Provision Of The Day: Section 13(3a) Of The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 (Sarfaesi Act)

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Section 13 – Enforcement of Security Interest

(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:

PROVIDED that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.

Overview and Analysis of Section 13

The SARFAESI Act is about providing safeguards to the secured creditor. It gives more power to the creditor and lays down the process to enforce the security on the commission of the default by the borrower. Section 13 is crucial in this aspect as it talks about ‘Enforcement of security interest’. On the commission of default by the borrower, the secured creditor needs to send a demand notice to the borrower asking to fulfil the payment obligations within 60 days of the receipt of notice. The notice needs to mention the details about the payment which needs to done and the security which will be enforced on non-payment. On receiving such notice, the borrower can make any representation to the notice or raise an objection by writing a reply to the notice. The section mentions that the objection or representation raised by the borrower needs to be considered by the secured creditor. If the creditor feels that the objection and representation raised by the borrower are not tenable then he needs to communicate his reasons of non-acceptance. The section gives the time of 15 days from the receipt of the objections to communicate his reasoning to the secured creditor. The act has given the power to the secured creditor on whether to consider such objections or not. The provision contains the word ‘shall’ wrt considering the objections raised and communicating back the reasons for not finding them tenable, which means it is mandatory on the part of the secured creditors. The Supreme court in the case of ITC Ltd. v. Blue Coast Hotels Ltd.[1] held that the provisions in Section 13(3A) are mandatory and failure on the part of creditor to respond to the representation of borrower vitiate the recovery proceedings. The court had concluded in the matter that the creditor had examined the representations of the borrower, but had just failed to furnish the reply to the representation which is a mandatory part of the provision.

Judicial Analysis

Kannu Adity India Ltd. vs SBI[2]

The petitioner challenged the proceedings instituted by the Bank for enforcement of the security interest under the SARFAESI Act. The petitioner had defaulted to the payment of certain loans payable to the Bank and he was issued a notice by the Bank under Section 13(2). The petitioner made a representation there against. The Bank responded to the said representation, but it was received by the petitioner beyond a period of 15 days from the date of communication of the representation as provided under Section 13(3-A). The petitioner claimed that due to the said lapse, the proceedings under SARFAESI were rendered invalid. The High Court after giving due consideration to the law on the subject held that the said proceedings did not become infructuous merely due to delay in communicating the response as aforementioned. The High Court observed that the intent of legislature, while introducing sub-section (3A) was to ensure that objections/representations of a borrower against any action for enforcement of security interest are considered before a secured creditor proceeds to take possession of the secured assets in terms of Section 13(4) of the SARFAESI Act.


Further, while interpreting the intent of the legislature, the High Court observed that ‘merely because the requirement of a secured creditor to consider a representation or an objection raised by the borrower has been held to be mandatory does not necessarily mean that the period within which the lender must respond as specified under Section 13(3A) of the SARFAESI Act is also to be construed as mandatory. The intention of parliament in providing a time period of 15 days in section 13 (3A) was to ensure that the secured creditors respond within reasonable time and hence the said time period is directory in nature’. The court also relied on the above mentioned supreme court judgment in reaching up on this decision.

Crucial Point of Information

The proviso attached to the provision specifically takes away the power of the borrower to approach the DRT on communication of the reasons. The act aims to give the secured creditors a free hand in dealing with the matter without intervention through the unnecessary litigation. Therefore, communication of the reasons of not accepting the objections of the borrower does not confer the borrower any right to approach the courts and any petition from the borrower is out rightly non maintainable.

[1] 2018 SCC OnLine SC 237

[2] 2018 SCC OnLine Del 12208

-Samyak Jain (LC Content Writer)

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