. The CMM/DM’s role is limited to verifying the bank’s affidavit and ordering assistance; the borrower’s objections are not decided there but before the DRT.
The sale
After possession, the authorised officer obtains a valuation, fixes the reserve price and issues a sale notice under Rule 8(6) giving the borrower 30 days — the notice must be served on the borrower and published, and must contain the details Rule 8(6) and Rule 9 require: description of the property, the reserve price, the date and mode of sale, the deposit, and the time and manner of payment. Sale is by public auction (usually e-auction), tender or private treaty. Each departure from the Rules — undervaluation, an unrealistic reserve price, inadequate notice, a sale to a related party, or confirmation of sale without the deposit being paid in time — is a ground of challenge, and the Supreme Court has set aside sales for non-compliance.
The borrower’s right to redeem the asset by paying the entire dues with costs continues until the publication of the sale notice under Section 13(8), as amended in 2016.
Section 17 — the application before the DRT
Any person aggrieved by a measure under Section 13(4) — the borrower, a guarantor, a mortgagor, a tenant in occupation, or a third party claiming the asset — may apply to the Debts Recovery Tribunal within 45 days of the measure. In Delhi, the DRTs sit at three benches, and jurisdiction depends on the location of the asset or the bank branch.
The DRT examines whether the measures taken by the creditor are in accordance with the Act and the Rules. It can:
- declare the possession or sale invalid and restore possession to the borrower;
- direct the creditor to take corrective steps;
- pass interim orders staying possession or sale, usually on terms;
- in a case where the sale is set aside, direct return of the purchaser’s money.
No pre-deposit is required to file a Section 17 application (the earlier requirement was struck down in Mardia Chemicals v. Union of India (2004)). The DRT is expected to dispose of the application within 60 days, extendable to a maximum of four months, though pendency in practice is longer.
What a strong application contains
- The chronology — sanction, disbursement, the account’s conduct, NPA classification, the Section 13(2) notice, the representation and the reply, the possession notice and the sale notice.
- The specific violations — non-compliance with Section 13(3A), a defective notice, premature NPA classification, an amount not reconciling with the statements, assets not covered by the security, failure to serve the guarantor or mortgagor, non-compliance with Rules 8 and 9 in the sale.
- The facts that go to the discretion — payments made, restructuring promised, the value of the asset compared with the debt, the availability of a settlement.
- The interim relief sought — stay of physical possession, of the auction, or of confirmation of sale — and the terms the applicant is willing to offer (a deposit, an undertaking, monthly payments).
- The documents, indexed and paginated.
Tribunals are reluctant to stay enforcement on a bare plea of hardship; the application must show a legal defect or a bona fide offer to pay.
Appeal to the DRAT
An appeal against the DRT’s order lies to the Debts Recovery Appellate Tribunal within 30 days, under Section 18, and requires a pre-deposit of 50% of the amount due as determined by the DRT or claimed by the creditor, whichever is less — which the DRAT may reduce to not less than 25% for reasons recorded. The Delhi DRAT hears appeals from the Delhi DRTs.
Writ jurisdiction
Because Section 17 is an efficacious remedy, the High Court declines writ petitions against SARFAESI measures except in exceptional cases — where the creditor is not a secured creditor at all, where the asset is not a secured asset, or where the action is wholly without jurisdiction.
Tenants and third parties
A tenant in lawful occupation before the mortgage, or under a registered lease, has protection recognised by the Supreme Court in Harshad Govardhan Sondagar v. International Assets Reconstruction Co. (2014) and Bajarang Shyamsunder Agarwal v. Central Bank of India (2019); tenants and third parties can file their own Section 17 applications.
Frequently asked questions
The bank has taken symbolic possession — is it too late?
No. Symbolic possession is itself a measure under Section 13(4) that can be challenged under Section 17, and physical possession and sale are still ahead; the 45-day period should be calculated from each measure.
What if the 45 days have expired?
The DRT can condone delay on sufficient cause, and every fresh measure (the Section 14 order, the sale notice, the auction) gives a fresh cause of action. Take advice before assuming the remedy is lost.
Can I stop the auction by offering to pay in instalments?
The DRT may stay the auction on a substantial deposit and a schedule for the balance, particularly where the asset is a residence or the business is running; a bare promise without a deposit rarely succeeds.
Can the auction purchaser be dispossessed if the sale is set aside?
Yes, where the sale is set aside for non-compliance with the Rules; the purchaser is refunded the money with interest, and the property is restored to the borrower or re-auctioned.
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