1. 1 | P a g e
A Project Report
On
SARFAESI Act and NPA Management
Submitted By
Anurag Ghosh (16PGDMBFS08)
Submitted To
Prof. Deepak Tandon

2. 2 | P a g e
ACKNOWLEDGEMENT
I would like to express our gratitude towards Prof. Deepak Tandon for guiding us all throughout
the project. Mr. Tandon has been a guiding light for us who has constantly motivating me to
pursue our area of interest. I have always wanted to work in this kind of project which allows me
to brain storm and think. The project given to me was like a learning first and challenge later. I
thoroughly enjoyed the brainstorming. I am privileged to work on the project like this which
deals with one of the important part of banking sector.
At the same time I express my gratitude towards IMI, New Delhi for providing me with such a
platform where I can challenge my limits and surpass the same towards a new horizon of
success.

3. 3 | P a g e
METHODOLGY
I focused on different sets of data, facts and figures. The insights that you can get from data is
more than enough. I focused on both sets of data basically primary and secondary sets of data
which I have gathered from different sources like RBI, All Banking Solution etc. I have analyzed
and studied the data closely. Apart from this I have checked on different sources of data from
different banking sites. I have rigorously analyzed the NPA’s of different banks and came to
know the about the burgeoning problem of NPA’s that the banks are dealing with. This problem
basically indicates towards the credit risks. I focused on proper financial data and used different
statistical techniques like regression and correlation for further data analysis. I have considered
the NPA and checked the balance sheets of top 5 banks of India. Looked into their total loans
and advances and burgeoning NPA’s.
And for understanding of SARFAESI I have analyzed different cases of SARFAESI. I have
taken into consideration small caselets. The caselets contains the real life cases that have been
filed by the creditor side and with respect to that judgment has been passed by the court. I have
analyzed the courts judgment whether it was in lines with the rules of SARFAESI act and
whether the judgment was really a good one or not. So this document contains different cases.
Hence tried to find out the efficacy of SARFAESI act in proper NPA Management.

4. 4 | P a g e
INDEX
TOPIC PAGE
OVERVIEW ABOUT SARFAESI AND NPA MANAGEMENT 5
RECENT GLOBAL ECONOMIC SCENARIO IN TERMS OF LOANS
AND ADVANCES
6
SCENARIO OF LOANS AND ADVANCES IN INDIAN BANK 7
DATA ANALYSIS ON INDIAN BANK’S NPA AND ITS CREDIT RISK 8-9
WHAT IS SARFAESI ACT? 10
SARFAESI ACT AND RULES 11
DEBT RECOVERY TRIBUNAL 12
HOW DOES SARFAESI ACT OPERATE 13-15
CASES RELATED TO SARFAESI ACT 16-21
RECOMMENDATIONS 22
CCONCLUSION 23
BASEL AND IT’S IMPACT ON CREDIT RISK MANAGEMENT 20
CREDIT RISK MANAGEMENT IN BANKS AFTER GLOBAL
FINANCIAL CRISIS
21
MANAGING AND MITIGATING CREDIT RISK BY DIFFERENT
TECHNIQUES OF CREDIT RISK MANAGEMENT
22-23
BIBLIOGRAPHY AND REFERENCES 24

