1. SARFAESI ACT
Proceedings under SARFAESI Act

2. 119
Notified Sections
SARFAESI Act, 2002 along with other acts were amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (hereinafter referred to as “Amendment Act, 2016”.
On 1st September, 2016, 36 sections of the Amendment Act, 2016 were
notified.
On 4th November, 2016, 3 sections of the Amendment Act, 2016 were notified.
The notified sections are as follows:
Sections 2 and 3 (both inclusive);
Sections 4;
Section 5 to 7 (both inclusive);
Sections 8 to 16 (both inclusive);
Sections 22 to 32 (both inclusive);
Sections 33 to 44 (both inclusive).

3. NBFCs notified under the SARFAESI Act
120
NBFCs notified under the SARFAESI Act
On 5th August, 2016, 196 NBFCs got notified as “financial institution” for the purpose of SARFAESI Act
Notified NBFCs are allowed to enforce security interest of only those cases where the security interest was casted in their favour to secure a financial assistance having a principal amount of Rs. 1 crore.
the limits prescribed for other classes of secured creditors under the SARFAESI Act is Rs. 1 lac, the limit for NBFCs has been increased to Rs. 1 crore
Applicability of the SARFAESI Act on the following cases –
Single facility of more than 1 crore with a security interest on an asset
More than one facility, each less than 1 crore but in aggregate exceeding Rs. 1 crore, secured by a single asset.
More than one facility secured by different assets with cross default clause
More than one facility secured by different assets without cross default clause

4. Meaning of Security Interests
121
Meaning of Security Interests
Security interest under the law has 4 elements:
▫ secured debt/ financial assistance
▫ security interest
▫ secured creditor
▫ borrower
Section 2 (1)(zf) defines the term “security interest” has been amended vide the Amendment
Act, means – right title and interest on properties other than the ones mentioned in section 31 –
▫ On tangible properties
Right title or interest - obviously meaning those created for security
Mortgage - sec 58 of TP Act is limited to immovable property. Generally, conferring any right to a lender to sell property on default
Charge – by itself, does not mean anything but security interest. Sec 100 of TP Act - a security interest not being a mortgage. Any interest in property defeasible or destructible on repayment of a debt - Bond Worth Limited (1980) Ch
Hypothecation - sec. 2 (1) (n) - all charges except a pledge
Assignment - assignment by way of security, and not assignment by way of transfer
Right created by way of financial leases, hire purchase or conditional sale
▫ On intangible properties
License created on the property

5. Ingredients of a Charge
122
Ingredients of a Charge
Meaning of security interest - a right to sell property to realise a
debt.
▫ In Cosslett‟s case, a right of a contractee to sell contractor‟s equipment was held to be a security interest
Charge is related to debt. A charge secures a debt, does not create
a debt.
Ownership interest may also amount to a charge - conditional sale or reversible sale.
Charge should be co-terminus with the debt
Property, present or future should be made available.
Floating charges do not relate to any property unless fixed:
▫ ruling in Brumark Investments and Cosslett
Mere restraint on property is not a charge

6. 123
Financial Assistance
Building block of relationship between a borrower and secured lender.
Definition was amended vide the Amendment Act and has the following components:
▫ Loan advance granted
intends to include originated loans, not acquired loans
▫ Debentures or bonds subscribed
purchased debentures cannot be included
▫ Guarantees given or letter of credit established
obviously, lead to a financial assistance only when principal debtor defaults
▫ Funds provided for acquisition of tangible asset under financial leases, hire purchase or conditional sale
▫ Funds provided for obtaining assignment or license of intangible assets
▫ Purchase of debt securities
▫ any other credit facility - makes it an inclusive definition; other similar facilities to be included
▫ Are these included?
Discounting of bills of exchange
any purchase or sale of securities
any lease or hire purchase transaction
factoring transaction amounting to purchase of factored debt
securitisation investments
purchase of commercial paper

7. Secured Creditor - sec 2 (1) (zd)
124
Secured Creditor - sec 2 (1) (zd)
Definition amended by the Amendment Act, has the following components
▫ Bank
▫ financial institution:
Includes power to notify financial companies
▫ Consortium of banks and financial institutions
▫ In case of debentures:
unsecured debentures do not seem to be covered (last line of definition)
secured debentures - rights exercisable by trustees
▫ debenture trustee appointed by any bank or financial institution:
misnotion- debenture trustees are appointed by the charge-creator and assented to by the beneficiary
could create confusion where debentures are held by non-banks as well
▫ Asset Reconstruction Companies, irrespective of whether operating by itself or through a
trust
▫ Debenture trustee appointed by the issuer of debt securities
▫ Any other trustee holding securities on behalf of a bank

8. Borrower 125 Key word is “financial assistance”
Any person who has availed of financial assistance
Guarantor:
▫ guarantee as defined in sec.126 of Contracts Act
▫ does not include contracts of indemnity
▫ consent of the principal debtor important
▫ issue: can rights under the law be enforced against the guarantor as principal obligor- apparently yes
Liability of the guarantor – SC ruling in ICICI v. Biswanath Jhunjhunwala, ruling dated 18th Aug liability of the guarantor is co-extensive, not alternative
provider of security
▫ only mortgage and pledge included here
▫ usually security provider will also be a guarantor
borrower of securitisation company
Issuer of debt securities
makes no distinction between corporate and non-corporate borrower
Continued relation between lender and borrower important - after assignment, lender cannot operate against the borrower

9. a debenture holder to appoint receivers u/s 123
126
Secured Asset
Meaning is important, as the rights under the law exercisable
against secured assets
Sec 2 (1) (zc) - assets over which security interest created
Requisites:
▫ the security interest must be specific to the asset
▫ the interest must be in the nature of security interest
Floating charges: interest does not become specific until
receivership/ winding up action
Can the process of this law be taken as receivership?
▫ The rights to take possession of the assets under this law are akin to rights of
a debenture holder to appoint receivers u/s 123
▫ The process under this law should amount to crystallisation of the charge
▫ however sec 13 (13) may create difficulties

10. 127
Exceptions under sec. 31
Lien on goods, money or security under Contracts
law or Sale of Goods Act:
Conditional sale, hire purchase or lease or any other contract in which no security interest has been created were earlier exempted from this Act
exclusion of conditional sale unreasonable; conditional sales regarded as lending transactions - Sundaram Finance v State of Kerala
This particular clause has been omitted vide the Amendment Act,
▫ a very confusion clause, as essentially, all security interests are liens and all such liens by contract of parties are given under Contracts law
▫ intent to exclude bailee lien u/s 170, banker‟s lien u/s 171
▫ unpaid seller‟s lien u/s 47 of Sale of Goods Act
pledge
▫ generic rights under Contracts law applicable
creation of security in any aircraft
creation of security in vessels
rights of unpaid seller
properties not liable for attachment under CPC:
▫ exclusions under sec. 60 of CPC; most include personal effects, LIP, public provident fund
where financial assistance not exceeding Rs 1 lac
where dues are less than 20% of principal and
interest
agricultural land

11. Agricultural Land Meaning of agricultural land:
128
Agricultural Land
Meaning of agricultural land:
▫ Actual usage as such important, merely that the land may be used for agricultural purposes is not sufficient
▫ Sense of the word – tilling or ploughing of the land important: Benoy Kumar Saharoy AIR 1957 SC 768s
In Gajula Exim P Ltd v. Authorised officer, Andhra Bank, IV (2008) BC 274, High court held merely payment of land revenue is not sufficient to establish agricultural land
▫ Business of seafood is not agriculture
Cultivation of cardamom comes within the term agriculture and SARFAESI Proceedings cannot be initiated against the cardamom estate -- J. Malliga & Others A.O. Union Bank Of India 2010(2) DRTC 143(Madras)
Land planted with rubber be treated as an agriculture and SARFAESI Act cannot be invoked -- Mohd. Basheer Vs Kannur District Cooperative Bank Ltd 2010(2) DRTC 123 (Kerala) DB

