Facing Property Auction by Bank Under SARFAESI Act? Here’s What to Do

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Adv Sudhir Rao
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Facing Property Auction by Bank Under SARFAESI Act? Here's What to Do

If you are stuck in such a situation, here is what to do.

Mr. Sameer was visiting his family in the city of Alipur when he found a notice pasted on the door of his ancestral home that left him in shock. His father, Mr. Kumar, had taken a business loan of around ₹25 lakhs from ‘Apex Commercial Bank’ several years ago by mortgaging their house. Due to unforeseen financial hardships, the loan repayments had become irregular.

The notice was a Sale Notice for an e-auction of their property under the SARFAESI Act, 2002. The bank was seeking to recover outstanding dues amounting to over ₹42 lakhs. The notice mentioned that the bank had already taken “symbolic possession” of the property and had scheduled an e-auction for 10th July 2024, with a reserve price of ₹80 lakhs. Mr. Kumar was under immense stress, and the continuous notices from the bank were taking a toll on his health. The family had previously engaged an advocate who had replied to a notice, but the bank proceeded with the auction process regardless, leading to the current crisis.

Advice in such cases

  • Review all loan documents and notices from the bank meticulously. Check for any discrepancies in the amount claimed, interest calculation, or the procedure followed.
  • Attempt to negotiate with the bank for a One-Time Settlement (OTS). Banks are often open to settling the loan for a reduced amount to avoid the lengthy process of auction and litigation.
  • Explore all possible avenues to raise funds to clear the outstanding dues. This could be the quickest way to save the property from being auctioned.
  • Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Applicable Sections of Law

The primary law governing such situations is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. This Act empowers banks and financial institutions to recover their dues from defaulting borrowers without court intervention.

  • Section 13(2): When a borrower’s account is classified as a Non-Performing Asset (NPA), the bank issues a demand notice under this section, asking the borrower to clear the dues within 60 days.
  • Section 13(4): If the borrower fails to comply with the notice, the bank can take recourse under this section, which includes taking possession of the secured asset (the mortgaged property).
  • Section 14: The bank can seek assistance from the District Magistrate (DM) or Chief Metropolitan Magistrate (CMM) to take physical possession of the property.
  • Section 17: The borrower has the right to challenge the bank’s actions by filing a Securitisation Application (SA) before the Debt Recovery Tribunal (DRT) within 45 days of the bank taking measures under Section 13(4). The DRT can examine whether the bank followed the prescribed procedures.
  • Security Interest (Enforcement) Rules, 2002: These rules lay down the detailed procedure for taking possession, valuation, and sale of the secured asset, including the issuance of public notices for the auction.

If you are the complainant

In this context, if you are the borrower or guarantor against whom the bank has initiated proceedings, you are effectively the respondent, but you can become the applicant by challenging the bank’s action.

  • Immediately gather all relevant paperwork, including the loan sanction letter, mortgage deed, all correspondence and notices from the bank, and records of all payments made.
  • Do not ignore any communication from the bank. Respond appropriately, preferably through a lawyer, to create a record of your intentions and disputes, if any.
  • Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
  • If there are valid grounds, such as procedural errors by the bank, incorrect calculation of dues, or an improper valuation of the property, you must file an application before the Debt Recovery Tribunal (DRT) to challenge the auction.
Facing Property Auction by Bank Under SARFAESI Act? Here's What to Do

If you are the victim

If you feel victimized by the bank’s aggressive recovery process, here are the steps to protect your rights:

  • Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
  • Scrutinize the bank’s statement of account. Banks sometimes levy incorrect charges or calculate interest improperly. A thorough audit of the account is crucial.
  • Verify if the bank has followed every step mandated by the SARFAESI Act and its rules. Any deviation, such as failure to serve proper notice or not conducting a fair valuation, can be a ground to set aside the auction.
  • Proactively engage with the bank’s senior management or dedicated recovery department to negotiate a settlement. A well-drafted proposal for a One-Time Settlement can often yield positive results.

How the police behave in such cases

The dispute between a borrower and a bank is a civil matter. The police have a very limited and specific role in this process. They do not have the authority to interfere in the loan recovery or auction process on their own. The police may only get involved if the bank obtains an order from the District Magistrate (DM) or Chief Metropolitan Magistrate (CMM) under Section 14 of the SARFAESI Act. In such cases, their duty is restricted to providing protection and assistance to the bank’s authorized officer to take physical possession of the property and to maintain law and order during the process. They cannot mediate the dispute or take sides.

FAQs people normally have

  • Can I stop the property auction?
    Yes, the auction can be stopped. The most direct way is to pay the entire outstanding dues to the bank before the auction date. Alternatively, you can approach the Debt Recovery Tribunal (DRT) and if you have strong grounds, the DRT may grant a stay on the auction, often subject to depositing a certain percentage of the debt amount.
  • What happens if the property sells for more than my loan amount?
    If the auction sale proceeds are higher than the total outstanding dues (including interest, costs, and charges), the bank is legally obligated to return the surplus amount to you, the borrower.
  • Is the ‘Reserve Price’ mentioned in the notice the final sale price?
    No, the Reserve Price is the minimum price at which the bidding for the property will start. The property cannot be sold below this price. The final sale price will be the amount of the highest bid received during the auction.
Facing Property Auction by Bank Under SARFAESI Act? Here's What to Do

What evidence is required?

To effectively challenge the bank’s action or negotiate a settlement, you will need to compile a comprehensive file of the following documents:

  • The original loan agreement and all associated documents.
  • The deed of mortgage for the property.
  • Copies of all notices received from the bank, especially the Demand Notice (u/s 13(2)), Possession Notice (u/s 13(4)), and the Sale Notice.
  • A complete statement of the loan account from the bank.
  • Proof of all payments made towards the loan, including receipts or bank transfer statements.
  • Any written communication (letters, emails) exchanged with the bank regarding the loan.

How long will the investigation take?

It is important to understand that this is not a criminal “investigation” but a civil recovery proceeding with a defined legal timeline. The process under the SARFAESI Act itself, from the account becoming an NPA to the final auction, can take several months. If the borrower challenges the bank’s action in the Debt Recovery Tribunal (DRT), the legal proceedings can extend the timeline significantly. A case in the DRT can take anywhere from a few months to over a year to be decided, depending on the complexity of the issues involved and the tribunal’s workload.

Advocate Sudhir Rao, Supreme Court of India

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