The SARFAESI Act was introduced in the year 2002 mainly with the intention to assist the Banks in their recovery proceedings and to overcome the shortcomings in the Debts Due to Banks and Financial Institute Act which as such did not provide for any regulated and speedy recovery of debts due to the Banks and Financial Institutions. Despite constitution of the Debt Recovery Tribunal (DRT) for hearing cases mainly arising out the SARFAESI Act , the underlying question is have the Banks been actually benefited from the introduction of the Act. Well , there are mixed views and opinions on the same.

The SARFAESI ACT provides for an absolute mechanical process which commences immediately after when all the possibilities of recoveries or restructuring of debts have failed with the Debtor. The Enforcement of Security Interest under Chapter III of the Act commences with issuing of Demand Notice under Section 13(2) and ends with the order of the Magistrate for taking the physical possession of the mortgaged property under Section 14.Althogh there are provisions of appeal and lodging Caveat under the same Chapter, we shall be discussing only those provisions which enables the Bank to enforce their security rights on the property. Although, a Demand Notice under 13(2) provides a period of 60 days to the borrower to repay his debts to the borrower but in most of the cases it has been often found that Banks are unsuccessful as either the borrower has no capacity or intention to pay or in other cases he has found alternative methods to circumvent the situation. The process of Litigation initiates immediately when the borrower on some frivolous grounds approaches the DRT stating flaws in the manner of service of the said notice or other technical grounds which in the opinion of the Bank or the Tribunal is de minimus. And,if the borrower is successful in obtaining any Interim Relief from the Tribunal, it only adds to the woes of the Bank who is desperate in their recovery by further lengthening their process.

However,in cases when there are no replies to the notice filed by the borrower or where the Borrower is unsuccessful in getting any relief , the mechanical process continues to the next step under Section 13(4) of SARFAESI ACT where the Banks take the Symbolic Possession of the property or take over the management of the business. In most cases it is prudent for the Banks to take over the Symbolic Possession as not all the Bankers are well versed with the operations of the business of the Borrower and also it is outside their scope of work. In many cases the Banks try to Auction the property while being in Symbolic Possession as it reduces the time , money and efforts to recover their dues ,as in most cases ,the mortgaged properties are bought over by the close aids of the borrower. It is imperative for the borrower to ensure that gets the property auctioned while it being Symbolically Possessed by the Banks as it is only to his advantage. Firstly, he is allowed to stay in the said property and secondly the Banks are assured of a successful auction since in most cases the same property is bought back by the borrower.However,where the borrower doesn’t take cognizance of Section 13(4) it adds more trouble to the Banks as now they are left with the final option of moving to the Magistrate Court to obtain an order for physical recovery of the mortgaged property. The Order directs the Registrar of the Metropolitan Court or the District Collector as the case maybe, to assist the Bank in taking the physical possession which specifically allows breaking open the door with the help of police in case of any resistance. This only makes the process for the Banks more cumbersome as often they are faced with strong resistance from the Borrowers who are unwilling to hand over peaceful possession and in many cases resort to unethical means. In case where the Banks are successful in taking over the physical possession , the main challenge now lies in the recovery of their dues by sale of the possessed asset as per the procedure laid down under Rule 8 of the said Act.

Rule 8 provides for more added responsibilities on the Authorized Officer who now has to get the possessed property valued by at least 2 Registered Valuers and proceed with the sale of such immovable property either by inviting Tender , Public Auction or by entering into a Private Treaty. In most of the cases, the immovable property is sold by way of a Public Auction, the notice for which is given in at least 2 newspapers. It is noteworthy that the Banks are unable to recover the real value of the properties as most of the Auctions are failed due to non participation of bidders or although the bidder expresses his interest to bid, he will do so only when several auctions have failed and the Banks have substantially reduced their reserve price, again something which adds more grief to the Banks. In the recent case of Max Flex and Imaging Systems Ltd , a company which is currently under Liquidation , the company has 6 Guarantors excluding the Corporate Guarantors, who had pledged more than 6 properties , all physically possessed by the Bank. The number of properties piled up with the Banks is only increasing and with most Auctions running dry , this process under the Law surely doesn’t provide for any resolvement. It is surprising to note that once the Banks have the order from the Magistrate Court for taking the Physical Possession of the mortgaged property, they are unable to enter into any kind of settlement with the Borrowers or the Guarantors as the period for any kind of negotiation is exhausted and despite them being more than willing to resolve and settle the matter, they being bounded by the due process of law, restricts them to enter into any kind of understanding with the Borrower or his Guarantors under SARFAESI ACT.

Unless an amendment to the SARFAESI Act is made which enables the Banks to settle their dues with the Borrower or his Guarantors and time during the period where the banks has initiated enforcement under Chapter III, the Banks are going to be subjected to more cumbersome and lengthy process of recovery not to forget the high cost involved in litigation for matters arising out of Securitization Applications and subsequent Appeals before the Appellate Tribunal and High Courts and Supreme Court. The main function of the Bank is Banking and realization of public money. Any delay in the same drills the hole more deep in systematic channelization of the said funds. There are heaps of properties which are lying unsold with the Banks and if huge public money is being unrealized on such assets, it significantly restricts the avaibility of the Banking funds to the public who are actually worthy of such funds. Also, shortage and limitation of funds increases the interest rates which is seriously detrimental to the interest of the citizens who deeply rely on Banking Funds to meet their daily business and household needs.