12. Enforcement of Security u/s 13
129
Enforcement of Security u/s 13
Sec. 13 overrides sec. 69/ 69A of TP Act, not however, sec. 67
▫ The specific mention of Sections 69 and 69A of the TP Act in the non obstante clause indicate the exclusion of the other provisions in the TP Act from the purview of the non obstante clause.
▫ However, by sec 35, the SARFAESI Act overrides all inconsistencies of all other laws.
Pushpangadan v. Federal Bank Ltd. [(2012) II BC 115 Ker. (FB)]
▫ Sec. 67 (a) puts an important distinction between right of foreclosure and right of sale. A normal charge holder has a right of sale, not right of possession
▫ Remedies under this law are not to the exclusion of other rights - e.g., DRT proceedings, decree of Civil Courts

13. Enforcement of security u/s 13 (contd.)
130
Enforcement of security u/s 13 (contd.)
Requisites for action u/s 13:
▫ borrower, under liability to secured lender
▫ makes default in repayment of a secured debt or installment: any default of agreement cannot trigger the power
▫ account classified as NPA under RBI norms: banker‟s books to be evidence
Does not apply where the borrower is a person who has raised funds by issuing
debt securities [Inserted vide the Amendment Act]
▫ creditor requires borrower in writing to discharge “all his liability” within 60 days of notice
▫ notice to specify amounts due and the details of secured assets
▫ effect of notice: freeze on sale lease or transfer u/s 13 (13)
▫ freeze in case of floating charges? Details of secured assets?
Notice only demands payments. Does not amount to receivership.
Rights under sec 13 (1):
▫ are rights to enforce security interest; do not confer any new rights not implied by the agreement between parties. It is only the interest created which can be enforced.
▫ principles of natural justice applicable

14. Notice under sec. 13 (2) Minimum contents of the notice
131
Notice under sec. 13 (2)
Minimum contents of the notice
▫ Transparency is quite important
advisable to serve a fresh notice: Shashi Agro
Food v. Andhra Bank IV (2008) BC 294 (AP)
In case after
the notice,
there
have
been
discussions of
settlement
or MoU
etc.,
it is

15. Right of Representation and Response
132
Right of Representation and Response
Right of representation added in sec 13 (3A) pursuant to SC ruling in Mardia
Chemicals:
▫ Borrower may make representation
▫ Lender needs to respond within 7 days
Time extended now to 15 days
Reasoned response
If there is a non-speaking response to representation, sale is cancellable by writ
remedy
▫ Syndicate Bank v. Basalingappa III (2008) BC 274 (Kar)
Several rulings holding that the reply to the representation is a mandatory requirement:
▫ Jagrit Foods I (2009) BC 266 (Gau)
▫ D N Motors I (2009) BC 331 (Jharkhand) – borrower claimed to have sent representation; bank did not receive
▫ M/s Tetulia Coke plant v/s Bank of India, (Jharkhand High Court:
Possession notice quashed
Reliance on M/s Jayant Agencies Vrs. Canara Bank & Ors. [2011(2) JCR 27]
and
Reference of O' Reilly Vs. Mackman and Others (1983)2 AC 237

16. Measures to be taken 133 Measures against the secured assets
▫ Taking possession of the secured assets of the borrower: does it include right to use assets - No
▫ transfer by way of lease, assignment or sale
▫ take over the management of the business of the borrower
▫ appoint a manager to manage the assets possession of which has been taken
▫ require by notice a person who has bought the secured assets to pay for such asset to the lender - this envisages payment for secured assets subject fo fixed charge
measures u/s 13 (4) limited and cannot be expanded - for example, no power to force a sale without taking possession or management
recover expenses for action u/s 13 (4) - sec 13 (7)
proceeding against guarantors/ pledged assets - primary right u/s 13 (11)
proceeding for balance due under DRTs or competent Court - “as the case may be” implies RDB Act allocation
Provisions in case of company under liquidation - sec. 529A of Companies Act to be applicable
Limitation Act applicable - debts barred by limitation cannot be enforced under this law

17. Stay on enforcement proceedings Sec 13(8)
134
Stay on enforcement proceedings Sec 13(8)
Section has been amended vide the
Amendment Act
If the amount due by the secured creditor along cost, charges and expenses are tendered before the following dates, the creditor shall put a stay on the enforcement proceedings –
▫ Date of publication of notice for public auction; or
▫ Date of inviting the quotations or tenders
from public; or
▫ Date of private treaty for transfer of secured asset
Earlier the borrower had time till the date fixed for sale or transfer of the asset, to tender the amount due.
However, now the allowed has been shortened.

18. Freeze relating to Assets u/s 13 (13)
135
Freeze relating to Assets u/s 13 (13)
Receipt of notice u/s 13 (2) would put a freeze on transfer of
secured assets
▫ “secured assets” only subject to injunction
▫ details whereof given in the notice u/s 13 (2)
analogous provision - sec 19 (12) of RDB Act; order 39 rule 1 of
CPC
Under CPC, a Court may order injunction - exercise of discretion.
No discretion under this law - hence principles of balance of
convenience etc have no place
Floating charges saved - exception in case of sale in ordinary course of business
Restraint only against transfer - not against creation of further
charges; encumbrances: can be used for stone-walling

19. Taking Possession u/s 13 (4)
136
Taking Possession u/s 13 (4)
Purpose of the law is to enforce security interest, not to allow a lender the interest of an asset owner.
Taking of possession does not amount to transfer of title
Taking of possession is only for the purpose of realisation of
security -
▫ position similar to receiverships under Order 40, rule 1 of CPC
▫ difference - Civil law receiverships are for preservation of subject matter; this law is for sale
Use of reasonable force permitted for possession - Blade v. Higgs (1861) 10 CBNS 713.
Position of lender taking repossession and sale discussed in several English rulings: lender in possession is not a trustee for the borrower

20. Taking Possession u/s 13 (4) contd..
137
Taking Possession u/s 13 (4) contd..
Sec 13 (4) to be read with sec 13 (7) - attempts of sale of the asset
should follow forthwith upon possession
In respect of sale proceeds, the lender is accountable to borrower
Lender not allowed to use the asset: all usufructs belong to the
borrower
Bank cannot take physical possession from the tenant protected under Rent Control Act by invoking the provisions of Sections 13(4) and 14 of the SARFAESI Act, in the event the tenant is in bona fide occupation, thus implying that SARFAESI Act cannot over-ride rent control act.
▫ Indian Bank vs M/S Nippon Enterprises South ( 2011, Madras High Court.
▫ Pushpangadan v. Federal Bank Ltd. [(2012) II BC 115 Ker. (FB)]

