Challenging a Section 13(2) Notice
The Section 13(2) notice is the starting point of SARFAESI proceedings. This 60-day notice demands repayment of the entire outstanding amount. Advocate Shaw challenges Section 13(2) notices on the following grounds:
Incorrect Amount: The notice claims an amount that includes illegal charges, excessive penal interest, or amounts not actually due.
Loan Not NPA: The loan was not properly classified as NPA — perhaps payments were made within the 90-day window.
Procedural Violation: The notice does not contain all the details required by the Act and the Security Interest (Enforcement) Rules, 2002.
No Security Interest: The property mentioned in the notice is not actually a secured asset.
Agricultural Land: The property is agricultural land, which is exempt from SARFAESI.
Non-Compliance with RBI Guidelines: The bank did not follow RBI-mandated procedures before classifying the account as NPA or before issuing the notice.
The borrower has 60 days to file a detailed representation (objection) under Section 13(3A). The bank must reply within 15 days, with reasons if it rejects the objection. This is a crucial stage, and Advocate Shaw drafts detailed representations that anticipate and address the bank's likely responses.
Challenging Section 13(4) — Taking Possession
If the borrower does not repay within 60 days (or if the objection is rejected), the bank proceeds under Section 13(4) to take possession of the secured asset. At this stage, the borrower can:
File an Appeal under Section 17 before the DRT: This is the primary remedy. The appeal must be filed within 45 days of the date on which the Section 13(4) action was taken. The DRT can declare the bank's action invalid and restore possession to the borrower.
Pre-Deposit Requirement: To file a Section 17 appeal, the borrower must deposit 25% of the amount claimed by the bank (or 50% in certain cases, or 25% if the DRT reduces it). This deposit is refundable if the appeal succeeds.
Writ Petition Before the Calcutta High Court: If the bank's action is manifestly arbitrary, illegal, or mala fide (e.g., taking possession of property not mortgaged, or taking possession without following the procedure), a writ petition can be filed without exhausting the DRT remedy. Advocate Shaw advises on whether a writ is appropriate in your case.
Grounds for Challenge: The Section 13(4) action can be challenged on all the grounds applicable to the Section 13(2) notice, plus procedural violations in the possession process.
Section 14 — DM/CMM Application for Police Assistance
If the bank faces resistance in taking possession, it can apply to the District Magistrate (DM) or Chief Metropolitan Magistrate (CMM) under Section 14 for assistance. The DM/CMM is required to pass an order and provide police assistance within 30 days (extendable to 60 days).
Advocate Shaw represents borrowers in Section 14 proceedings:
Opposing the Application: The borrower can oppose the Section 14 application on the grounds that the secured asset is not clearly identified, the procedure has not been followed, or the borrower's rights under Section 17 DRT appeal are being prejudiced.
Filing a DRT Appeal Alongside: If a Section 17 appeal is pending before the DRT, the CMM may defer the Section 14 proceedings until the DRT decides.
Writ Petition: If the CMM mechanically passes an order without applying mind, a writ of certiorari can be filed.
Appealing DRT Orders to DRAT and High Court
If the DRT dismisses the Section 17 appeal:
Appeal to DRAT (Section 18): An appeal lies to the Debts Recovery Appellate Tribunal within 30 days (extendable to 60 days). The pre-deposit requirement is 50% of the debt (which can be reduced to 25% at DRAT's discretion).
Writ Petition to the High Court: A writ under Article 226/227 can be filed against the DRT order if it suffers from jurisdictional error, violation of natural justice, or perversity.
Supreme Court: A Special Leave Petition under Article 136 lies to the Supreme Court against the DRAT order.
Advocate Shaw represents clients at every appellate level.
Negotiating with Banks During SARFAESI
Even after SARFAESI proceedings have been initiated, settlement is possible. Advocate Shaw negotiates with banks for:
One-Time Settlement (OTS): A lump sum payment (typically less than the full outstanding) in full and final settlement.
Restructuring: Rescheduling the loan with revised terms — lower EMI, extended tenure, or moratorium.
Rehabilitation: Particularly for MSMEs, banks have rehabilitation schemes for viable businesses.
Handing Back Possession: If the bank has taken symbolic possession but not physical possession, settlement can result in the withdrawal of possession.
The key is to act early — before the bank sells the property. Once the property is sold to a third party, the position becomes far more difficult.