5. 5 | P a g e
OVERVIEW ABOUT SARFAESI AND NPA
MANAGEMENT
Indian Banking sector contributes largely to the country’s GDP. Indian Banking sector can be
called as the lifeline of India. The central bank of India along with in sub ordinate banks controls
the financial stability of India. The banking system is so much stabilized that during the US
subprime crisis markets of India was not at all impacted. We can take the global economic
scenario or the euro zone crisis where the top notch banks of Europe are facing financial crisis
and have to run to their country’s central government for the package of bail out. But for Indian
Banks it has been a different ball game all together and for this credit goes to Reserve Bank of
India. The Indian Banking has been continuously adding value to the country’s economy.
But in recent times Indian Banking is somewhat is troubled waters due to the burgeoning
problem of NPA or Non Performing Assets. This problem has been bothering the Indian Banks a
lot. The main revenue of the banks come from the interest they earn by giving out loans from
which it maintains its operational cost. The person or the organization who had taken loan from
the banks are defaulting sometimes they are not even the interest on the loan for 90 days and this
is leading to NPAs. This in turn is reducing the revenue of the banks and in turn reducing the
profitability. The burgeoning number of NPAs in banking sector has created deep concerns
among the Indian banking sector as the assets of Indian Banks are reducing. The general
percentage of NPA to the total banking assets needs to be within 4% but now it overshoot to
almost 12%.
The central bank has been taking certain measures to curb this burgeoning problem. Various acts
are being enforced to enhance better NPA Management and in this regard SARFAESI act has
been a landmark. It helps in better NPA Management and it has been yielding results and
recovering the NPAs. Somewhere somewhat down the line some stringent measures were
required from the government and central bank’s end to maintain a check.
The SARFAESI act will be discussed thoroughly along with NPA Management and DRT in this
article.

6. 6 | P a g e
RECENT GLOBAL ECONOMIC
SCENARIO IN TERMS OF LOANS AND
ADVANCES
The global economic scenario is not in a good shape at all. The banking sector is in a very bad
shape after the US subprime crisis and the fall of Lehman brothers; after that crisis banking
sector worldwide has not been able to get out of this shockwave. It is a ray of hope that in this
turmoil situation also Indian Banks have been doing well. The failure to somewhat extent is due
to failure of the most important leg of the bank that is the credit section. The subprime crisis also
took place due to the very same reason, the failure of the borrowers to repay the loans. A
situation starting in 2008 affecting the mortgage industry due to borrowers being approved for
loans they could not afford. As a result, a significant rise in foreclosures led to the collapse of
many lending institutions and hedge funds. And this is not only the case in USA banks in Japan
and all over Europe has been facing the same scenario.
Total economic growth is also slowing down due as a result lending from banks are also slowing.
The banks are turning into risk averse, and are very careful while giving loans. This both the
scenario has impacted both the global banks and worlds economic growth directly as there has
been a symbiotic relation.
All the pioneer global banks are working on the same to curb the crisis by implementing
different norms and following different best practices, certain conventions are being devised.

7. 7 | P a g e
SCENARIO OF LOANS AND ADVANCES
IN INDIAN BANKS
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalized and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are
generally resilient and have withstood the global downturn well. The Indian banking system
consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural
banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to
cooperative credit institutions. Still, Public-sector banks control nearly 80 percent of the market,
thereby leaving comparatively much smaller shares for its private peers. Since 1992, the banking
sector reforms were introduced which faced new challenges in the ever changing scenario. The
challenges were many amongst them vital challenges were “4 Cs” i.e. Credit, Customer,
Computer, and Capital Restructuring. In the changing scenario, the banks are under tremendous
pressure to redefine their priorities, in order to manage these challenges effectively for their
survival and growth. The incidence of Non- performing assets (NPAs) is affecting the
performance of the credit institutions both financially and psychologically. Nonperforming assets
(NPA) is not only non – performing but also makes the banker and the bank non-performing as it
1. Prevents or delays recycling of funds.
2. Denies income from the assets by way of interest
3. Making profit by way of provision.
NPA is a disorder resulting in non –performance of a portion of loan portfolio leading to no
recovery or less recovery/income to the lender.NPA represent the quantified “Credit Risk”. It
also plays havoc on the mental make-up of the banker where in the banker tries to go slow on
lending, fearing future NPAs, it may lead to delay and denial of credit resulting in low off – take
of lendable funds.
Indian banks now have close to Rs 6, 00,000 crore bad loans. As a point of comparison, that’s
the total asset size of a big lender like Bank of India.

