The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, empowers banks and financial institutions to recover their non-performing assets (NPAs) by taking possession of the secured assets and selling them through public auction. However, the SARFAESI Act also provides certain safeguards and legal remedies for borrowers who face the risk of losing their properties due to default. In this article, we will discuss some tips and legal strategies that can help borrowers to stop auction under SARFAESI Act and protect their rights.
Understanding SARFAESI Act and Default Notices
The SARFAESI Act applies to secured creditors who have a charge on movable or immovable property as security for a loan or advance. If the borrower defaults in repayment of the loan or any other obligation, the secured creditor can issue a demand notice in writing, called a default notice, requiring the borrower to pay the outstanding amount within 60 days from the date of the notice. If the borrower fails to comply with the notice, the secured creditor can take possession of the secured assets without the intervention of a court or tribunal. The secured creditor can also appoint a manager to manage the business or assets of the borrower.
Challenging the Default Notice and Seeking Stay Order
If the borrower receives a default notice, he or she can challenge the notice on various grounds, such as the amount demanded is incorrect, the notice was not issued as per the SARFAESI Act, the borrower has already repaid the loan or any other obligation, or the secured assets are not liable to be attached. The borrower can also approach the Debt Recovery Tribunal (DRT) and file an application for setting aside the demand notice and seeking a stay order on the auction proceedings. The borrower has to pay a fee of Rs. 1000/- for filing such an application, along with the necessary documents and affidavits.
Defending the DRT Proceedings and Contesting the Secured Creditor's Claim
Once the borrower files an application before the DRT, the secured creditor has to file a reply within 30 days, along with the necessary documents and affidavits. The DRT will then give an opportunity to the borrower to file a rejoinder and fix a date for hearing the arguments of both parties. The borrower can contest the claim of the secured creditor by challenging the validity of the loan agreement, the enforceability of the security interest, the compliance with the SARFAESI Act, or any other ground of defense. The borrower can also raise counter-claims against the secured creditor, such as damages for wrongful possession, mismanagement, or negligence.
Appealing to the Appellate Tribunal and High Court
If the DRT passes an order against the borrower, he or she can file an appeal before the Appellate Tribunal within 45 days from the date of the order. The Appellate Tribunal has the power to stay the operation of the order and grant interim relief to the borrower. If the Appellate Tribunal also dismisses the appeal or passes an adverse order, the borrower can file a second appeal before the High Court within 60 days from the date of the order. The High Court can also stay the operation of the order and hear the arguments of both parties before passing a final order.
Stopping auction under SARFAESI Act requires a thorough understanding