Banking, SARFAESI and debt recovery

Banks and asset reconstruction companies recover secured debt through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and through the Debts Recovery Tribunal under the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). Borrowers and guarantors have a statutory path of representation and appeal; it is short, technical and easy to miss. SN Law Chambers advises on demand notices, objections under Section 13(3A), measures under Section 13(4), possession, and applications under Section 17 before the DRT. The chambers does not promise that a loan will be written off, or that a possession action will be stayed in every case.

Open the Medchal note — SARFAESI and bank recovery from Medchal

Scope of work

• Review of Section 13(2) notices and replies under Section 13(3A)
• Challenges to measures taken under Section 13(4), including possession
• Applications under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal
• Appeals under Section 18 to the DRAT, including the statutory pre-deposit
• Defence and negotiation in original applications before the DRT
• Advice on personal guarantees, one-time settlements and the limits of each

Typical issues

• Whether the account is a non-performing asset in the manner the security interest enforcement rules require
• Classification of the debt, the security, and the persons against whom measures are proposed
• Service of notices on borrowers and guarantors
• Symbolic versus actual possession, and the role of the Chief Metropolitan / District Magistrate under Section 14
• Statutory pre-deposit on appeal
• Overlap with IBC, where a corporate insolvency proceeding has begun

Applicable Indian statutes

Procedure

A secured creditor may issue a 60-day notice under Section 13(2). The borrower may make a representation under Section 13(3A), which the creditor must consider and reply to. If the outstanding is not paid, the creditor may take measures under Section 13(4). The borrower’s principal remedy is a Section 17 application to the DRT. Civil-court injunctions against SARFAESI measures are heavily restricted by Section 34. Missing the limitation for Section 17 is one of the most damaging errors in this practice area.

Typical legal remedies

• Setting aside or modification of SARFAESI measures by the DRT, where illegal
• Restoration of possession in a proper case
• Negotiated regularisation or one-time settlement, which is commercial and not a legal right
• Orders in original applications on the quantum actually due

Documents commonly relevant

• Loan agreements, sanction letters, revival letters and statements of account
• Mortgage deeds, hypothecation and guarantee deeds
• Section 13(2) and 13(4) notices and postal proof
• Objections and the creditor’s reply
• Valuation reports and sale notices if a sale is proposed
• NPA classification correspondence

Important considerations

• A one-time settlement is an offer, not an entitlement. It should be recorded in writing.
• Guarantors are often proceeded against in parallel. Their documents must be in the brief from day one.