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What can borrower do if they receive a Notice under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)

If you are a borrower who has taken a secured loan from a bank or a financial institution, you may be aware of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). This act empowers the lenders to recover their dues by taking possession of the collateral property without the intervention of any court, in case of default by the borrower.

However, this does not mean that the borrower has no rights or remedies to defend himself against the action taken by the lender under the SARFAESI Act. In this blog post, we will discuss some of the ways in which you can challenge or resist the enforcement of security interest by the lender under the SARFAESI Act.

1. Check the validity of the notice issued by the lender

The first step that the lender has to take before initiating any action under the SARFAESI Act is to issue a notice to the borrower under section 13(2) of the act, demanding repayment of the outstanding amount within 60 days. This notice should contain all the details of the loan account, the amount due, and the secured assets that are liable to be taken over by the lender.

If you receive such a notice, you should check whether it is valid and complies with all the requirements of section 13(2) of the act. For example, you should verify whether:

- The notice is issued by an authorized officer of the lender
- The notice is served on you personally or through registered post or speed post or courier
- The notice specifies the exact amount due and how it is calculated
- The notice mentions the secured assets that are proposed to be taken over by the lender
- The notice gives you an opportunity to make representation or raise objections within 60 days

If you find any defect or discrepancy in the notice, you can raise it as a ground to challenge the validity of the notice and seek its quashing by filing an application before the Debts Recovery Tribunal (DRT) under section 17(1) of the act.

2. Make representation or raise objections to the lender

If you have any valid reason or justification for not repaying the loan amount or disputing the claim of the lender, you can make representation or raise objections to the lender within 60 days from the date of receipt of the notice under section 13(2) of the act. You should also enclose any documentary evidence or proof to support your representation or objections.

Some of the common grounds on which you can make representation or raise objections are:

- The loan account is not a non-performing asset (NPA) as per the guidelines issued by RBI
- The loan amount has been fully paid or settled with the lender
- The loan amount has been wrongly calculated or inflated by adding penal interest or charges
- The secured assets are not related to or covered by the loan agreement
- The secured assets are exempted from attachment or sale under any law
- The secured assets are subject to prior charge or lien in favour of another creditor
- The secured assets are jointly owned by another person who has not consented to their sale

The lender is bound to consider your representation or objections and reply to them within 15 days from their receipt. If you are not satisfied with their reply or if they do not reply at all, you can file an application before DRT under section 17(1) of SARFAESI Act.

3. File an application before DRT

If you want to challenge any action taken by the lender under section 13(4) of SARFAESI Act, such as taking possession of your property, issuing a sale notice, appointing a manager, etc., you can file an application before DRT under section 17(1) of SARFAESI Act within 45 days from such action.

You can also file an application before DRT if you have not received any reply from
the lender within 15 days after making the representation or raising objections under section 13(3A) of SARFAESI Act.

In your application, you can seek relief such as:

- Setting aside or quashing of any action taken by lender under section 13(4) of SARFAESI Act
- Restoring possession of your property if it has been taken over by lender
- Staying further proceedings by lender until disposal of your application
- Directing lender to consider your representation or objections and reply to them
- Declaring that your loan account is not an NPA or that your property is not liable for sale
- Granting compensation for any loss or damage caused by illegal action of lender

It is always wise to take the help of a professional in such matters to avoid any undue harassment by the lenders and authorities.

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