Got a SARFAESI Notice Under Section 13(2)? How to Reply

What does a section 13(2) notice actually mean?

It means the bank has classified your loan account as a non-performing asset and has decided to enforce its security without filing a suit. Section 13(2) allows a secured creditor to demand that the borrower discharge the full liability within 60 days. If you do not pay and the bank is not satisfied with your objection, section 13(4) lets it take possession of the secured asset, take over management of a business asset, or ask people who owe you money to pay the bank instead.

The notice is not a court order and it does not, by itself, take anything away from you. You still own the property and you can still live in it or run your business from it. What changes is that you lose the freedom to deal with the property: section 13(13) bars you from selling, leasing or otherwise transferring any secured asset named in the notice without the bank's prior written consent, except in the ordinary course of business. Breaking that bar is an offence under the Act.

"Borrower" in this Act is wide. Section 2(1)(f) includes a guarantor and anyone who has mortgaged or pledged property as security for the loan. So the same notice usually goes to the company or proprietor who took the loan, its directors or partners who signed guarantees, and family members who stood as co-owners or mortgagors of the house. Each of them can and should reply.

What the notice must contain and what to check in it

Section 13(3) requires the notice to give details of the amount payable and the secured assets the bank intends to enforce. Read your notice against these points.

How many days do you have to reply to a SARFAESI notice?

The Act gives you 60 days from the date of the notice to pay, and your objection under section 13(3A) can be sent at any time within that period. Do not wait for day 59. A reply sent in the first three weeks gives the bank time to look at it and gives you time to follow up, ask for documents and, if needed, send a second letter. A reply sent on the last day often reaches a branch that has already prepared the possession notice.

Keep a record of the date you received the notice. Courts and tribunals have heard many arguments about whether the 60 days run from the date printed on the notice or from the date of service, and a borrower who has the envelope and the postal tracking record is in a far better position to argue either way. If the notice came by publication in a newspaper because postal service failed, note the newspaper and the date too.

Once you send the objection, the bank must consider it and, if it does not accept it, communicate its reasons within 15 days of receiving it. The bank cannot take possession under section 13(4) until the 60 days have passed. In practice, the possession notice tends to follow within a few weeks after that, so the 60 days are also your window to put money, a settlement proposal or a restructuring request in front of the bank.

Can the bank use SARFAESI on your loan at all?

Before arguing about the amount, check whether the Act applies. Section 31 lists cases where it does not. The two that matter most often are agricultural land, which cannot be enforced against under SARFAESI, and very small debts: the Act does not apply where the amount due is less than ₹1 lakh, or where the amount due is less than 20 per cent of the principal and interest. If most of the loan has been repaid and the balance is below that 20 per cent line, the bank must go to a civil court or the DRT instead.

Then check who the lender is. Banks, including co-operative banks, and registered asset reconstruction companies can use the Act. Housing finance companies and larger NBFCs have been notified as well, but the notification for NBFCs is limited to companies of a certain asset size and to loans of ₹20 lakh and above. If a smaller NBFC or a lender outside the notified class has sent you a 13(2) notice, that is a point worth taking.

Finally, the bank must have a security interest in the asset it names. A house that was never mortgaged, a property where the mortgage deed was signed by someone without title, or an asset that was released earlier cannot be enforced against just because it appears in the notice. Unsecured loans, such as most personal loans and credit cards, are not SARFAESI cases at all; those are dealt with in our post on credit card and personal loan default.

Check the notice against this list before you write a word

Sit down with the notice, your sanction letter and your account statement. Tick each item or note the problem.

• The date you received the notice, with the envelope or tracking record kept safely
• The NPA date stated, and whether your account was in fact overdue for more than 90 days on that date
• The interest rate used, compared with the sanction letter and any rate change letters
• Whether penal charges have been added on top of interest, or interest charged on penal charges
• Payments you made, including cheques, NEFT transfers and amounts recovered by the bank, that do not appear in the figure
• Whether the property described is the one actually mortgaged, with correct number, area and owners
• Whether the property is agricultural land, or the amount due is below ₹1 lakh or below 20 per cent of principal and interest
• Whether the lender is a bank, a co-operative bank, an ARC or a notified NBFC, and the loan is large enough for its notification
• Whether every borrower, guarantor and mortgagor has been served, and who has not
• Whether any restructuring, moratorium or settlement offer was pending when the account was declared NPA

What should the reply to a 13(2) notice say?

The reply is an objection or representation under section 13(3A), and it should read like one: calm, factual and specific. Start by identifying the notice, the loan account and the date you received it. State clearly that you are objecting under section 13(3A) and that you call upon the authorised officer to consider the objection and give reasons in writing if it is not accepted. That sentence matters, because the bank's duty to answer is triggered by a representation that is recognisably one.