21. Taking Possession & Sale of Secured Assets
138
Taking Possession & Sale of Secured Assets
If by means of an interim order the Bank is allowed to take possession under Section 13(4)(a) but not allowed to transfer the secured asset by way of lease, assignment or sale for realising the secured debt, it will render Section 13(4) redundant and ineffective for all purposes.
▫ Sri Manicka Vinayagar Spinning Mills v. State Bank of India & Ors. [ I (2011) BC 42 Mad. (DB)]
The underlying idea of selling the whole or part of the security interests is to recover the dues of the secured creditor. Where only a part of the property is sufficient to satisfy the decree only that much of the secured asset should be proceeded against to effect recovery
▫ UCO Bank v. Achal Bansal & Ors., II (2009) BC 63 (DRAT- Delhi)
During the pendency of the proposal for OTS, it is not permissible for the bank to proceed to take steps under the provisions of the SARFAESI Act. It is only after the proposal gets rejected (or if accepted, the defaulter does not comply with the terms of settlement) that the bank can proceed to recover the dues under the SARFAESI Act.
▫ Shyam Ice and Cold Storage (P) Ltd. & Ors. v. Syndicate Bank & Ors. [(2012) III BC
573 Andh. (DB)

22. Taking Possession & Sale of Secured Assets contd..
139
Taking Possession & Sale of Secured Assets contd..
The discretion of the secured creditor in choosing the property or
person for the purpose of satisfying the debt is neither absolute nor
unfettered conformity
nor unguided or unbridled. The decision must be in with principle enshrined under Article 14 of the
Constitution where the decision affects the right of the third party.
As the petitioners were relieved of their guarantee, the bank could not proceed against them leaving other mortgaged property for satisfying the claim. The Bank‟s action against the property of the ex- guarantor, petitioners in the present case was set aside and the Bank was at liberty to undertake fresh proceedings under the SARFAESI Act on the remaining borrowers.
▫ Shyam Kishore Prasad & Anr. v. Bank of Baroda & Ors., II (2009)
BC 311 (Patna HC)

23. Taking Possession & Sale of Secured Assets contd..
140
Taking Possession & Sale of Secured Assets contd..
Liability of the guarantor, in view of the compromise between
principal borrower and creditor bank entered into in exclusion of the guarantor, comes to an end, and the guarantor is so absolved of his liability. Notice u/s 13(2) to the guarantor is required to be quashed.
▫ N.B. Gurudeva v. State Bank of Mysore & Ors. [(2012) II BC Kar. 60]
Chandrakala Sharma v Bank of India (2011) 1 BC91
Jharkhand High Court.
▫ Bank is fully justified in proceeding against the principal borrower and also the guarantor.
▫ It is for the bank to decide from which mortgaged property the bank would recover their dues .

24. Taking over management of business
141
Taking over management of business
Right of taking over management also conditioned by the basic purpose of the law - security interest
However, sale of assets is not permissible u/s 13 (6) without taking over possession or management, either of the two is a must
As the purpose of possession is to make a sale, banks may be inclined to avoid difficulties of possession by appointing a manager instead
Nature of the functions of a manager - asset-specific

25. Guidelines of RBI on Takeover of Management
142
Guidelines of RBI on Takeover of Management
Change in or Take Over of the Management of the Business of the Borrower by Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines, 2010
▫ Notified on April 21, 2010
▫ Consolidated in Master Circular dated July 2, 2012.
▫ Issued u/s 9 of SARFAESI, no guidelines issued u/s 13(4)(b) as yet
Takeover of management is only temporary:
▫ Once debts are realised, the management is to be restored back

26. Guidelines of RBI on Takeover of Management
143
Guidelines of RBI on Takeover of Management
contd..
Preconditions:
▫ Minimum amount owed to the lender is 25% of assets of the borrower
▫ At least 75% of lenders agree to taking of action
▫ One or more following circumstances
Willful default
Management is acting adversely to the interest of the ARC
Management is incompetent to run the business
Borrower has wrongly sold or alienated charged assets
Reasonable grounds to believe that borrower would be unable to pay
Has entered into any compromise or arrangement that adversely affects the ARC
Discontinues or threatens to discontinue business
Serious disputes have arisen among promoters

27. 144
Policy for Takeovers
ARC will frame policy, that will include the following:
▫ Examination consisting of
Valuer
by Independent Advisory Committee (IAC),
Technical / finance/ legal professionals
▫ BoD including at least 2 independent directors must evaluate the report of the IAC
▫ Due diligence exercise, circumstances in which default took place and how change in management may help
▫ Shall identify personnel/agencies who can takeover the management by formulating a plan for operating and managing the business effectively

28. Process for Takeover 60 days notice
145
Process for Takeover
60 days notice
Objections, if any, are considered by the BoD and a reasoned answer is communicated to the borrower, within 15 days

29. Injunction against Confiscation Action
146
Injunction against Confiscation Action
An important question is - can a borrower seek injunction
against a confiscation action u/s 13 (4) (a)
Application lies against confiscation u/s 17 (1) within 45
days of measures having been taken.
May imply post-facto appeal, not stay of action
Section 34 ousts jurisdiction of civil courts on a matter where powers conferred to DRTs
▫ Position may change significantly after SC ruling in the case of
Nahar Industrial Corporation
As per Supreme court ruling,
▫ writ jurisdiction is available
▫ In extra ordinary circumstances, court may also grant a relief

30. Simultaneous or Multiple Proceedings
147
Simultaneous or Multiple Proceedings
Proceedings under RDB Act and SARFAESI Act simultaneously
▫ Clearly possible; SC ruling in Transcore
▫ SARFAESI Act is an additional remedy to RDDBFI Act and together they constitute one remedy. Doctrine of election does not apply.
Sho Designs & Ors. v. Allahabad Bank & Ors. [IV (2010) BC 55 (DRAT)]
Civil proceedings and SARFAESI Act proceedings
▫ Possible: Abdul Azeez v Punjab National Bank III (2006) BC 279 (Ker) (DB)s
Pendency of arbitration proceedings:
▫ No bar: Sosanna Abraham v. State Bank of Travancore IV (2008) BC
233 (ker)
BIFR proceedings:
▫ While decisions are there on either side, but there is more weight towards holding that the consent of the BIFR is a must: (Noble Aqua Pvt. Ltd., & Others v. State Bank of India & Others , AIR Orissa 103, I (2009) BC 534, applying SC ruling in Morgan Stanley;
▫ Contrary, however, Madras High Court in Kanakdhara Spinning Mills, decision dated 23 July 2009

31. Usual Objections and Defenses
148
Usual Objections and Defenses
Tenancy
▫ Provisions of Transfer of Property Act; protective provisions of the Rent Control Acts of various States
Partition or title suit
Conveyance deed of property was defective/title disputes
Bank cannot choose properties at its own discretion
Legality/validity of the security interest
OTS/restructuring offer
Legality/service of notice
Questions on the right to representation

32. Enforcement of Possession u/s 14
149
Enforcement of Possession u/s 14
For handing over the possession of secured assets to the secured creditor, assistance of the CMM or DM of appropriate jurisdiction may be requested.
▫ Does not bar self-help possession.
▫ Any action taken in good faith protected u/s 32
CMM/ DM shall do the same
No court shall call to question the action of any CMM / DM
Principle of exclusive jurisdiction in case of DRTs has been approved by the SC in Allahabad Bank v Canara Bank Comp Cas 64 (2001)
Judicial review under Article 226 and 227 of the Constitution
▫ in cases where the CMM/DM exceeds his power or refuses to exercise his jurisdiction vested in him under the law [Mansa Synthetic Pvt. Ltd. v. Union of India & Anr (2012) III BC 857 Guj. (DB)]

33. Assistance from CMM u/s 14
150
Assistance from CMM u/s 14
Constitutional Validity of Sec. 14 upheld-
▫ Vires of entire SARFAESI Act, upheld in Mardia Chemicals
▫ Siddhi Vinayak Hotels (P.) Ltd. v. Union of India (17th Feb, 2006)
▫ Rameshwaram Cotton Industries (Gujarat) Pvt. Ltd. v. District Magistrate and Others [L.P.A No. 165 of 2010 in S.C.A No. 712 of 20104th February, 2010]
▫ Mansa Synthetic Pvt. Ltd. v. Union of India & Anr. [(2012) III BC 857 Guj. (DB)]
Unavailability of “right to appeal” against Sec. 14 order does not render the provision unconstitutional/void, as being violative of Articles 14 & 19
Court refusing to go into the question of constitutional validity
▫ K.R. Chandrasekran & Ors. v. Union of India & Ors [(2012) III BC Mad. (DB)]
▫ Not possible in the guise of applying the principle of sub-silentio, when
the Act has been held valid in entirety by the SC.

