SARFAESI and the Bank Recovery Process
Notice, objection, possession, sale, appeal. Every step of the SARFAESI timeline, with the section that sets it.
When a secured loan turns bad, a bank has three main legal routes: enforce the security itself under the SARFAESI Act, file a recovery case before a Debts Recovery Tribunal (DRT), or start insolvency under the Insolvency and Bankruptcy Code (IBC). The CCP paper tests the SARFAESI timeline most, so it comes first here, with section numbers from the Act.
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The SARFAESI Timeline
Account becomes NPA
Section
13(2)
What the law says
The secured debt is in default and the bank has classified the account as a non-performing asset. Without NPA classification, there is no SARFAESI notice.
Demand notice
Section
13(2), 13(3)
What the law says
Written notice asking the borrower to pay in full within 60 days. It must state the amount payable and the secured assets the bank intends to enforce.
Borrower objects
Section
13(3A)
What the law says
If the borrower makes a representation, the bank must consider it and, if it rejects it, communicate the reasons within 15 days of receiving it. This reply gives no right to approach the DRT.
60 days pass unpaid
Section
13(4)
What the law says
The bank may take possession of the secured assets, take over management of the business, appoint a manager, or require anyone who owes the borrower money to pay the bank instead.
Physical possession
Section
14
What the law says
If the borrower resists, the bank applies to the Chief Metropolitan Magistrate or District Magistrate with an affidavit. The order should come within 30 days, extendable to 60 days in all for recorded reasons.
Sale
Section
13(4), 13(8)
What the law says
The bank sells the asset. If the borrower tenders the full dues with costs before the auction notice is published, the asset cannot be sold.
Borrower challenges
Section
17
What the law says
Any aggrieved person, including the borrower, may apply to the DRT within 45 days of the measure taken under 13(4).
Further appeal
Section
18
What the law says
Appeal to the Debts Recovery Appellate Tribunal within 30 days of the DRT order. The borrower must first deposit 50% of the debt, which the Appellate Tribunal may reduce to not less than 25%.
| Step | Section | What the law says |
|---|---|---|
| Account becomes NPA | 13(2) | The secured debt is in default and the bank has classified the account as a non-performing asset. Without NPA classification, there is no SARFAESI notice. |
| Demand notice | 13(2), 13(3) | Written notice asking the borrower to pay in full within 60 days. It must state the amount payable and the secured assets the bank intends to enforce. |
| Borrower objects | 13(3A) | If the borrower makes a representation, the bank must consider it and, if it rejects it, communicate the reasons within 15 days of receiving it. This reply gives no right to approach the DRT. |
| 60 days pass unpaid | 13(4) | The bank may take possession of the secured assets, take over management of the business, appoint a manager, or require anyone who owes the borrower money to pay the bank instead. |
| Physical possession | 14 | If the borrower resists, the bank applies to the Chief Metropolitan Magistrate or District Magistrate with an affidavit. The order should come within 30 days, extendable to 60 days in all for recorded reasons. |
| Sale | 13(4), 13(8) | The bank sells the asset. If the borrower tenders the full dues with costs before the auction notice is published, the asset cannot be sold. |
| Borrower challenges | 17 | Any aggrieved person, including the borrower, may apply to the DRT within 45 days of the measure taken under 13(4). |
| Further appeal | 18 | Appeal to the Debts Recovery Appellate Tribunal within 30 days of the DRT order. The borrower must first deposit 50% of the debt, which the Appellate Tribunal may reduce to not less than 25%. |
Counting the Days: An Example
An illustration of the statutory minimums. Real cases take longer.
- 1
1 March: notice served under 13(2)
The 60-day window runs from the date of notice.
- 2
10 March: borrower objects
The bank must send its reasons for rejecting the objection by 25 March, within 15 days.
- 3
From 1 May: 13(4) measures open
The 60 days ended on 30 April with the dues unpaid. The bank issues a possession notice and takes symbolic possession.
- 4
Possession taken on 5 May
The borrower has until 19 June, 45 days, to apply to the DRT under section 17.
When SARFAESI Cannot Be Used
Section 31 lists cases the Act does not cover. The three exam favourites:
- check_circleA security interest securing a financial asset of ₹1 lakh or less.
