Skip to content


The SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act of 2002 was enacted on December 17, 2002, to assist Indian lenders in recovering their outstanding debts as quickly as possible. The SARFAESI Act of 2002 authorizes Indian financial institutions to identify and address problems connected to nonperforming assets (NPAs) (Non Performing assets). It also allows Indian banks and other financial organizations to sell residential or commercial properties in order to collect loans.

NPA-Non Particle Asset
A non performing asset (NPA) refers to a classification for loans or advances that are in default or in arrears.

The main purpose of the SARFAESI (Securitization And Reconstruction of Financial Assets and Enforcement of Security interest) Act are below :

  • The legal framework associated with scanning activities in India is described.
  • The methods for transferring non-performing assets to asset reconstruction businesses for reconstruction are discussed. This enables banks and financial institutions to recover NPAs quickly and effectively.
  • Allows financial institutions and banks to sell properties (commercial or residential) if a borrower defaults on their loan payments.
  • Gives financial institutions the authority to take control of immovable property that has been hypothecated or charged for debt recovery.
  • With no interspecific legal framework associated with scanning activities in India, it implies a security interest.


The Constitutional Validity of SARFAESI Act is discussed in “Mardia Chemical Vs. Union of India”. This  case is described in detail as below:

The constitutional validity of SARFAESI was questioned, particularly Sections 13, 15, 17, and 34, on the grounds that they are arbitrary and unjustified. When the Act went into effect, IDBI Bank issued a notice to Mardia. Mardia defaulted—appealed to the court, where a series of similar petitions were grouped together and addressed as a single case.

Issues of this case:

  • Is it possible to challenge SARFAESI on the grounds that it was unnecessary to create it given the circumstances, especially when another statute was already in effect?
  • Whether or whether Section 13 of the Act was unconstitutional?
  • Is Section 17, particularly Section 17(2), unreasonable and arbitrary, and thus unconstitutional?

Petitioner’s Arguments are follows:

Section-13 gives all rights to banks and financial institutions while ignoring the rights of defaulters. Borrower interest was not taken into consideration at all in Sec 13. Furthermore, the borrowers had no right of counsel or recourse to an adjudicatory procedure.

Section-17(2) stated that the defaulter had to deposit 75% of the amount in order to prefer and appeal—this was too much and thus limited access to judicial recourse of appeal—it was as if an implied bar had been created to this, UoI contended that there were several other legislations that provided for such preconditions Pet argued that those were for appeal and not for application of first instance. UoI tried to refute that by stating that the margins were for appeal

Section-15 deals with the procedure for assuming control of an entity’s operations and management, particularly a corporation.

Section-34 was pari materiae to the RDB Act, which stated that DRTs have exclusive jurisdiction, i.e., no civil court shall grant any order or injunction against a bank exercising rights under the Act, and that no civil court shall grant any order or injunction against a bank exercising rights under the Act.

SARFAESI was superfluous because there was already a law dealing with this subject topic, and several laws were not required to handle the same subject matter. It was also pointed out that the most troublesome debt bracket—between 25,000 and 1 lakh dollars—didn’t necessitate separate laws.

Supreme court held that:

The Parliament’s superiority in deciding the need for legislation was emphasized.

The connection between the RDB Act and SARFAESI was rejected since the latter deals with the highly particular issue of non performing assets (NPAs) (among other differences such as the latter dealing only with secured creditors). As a result, it is up to Parliament to decide whether or not legislation is required.

Section 13 was found to be constitutionally legitimate by the Court.

The secured creditor is only exercising his entitlement because the default that led to the sec 13 measure might be considered a “second default”—NPA + 60 days extra time to repay following notice.

Prior to the 2016 Amendment, Section 13 acknowledged the Right of Redemption in a sense. The bank was obligated to serve a notice certifying the sale of secured property, and the borrower might pay off the loan and retake possession at any time under Rule 8 and 9 of the SI Rules.

Impact of the judgment:

Section 13 now states that the bank must evaluate all of a borrower’s representations and respond within seven days (which was later changed to 15 days).

Within section 17, the word “appeal” was replaced by “application,” despite the fact that the marginal header remained the same (wow). In 2016, the appeal was superseded by an application in the marginal heading.

DRTs (Debt Recovery Tribunal) now have jurisdiction over the rights of tenants in a security property. In such instances, the property is given to the person who files the application (if he meets the requirements).

Section 18 was also somewhat changed. When filing an appeal with the DRT, you must deposit 50% of the total cost, which can be lowered to 25%. DRT was awarded a similar waiver authority under Section 17 as well.

This was eventually altered in 2016, and DRT no longer has the ability to waive the deposit amount.



Contact Us

Contact Form Demo (#5) (#6)

Recent Posts

Trending Topics

Visit Us

Bhatt & Joshi Associates
Office No. 311, Grace Business Park B/h. Kargil Petrol Pump, Epic Hospital Road, Sangeet Cross Road, behind Kargil Petrol Pump, Sola, Sagar, Ahmedabad, Gujarat 380060

Chat with us | Bhatt & Joshi Associates Call Us NOW! | Bhatt & Joshi Associates