Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Enforcement of Security under the SARFAESI Act, 2002

Updated 11 October 2026 · Fact-checked

Under section 13 of the SARFAESI Act, 2002, a secured creditor can enforce its security interest without going to court or tribunal. After the account is classified as NPA, it issues a 60-day notice. If the borrower fails to pay, the creditor may take possession, take over management, appoint a manager, or call on debtors of the borrower.

Understand Enforcement of Security under the SARFAESI Act, 2002

Normally a lender must sue and obtain a decree before selling the security. That takes years. The SARFAESI Act lets a secured creditor enforce its security interest directly, without the intervention of a court or tribunal. Section 13(1) says this applies notwithstanding sections 69 and 69A of the Transfer of Property Act, 1882.

The route starts with default. The borrower must be under a liability under a security agreement, must default in repaying the secured debt or an instalment, and the account must be classified by the secured creditor as a non-performing asset (NPA). Then the creditor may give a written notice under section 13(2) asking the borrower to pay in full within sixty days. For a borrower that has raised funds through debt securities, NPA classification is not required, and the debenture trustee can enforce the security in the same manner.

The notice must state the amount payable and the secured assets the creditor intends to enforce (section 13(3)). If the borrower objects, the creditor must consider the objection. If it finds the objection unacceptable, it must communicate its reasons within fifteen days of receiving it (section 13(3A)). Those reasons do not give the borrower a right to apply to the Debts Recovery Tribunal under section 17 at that stage.

If the borrower still does not pay within sixty days, section 13(4) opens four measures: take possession of the secured assets (with the right to lease, assign or sell), take over management of the business, appoint a manager for the secured assets, or require a person who owes money to the borrower to pay the creditor. Section 26D adds a precondition: a secured creditor cannot exercise enforcement rights under Chapter III unless its security interest has been registered with the Central Registry.

The borrower is protected too. Until the notice of public auction, or of inviting quotations or tenders, is published, the borrower can tender the full dues with costs and stop the transfer (section 13(8)). After the section 13(2) notice, the borrower cannot sell, lease or otherwise transfer the noticed assets, except in the ordinary course of business, without the creditor's written consent (section 13(13)).

Key rules to remember

Section 13(1): enforcement without court: Security interest enforced by secured creditor without intervention of court or tribunal; Applies notwithstanding sections 69 and 69A of the Transfer of Property Act, 1882.
Section 13(2): trigger and notice: Default + NPA classification → written notice → 60 days to pay in full; NPA classification is not required for a borrower that raised funds through debt securities.
Section 13(3): contents of notice: Notice = amount payable + secured assets to be enforced; Both details are mandatory in the notice.
Section 13(3A): objections: Creditor considers objection; if not tenable, gives reasons within 15 days of receipt; The reasons do not by themselves give a right to apply under section 17.
Section 13(4): measures after 60 days: (a) take possession; (b) take over management; (c) appoint manager; (d) notice to debtors of the borrower; Creditor may use one or more. Under (b), transfer by lease, assignment or sale only if a substantial part of the business is held as security.
Section 13(9): joint financing: Rights under 13(4) need agreement of creditors holding at least 60% in value of amount outstanding on the record date; Subject to the Insolvency and Bankruptcy Code, 2016. The decision binds all secured creditors.
Section 13(8): right of redemption: Full dues + costs tendered before publication of notice for auction, quotations or tender → no transfer; If steps were already taken, no further step may be taken.
Section 13(10) and (11): balance and guarantors: Shortfall → application to DRT or competent court; guarantors and pledged assets can be proceeded against without first using 13(4); These are separate remedies for the creditor.
Section 26D: registration: No enforcement under Chapter III unless security interest is registered with the Central Registry; Inserted with effect from 24-1-2020.

How to solve Enforcement of Security under the SARFAESI Act, 2002 questions

Treat every SARFAESI problem as a sequence. Check each condition in order, apply the section, then conclude.

1Identify the parties: is the lender a secured creditor, and is there a security interest created by the borrower?
2Check section 26D: has the security interest been registered with the Central Registry? If not, enforcement under Chapter III is barred.
3Check default and classification: has there been default and has the secured creditor classified the account as NPA? (Debt securities borrowers are exempt from the NPA condition.)
4Check the section 13(2) notice: written, 60 days, with the amount and the secured assets stated as section 13(3) requires.
5Deal with any objection: did the creditor consider it and communicate reasons within 15 days under section 13(3A)?
6After 60 days, list the section 13(4) measure used and test its conditions, such as the substantial-part condition for transfer under clause (b).
7Check special rules: joint financing (60% by value), borrower's tender under section 13(8), transfer restriction under section 13(13).
8State a conclusion and the next step, such as recovery of any balance under section 13(10).

