If you have taken a home loan, business loan, mortgage loan or another secured loan and have defaulted on repayment, the bank or financial institution may initiate proceedings under the SARFAESI Act, 2002.
One of the most serious stages is when you receive a possession notice stating that the secured property may be taken into possession and subsequently sold through auction.
If you have received such a notice, do not wait until the auction date. Depending on the facts of the case, there may be legal remedies available before the Debt Recovery Tribunal (DRT).
What Is a SARFAESI Possession Notice?
After taking the steps required under the SARFAESI Act, a secured creditor may take measures under Section 13(4), including taking possession of the secured asset.
A possession notice generally indicates that the bank has proceeded beyond the initial demand stage and is taking steps towards enforcement of its security interest.
The next stage may involve sale or auction of the secured property.
Can You Stop a Bank From Auctioning Your Property?
In appropriate cases, yes.
The possibility of obtaining relief depends upon the facts of the matter and whether the bank has complied with the requirements of the SARFAESI Act and applicable rules.
A borrower may approach the Debt Recovery Tribunal (DRT) by filing an appropriate application challenging the measures taken by the secured creditor.
The Tribunal may, depending upon the circumstances, grant appropriate interim relief or examine the legality of the bank’s action.
What Should You Do After Receiving a Possession Notice?
1. Do Not Ignore the Notice
A possession notice should not be treated as an ordinary bank communication.
You should immediately obtain and preserve:
- SARFAESI demand notice under Section 13(2);
- Your reply/objections, if any;
- Possession notice;
- Loan and sanction documents;
- Statement of account;
- Previous notices issued by the bank;
- Any auction/sale notice;
- Details of payments made;
- Correspondence regarding settlement or OTS.
2. Check Whether the SARFAESI Procedure Has Been Properly Followed
The bank’s actions should be examined from the beginning.
For example, an advocate may examine:
- Whether the account was properly classified as NPA;
- Whether the Section 13(2) notice was properly issued;
- Whether your objections were considered;
- Whether possession was taken in accordance with law;
- Whether the applicable SARFAESI Rules were followed;
- Whether the auction/sale notice complies with the applicable requirements;
- Whether there are issues concerning the secured asset or loan account.
A procedural or substantive defect can become important when challenging the bank’s measures.
What If the Bank Has Already Taken Physical Possession?
Even if the bank has already taken possession, you should not automatically assume that nothing can be done.
The available remedy depends upon the exact stage of the SARFAESI proceedings and the facts of the case.
In appropriate circumstances, proceedings before the DRT may be considered to challenge measures taken by the secured creditor and seek appropriate relief.
Can You Stop the Auction by Filing a DRT Case?
A borrower may challenge measures taken under Section 13(4) before the DRT under Section 17 of the SARFAESI Act.
However, merely filing a case does not automatically stop an auction.
Where urgent protection is required, the application should be accompanied by an appropriate request for interim relief/stay, supported by specific grounds and documents.
The Tribunal will consider the facts and circumstances of the case.
What If You Want to Settle the Loan?
If your objective is to retain the property and settle the outstanding loan, you may also consider discussing an One-Time Settlement (OTS) or other repayment proposal with the bank.
However, if an auction or possession process is already underway, the proposal should be made promptly and the legal proceedings should be assessed simultaneously.
Do not assume that submitting an OTS request automatically stops SARFAESI proceedings.
Do Not Wait Until the Auction Date
One of the biggest mistakes borrowers make is approaching a lawyer only after receiving the final auction notice or immediately before the auction.
By that stage, important statutory and procedural steps may already have taken place.
If you have received a SARFAESI possession notice, auction notice or notice from a bank/financial institution, it is advisable to have the entire loan and SARFAESI record examined at the earliest.
Bank Auction or Possession Notice in Ahmedabad?
If your property is situated in Ahmedabad, Gandhinagar or elsewhere in Gujarat, and you have received a possession notice or auction notice from a bank or financial institution, the documents should be examined to determine the appropriate legal remedy.
I handle DRT, SARFAESI, bank recovery and secured-property disputes before the appropriate forums in Gujarat.
Advocate Ayush S. Jain
B.B.A. LL.B., LL.M. (Business Laws)
Advocate & Trademark Attorney
High Court of Gujarat & District Courts, Ahmedabad/Gandhinagar
Office: Office No. 206, 2nd Floor, “B” Wing, Wall Street-2, Opp. Orient Club, Near Gujarat College, Ellisbridge, Ahmedabad – 380006
Contact: +91 7440772911
Frequently Asked Questions
Can a bank auction my property after issuing a possession notice?
A secured creditor may proceed towards sale of the secured asset after complying with the applicable SARFAESI requirements. The exact stage and notices should be examined.
Can I challenge a bank’s possession notice?
Depending upon the stage and circumstances, a borrower may have a remedy before the DRT under Section 17 of the SARFAESI Act.
Can DRT stop a bank auction?
The DRT can consider applications seeking appropriate interim relief. Whether protection is granted depends upon the facts and legal grounds of the particular case.
What if the bank has already taken possession?
The available remedies depend upon the circumstances and stage of the proceedings. Physical possession does not mean that every legal remedy is necessarily exhausted.
Can I stop the auction by requesting an OTS?
An OTS proposal may be made to the bank, but merely submitting an OTS proposal does not automatically stop SARFAESI proceedings.
Should I approach a lawyer before the auction date?
Yes. If you intend to challenge the bank’s action or seek time/settlement, approaching an advocate at the earliest is generally preferable.