Then take the points one by one, in short numbered paragraphs. If the NPA date is wrong, say what the correct position was and attach the statement. If the amount includes penal charges, unexplained debits or a wrong interest rate, say so and ask for a full statement of account with the calculation. If a property is wrongly described or was never mortgaged, say that. If the Act does not apply under section 31, say why. Ask for copies of the sanction letter, loan agreement, mortgage documents and the board or committee note classifying the account as NPA if you do not have them.

Last, if you intend to pay, say how. A vague promise to "clear the dues soon" carries no weight. A proposal with an amount paid now, a schedule for the rest and the source of money (a property sale, receivables, a family member's help) gives the bank's recovery staff something to put up to their sanctioning authority. Keep the proposal on a separate page or mark it "without prejudice", so it is not read as an admission of the full amount you are disputing.

When Advocate B.K. Singh reads a 13(2) notice for a client, he usually starts with the account statement rather than the notice, because the dispute over the NPA date and the amount almost always lives in the entries. A reply that points to specific entries is hard for the bank to brush aside in a two-line answer.

How to draft and send the reply, step by step

These steps assume you have the notice in hand and some days still left of the 60.

1. Get the full account statement

   Ask the branch in writing for the complete statement of the loan account from the date of disbursement, along with the interest rate history. Download whatever you can from net banking. Without the statement, you are arguing from memory.

2. List every borrower, guarantor and mortgagor

   Work out who has received the notice and who has not. Decide whether one joint reply or separate replies make more sense; a guarantor sometimes has points that the main borrower does not.

3. Mark the errors

   Compare the notice with the statement and the sanction letter. Note each wrong entry, unexplained charge, wrong rate and missed payment, with the date and amount. These become your numbered paragraphs.

4. Draft the objection

   Write it under section 13(3A), in short paragraphs, with the documents you rely on listed at the end. Ask for the documents you need. Keep any payment or settlement proposal separate and without prejudice.

5. Send it so that receipt can be proved

   Send by speed post or registered post with acknowledgment to the authorised officer at the address in the notice, and also by email if one is given. Hand delivery against a stamped receipt at the branch is better still. Keep copies of everything sent.

6. Diary the 15 days

   Note the date the bank received your objection and the date 15 days later. If no reply comes, send a short reminder pointing out that the bank's duty under section 13(3A) has not been met.

7. Prepare for the next stage

   Whatever the bank replies, keep your file ready: notice, envelope, objection, proof of delivery, bank's reply. If possession follows, these papers go straight into a section 17 application within 45 days.

Documents to collect before replying

Which grounds actually carry weight in a SARFAESI reply?

The strongest grounds are the ones that go to the bank's right to issue the notice at all. A wrong NPA classification is the main one. If the account was not overdue for 90 days on the date the bank chose, because a payment was made, a moratorium was running or a restructuring had been sanctioned, the classification is open to challenge, and with it the notice. Tribunals take this seriously, because the whole SARFAESI procedure rests on the account being an NPA.

Errors in the amount come next. Since RBI's 2023 directions on penal charges, which apply from 2024, lenders are not supposed to add penal interest to the rate or charge interest on penal charges. Amounts debited for insurance, inspection or legal fees without basis in the agreement can also be questioned. An inflated amount does not usually make the notice void on its own, but it matters for your settlement, for the redemption figure later and for any deposit a tribunal may order.

Defects in the property are often decisive. If the property named is not the one mortgaged, or one of the co-owners never joined in the mortgage, or the land is agricultural, the bank cannot proceed against it under the Act. Point it out now, in writing, so the bank cannot later say it was never told.

Weaker grounds are best left out or put briefly: complaints about the tone of recovery calls, general hardship, the bank's slowness in the past. They belong, if anywhere, in a covering request for time. A reply that mixes ten weak points with two strong ones invites a reply that answers only the weak ones.

What must the bank do with your objection?

Section 13(3A) requires the secured creditor to consider your representation or objection and, if it concludes that it is not acceptable or tenable, to communicate the reasons for not accepting it within 15 days of receipt. The provision was added after the Supreme Court's decision in Mardia Chemicals v Union of India (2004), which held that a borrower must have a real chance to be heard by the lender before the lender acts. A one-line letter saying "your objection is not tenable" does not meet that standard; the reasons must engage with what you said.

The reply from the bank does not give you a right to go to the DRT at that stage. The proviso to section 13(3A) says so expressly: the communication of reasons does not entitle the borrower to file a section 17 application. That is why the reply matters so much. If the bank later takes possession without having considered your objection, or with reasons that ignore it, that failure becomes a ground in your section 17 application. The tribunal can treat a possession that follows an unanswered objection as a measure not taken in accordance with the Act.

If the bank accepts part of your objection, as in the example above, ask for a revised statement in writing. A corrected figure in the bank's own letter is valuable later, both for settlement and if the property is ever put up for sale.

Can you go to court against the 13(2) notice itself?