8. 8 | P a g e
DATA ANALYSIS ON INDIAN BANK
NPA’s AND ITS CREDIT RISK
We have taken into consideration the top 5 banks of India for understanding the scenario and its
analysis
NPA(Crores) Loans & Advances(Crores)
Bank of Baroda 40,521.04 383,770.18
State Bank Of India 98,172.80 1,463,700.42
HDFC 4,392.83 464,593.96
ICICI 26,221.25 435263.94
PNB 55,818.33 412,325.80
On closer look on this data we found that with higher loans and advance NPA increases. We
have tried to analyze the same with different statistical approach like regression and correlation.
REGRESSION ANALYIS
NPA(Crores) Loans & Advances (Crores)
NPA(Crores) 1
Loans & Advances (Crores) 0.813978566 1
We found that there is strong correlation between loans and advances and NPA , So banks
should be very much cautious about lending out loans.

9. 9 | P a g e
The above graph shows the parabolic relation between NPA and Loans and Advances, which
also signify more amount of loans and advances without proper security can expose a bank to
credit risk which results in more and more NPA
Therefore the credit policies are being considered while giving out loan; different protective
measures are taken on this regard.
y = 0.0002x2 - 14.828x + 568039
R² = 0.98
0.00
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
1,200,000.00
1,400,000.00
1,600,000.00
0.00 20,000.00 40,000.00 60,000.00 80,000.00 100,000.00 120,000.00
L
o
a
n
s
&
A
d
v
a
n
c
e
s
NPA
Series1
Poly. (Series1)

10. 10 | P a g e
WHAT IS SARFAESI ACT?
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (also known as the Sarfaesi Act) is an Indian law .It allows banks and other financial
institution to auction residential or commercial properties to recover loans. The first asset
reconstruction company (ARC) of India, ARCIL, was set up under this act.
Under this act secured creditors (banks or financial institutions) have many right for enforcement
of security interest under section 13 of SARFAESI Act, 2002. If borrower of financial assistance
makes any default in repayment of loan or any installment and his account is classified as Non
performing Asset by secured creditor,then secured creditor may require before expiry of period
of limitation by written notice to the borrower for repayment of due in full within 60 days by
clearly stating amount due and intention for enforcement. Where he does not discharge dues in
full within 60 days, THEN WITHOUT INTERVENTION OF ANY COURT OR TRIBUNAL
Secured creditor may take possession (including sale,lease,assignment) of secured asset, or take
over management of business of borrower or appoint manager for secured asset or without taking
any of these action may also proceed against guarantor or sell the pledged asset, if any.

11. 11 | P a g e
SARFAESI ACT AND RULES
SARFAESI Act (The Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002) was enacted to regulate securitization and reconstruction of financial
assets and enforcement of security interest created in respect of Financial Assets to enable
realization of such assets.
The SARFAESI Act provides for the manner for enforcement of security interests by a secured
creditor without the intervention of a court or tribunal. If any borrower fails to discharge his
liability in repayment of any secured debt within 60 days of notice from the date of notice by the
secured creditor, the secured creditor is conferred with powers under the SARFAESI Act to
a) take possession of the secured assets of the borrower, including transfer by way of lease,
assignment or sale, for realizing the secured assets
b) takeover of the management of the business of the borrower including the right to transfer by
way of lease, assignment or sale for realizing the secured assets,
c) appoint any person to manage the secured assets possession of which is taken by the secured
creditor, and
d) require any person, who has acquired any of the secured assets from the borrower and from
whom money is due to the borrower, to pay the secured creditor so much of the money as if
sufficient to pay the secured debt.
The Central Government has prescribed Security Interest (Enforcement) Rules, 2002 pursuant to
the powers conferred on it under the SARFAESI Act. The foregoing enforcement measures must
be exercised by a secured creditor in accordance with the Enforcement Rules and are further
subject to guidelines issued by the RBI.