34. 151
Powers of CMM/DM u/s 14
The role of the CMM/DM is merely to assist in taking repossession
Either merits, or rival contentions of parties are not within the scope of the powers: Bank of India v. Pankaj Dilipbhai Hemnani I (2008) BC 355 (Guj)
As held in many judicial pronouncements, the role is purely
executionary, no adjudication required.
Trade Well v. Indian Bank [(2007) II CCR 349; (2007) 1 Bom CR (Cri) 783]; Muhammad Ashraf v. Union of India [(2009) II BC Ker (DB)]
▫ 2 aspects to be verified only
whether secured property is identifiable ; whether the secured assets falls within his territorial jurisdiction
whether notice under section 13(2) of the NPA Act is given or
not.
▫ No adjudication of any kind is contemplated at that state.

35. Powers of CMM/DM u/s 14 contd..
152
Powers of CMM/DM u/s 14 contd..
Mansa Synthetic Pvt. Ltd. v. Union of India & Anr [(2012) III BC 857 Guj.
(DB)]
▫ Not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under Section 13(4) of the Act.
Ramdas Agarwal v. Collector (District Magistrate), District Durg & Anr. [II (2011) BC 227]
▫ No adjudication on the nature of the land or on the question as to whether any due was payable or whether payments were made or not.
Union Bank of India & Ors. v. State of Maharashtra & Ors. [II (2011) BC
Bom. 459]
▫ DM cannot entertain disputes relating to the jurisdiction of secured assets

36. Powers of CMM/DM u/s 14 contd..
153
Powers of CMM/DM u/s 14 contd..
K.R. Chandrasekaran & Ors. v. Union of India & Ors
[(2012) IV BC 105 Mad. (DB)]
▫ Powers to be exercised greater care and onerous responsibility
▫ Guidelines discussed.
Assistance required by the secured creditor
NPA classification as per the procedure under SARFAESI
Notice u/s 13(2) sent and received, in accordance with norms
Reply by the bank to the borrower‟s representation u/s 13(3A)
Notice u/s 13(4)
Rule 8(1) followed if the borrower is not in possession
Pass appropriate orders “which shall contain laconically the above said considerations to evince that there has been an application of mind by the authority.”

37. Filing of affidavit by the applicant
154
Filing of affidavit by the applicant
The Amendment Act, made filing of affidavit mandatory duly affirmed by the
authorised officer of the secured creditor
Non-filing of such affidavit can lead to fatal consequences (Shiv Charanlal Sharma v Allahabad & Ors [IV (2015) BC 416 (DB) (All.)]
▫ Contents: total financial assistance, total claim as on the date of application, claim within limitation period, security interest is valid and subsisting, default by the borrower, account classified as NPA, notice u/s 13(2) served, representation u/s 13(3A) considered, no repayment by the borrower after the notice, provisions of the Act and the Rules complied.
The Amendment Act, 2016 has made this non-mandatory
Second proviso: CMM/DM to pass suitable orders, on being satisfied as to the contents
of the affidavit
▫ Role broadened and is now pervasive.
▫ Application of mind by the CMM/DM (Syndicate Bank & Anr. v Kaliji Engineering Works & Ors [IV (2015) BC 473 (DB) (Cal)]

38. Role and power of CMM/ DM under Amendment
155
Role and power of CMM/ DM under Amendment
Act, 2016
Vide the Amendment Act, the role of CMM/DM is no longer executionary or merely ministerial;
Verification of facts stated in the affidavit has now become necessary, even if the matters are not under any dispute
Delegation of power allowed to the extent of taking possession of such assets and documents relating thereto; and forwarding the same to the secured creditor.

39. Determination of rights of lessee by the
156
Determination of rights of lessee by the
CMM/DM-
Harshad Govardhan Sondagar v
International Assets
Reconstruction Co. Ltd. & Ors held as follows-
i) Section 13 of SARFAESI overrides only Section 68 and 69 of the Transfer of Property Act, 1882 and not all its provisions which relate to the rights of the lessee under a valid lease which is created prior to the receipt of notice by the borrower under Section 13(2)
ii) possession of the secured asset by a lessee in accordance prior to the creation of mortgage and in accordance with S. 65 A of the TPA-not terminated as per S. 111 of TPA -then no order by the CMM/DM to pass the possession of the secured asset to the secured creditor;
iii) when the lessee voluntarily surrenders the asset to the secured creditor- then even a valid lease agreement is considered to be terminated as per Section 111 (f)of the TPA- order to pass over the possession of the asset to the secured creditor may be passed
iv) Dispute regarding valid tenancy- to be determined by CMM/DM by adhering to the principles of natural justice- accordingly pass orders
v) To proof valid tenancy- produce proof of execution of a registered instrument- if unregistered/oral agreement then CMM/DM to come to a conclusion that tenant not entitled to possession from the date of instrument or the date of delivery of the possession.

40. Further Clarification on the Harshad Case
157
Further Clarification on the Harshad Case
Vishal N. Kalsaria v Bank of India & Ors [(2016) 3
SCC 762]- on the rights of the tenant further held-
non-registration of a lease agreement does not
render such tenancy nugatory
attention must be paid to the relationship between the two parties in the lease agreement and their rights and liabilities
fact that there is regular payment and acceptance of rent
No undue advantage can be taken on the basis that the lease deed in unregistered

41. Amendment made under section 14 vide the Amendment Act, 2016
158
Amendment made under section 14 vide the Amendment Act, 2016
Second proviso to S. 14(1) – CMM/DM after being satisfied with the contents of the Affidavit shall pass suitable orders for the purpose of taking possession of the secured asset within a period of thirty days from the date of application
Insertion of a proviso after the second proviso- In circumstances beyond the control of the CMM/DM, the time period of thirty days may be extended to sixty days after recording of the reasons. No further extension beyond sixty days, in aggregate, is permissible.

42. Physical possession or symbolic
159
Physical possession or symbolic
possession
Ruling of P & H High court that a lender should only take
symbolic possession turned down by the SC in Transcore case
In Deepak Narang v. State of Haryana, III (2007) BC 248, notice of repossession was affixed in presence of police and media; borrower complained he was defamed. Contention turned down by court – III (2007) BC 248 (P&H)
In case of M/s Kathikkal Tea Plantation, judgment dated 30th July, 2009, (Chennai HC ruling) it was held that issuance of the sale certificate after taking the symbolic possession does not put a bar on the secured creditors to take possession under Section 14(2) of the SARFAESI Act

43. Physical possession or symbolic possession
160
Physical possession or symbolic possession
In the writ petition of Kottakkal Co-Operative
Urban Bank Ltd v. Balakrishnan, IV (2008) BC
480, (Kerala HC ruling), it was held that in or
terms of Section 13(6), there is no legal
jurisdictional error in the sale being held by the secured creditor on the strength of the de jure possession (symbolic possession). It also held that where the secured creditor has completed transfers on the basis of de jure possession is entitled to apply for assistance to the CMM/ DM to take de facto possession of the security interest.