Quickest way: Registration-Notice-60 days-Measure checklist

When to use it: Use for short-answer or case questions where you must say quickly whether the creditor may proceed.

Registered with the Central Registry? (26D)
Default plus NPA? (13(2))
Notice with amount and assets? (13(3))
Sixty days expired without full payment?
Pick the measure from 13(4)(a) to (d).
Add the extra point the facts point to: 60% rule, redemption, or 13(13).

Common mistakes in Enforcement of Security under the SARFAESI Act, 2002

Saying the creditor needs a court order to enforce.
Students carry over the ordinary suit-and-decree route for recovery.
Fix: Start with section 13(1): enforcement is without the intervention of the court or tribunal.
Ignoring section 26D registration.
The notice process gets all the attention.
Fix: Always check Central Registry registration first. Without it, the creditor cannot exercise enforcement rights under Chapter III.
Giving the wrong notice period or wrong objection period.
Numbers get mixed up.
Fix: Remember: 60 days to pay after the notice; 15 days for the creditor to communicate reasons for rejecting an objection.
Requiring NPA classification for every borrower.
The proviso is overlooked.
Fix: For a borrower that raised funds through debt securities, NPA classification does not apply, and the debenture trustee enforces.
Saying any creditor in a consortium can act alone.
Section 13(9) is skipped.
Fix: In joint financing, creditors holding not less than 60% of the amount outstanding on the record date must agree, and it binds all.
Saying the creditor may sell the assets in every section 13(4)(b) case.
The provisos are not read.
Fix: Transfer by lease, assignment or sale under clause (b) applies only where a substantial part of the business is held as security.

Worked examples

Example 1

Sundaram Textiles Ltd defaulted on a term loan from Bharat Bank. The bank classified the account as NPA and issued a written notice under section 13(2) stating the dues and the factory building to be enforced. Sundaram objected. The bank rejected the objection after 10 days with reasons. After 60 days, Sundaram had not paid. The security interest was registered with the Central Registry. Can the bank take possession of the factory?

Show the solution

Section 26D is met: the security interest is registered with the Central Registry.
Default and NPA classification exist, so section 13(2) is satisfied.
The notice stated the amount and the asset to be enforced, as section 13(3) requires.
The objection was answered with reasons within 15 days (10 days here), as section 13(3A) requires.
Sixty days have passed without full payment, so section 13(4) measures are available.
Taking possession of the secured assets, with the right to lease, assign or sell, is a measure under section 13(4)(a).

Answer: Yes. Bharat Bank may take possession of the factory under section 13(4)(a) without court intervention. Sundaram's rejected objection does not by itself give it a right to apply under section 17 at that stage.

Example 2

Three banks jointly financed Kaveri Steels Ltd. Outstanding on the record date: Bank A ₹60 crore, Bank B ₹25 crore, Bank C ₹15 crore. Bank A alone wishes to enforce the security under section 13(4). Can it?

Show the solution

Section 13(9) applies to joint financing by more than one secured creditor.
Total amount outstanding = 60 + 25 + 15 = ₹100 crore.
Required agreement: not less than 60% in value, which is ₹60 crore.
Bank A's share is ₹60 crore, which is 60% of ₹100 crore, meeting the threshold.
The section is subject to the Insolvency and Bankruptcy Code, 2016, and the action binds all the secured creditors.

Answer: Yes. Bank A holds 60% of the amount outstanding on the record date, so its agreement satisfies section 13(9). Its action binds Banks B and C, subject to the Insolvency and Bankruptcy Code, 2016.

Exam tips

Write answers in the order provision, facts, conclusion. Quote the section number with each point.
Always mention section 26D registration when the question asks whether a creditor may enforce.
Learn the numbers: 60 days, 15 days, 60% in value.
For case questions, list the section 13(4) measures and pick the one fitting the facts.
Mention the borrower's protections (section 13(8) and 13(13)) for a balanced answer.

Practice questions from Advances, Securities and Documentation

Enforcement of Security under the SARFAESI Act, 2002: frequently asked questions

Does a bank need court permission under the SARFAESI Act to take possession?

No. Section 13(1) allows a secured creditor to enforce its security interest without the intervention of a court or tribunal, following the procedure in the Act.

What is the notice period under section 13(2)?

The secured creditor requires the borrower to discharge liabilities in full within sixty days from the date of notice. Only after that period can it use the section 13(4) measures.

What does section 26D require?

A secured creditor cannot exercise enforcement rights under Chapter III unless the security interest created in its favour by the borrower has been registered with the Central Registry.

Can the borrower stop the sale by paying?

Yes. If the full dues with costs and expenses are tendered before the date of publication of the notice for public auction, or inviting quotations or tender, the assets cannot be transferred under section 13(8).