12. 12 | P a g e
DEBT RECOVERY TRIBUNAL
Government of India has constituted 33 Debt Recovery Tribunals and 5 Debt Recovery
Appellate Tribunal across the country. The idea was to keep in line with the international
trends on helping financial institutions recover their bad Debt quickly and efficiently.
These debt recovery tribunals are located across the country. The Debt Recovery
Tribunal is located across the country. In Big Cities, there are more than one DRTs.
However, there are some states which don’t have DRTs. The Banks & Financial
Institutions and other parties in these States have to go to Debt Recovery Tribunal located
in other states having jurisdiction over there area. Thus the territorial jurisdiction of some
Debt Recovery Tribunal is very vast. For example, the Debt Recovery Tribunal located in
Guwahati has jurisdiction over all the seven North Eastern States. Similarly, the territorial
jurisdiction of the Debt Recovery Tribunal located at Chandigarh too has a very wide
jurisdiction over the States of Punjab, Haryana, and Chandigarh.

13. 13 | P a g e
HOW DOES THE SARFAESI ACT
OPERATE
This chapter of the project is going to deal with number of ways how a secured debt can be
recovered, how securitisation and asset construction takes place, how security interest is enforced
through this act and last but not the least what are the remedies available to both the parties in
case of any dispute related to the act.
One of the important sections of the SARFAESI Act, 2002 which will be dealt herein in this
chapter is Section 13.
RECOVERY OF SECURED DEBTS IN FOUR WAYS:-1
∑ Take possession of the secured assets of the borrower including right to transfer by way
of lease, assignment or sale for realizing the secured asset.
∑ Take over the management of the business of the borrower including right to transfer by
way of lease, assignment or sale for realizing the secured asset.
∑ Appoint any person to manage the secured assets the possession of which has been taken
over by the secured creditor.
∑ Require at any time by notice in writing any person who has acquired any of the secured
assets from the borrower and from whom any money is due or may become due to the
borrower, to pay the secured creditor, so much of the money as is sufficient to pay the
secured debt.
RECOVERY OF LOANS IN TWO WAYS BY THE BANKS AND FINANCIAL
INSTITUTIONS:-
∑ Enforcement Of Security Interest without intervention of court/ tribunal
∑ Securitisation And Asset Reconstruction

14. 14 | P a g e
In the first scenario, Banks and Financial Institutions give loans and advances to borrowers for
a period of time against a secured asset at a certain rate of interest. If there is a default made by
the borrowers, then loans amount becomes due and classified such accounts as Non-performing
asset. Banks and financial institutions take recourse to section 13 of the SARFAESI Act, 2002
whereby banks and financial Institutions can recover loans by selling of the secured asset
through an auction without any intervention of the court.
In the second scenario, Banks and Financial Institutions give loans and advances to borrowers
for a period of time against a secured asset at a certain rate of interest. If there is a default made
by the borrowers, then loans amount becomes due and classified such accounts as Non-
performing asset. Hence banks devise a plan of engaging SPV’s i.e. special purpose vehicle
which is also known as securitization or asset Reconstruction Company and in turn directs such
companies to take over the NPA’s at a certain price such if not the whole amount at least some
portion of it can be recovered by them.
Now, an million dollar question pops up what the Securitisation company will do with such
assets? Hence these companies or SPV’s devise a plan or scheme for each financial asset taken
over from the banks and FI’s. According to such scheme if anybody is interested in it then they
are going to invest in such schemes and they will be issued ‘security receipts’ whereby they will
get some fixed returns from their investment. The persons who are interested in investing is
technically termed as Qualified Institutional Buyers (QIB’s). These entire big process stated is
Asset-Reconstruction.
Mechanism behind the enforcement of security interest:-
Let us take the example where Mr. A (borrower) took a loan from XYZ bank amounting to Rs 50
lakh for business purpose at a certain rate of interest for a period of 3years. But later it was found
out that Mr. A could not repay the entire amount due after 3 years.
As there was a default in repayment of debt or installment, hence banks and FI’s classified such
accounts as NPA’s gives them a notice of 60 days to repay the loan amount due according
section 13 (2). Now, the borrower can make any representation or objection if he wants and send
to bank and FI’s. The secured creditor i.e. banks and FI’s must give a reply to such
representation within 7 days according to section 13(3A). After the Notice period expires, debts