44. Resolution of Disputes
161
Resolution of Disputes
In case
of Sosamma Abraham v. State Bank of
Travancore, IV (2008) BC 233, (Kerala HC ruling), it was held that the resolution of disputes through arbitration and conciliation is only provided in cases of disputes between parties as referred to in Section 11 of the Act, which conspicuously does not mention borrower as a party. Section 11 does not stand in the way of initiation or continuance of securitisation proceedings.

45. Manner of sale or transfer of assets
162
Manner of sale or transfer of assets
Equity of redemption is an important right of a borrower and any clause putting a clog on equity is invalid.
Present law gives to the borrower a right to pay within 60 days of notice
In addition, at any time before sale or transfer, the borrower may clear his dues and prevent the asset from being sold - sec 13 (8)
▫ This implies the asset cannot be sold without notice to borrower
▫ borrower has a pre-emptive right to purchase the asset himself
30 days notice required before sale: Security Interest Enforcement Rules
Also by implication, the sale cannot be made at the back of the borrower:
▫ preferably a public sale
▫ sale at best price as the borrower gets discharge to the extent of amount paid - sec. 13 (5)
▫ borrower‟s right to moneys collected by the seller after appropriation - sec 13 (7)
Transferee to get all the rights as if the owner of the assets has transferred the same:
▫ subject to all the equities of the previous owner
Can the lender sell the asset to himself - no as implicitly there is a trust between the lender and the borrower; adversary title to beneficiary not permitted

46. After taking repossession, can it sit pretty?
163
After taking repossession, can it sit pretty?
In Everest Wools P Ltd vs. UPFC, I (2008) BC 594 (SC), supreme court held that a lender seeking repossession u/s 29 of SFC Act does it as a agent and trustee of the borrower
Where it takes repossession without taking over management, it must proceed for making sale of the going concern forthwith

47. Priorities and Pari-passu Interests
164
Priorities and Pari-passu Interests
In case of “financing of a financial asset” by more than one lender, 3/4th sanction in value to be obtained before any or all right u/s 13 (4) is exercised.
▫ Wrong use - should be read as “financing of the secured asset”
▫ financing of the secured asset cannot be limited to a case where the acquisition of the asset was primarily funded by a lender
Financing of the secured asset confusing:
▫ proper meaning is, where security interest on a secured asset held by more than one lender
▫ consent of 3/4th of the lenders required before any action u/s 13 (4)
▫ record date -meaning circular and inconclusive - the date is agreed upon at
time when the determination of the date itself requires 3/4 th sanction
▫ 3/4th in value refers to “amount outstanding”
evidence of “amount outstanding” - books of the lender made evidence
stone-walling action possible:
creation of subordinate charges in favour of a friendly lender
▫ question of priorities not at all considered by the law - lenders having subordinate charges put at par with other lenders

48. Priorities and Pari-passu Interests contd..
165
Priorities and Pari-passu Interests contd..
If lenders take such action, their mutual prioritisation not laid down. Rules of sec. 529 of Companies Act and insolvency laws [sec. 61 of Provincial Insolvency Act] to apply on priorities.
Pari passu rule is an important rule of equity - contracting it out is against public policy -McMillan and Lockwoord 1992 NZ Court of Appeal
Allahabad Bank vs Canara Bank – does it undo the priorities?

49. Priorities between Fixed and Floating Charges
166
Priorities between Fixed and Floating Charges
As a trite law, fixed charges will have a priority over
floating charges.
Determination of “multiple financiers” on an asset has no better answer than charge-holder holding charges.
The most practical view, therefore, is chargeholders holding fixed charges on the asset need to take a decision (75% voting) on action under sec. 13 (4).
Floating chargeholders cannot be said to be holding a
security interest in the asset until the charge crystallised.
Will subordinate charge-holders rank equally for voting -
apparently yes

50. Overriding Preferential Claims
167
Overriding Preferential Claims
Provisions relating to preferential claims made applicable only where the
company is in liquidation
where the company is in liquidation, sec 28 (6) of Provincial Insolvency Act saves the rights of the secured creditors.
This law appropriately overrides. However, subject to preferential claims.
Appropriately, the provisions should be applicable even where the company is not in liquidation:
▫ sec 123 (1) of the Companies Act requires any receiver to forthwith pay the debts which are preferential claims
▫ in case of debentures, the provisions of sec 123 shall be applicable
notwithstanding the SARFAESI Act
▫ Sec. 529A of the Companies Act also contains a notwithstanding clause
Sec 529A - workers‟ dues and dues of secured creditors take priority over
other debts
Leave of Companies Court not required in case of companies under winding up - Allahabad Bank v. Canara Bank (SC)

51. Manner and Effect of Takeover of
168
Manner and Effect of Takeover of
Management u/s 15
Amended sec 13 (4) (b) provides of takeover of management; no guidelines
framed still
Sec 15 clearly exceeds sec. 13 (4).
Sec 15 also divergent from the scheme of the SARFAESI Act on enforcement of security: the powers granted under the law can be used only to enforce security and not to run businesses:
▫ Delhi High Court ruling in Micronix India 96 Comp Cas vestation of
property in the SFC only for enforcing security interest
Takeover of management only in case of ARCs and securitisation companies u/s 9.
Takeover of assets u/s 13 (4) can only lead to sale of assets - not their running by the lender. Essential rule of foreclosure versus sale
Appointment of directors/ administrator to be appointed by the secured creditors
▫ notice in newspapers
▫ on publication of notice, existing directors shall vacate office
▫ creditor-directors shall take over the office/ assets
sec 15 (3) overrides the Companies Act.
Sec 15 (4) - restoration of management

52. 169
Appeal u/s 17
Proceedings u/s 17 of the Act are in lieu of the civil suit in the court of first instance under the CPC. – Aas Mohmad v. Punjab National Bank & Anr., I (2009) BC 72 (DRAT)
Even when the borrower is aggrieved by the action taken by the secured creditor u/s 13(4) or the borrower is of the belief that the action taken by the creditor is not by law, the only recourse the borrower has through the appeal u/s 17 of the Act, where the DRT is entitled to restore status quo ante – Sumantri Devi v. Canara Bank & Ors., II (2009) BC 511, (Jharkhand HC), the writ petition seeking quashing of issuance of notice u/s 13(2) of the Act not maintainable was dismissed.
In Central Bank of India v. State of Kerala & Ors., I (2009) BC 705 (SC) it has been clarified that the communication of reasons to the borrower in terms of Section 13(3A) shall not constitute as the ground for filing application under Section 17(1) of the Act
▫ See also Amba Devi Paper Mills Ltd. v. State Bank of India & Anr [(2012) III BC (DB) Uttarakhand]

53. Time Limit for Appeal u/s 17
170
Time Limit for Appeal u/s 17
Statute lays a time limit of 45 days
Kerala High court in J P Jayan’s case held that the power to condone the delay is given by the Act
▫ Sec 5 of the Limitation Act is not applicable
However, SC in Nahar Industrial Corporation case has held:
▫ In P. Sarathy v. State Bank of India [(2000) 5 SCC 355], this Court opined that although there exists a distinction between a court and a civil court, but held that a Tribunal which has not merely the trappings of a court but has also the power to give a decision or a judgment which has finality and authoritativeness will be court within the meaning of Section 14 of the Limitation Act, 1963.
▫ Hence, Limitation Act applies to DRTs
Hence power to condone delay is applicable.

