A deep dive into the SARFAESI Act of 2002.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, commonly known as the SARFAESI Act, is a powerful piece of legislation in India that empowers banks and financial institutions to auction properties (residential and commercial) when borrowers fail to repay their loans. Before this act, banks had to file civil suits which took years to resolve. SARFAESI allows banks to seize and sell assets without court intervention.

How it Works

If a borrower defaults on their loan for more than 90 days, the account is classified as a Non-Performing Asset (NPA). The bank then issues a notice under Section 13(2) of the SARFAESI Act, giving the borrower 60 days to clear the dues. If the borrower fails to comply, the bank takes possession of the secured asset under Section 13(4) and puts it up for auction.

Your Rights as a Buyer

When you buy a property auctioned under the SARFAESI Act, you are buying a property with a clear legal mandate. The Sale Certificate issued to you is a valid proof of ownership. However, it is crucial to note that the sale is often on an 'As is Where is' basis, meaning the bank is not responsible for physical defects or third-party claims. The SARFAESI Act provides a structured and legal pathway for ownership, but due diligence is still mandatory.

Section 13(4) Possession

It is important to distinguish between Symbolic Possession and Physical Possession. Symbolic possession means the bank has the legal paperwork but the borrower might still be residing there. Physical possession means the bank has the keys. Always prefer properties with physical possession to avoid post-purchase eviction hassles.