15. 15 | P a g e
is being recovered by the banks and financial institutions without intervention of the court in
mainly four ways as mentioned under section 13(4).
ÿ Imp. Points to be kept in mind :-
When the secured asset is immovable property and the borrower made a default then after
the notice period, Possession notice is given under Rule 8(2) of the security
(enforcement) Interest Rules, 2002. By virtue of Section 14 of the SARFAESI Act, 2002
Chief Metropolitan Magistrate or District Magistrate is to assist secured creditor in taking
possession of secured asset.
REDRESSAL OF GRIEVANCES IN CASE OF DISPUTE:-
ÿ According to Section 17 says any aggrieved borrower in relation to Section 13(4) may
make an application to DRT within 45days from date of such measures taken.
ÿ The respective DRT must dispose of such grievance within 60days from the date of
application.
ÿ If the application not addressed within 4 months then he may apply to DRAT (Debt
Recovery Appellate Tribunal) for expeditious disposal of the case. Normal Appeal can
also be made to DRAT within 30days from the date of decision given by DRT (Debt
Recovery Tribunal). Provided further that no appeal shall be entertained unless the
borrower has deposited at first-hand with the Appellate Tribunal 50% of the amount of
debt claimed by the secured creditors or determined by DRT whichever is less.
ÿ Section 17A says that in case of borrower residing in J&K, application to be made to
court of district judge in that state.
To summarize the entire structure of courts in relation to address the grievances of the parties
involved in ascending order:-
1. Debt Recovery Tribunal (DRT)
2. Debt Recovery Appellate Tribunal (DRAT)
3. High Court via writ petition.
4. Supreme court via Special Leave Petition

16. 16 | P a g e
CASES RELATED TO SARFAESI ACT,
ITS RULINGS AND JUDGEMENT
We are going to analyze the SARFAESI with some caselets and see if the judgment taken with
respect to the SARFAESI act is in lines.
CASELETS
CASE 1: Canara Bank Ashram Road vs. Collector of Stamps C/SCA/2113/2012, Gujarat High
Court
CASE FACTS: The petitioner is a nationalized bank. A company named M/s. Dairyden Limited
(“Borrower”) had availed of financial facilities from the petitioner bank to the tune of Rs.11.55
Crore sometime in the year 2003. At the time of availing of the financial facilities Borrower
created a mortgage in favor of the petitioner bank by deposit of title deeds in respect of the land
Borrower defaulted in repayment of the credit facility availed of and accordingly the account of
Borrower Limited was classified as a non performing asset. The petitioner bank thought fit to
proceed against Borrower under the provisions of the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002. A notice under Section 13,
Clause (2) of the SARFAESI Act was served upon Borrower and pursuant to the same the
symbolic possession of the secured asset was taken over by the petitioner bank under Section 13,
Clause (4) of the Act in the year 2007. Thereafter, the petitioner bank filed an application with
the District Magistrate, under Section 14 of the SARFAESI Act praying for that police protection
for purpose of taking over the actual possession of the secured asset from the Borrower. The said
application of the Petitioner was allowed. Pursuant to the order passed by the District Magistrate,
the physical possession of the secured asset was taken over by the petitioner bank on 18th
December 2009 by drawing a panchnama. The petitioner bank thereafter placed the property in
question for auction, where M/s. Palco Recycle Industries Limited (“Bidder”) being the highest
bidder got the property and 'Sale Certificate' was issued by the petitioner bank. In support of said
sale, the necessary stamp duty was paid by the bidder. Consequently, authorities under the
Gujarat Stamp Act, 1958 took the view that no stamp duty was paid by the petitioner bank where
it acquired the possession of the mortgaged property in question from the Borrower, the
petitioner bank was liable to pay the deficit stamp duty.