54. Time Limit for Appeal u/s 17 contd..
171
Time Limit for Appeal u/s 17 contd..
Sec 5 of the Limitation Act applicable-
▫ UCO Bank v. Kanji Manji Kothari & Co. [(2008) 3 Bom CR 290]; Ponnuswamy and Another v. DRT Coimbatore and Another [2009 (3) Bankers‟ Journal 401]; State Bank of Patiala v. Chairperson, DRAT & Ors. [(2012) III BC All. 51]; State Bank of Patiala v. The Chairperson, DRAT & Ors. [(2012) II BC All. 212]; Surinder Mahajan vs Debts Recovery Appellate Tribunal & Others [ , decided on 5th April, 2013]
Contradictory view in Akshat Commercial Pvt. Ltd. & Anr. v.
Kalpana Chakraborty & Ors. [IV (2010) BC 267 Cal. (DB)]

55. Place of filing the appeal
172
Place of filing the appeal
This has been inserted vide the Amendment Act
The application shall be filed before the DRT within the local limits of whose jurisdiction—
▫ the cause of action, wholly or in part, arises; or
▫ where the secured asset is located.
▫ the branch or any other office of a bank or financial institution is maintaining an account in which debt claimed is outstanding for the time being.

56. 173
Application to DRT
Surprisingly, number of “secured creditors” may not come under DRT jurisdiction, but
appellate powers conferred on DRTs.
Appeal within 45 days of “measures having been taken”
Jurisdiction - jurisdiction under sec. 19 (1) of DRT law is based on the borrower‟s residence
Cannot do away with powers of making an appeal even before the measures are
taken.
Sec 19 (12) allows DRT to order injunction
Deposit of 75% of the notice amount
▫ DRTs may reduce amount to be deposited
▫ Similar condition under RDB law upheld in Anant Mill vs State of Gujarat 1975 SC
▫ notice amount to be borne out by records of the lender
Appeal to Appellate Tribunal within 30 days
The appellate authorities may hold the possession unauthorised and order compensation.

57. Application to DRT/ DRAT
174
Application to DRT/ DRAT
Section 17(5) prescribes the time limit of sixty days within which an application made u/s 17 is required to be disposed off. The proviso to the sub-section envisages extension of time upto four months for adjudication of the application
The Co-operative Banks cannot initiate proceeding under the provisions of SARFAESI Act or approach DRT, being aggrieved, as co-operative banks are consciously excluded from the purview of RDB Act – Sri Basaveshwar Co- operative Bank ltd & Anr. v. Umesh & Ors., I (2009) BC 21 (DRAT)

58. 175
Who can file?
In S Shalini vs DRT, ruling dated 17 April 2009, Madras High court held that a shareholder of the company did not have a right to bring petition under sec 17.
“Any person” is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under section 13(4) or section 14 of the Act.
▫ United Bank of India v. Satyawati Tandon and Others [III (2010)
BC 495 (SC)]
A lessee in respect of a part of the entire property dragged into the main dispute between the land owner and the bank, was held to be a “person aggrieved” for the purpose of Section 17(1)
▫ Hindustan Petroleum Corporation Ltd. v. Debts Recovery
Tribunal & Ors. [(2012) IV BC 737 Ori.(DB)]

59. 176
Powers of DRT cont..
In Nahar Industrial Enterprises Ltd v. Hong Kong & Shanghai Banking Corporation (SC ruling, date of judgment – 29/7/2009) jurisdiction of the DRT is discussed and the following questions were addressed
▫ Whether the High Court/ Supreme Court has the power to transfer a suit from Civil Court to DRT?
▫ Whether Article 142 is applicable to direct a transfer from a Civil Court to DRT
▫ Whether High Court had the power to transfer a counter-claim to the DRT?
It was held that civil courts and courts trying disputes of civil nature are two different and that Tribunal cannot be treated as a court. The Tribunal was constituted with the specific purpose and can issue a certificate for recovery of dues and cannot pass a decree.
The Tribunal is not bound by the procedures laid down in the Code and it may evolve its own procedure subject to the compliance of the principle of natural justice.
It was held that the powers of the court under Articles 139A and 142 of the Constitution are wide and extensive and may be resorted to do complete justice.
Relying on several other cases, it was held that a counter-claim can be transferred to the Tribunal when the subject matter of the suits of the plaintiff and the defendant are inextricably connected and both parties place their consent for the same.

60. 177
Powers of DRT cont..
In Transcore, SC has held that DRTs are a creature of the statute
and do not have the inherent powers enjoyed by civil courts.
In Nahar Industrial, SC has further curtailed the powers of DRTs
DRT only required to consider the question of validity of actions taken by the secured creditor, and is not required to adjudicate the exact amount of debt due to secured creditor
▫ Canara Bank v. Supreme Ceramics Ltd. [(2012) III BC 3 (DRAT- Delhi)]
There is no provision in the SARFAESI Act which enables the opposite party to make a plea of set-off or counter-claim in the DRT. The DRT while exercising power under the SARFAESI Act has no jurisdiction to entertain suits even in the nature of cross-suits.
▫ Jose Antony v. Anil Kuruvilla Kattottil & Ors [(2012) III BC Ker.
635 ]

61. Powers of DRT cont.. The Amendment Act allows the DRT to do the
178
Powers of DRT cont..
The Amendment Act allows the DRT to do the
following –
▫ to examine the claims of tenancy or other rights over the property over which the security interest is created and pass orders as it deems appropriate
▫ to restore the possession of assets where it is of the view that the applicant, where it is other than the borrower, is entitled to restoration of possession of secured assets of management of the business of the borrower

62. Unresolved issues on Possession/
179
Unresolved issues on Possession/
Sale of Assets
Claims of the Government - rights of a secured creditor rank above the claims of the government - Bank of Bihar v State of Bihar (1971) SC and Sitani Textiles 98 Comp Cas.(AP)
Whether involvement of liquidator necessary in case of companies under liquidation
- divergent view:
▫ Kerala HC held liquidator ‟s involvement required: Titus Daniel 101 Comp Cas 117; Pennar Paterson - AP HC 106 Comp Cas 338 (power of advocate commissioner appointed by DRT subject to leave of company court)
▫ Required: Rajasthan Financial Corpn. v. The Official Liquidator [(2005) 8 SCC
190]
▫ Not required: Kotak Mahindra Bank Ltd vs Megnostar Telecommunications [2013] Comp. Cas. 246 (Del.)]
Can a view be taken that of the two alternate remedies:
▫ DRT proceedings
▫ direct action under this law
▫ this law should be resorted only as a remedy of last resort? A debatable issue

63. Unresolved issues on Possession/
180
Unresolved issues on Possession/
Sale of Assets contd..
Can sale be made after repossession by instalments? Can banker give credit to
new buyer? How does original borrower get credit?
Sale of assets – issue of a sale certificate conveys title to the buyer; registration under Registration Act not required
▫ K Chidambara Manickam v Shakeena and others III (2008) BC 6 (DB)
Redemption not allowed: Borrower in this case sought redemption after issue of sale certificate, but before registration of the same. Question was, whether the sale was to be cancelled in view of the right of redemption
▫ Ram Murthy Pyarelal v. Central Bank of India [(2010) I BC 85 (DRAT-Del).]
Redemption not allowed
▫ Ram Murty Pyara Lal & Ors. v. Central Bank of India & Ors. [I (2011) BC Del. (DB)]
auction sale proceedings may be cancelled in case the DRT concludes that the measures taken by the secured creditor are not in compliance with Section 13(4).