- check_circleAny security interest created in agricultural land.
- check_circleAny case where the amount due is less than 20% of the principal amount and interest on it.
- check_circleAlso excluded: pledges of movables, liens on goods, and rights of an unpaid seller, among others.
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Consortium and Multiple Banking
Where more than one secured creditor finances the same asset, no lender can act under 13(4) alone. Secured creditors holding at least 60% in value of the outstanding amount must agree, and their decision binds all of them (section 13(9)).
Three Routes Compared
What it does
SARFAESI
Bank enforces its security without going to court
DRT (Recovery of Debts and Bankruptcy Act, 1993)
Tribunal decides the debt and issues a recovery certificate
IBC (Insolvency and Bankruptcy Code, 2016)
Resolution or liquidation of the whole debtor
Needs security?
SARFAESI
Yes, a security interest
DRT (Recovery of Debts and Bankruptcy Act, 1993)
No
IBC (Insolvency and Bankruptcy Code, 2016)
No
Who decides
SARFAESI
The bank, with the magistrate's help for possession
DRT (Recovery of Debts and Bankruptcy Act, 1993)
Debts Recovery Tribunal
IBC (Insolvency and Bankruptcy Code, 2016)
National Company Law Tribunal, for companies
Best for
SARFAESI
Secured NPAs with saleable collateral
DRT (Recovery of Debts and Bankruptcy Act, 1993)
Larger debts, including unsecured or where security is short
IBC (Insolvency and Bankruptcy Code, 2016)
Corporate debtors where a going-concern resolution is possible
| SARFAESI | DRT (Recovery of Debts and Bankruptcy Act, 1993) | IBC (Insolvency and Bankruptcy Code, 2016) | |
|---|---|---|---|
| What it does | Bank enforces its security without going to court | Tribunal decides the debt and issues a recovery certificate | Resolution or liquidation of the whole debtor |
| Needs security? | Yes, a security interest | No | No |
| Who decides | The bank, with the magistrate's help for possession | Debts Recovery Tribunal | National Company Law Tribunal, for companies |
| Best for | Secured NPAs with saleable collateral | Larger debts, including unsecured or where security is short | Corporate debtors where a going-concern resolution is possible |
IBC Basics for Credit Officers
A bank is a financial creditor under the IBC. When a corporate borrower defaults, it can apply to the National Company Law Tribunal to start a corporate insolvency resolution process. Once admitted, a moratorium stops suits and enforcement against the company, including SARFAESI action, while a resolution professional runs the company and the committee of creditors votes on a resolution plan.
For a credit officer, the practical choice is between SARFAESI for a single secured asset and IBC for a company whose business is worth more as a going concern than its parts. RBI's stressed assets rules also let banks reverse half the additional provisions on a delayed resolution when an insolvency application is filed, and the rest when it is admitted.
Confirm These Thresholds Before Relying on Them
These figures come from government notifications we could not fetch from an official site this session. A DRT takes cases where the debt is ₹20 lakh or more (raised from ₹10 lakh in September 2018). The minimum default to start insolvency against a company under the IBC is ₹1 crore (raised from ₹1 lakh in March 2020). An insolvency resolution process should finish in 180 days, extendable once by 90 days, and within 330 days in all including litigation. Check the current figures on the Ministry of Finance, IBBI or India Code websites.
FAQs
How many days does a SARFAESI 13(2) notice give the borrower?expand_more
60 days from the date of the notice to pay the dues in full. After that the bank can act under section 13(4).
Within how many days must a bank reply to a borrower's objection?expand_more
15 days from receiving the representation, under section 13(3A). The bank must give its reasons if it does not accept the objection.
What is the time limit to approach the DRT against SARFAESI action?expand_more
45 days from the date the measure under section 13(4) was taken, under section 17(1).
Can SARFAESI be used for agricultural land?expand_more
No. Section 31 excludes any security interest created in agricultural land, debts of ₹1 lakh or less, and cases where the amount due is less than 20% of principal and interest.
How much must a borrower deposit to appeal to the DRAT?expand_more
50% of the debt claimed or determined by the DRT, whichever is less. The Appellate Tribunal may reduce it, but not below 25%.
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