17. 17 | P a g e
Judgment
1. Whether action of taking possession pursuant to the provisions of the SARFAESI Act would
constitute a conveyance and is liable for stamp duty? The court held that any panchnama drawn
at the time of taking over of the physical possession of the secured asset under provisions of
Section 13 or pursuant to the order of the District Magistrate under Section 14 of the SARFAESI
Act could not be termed as an instrument creating any right or liability in favour of the bank so
as to bring it within the ambit of conveyance.
2. Whether debtor is entitled to get back the secured property even if the creditor has taken
possession of the same?
On conjoint reading of all sub-sections of Section 13 indicates that after taking possession of the
assets the secured creditor gets a right to sell the property for realization of its dues as if the sale
has been made by the secured creditor himself. Sub-section (8) clearly indicates that if the dues
of the secured creditor together with all costs, charges and expenses incurred by him are tendered
to the secured creditor at any time before the date fixed for sale or transfer, the secured asset
shall not be sold or transferred by the secured creditor and no further steps shall be taken by him
for transfer or sale of that secured asset.
Therefore, even after taking possession, if before sale of the property, a debtor pays the amount
as mentioned in sub-section (8) to the secured creditor, in that event no further steps should be
taken by the secured creditor and the debtor will be entitled to get back the possession.
Analysis of the Judgment
This is a very good judgment. The secured creditor has been empowered to take possession of
the asset for realization of his dues. And at the same time if the secured creditor faces difficulties
in repossessing the asset the same can be resolved through exercising rights conferred by section
14 of the Act .The purpose for which the asset is possessed by the secured creditor is “realization
of the dues”. The secured creditor solely gets a right of possession for realization of dues by sale
of the asset. Further section 13 (8) clearly provides that “If the dues of the secured creditor
together with all costs, charges and expenses incurred by him are tendered to the secured creditor
at any time before the date fixed for sale or transfer, the secured asset shall not be sold or
transferred by the secured creditor, and no further step shall be taken by him for transfer or sale
of that secured asset.” Thus in my view the judgment is very much effective as it follows every
laws laid by the SARFAESI act, and it at the same time helps in the resolution of disputes and
proper NPA Management.

18. 18 | P a g e
CASE 2: Poonam Garg vs. Chief Manager, SBI WP (C) 527/2012, High Court of Delhi
CASE FACTS: The question that arose in this particular writ petition is that Whether the Debts
Recovery Appellate Tribunal has jurisdiction to condone the delay under Section 5 of the
Limitation Act, 1963 in filing of an appeal under Section 18 of the SARFAESI Act, 2002?
Judgment: While section 18 of the Securitization Act prescribes a period of limitation of 30
days for filing of an appeal before the Tribunal from an order passed under Section 17 by the
Debts Recovery Tribunal, Section 20 of the RDDBFI Act stipulates a period of 45 days for filing
of an appeal to the Appellate Tribunal from an order passed by the DRT. Another significant and
material difference between the provisions of Section 18 of the Securitization Act and Section 20
of the RDDBFI Act is that while the proviso to Section 20(3) of the RDDBFI Act enables the
Appellate Tribunal to entertain an appeal even after the expiry of the prescribed period of 45
days, if it is satisfied that there was sufficient cause for not filing the appeal within the prescribed
period, there is no such stipulation or provision contained in Section 18 of the Securitization Act.
When the legislature enacted the Securitization Act, it was certainly aware of the provisions of
appeal to an Appellate Tribunal under the RDDBFI Act. Being aware of the provisions, it
specifically provided for a different period of limitation of 30 days for an appeal under the
Securitization Act and also consciously excluded a provision similar to the proviso to Section
20(3) of the RDDBFI Act. The only conclusion that can be drawn from this is that the legislative
intent was clear, in that the delay in filing an appeal under Section 18 of the Securitization Act
could not be condoned. it is clear that the Debts Recovery Appellate Tribunal does not have the
power to condone the delay in the filing of an appeal under Section 18 of the Securitization Act.
Analysis of the Judgment
This judgment is bad in my view. In our view, if a court which has the power to adjudicate a
dispute has an inherent power to condone the delay in filing of the appeal. If, a meritorious
matter cannot be heard by a court or a quasi judicial body due to delay, the same would amount
to denial of justice. The rules and acts laid by the SARFAESI are not followed properly.