64. More questions on SARFAESI Act
181
More questions on SARFAESI Act
The power of the DRT includes power to grant interim orders –
Ramco Super Leathers vs UCO Bank III (2008) BC 102 (Mad)
Partition suit among parties – is essentially a civil issue and does not affect the bank. Hence, not covered by DRT. Secured lender may go ahead with repossession: Vyasa Cooperative Bank v G Kreeshna and others II (2008) BC 214 (Kar)
Someone claiming to be tenant: tenancy only created in accordance with sec 65A of TP Act protected: Sanjeev Bansal v Oman International Bank, IV (2006) BC 299 (Del) (DB)

65. Rules on Auction Securing the best price
182
Rules on Auction
Securing the best price
▫ Gajraj Jain v State of Bihar (2004) 7 SCC 151
▫ Act fairly and in a reasonable manner
▫ Palpap Ichinichi Software International Ltd. v. Indian Bank [(2012) III BC 324 Mad.
(DB)]
▫ Pragati Builders & Promoters & Ors. v. Ram Murthy Pyara Lal & Ors [(2012) III BC Del. (DB)
Bona fide purchase, sale cancelled subsequently
▫ Bonafide purchasers have to be protected. Janatha Textile vs. TRO, III (2008) BC
372 (SC)
Auction of property done. Highest bidder required to put 25% deposit, which he does not mean. This cannot permit property to be sold to second highest bidder. The entire exercise has to be redone. III (2007) BC 659 (Orissa) (DB)
Auction sale proceedings may be cancelled in case the DRT concludes that the
measures taken by the secured creditor are not in compliance with Section 13(4).
▫ Ram Murty Pyara Lal & Ors. v. Central Bank of India & Ors. [I (2011) BC 125 Del. (DB)]

66. 183
Rules on Auction contd..
Redemption of mortgage – available anytime before finalisation of the sale: Philomina Jose v Federal Bank II (2006) BC 98 (SC). The ruling not a case under SARFAESI but under TP Act, holding right of redemption is a substantive right of the mortgagor
In case where more than one creditor holds security interest in a particular asset, then before auctioning the asset the creditor must take consent of the creditors exceeding 75% of the interest of all the creditors (u/s 13(9) of the Act)
Bank must attempt to fetch maximum price:
▫ Guj HC in Sun Star Future Wood vs Authorised Officer, SASF I
(2009) BC 460
No requirement of service of notice for sale upon the borrower when the property is to be sold by inviting tenders from the public or by public auction. [In ref: Rule 8(6)]
▫ Phoenix ARC Pvt. Ltd. v. Ishan Systems Pvt. Ltd. & Anr. [(2012) II BC 98 (DRAT-Delhi)]

67. 184
Writ Jurisdiction
Whether tenancy exists – question cannot be gone into in writ jurisdiction: Kupu China Veerbhadra Rao v. AO, Punjab National Bank III (2008) BC 474 (AP)
On the ground that the classification as NPA was wrong – writ declined
▫ Srinivasa Rice and Flour Mill III (2008) BC 503 (AP)
▫ Manokamna Steel Pvt. Ltd. v. Punjab National Bank [(2012) II BC 206
Uttarakhand]
That the land is agricultural land – writ declined; petitioner may make the case to the bank; III (2008) BC 526 (AP)
That the bank is trying to sell the property in bits and pieces, whereas it will fetch better price if sold in lump sum – writ declined; IIII (2008) BC (Mad)
That assets of some of the respondents are auctioned and not those of others – not a ground for writ: Ashok Sarda vs SIDBI II (2008) BC (AP) (DB)
That the petitioner did not receive notice – petitioner simply trying to
thwart the action – Noorbari Tea vs Uco Bank I (2008) BC 668 (Gau)

68. More cases on Writ Jurisdiction contd..
185
More cases on Writ Jurisdiction contd..
Prestige Lights vs SBI I (2008) BC 240 (SC)
Technical error in bank‟s notice u/s 13 (2): bank demanded payment in 15 days, instead of 60 days; actual repossession after more than 60 days.
▫ Repossession not struck down in Pooran Lal Arya vs. State of Uttarachal
III (2007) BC 285 (DB) (Utt)
One person contended that he had agreed to buy the property that the borrower mortgaged to the bank: the appellant can make a case before DRT and civil court refused to interfere: Ram Kumar vs Ravinder Kumar Gulati II (2007) BC 224 (Del)
Dispute as to title of property can also be raised before DRT and not before a civil court:
▫ Jammu and Kashmir Bank v Jai Lakshmi Dravid, I (2007) BC 227 (P&H)
▫ Durgam Anitha & Anr. v. State Bank of Hyderabad & Ors. [(2012) III BC
646 Andh. (DB)]
▫ Pushpangadan v. Federal Bank Ltd. [(2012) II BC 115 Ker. (FB)]

69. More cases on writ jurisdiction contd..
186
More cases on writ jurisdiction contd..
Delay on the part of the authorities having jurisdiction over Section 14, Court is constrained to exercise its writ jurisdiction
▫ Housing Development Finance Corpn. Ltd. v. State of Maharashtra & Ors.
[(2012) II BC 478 Bom. (DB)]
Diksha Trading Company vs Bank of Baroda, IV (2007) BC 466 (Del) – writ admitted, on the petitioner agreeing to come up with a settlement; contentions that inadequate amount was funded, and delays, etc
When a patent illegality arising out of evident non-compliance of the mandatory procedure is brought out, the exercise of writ jurisdiction is warranted and justified, even if there is availability of alternate remedy.
▫ M/S. K.R.S. Latex (India) Pvt. Ltd v. The Federal Bank Limited [AIR 2011 Ker.
78 : III (2011) BC 1]
Whether forcible possession was taken by the secured creditor is essentially a question of fact to be determined on the basis of the material on record- question is left to be decided by the DRAT which has a fact finding jurisdiction.
▫ Clarity Gold Pvt. Ltd. & Anr. v. State Bank of India & Ors. [(2012) III BC Bom. (DB)]

70. HC on exercising jurisdiction under Art 226
187
HC on exercising jurisdiction under Art 226
of the Constitution – SC‟s concern
United Bank of India Vs Satyawathi Tondon and others, (2)
DRTC 457 (SC)
Supreme Court made a observation that the High Court‟s continue to ignore the statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226.
Supreme Court expressed that this is a matter of serious concern hoped that that High courts would in the future exercise much more discretion in such matters with greater caution, care and circumspection.

71. Applicability of SARFAESI Act in case of companies
188
Applicability of SARFAESI Act in case of companies
under winding up
SC ruling in Allahabad Bank Vs. Canara Bank 2000 (4) SCC rights
of DRT override the jurisdiction of the winding up court.
However, in Rajasthan State Financial Corporation Vs. The Official Liquidator 2005 (8) SCC 190, SC held that in case of companies in winding up, the liquidator has to be associated
Key principles enunciated by the SC in Rajasthan State Finance
Corporation case:
▫ 1) DRT entitled to order the sale and to sell the properties of the debtor, even if a company in liquidation, through its Recovery Officer but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him.
▫ (2) Similarly, a District Court entertaining an application under Section 31 of the SFC Act will have the power to order sale of the assets of a borrower company in liquidation, but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him.

