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Sale of Mortgaged Property Under SARFAESI Act: Understanding the Process

Feb 12 2026

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 empowers banks and financial institutions in India to recover non-performing assets (NPAs) without court intervention.

One of the most significant provisions of the Act is the sale of mortgaged property through public auction or e-auction when a borrower defaults on loan repayment.

This article explains the SARFAESI property sale process, legal provisions, borrower rights, buyer precautions, and practical challenges.

What is the SARFAESI Act?

The SARFAESI Act allows secured creditors (banks/NBFCs) to:

  • Take possession of secured assets

  • Sell mortgaged property

  • Recover outstanding dues

  • Enforce security interest without filing a civil suit

The Act mainly applies when:

  • The loan account is classified as an NPA (Non-Performing Asset)

  • The outstanding amount exceeds ₹1 lakh

  • The default amount is at least 20% of principal and interest

Step-by-Step Process of Sale of Mortgaged Property under SARFAESI

Issuance of Demand Notice – Section 13(2)

The bank issues a 60-day demand notice to the borrower specifying:

  • Total outstanding dues

  • Details of secured assets

  • Consequences of non-payment

The borrower can make representations or objections during this period.

Taking Possession – Section 13(4)

If the borrower fails to repay within 60 days:

  • The bank takes symbolic or physical possession

  • A possession notice is affixed on the property

  • Notice is published in two newspapers

Valuation and Fixing Reserve Price

Before auction:

  • Bank appoints an approved valuer

  • Determines fair market value

  • Fixes reserve price

Sale of Property (Rule 8 & Rule 9)

The sale is conducted via:

  • ✔ Public Auction

  • ✔ E-Auction (most common today)

  • ✔ Private Treaty

The bank publishes:

  • Sale notice (30-day notice mandatory)

  • Auction date

  • EMD (Earnest Money Deposit)

  • Inspection date

 Recovery of Dues & Surplus Refund

  • Sale proceeds adjusted against loan dues

  • Surplus (if any) returned to borrower

  • If shortfall remains, bank may proceed further legally

Borrower’s Rights under SARFAESI Act

Even though the Act empowers banks, borrowers have legal remedies:

 Right to Representation (Section 13(3A))

Borrower can raise objections within 60 days.

 Right to Appeal (Section 17)

Borrower can approach Debt Recovery Tribunal (DRT) within 45 days of possession.

 Right to Redeem Property

Borrower can repay full dues before auction confirmation.

Benefits of SARFAESI Property Sale

 Faster Recovery of NPAs

No need for lengthy civil court process.

Transparency via E-Auction

Online platforms increase fairness and wider participation.

 Better Banking Stability

Reduces stressed assets in the financial system.

Challenges in SARFAESI Auctions

 Market Conditions

Low bidder participation may reduce sale value.

 Litigation Delays

Borrowers often approach DRT/High Courts.

 Property Title Issues

Buyers must conduct due diligence.

Important Tips for Buyers in SARFAESI Auctions

Since your audience is e-auction focused, this section is CRITICAL:

  • Verify encumbrance certificate

  • Check possession status (symbolic or physical)

  • Inspect property personally

  • Understand that banks sell on “as is where is” basis

  • Check pending society dues, electricity bills, taxes

  • Confirm whether any stay order exists

Frequently Asked Questions (FAQs)

Is court permission required for SARFAESI auction?

No. Banks can proceed without court intervention.

Can borrower stop auction?

Yes, by paying full dues before sale confirmation.

What happens if auction fails?

Bank may reduce reserve price and re-auction.

Is SARFAESI auction safe for buyers?

Yes, if proper legal due diligence is done.

The sale of mortgaged property under the SARFAESI Act, 2002 is a powerful recovery mechanism for banks and financial institutions. It ensures faster NPA resolution, promotes transparency through e-auction, and protects borrower rights through DRT appeal mechanisms.

For property buyers, SARFAESI auctions present opportunities to purchase assets at competitive prices — provided proper legal checks are conducted.