19. 19 | P a g e
CASE 3: Union Bank of India Main Branch vs. Chief Judicial Magistrate on 6 August, 2010
CASE FACTS: Brief background of the case is that M/S Vivek Iron Industries, Suthatti Bazaar,
Station Road, Post Sadar, District Jaunpur, respondent No.2, had taken financial assistance in the
shape of cash credit limit on 18.12.1995 and in lieu thereof had created equitable mortgage by
depositing the title deed with the Bank. The account of respondent No.2 became irregular and it
was declared as NPA on 31.03.2001; the Bank issued notice under Section 13 (2) of
the SARFAESI Act, followed by notice under Section 13 (4) of the SARFAESI Act. Notional
possession of the property in question was taken on 19.03.2005. The Bank claimed that it was
unable to get the physical possession of the secured asset; as such an application under Section
14 of the SARFAESI Act was moved for giving assistance for taking possession of the secured
asset on 02.12.2009. In the said proceedings, respondent No.2 appeared and raised objection that
the proceedings were barred by limitation under Section 36 of the SARFAESI Act. The Chief
Judicial Magistrate accepted the said objection and rejected the application of the petitioner. At
this juncture, present writ petition has been filed.
Judgment: Sri Sanjeev Singh, learned counsel for the petitioner, contended with vehemence that
totally erroneous view of the matter has been taken by the Chief Judicial Magistrate in respect
of limitation, whereas period of limitation is 12 years according to clause 62 of Part V of the
Schedule and the limitation would be counted under Section 36 of the SARFAESI Act from the
date claim in respect of financial asset is made within the period of limitation, and here date of
creation of mortgage was 18.12.1995, so proceedings were well within limitation. In such a
situation and in this background, in the garb of claim being time barred, the Chief Judicial
Magistrate has transgressed and overstepped his jurisdiction.
Analysis of the Judgment
The judgment was not in a proper form and was totally erroneous. SARFAESI rules were not
followed in proper way.

20. 20 | P a g e
CASE 4: MARDIA CHEMICALS LTD V. UNION OF INDIA (2004) 4 SCC 311
CASE FACTS: In a notice dated July 24, 2002 to Mardia Chemicals Ltd., the Industrial
Development Bank of India (for short `the IDBI') under Section 13 of the Ordinance, then in
force, required it to pay the amount of arrears indicated in the notice within 60 days, failing
which the IDBI as a secured creditor would be entitled to enforce the security interest without
intervention of the court or Tribunal, taking recourse to all or any of the measures contained in
sub-section (4) of Section 13 namely, by taking over possession and/or management of the
secured assets. The petitioner was also required not to transfer by way of sale, lease or otherwise
any of the secured assets. Similar notices were issued by other financial institutions and banks
under the provisions of Section 13 of the Ordinance/Act to different parties who filed petitions in
different High Courts.
Issues of the case:-
1. Whether it is open to challenge the statute on the ground that it was not necessary to
enact it in the prevailing background particularly when another statute was already in
operation?
2. Whether the terms or existing rights under the contract entered into by two private parties
could be amended by the provisions of law providing certain powers in one sided manner
in favour of one of the parties to the contract?
3. Whether Section 13 of the Act ultra vires of the Constitution?
4. Whether the requirement of 75% of the amount due before appeal to the DRT is onerous
and therefore Section 17 of the Act is ultra vires to the Constitution?
Key points drawn from the case:-
The Court upheld section 13. So it can be argued that the main structure of the statute has
survived. Thereby in other words the SARFAESI Act, 2002 gained constitutional validity.