72. 189
Applicability of SARFAESI Act in case of companies under winding up contd..
▫ (3) A financial corporation acting under Section 29 of the SFC Act seeks to sell assets of a company in liquidation can do so only after permission from the Company Court, and as per directions of the Company court;.
▫ (4) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the Company Court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company in liquidation.
In other words, a company in liquidation becomes a special case in light of the distribution principles set out in the Companies Act
Following SC ruling in Rajasthan State Financial Corporation, in Asset Reconstruction Company (India) Limited Vs The Official Liquidator 2006 (3) SCC 529, DB of Madras High court sale by a secured creditor under SARFAESI also subject to leave of court

73. Unpaid vendor‟s lien on goods
190
Unpaid vendor‟s lien on goods
Are rights of a secured creditor affected by unpaid
vendor‟s lien on the goods?
▫ The question was raised in Indian Renewalable Energy, ruling
dated 19 Jan 2011, before Madras High court
Court rejected claim on the ground that the issue was not forced at proper time
Not sure whether, if raised at appropriate stage, the contender would have
succeeded
Court has also noted the provisions of sec 49 of Sale of Goods Act
▫ The above ruling was upheld in appeal before DB in Bharat Heavy Electricals

74. Registration of Security Interest with CERSAI (1/1)
191
Registration of Security Interest with CERSAI (1/1)
Section 26B inserted to extend the provisions of registration with the Central Registry to all the creditors of all the transactions relating to creation, modification or satisfaction of any security interest;
Requires registration of attachments of any property done by statutory authorities, in exercise of powers of recovery of dues payable to the government.
Orders from civil authorities and other authorities also requires
registration.

75. Registration of Security Interest with CERSAI (2/2)
192
Registration of Security Interest with CERSAI (2/2)
Section 26C provides that such registration with the Central Registry shall be deemed to be a public notice from the date and time of filing of the particulars;
Section 26D provides that no security enforcement rights provided to those secured creditors who have not filed the same with the Central Registry.
Section 26E provides priority to the secured creditor however the explanation makes the section subject to the Insolvency and Bankruptcy Code, Note, the provisions of the Bankruptcy Code come into play only where there is an insolvency or bankruptcy of the borrower.

76. Some relevant case laws on SARFAESI Act, 2002
193
Some relevant case laws on SARFAESI Act, 2002

77. Possession – a relative concept
194
Possession – a relative concept
▫ In Re M/S Transcore vs Union Of India & Anr on 29
November, 2006 (SC) Appeal (civil) 3228 of 2006
Not an absolute concept
Conceptual distinction between
Securities by which the creditor obtains ownership of or interest in the property concerned (mortgages)
Securities where the creditor obtains neither an interest in nor possession of the property but the property is appropriated to the satisfaction of the debt (charges).
Lease - an encumbrance over the property
▫ Hon'ble Division Bench of the Kerala High Court in Re.
Business India Builders & Developers Ltd. (supra)(2007)
“Encumbrance” cannot be given a restricted meaning
Burden or charge upon the property example: lease, mortgage, easement, restriction, covenant, rent, charge etc.

78. SARFAESI Act and RDDBFI Act are complimentary to each other
195
SARFAESI Act and RDDBFI Act are complimentary to each other
Supreme Court in Mathew Varghese v M. Amritha Kumar & Ors held (2014) 5 SCC 610 as follows –
▫ The application of both the Acts, namely, the SARFAESI Act and the RDDBFI Act, would be complementary to each other.
▫ Subsequently, in the case Anil Kumar Akela v State Bank of India II (2015) BC 386 (Jhar.) reliance was placed on the Mathew Varghese case (supra) and the Court held that the issue regarding simultaneous proceedings under the RDDBFI Act and the SARFAESI Act is no more res integra. Thus, there is no iota of doubt that proceedings under these two statutes can continue simultaneously without any bar.

79. SARFAESI Act to override provisions of Transfer of Property Act
196
SARFAESI Act to override provisions of Transfer of Property Act
▫ Harshad Govardhan Sondagar.vs International Assets
Reconstruction Co. Ltd. & Ors on 3 April, 2014, SC
Comply with natural justice
What was otherwise a non-adjudicatory process would
now partake the character of a quasi-judicial proceeding
A lessee in whose favour there is registered agreement of lease executed prior to the mortgage has a right to be heard
SARFAESI Act will override the provisions of the TP Act

80. DRAT has no power to condone delay
197
DRAT has no power to condone delay
▫ Poonam Garg Vs The Chief Manager, State Bank Of India on 10 January, 2014, Delhi HC
DRAT do not have the power to condone delay in filing of an appeal under section 18 of the SARFAESI Act, 2002
Publishing photographs of defaulters
▫ In re. Shri Mohan Products Pvt. Ltd. & Others vs. State Bank of India(2015); held by Chhattisgarh HC
Publication has got legal sanction under Rule 8 (6) (f) of Rules,
Writ of prohibition cannot be issued prohibiting banks from
publishing such photographs
This is contrary to the decisions of Calcutta HC in Ujjal Kumar Das & Anr v/s State Bank of India & Ors (WP (W) of
2013) and Allianz Convergence Pvt Ltd v/s The General Manager,
State Bank of India & Anr (WP 9850 (W) of 2013)

81. Refund of pre-deposit amount
198
Refund of pre-deposit amount
In the case Axis Bank v SBS Organics Pvt. Ltd Civil Appeal No OF 2016 (Arising out of SLP (C) No /2015) decided on
▫ The Supreme Court observed that the pre-deposited may be refunded to the borrower in certain circumstances.
▫ Court held that the secured creditor cannot exercise lien on the pre- deposit.

82. Some action points under SARFAESI
199
Some action points under
SARFAESI

83. 200
Procedural steps
Have you evaluated options and want to take SARFAESI Act action?
▫ Simultaneous proceeding under DRT law?
Shooting of notice u/s 13 (2)
▫ Contents
Demand for payment
Details of payment
Details of secured assets
Right of representation
Officer to whom representation may be filed
▫ Signed by “authorised officer” (chief manager or above)
▫ Service:
Serveral modes of service laid down in the Rules
Proof of delivery
▫ At the registered office or branches
Seeking consent of other secured creditors
Preparing for action u/s 13 (4)
▫ Identification of particulars of assets
▫ Involving CMM/DM u/s 14

84. Procedural steps contd..
201
Procedural steps contd..
Seeking symbolic possession or actual possession?
▫ In either case, inventory of possessed assets required;
would be inadvisable in case of movable properties
symbolic possession
At the time of taking possession:
▫ Prior information to police always advisable
▫ Panchnama signed by 2 witnesses
▫ Inventory and service of inventory to borrower
In case of immovable property taken in symbolic possession, possession notice on
the property, and 2 newspapers; otherwise, actual possession of the property
Keeping care of the property
▫ Rules make the lender liable to take as much care as an owner
▫ Preservation and protection
Valuation and fixation of reserve price
▫ Rules say, after consulting the secured creditor; perhaps, the intent was to say, after informing the borrower
Deciding upon method of selling
▫ Dealer bids, public tender, public auction, private treaty
As sale price is always a contentious issue, in interest of transparency, public auction is the best way
30 days’ notice prior to sale
▫ Contents of the notice not laid down, but reasonable to expect the following
Reserve price
Method of sale

85. Procedural steps contd..
202
Procedural steps contd..
Notice to other interested parties:
▫ Other secured lenders
▫ guarantor
Public notice
Sale as per terms of the notice
▫ What is the terms of the notice not complied with?
Sale to be ordered again
Deposit of 25% of the sale consideration by the buyer
Payment of the balance consideration by the buyer
Issue of certificate of sale
Claim for recovery of the balance amount under DRT law
Sharing of pari passu/senior interest with other lenders
Returning the excess to the borrower