Usually not. A 13(2) notice is not a "measure" under section 13(4), so a section 17 application against the notice alone is generally not maintainable; the DRT's door opens once the bank takes a measure such as a possession notice. Civil courts are barred by section 34 from entertaining suits about matters the DRT can decide under the Act, and from granting injunctions against action taken under it.

Writ petitions in the High Court against a 13(2) notice are possible in principle but rarely entertained. In United Bank of India v Satyawati Tondon (2010), the Supreme Court told High Courts not to interfere where the Act provides an effective remedy, and that line has been repeated many times since. A writ is realistic only where the lender has no power at all to act (for example, a lender that is not covered by the Act) or where there is a clear breach of a fundamental right; even then, the High Court will want to know why you did not simply reply.

So at the 13(2) stage, the reply is the remedy. Spend your effort on making it right rather than on looking for a court that will stop the notice. For how Delhi's tribunals handle the later stages, see our page on DRT practice in Delhi.

Mistakes borrowers make after a 13(2) notice

• Ignoring the notice. Silence lets the bank say later that you had no objection. It also wastes the one stage at which the bank must give you reasons.
• Selling or renting out the property. Section 13(13) bars any transfer of the secured asset without the bank's written consent. A sale or new lease after the notice can be ignored by the bank and can lead to prosecution.
• Admitting the whole amount in anger or panic. Letters that say "I accept I owe the amount, please give time" are quoted back by banks for years. Dispute what is wrong, and keep payment offers separate.
• Relying on phone calls with the branch. Oral assurances that "nothing will happen if you pay something" bind nobody. Put every proposal and every payment purpose in writing.
• Paying small sums without a covering letter. A payment with no letter is adjusted wherever the bank likes, often to charges first. Write what the payment is for.
• Assuming the guarantor is safe. A guarantor is a borrower under the Act. Guarantors should reply in their own right, and our post on a guarantor's liability when the borrower defaults explains why.
• Filing a civil suit. Section 34 bars it. The suit wastes time and money and the bank carries on regardless.

Should you pay, settle or fight the SARFAESI notice?

Most borrowers do some of each, and the right mix depends on three things: whether the bank has made a real legal error, how much the property is worth compared with the debt, and whether you can raise money in the next few months. A real legal error (wrong NPA, agricultural land, a property not mortgaged) is worth fighting firmly. An inflated amount is worth contesting while you negotiate. A correct notice on a debt you cannot pay is usually a settlement case.

If you can bring the account back within the overdue limit, many banks will treat the account as regular again after the overdue amount is paid, though some insist on the full outstanding once the account is an NPA. Ask in writing what amount would regularise the account. If you cannot, a one-time settlement may be the better path. Banks have board-approved settlement policies, and a proposal made early, before possession and sale costs pile up, is usually received better. Our post on negotiating a one-time settlement goes through how those proposals are judged.

Keep in mind the deadline in section 13(8). Since the 2016 amendment, the borrower's right to stop the sale by tendering the full dues with costs lasts only until the bank publishes the auction notice, as the Supreme Court confirmed in 2023. If paying in full is possible at all, the earlier the better. If you run a registered MSME, raise any restructuring or revival framework that applies in your reply itself; our post on MSME loan restructuring explains the conditions.

What if you are a guarantor or co-owner who received the notice?

Reply in your own name. A guarantor's points are often different from the borrower's: the guarantee may have been for a smaller amount or a different facility, the bank may have changed the terms of the loan without the guarantor's consent, or released other security. Those arguments belong in the guarantor's objection, not buried in the borrower's.

A co-owner who signed the mortgage only as a formality, often a spouse or parent, is still a mortgagor and can lose the property. But a co-owner who never signed the mortgage deed, or never deposited title deeds, may have a strong objection that the bank cannot enforce against that share. Ask for a copy of the mortgage documents and check whose signatures are on them.

If the borrower is a company that has gone into insolvency, the position changes: a moratorium under the Insolvency and Bankruptcy Code stops SARFAESI action against the company's assets, but not, as a rule, against a guarantor's own property. That is a separate subject, covered in our post on the CIRP moratorium.

What happens after the 60 days: the usual sequence

The timing varies between banks and branches. This is the order in which things normally happen if the debt is not paid or settled.

What should you do this week?

Find the envelope and write down the date you received the notice. Count 60 days from the date on the notice and from the date of receipt, and work to the earlier one. Ask the branch in writing for the full statement of account and copies of the loan and mortgage documents. Tell every guarantor and co-owner that the notice has come; each of them may need to reply.

Then compare the statement with the notice and write down every error you can prove. Decide honestly whether you can pay the overdue amount, the full amount, or neither, and what money you could raise in the next 90 days. Draft the objection and send it in a way that proves delivery. Do not sell, lease or mortgage the property again in the meantime.

If you want an advocate to read the notice and the statement before you reply, the team of Advocate B.K. Singh at B.K. Singh & Associates can look at the papers, tell you the deadlines and help draft the objection; you can reach us through the online enquiry form.