SARFAESI Act Enforcement: What Banks, Borrowers, and Courts Have Clarified in Recent Years

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, commonly known as the SARFAESI Act, remains the primary tool available to secured creditors, including banks and non-banking financial companies, for recovering non-performing assets without approaching a civil court. A series of Supreme Court rulings between 2023 and 2026 have significantly shaped the boundaries of this power, clarifying the rights of both lenders and borrowers in enforcement proceedings.

How SARFAESI Enforcement Works

Under Section 13 of the SARFAESI Act, once an account is classified as a Non-Performing Asset, the secured creditor may issue a notice demanding payment within 60 days. If the borrower fails to pay, the creditor may take possession of the secured asset, sell it, appoint a receiver, or transfer the asset without approaching any court. The mechanism is designed to be swift and creditor-friendly. It can only be invoked by secured creditors and only where the debt is backed by a security interest over a tangible asset. Unsecured creditors cannot use the SARFAESI route.

The Right of Redemption: Curtailed by the 2023 Supreme Court Ruling

A significant Supreme Court ruling in 2023 held that the amendment to Section 13(8) of the SARFAESI Act has curtailed the borrower's right of redemption of mortgaged property to only the period before the date of publication of the notice for auction of the mortgaged property. This means a borrower who fails to tender the outstanding dues before the auction notice is published loses the right to redeem the property. Once the auction notice is published, the process cannot be stopped by a late payment offer, regardless of the amount offered.

The CMM/DM Role Is Strictly Ministerial

Under Section 14 of the SARFAESI Act, the secured creditor may approach the Chief Metropolitan Magistrate or District Magistrate to take possession of the secured asset. A 2026 Supreme Court ruling clarified that the CMM or DM's role under this section is strictly ministerial: they have no jurisdiction to decide disputed questions of title or to entertain borrower objections about the validity of the debt. Their function is to provide administrative assistance to the secured creditor, not to adjudicate the merits of any claim. Any challenge on merits must be directed to the Debt Recovery Tribunal.

Practical Takeaways

Borrowers who receive a SARFAESI Section 13 demand notice must act immediately. The 60-day window is short, and once the auction notice is issued, the right of redemption is extinguished. Challenges to SARFAESI action must be taken to the Debt Recovery Tribunal under Section 17, which requires the borrower to deposit 50 per cent of the debt amount or such lesser sum as the DRT may direct. Secured creditors must ensure that NPA classification is proper, the security interest is registered, and the Section 13 notice is correctly issued. Procedural defects in the notice can still give the borrower grounds for challenge before the DRT even if the debt is undisputed.