PART A - SARFAESI ACT - Immovable Property Enforcement

Statutory Procedure under Section 13:

Step 1 - NPA Classification: Account must be NPA as per RBI 90 days norm.

Step 2 - 60-Day Demand Notice - Sec 13(2): Bank must issue demand notice specifying dues + 60 days to repay. Notice must be served - paper + affixation.

Step 3 - Reply: Borrower can reply under Sec 13(3A). Bank must consider reply and communicate decision within 15 days with reasons.

Step 4 - Possession - Sec 13(4): If no repayment, bank can:
a) Take symbolic possession (affix notice)
b) Take physical possession with help of DM under Sec 14
c) Take over management
d) Sell after 30-day sale notice + valuation by approved valuer + 30-day auction notice in 2 newspapers.

Borrower remedy: Appeal to DRT under Sec 17 within 45 days. DRT can restore possession.

Constitutionality: Mardia Chemicals Ltd v Union of India (2004) - SC - Upheld SARFAESI constitutional validity but struck down requirement of depositing 75% before appeal. Held borrowers must get fair chance before property touched.

Transcore v Union of India (2008) - SC - Bank can take both SARFAESI and DRT proceedings simultaneously.

Keshavlal Khemchand v Union of India (2015), Vijay Verma v Dena Bank (2008), Sujay Kumar v UCO Bank (2019): Repossession or auction without Sec 13(2) 60-day notice + 30-day sale notice is unlawful, borrower can seek restoration.

PART B - VEHICLE / HYPOTHECATED ASSET REPOSSESSION - The Most Litigated Area

This is where banks/NBFCs fail 90% of time.

Supreme Court Landmark - Hari Dutta Sharma v State of UP & Ors - 2026 INSC 998 - Sept 16, 2026

This judgment is now the bible for vehicle repossession.

Facts: Truck owner financed truck, defaulted 3 EMIs. Financier repossessed at 1 AM, broke steering lock, no 7-day notice, sold within 3 days.

SC Laid 10 Principles - Directed RBI to enforce:

1. Seizure of vehicle can only be effected through lawful means - not force, stealth, or deceit.
2. A financier's right to take back hypothecated vehicle cannot be exercised through force, deceit, or in violation of loan agreement
3. RBI Fair Practices Code 2003 prohibits undue harassment, use of musclemen.
4. Repossession clause must provide for notice period before possession - at least 7-day final notice + 2 reminders.
5. Authorisation to recovery agents to "enter any place or places" in search of asset is contrary to RBI Guidelines and illegal.
6. Recovery agents must be trained, DRA certified, identity card, not have criminal record - per RBI Guidelines on outsourcing.
7. Sale after repossession - must give 15-day sale notice, valuation, borrower right to bring buyer at higher price.
8. No seizure during public holiday, night (after 7 PM before 7 AM), or at borrower's workplace causing humiliation.
9. If repossession violates, it is unauthorized and arbitrary - borrower entitled to compensation. Court awarded Rs 10 lakh in this case.
10. RBI directed to take effective steps to secure genuine compliance by NBFCs and Scheduled Commercial Banks.

SC Observation: Criticised RBI for failing to ensure effective implementation of recovery guidelines.

Earlier Cases Building to This:

ICICI Bank Ltd v Prakash Kaur & Ors (2007) 2 SCC 711: SC - Recovery of loans or repossession of assets must be done only through methods recognised by law - DRT under RDB Act 1993, enforcement under SARFAESI, or civil courts. Hiring musclemen or private contractors to physically seize property is not legal method.

ICICI Bank Ltd v Shanti Devi Sharma & Ors (2008) 2 SCC 367: Justice Tarun Chatterjee condemned employing musclemen and coercive recovery agents. Even if borrower defaults, recovery must not be extra-judicial. Bank officers criminally liable under IPC.

Charanjit Singh Chadha v Sudhir Mehra (2001): SC - Repossession without peace can attract criminal liability - theft, trespass.

Citicorp Maruti Finance Ltd v S Vijayalaxmi (2012): SC upheld consumer court compensation of Rs 5 lakh for forcible repossession of car with use of goons.

RBI Guidelines Timeline

• Fair Practices Code for Lenders - May 5, 2003: Prohibits harassment
• Master Circular on NBFCs - July 1, 2015: Repossession through lawful means only, board-approved collection policy
• Guidelines on Outsourcing of Financial Services - 2006/2021: Recovery agent due diligence
• Statement on Feb 2023: Repossession must be transparent, notice must mention repossession agency

PART C - US Framework (For Comparison)

• UCC Article 9: Secured creditor can repossess without judicial process if it can be done without breach of peace. Breach of peace = force, threat, entering locked garage.
• CFPB Reg Z + State laws: Require 10-20 day right to cure notice.
• FTC Enforcement: Hiring repo agents who breach peace = unfair practice under Sec 5 FTC Act.

What To Do If You Face Illegal Repossession?

1. File police complaint - theft + criminal intimidation
2. Send legal notice within 7 days demanding restoration
3. File writ under Article 226 or consumer complaint + DRT Sec 17 if SARFAESI used wrongly
4. Claim compensation - SC now awards Rs 5-10 lakh standard for forcible night seizure without notice.