IBC vs SARFAESI
One is individual enforcement, the other a collective process. Here's how they differ and where they collide.
SARFAESI and the IBC are both remedies for a lender that is not being repaid, but they work on different logic. SARFAESI is individual enforcement: a secured creditor takes and sells its own security without going to court (section 13(1)). The IBC is a collective process: one default puts the whole company before the NCLT, all creditors are gathered into one process, and the outcome is a resolution plan or liquidation.
Take a bank owed ₹1.2 crore by a manufacturing company, secured on a factory, with the account classified as an NPA. It can serve a SARFAESI notice, or it can file under section 7 of the IBC. Which it chooses, and what happens if both are in play, is a regular case-study question.
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SARFAESI and IBC Side by Side
Who can use it
SARFAESI Act, 2002
A secured creditor: banks, financial institutions and other lenders notified under the Act
IBC, 2016 (corporate debtors)
Any financial creditor, operational creditor or the corporate debtor itself (sections 7, 9, 10)
Trigger
SARFAESI Act, 2002
Default on a secured debt and NPA classification (section 13(2)); the NPA condition does not apply to debt securities
IBC, 2016 (corporate debtors)
Default of at least ₹1 crore (section 4 read with S.O. 1205(E) of 24 March 2020)
First step
SARFAESI Act, 2002
Written notice to pay in full within 60 days (section 13(2)); objections answered within 15 days (section 13(3A))
IBC, 2016 (corporate debtors)
Application to the NCLT; an operational creditor first serves a demand notice, and the debtor has 10 days to reply (section 8(2))
Court's role
SARFAESI Act, 2002
None to enforce; the borrower may apply to the DRT within 45 days of a measure (section 17)
IBC, 2016 (corporate debtors)
NCLT admits, oversees and approves the plan or orders liquidation
What the creditor gets
SARFAESI Act, 2002
Possession, management takeover or sale of the secured asset (section 13(4))
IBC, 2016 (corporate debtors)
A share under a resolution plan approved by the CoC, or under the liquidation waterfall
Joint lenders
SARFAESI Act, 2002
Action needs secured creditors holding at least 60% in value of the outstanding (section 13(9))
IBC, 2016 (corporate debtors)
Resolution plan needs 66% of the CoC's voting share
Not available for
SARFAESI Act, 2002
Pledges and liens, security of ₹1 lakh or less, agricultural land, or where the amount due is under 20% of principal and interest (section 31)
IBC, 2016 (corporate debtors)
Defaults below the notified threshold
| Point | SARFAESI Act, 2002 | IBC, 2016 (corporate debtors) |
|---|---|---|
| Who can use it | A secured creditor: banks, financial institutions and other lenders notified under the Act | Any financial creditor, operational creditor or the corporate debtor itself (sections 7, 9, 10) |
| Trigger | Default on a secured debt and NPA classification (section 13(2)); the NPA condition does not apply to debt securities | Default of at least ₹1 crore (section 4 read with S.O. 1205(E) of 24 March 2020) |
| First step | Written notice to pay in full within 60 days (section 13(2)); objections answered within 15 days (section 13(3A)) | Application to the NCLT; an operational creditor first serves a demand notice, and the debtor has 10 days to reply (section 8(2)) |
| Court's role | None to enforce; the borrower may apply to the DRT within 45 days of a measure (section 17) | NCLT admits, oversees and approves the plan or orders liquidation |
| What the creditor gets | Possession, management takeover or sale of the secured asset (section 13(4)) | A share under a resolution plan approved by the CoC, or under the liquidation waterfall |
| Joint lenders | Action needs secured creditors holding at least 60% in value of the outstanding (section 13(9)) | Resolution plan needs 66% of the CoC's voting share |
| Not available for | Pledges and liens, security of ₹1 lakh or less, agricultural land, or where the amount due is under 20% of principal and interest (section 31) | Defaults below the notified threshold |
When Both Routes Collide
- 1
1. Before CIRP starts
SARFAESI action can run. A pending SARFAESI notice does not stop a section 7 or 9 application.
- 2
2. On the insolvency commencement date
The moratorium under section 14(1)(c) prohibits "any action to foreclose, recover or enforce any security interest" over the corporate debtor's property, "including any action under" SARFAESI. The sale stops.
- 3
3. Which law wins
Section 238 of the IBC overrides inconsistent laws, and SARFAESI's own section 13(9) has been "subject to the provisions of the Insolvency and Bankruptcy Code" since 2016.
- 4
4. If the company goes into liquidation
A secured creditor may relinquish its security to the estate or realise it itself (section 52(1)). If it realises, it may enforce under the law that applies to its security (section 52(4)), which can include SARFAESI.
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Guarantors and the 2026 Changes
Section 14(3)(b) keeps sureties outside the corporate debtor's moratorium, so a bank can still enforce against a guarantor's own property. From 26 May 2026 (after the 4 February 2025 exam cut-off): an Explanation adds that the moratorium does cover a surety's action against the corporate debtor; new section 28A lets a creditor that has taken a guarantor's asset by enforcing security transfer it as part of the resolution with prior CoC approval; and in liquidation a secured creditor that wants to realise must tell the liquidator within 14 days or be treated as having relinquished (section 52(2)).
How the Limited Insolvency Examination Tests This
A case study typically has a bank part-way through a SARFAESI sale when another creditor's section 9 application is admitted. The question asks whether the auction can go ahead. It cannot after the commencement date: section 14(1)(c) names SARFAESI expressly.
Watch the numbers that look alike: 60 days in a SARFAESI notice against 10 days for a reply to an IBC demand notice; 60% of secured lenders under SARFAESI against 66% of the CoC under the IBC. And do not assume a secured creditor in liquidation loses its security: under section 52 it chooses whether to realise it or relinquish it.
FAQs
Can a bank continue SARFAESI action after CIRP is admitted?expand_more
No. From the insolvency commencement date, section 14(1)(c) of the IBC prohibits any action to enforce security interest over the corporate debtor's property, including action under SARFAESI, until the CIRP ends.
What is the difference between SARFAESI and IBC?expand_more
SARFAESI lets a secured creditor enforce its own security without a court. The IBC starts a collective, NCLT-supervised process for all creditors that ends in a resolution plan or liquidation.
Which prevails, IBC or SARFAESI?expand_more
The IBC. Section 238 gives it overriding effect over inconsistent laws, and section 13(9) of SARFAESI is expressly subject to the IBC.
Can SARFAESI be used against a guarantor during the company's CIRP?expand_more
The corporate debtor's moratorium does not protect a surety (section 14(3)(b)), so action against the guarantor's own assets is not barred by it. The guarantor's own insolvency proceedings, if any, carry their own rules.
Next steps
- Moratoriumarrow_forward
- Section 53 Waterfallarrow_forward
- FC vs OCarrow_forward
- Liquidation Processarrow_forward
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