21. 21 | P a g e
CASE 5: MAHAVIR PLANTATIONS P. LTD. AND K.K. STEEL ENTERPRISES V. ICICI
BANK LTD. AND ORS. [2005]127 COMPCAS 456
CASE FACTS: The first respondent-bank, namely, ICICI Bank, granted financial assistance to
the second respondent for which the appellant herein had executed corporate guarantee in favour
of the first respondent-bank. As the second respondent has not fulfilled its obligation, the first
respondent issued a notice to the second respondent on November 20, 2002, under Section 13(2)
of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred to as "the Act"), calling upon the second respondent to pay the
amount due within 60 days from the date of the notice failing which the bank is at liberty to take
recourse in accordance with law and the said action was challenged by the second respondent
before the DRT-II, Chennai, in Securitisation Appeal No. 19 of 2004, and DRT by its order dated
January 19, 2005, held that the second respondent is liable to pay a sum of Rs. 7,32,19,141.28 as
mentioned in the notice issued under Section 13(2) of the Act, along with interest and other
expenses within 30 days from the date of the judgment failing which the bank is entitled to and at
liberty to proceed with under the SARFAESI Act to recover the amount imposing certain
conditions.
Key points drawn from the case:-
It was held that Demand Notice via Rule 3 of the Security Interest (Enforcement) Rules, 2002 to
borrower under SARFAESI Act is mandatory. Proceedings without such notice will be vitiated.

22. 22 | P a g e
RECOMMENDATIONS
∑ Further regulatory support and incentives to facilitate the transfer of NPA’s by banks
and financial institution to RCO’s.
∑ Establishment of clear valuation guidelines and acceptance of NPA valuation
methodology would eliminate contentions over NPA’s being undersold at auctions.
∑ Providing the flexibility to RCO’s in determination of resolution strategies.
∑ Bringing in the legislative solutions and otherwise resolve the issue of collusion
between RCO’s and borrowers.
∑ Bringing in better borrower protection mechanism without allowing debt settlement
period to increase by penalizing the frivolous litigation severely.
∑ Incentivizing the growth of the third party debt collection agencies while regulating
the same to protect the right of the borrowers.
∑ Clarify and resolve conflicts and interferences between clauses of various acts
prevailing in allied and overlapping sectors to improve consistency and
implementation.
∑ Proper implementation of the laws must be ensured.
∑ DRT must be more effective in improvising the act.

23. 23 | P a g e
CONCLUSION
Securitisation is expected to become more popular in the near future in the banking sector.
Although the enactment of SARFAESI Act sought to mobilize blocked funds of the banks in the
non-performing assets, the various provisions of the acts have created deep sorrows for the
genuine buyers. The various provisions meant to balance the requirements of the borrowers and
the banks, but it is seen that in real scenario the balance of favour is tilted towards the banks.
These powers are, at majority being misused by the banks to appropriate their interests against
the interests of the buyers or investors.
In the interest off the industrial growth of the country, it is pertinent that the powers, in this act
even if are held to be constitutional should not be acted in an arbitrary manner or in haste. The
courts and the legal fraternity should step up to strike a balance between the industrial growth in
consonance with the policy formulated by the financial institution and State policy on one hand
and recovery of public money on the other. An educated and diligent approach can help in
achieving the object of the Act to make the intention of the legislators a success.
Hence it can be said that it will be very much pertinent for the civil courts to assume a more
social responsibility for the larger interest of the borrowers on one hand and to share the
responsibilities of the banks to mobilize their funds from the numerous non-performing assets.
Lastly the SARFAESI acts helps in the proper NPA Management. Not only this the DRT helps
in the proper implementation of the SARFAESI act too.

24. 24 | P a g e
BIBLIOGRAPHY AND REFERENCES
∑ www.capgemini.com/resource-file-
access/resource/pdf/Credit_Risk_Management__Trends_and_Opportunities.pdf
∑ http://www.allbankingsolutions.com/banking-tutor/basel-iii-accord-basel-3-norms.shtml
∑ http://www.firstpost.com/business/rs-600000-crore-npas-over-90-with-psbs-is-the-bad-
loan-story-turning-scary-2822560.html
∑ http://www.sas.com/en_us/insights/risk-management/credit-risk-management.html
∑ http://www.slideshare.net/sumant3063/credit-risk-management-presentation
∑ www.rbi.org.in
∑ www.investopedia.com
∑ www.moneycontrol.com
∑ www.linkedin.com
∑ https://indiankanoon.org/docfragment/492218/?formInput=sarfaesi%20limitation%20act
∑ http://www.iarc.co.in/content.php?cid=MjA=
∑ www.indiakanoon.org
∑ http://www.articlesbase.com