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Vijay (Management Consultant)     20 June 2014

Question on sarfesi procedure

Dear Experts,

Our family jointly owns a commercial property. We undertook construction loan from a private bank in 2006 against the "entire" property as security and could pay EMIs until 2010. Due to some unforeseen losses & illegal occupation in the property, we had come to an agreement with the bank that we shall sell partial stake of our family in the property and service the loan and close it completely. To this, the bank has agreed and had even provided One Time Settlement forms with payment tenure.

We then registered sales deeds for "partial stake" in the property to a local resident (buyer) in 2010. However, the illegal occupants troubled both our family & as well the buyer and have not allowed any of us into the property since several years. Please note that we are yet to get the sales proceeds from the buyer as he claims that he is unable to gain possession to the property and shall repay the amount once he gets possession.


Meanwhile, our banker, who had waited long enough, initiated SARFESI proceedings under section 13(2) & 13(4) against us. Under these circumstances, we would like to know the answers for following questions:

1. Which part of the property the Bank is supposed to take physical possession?

2. If the situation worsens and the Bank opts to Auction the property, can it auction the complete property? or only the residual portion that is still owned by our family?

3. Shall the Bank "cancel" all Encumbrances on the property?


Thanks to clarify.


Warm Regards



 8 Replies

c.p.s. ramachary (1500)     20 June 2014

Dear Mr. Vijay,

The OTS sanctioned to you by the bank remained unfulfilled. Generally in OTS time shall be  treated as essence of the OTS. The bank is not bothered about your personal difficulties in delivering possession to the purchaser of the property. Hence OTS whatsoever you have entered into with the bank might have been droped by the bank as waived by you. You may pursue the bank to extend time for complying with the terms of the OTS if it is not droped. Your query lacks facts relating to the occupants of your property.

In the alternative you may request the bank to take possession of the part of the property and sell it in the action under Sec.13 of SARFAESI Act so that the bank may invoke Sec.14 of the above said Act and eject the occupants (if they are not bona fide tenants) and adjust the sale proceeds towards the debt and legally incurred expenditure in the action under the Act.

1 Like

Vijay (Management Consultant)     21 June 2014

Respected Sir,

We shall pursue with the Bank to extend the time for complying with the terms of the OTS, if not dropped.

As a general procedure, please clarify whether the Bank is supposed to cancel all the Encumbrances made thus far either before or after taking physical possession of the property. Also, in such a situation, will the Bank establish their possession only on the residual share owned by our family or the complete property.

The reason we are asking this is that we realized another recent and unexpected move from our buyer who made further Encumbrances on the property to his financier friends. Besides this, more astonishingly, he started converting our situation with the Bank in his favor by influencing the Bank officials and paving way for acquiring the entire property soon we are thrown out of the property.

Kindly consider and advise us the suitable legal measures to undertake and prevent our family from another financial shock.


Thanks in advance.


adv.raghavan (Advocate,9444674980)     22 June 2014

It is blunder going for sale deed without  receipt of full consideration. that too on a property which was mortgaged with a bank. Going by your statement, bank has extended OTS for a portion of property, which stands unanswered by you, due to shortage of funds.

2,Bank will auction entire property, they do have the power and authority to do . Any encumbrance made in the property will dealt accordingly. If u have decided to give up the property, coordinate with bank and get the best rate possible after settling bank dues. Bank will have to take you into confidence before fixing price.


VIRAJ KADAM (Advocate Supreme Court of India)     23 June 2014

Dear Friend

You first need to start legal process of eviction of the illegal occupant. Your half the problem will be solved. Secondly, your bank can forcefully evict the illegal occupant out. You can tie up with the bank get the possession and sell the property.



Advocate, Supreme Court of India


Rangee (Lawyer)     27 June 2014

Dear Friend,

1.The whole property which you have pledged as security will be put up for auction in as is where is condition by the Bank through Agent. When the Authorized Officer of Bank has served a notice under Section 13(4) ti is deemed possession any time after hearing objections if any the property may be auctioned by fixing the Reserve Price.You have option to file appeal before DRT on the notice served on you under Section 13(4) of SARFAESI Act 2002. 

If you pay Amount due before Auction the Bank will cancel the auction and hand over the property to you.




1 Like

Vijay (Management Consultant)     11 July 2015

Dear Experts,

In response to the noice for 13(4), we have informed the Bank to proceed with legal steps for recovery by selling the entire property. However, the latest I learnt is that the relevant leaders in the Bank have got corrupted. Our Buyer, further Encumbrants have approached the bank officials and started to pacify the proceedings by offering bribes and political influence. I tried to approach higher ups at Zonal/Product level to escalate the same, but, it has not been effective so far. Please help to make me understand the cost-effective option to bring the process of implementing 13(4) on track to (1) make the bank take physical possession (2) e-auction the property.

Thanks for all your expert advises and kindly request you to help us during this troubled times.



Anjuru Chandra Sekhar (Advocate )     20 August 2015

Your query may be answered in two parts:


1. As you have mortgaged entire property as the owner of property to bank the bank assumes that you are the owner of the property.  To protect the best interests of the owner the bank may decide to sell only that portion of property which sale proceeds will be sufficient to appropriate the loan because selling entire property would land the bank into unnecessary litigation.  All the same no owner expects that of his loan can be repaid by selling part of property, bank sells his entire property.  Going by that principle, it is not necessary for bank to sell away the "entire property" when it has onerous duty to keep your claim on rest of property in tact. 



2. Otherwise, if the illegal occupants want to pay money to bank directly because bank has charge over the entire property, the bank may accept the amounts from them as is necessary to appropriate to loan account and close the account.  This is because they may be illegal occupants for you (which you have to prove in court), but may not be for the bank.  If the bank considers that they are genuine buyers of the property under SARFAESI Act it has right to direct them to pay the sale proceeds to it instead of paying to you.  In other words, the bank also has the right to use the property other than which is "partial stake of family property".

1 Like

Anjuru Chandra Sekhar (Advocate )     20 August 2015

Correction: All the same no owner expects that of ......


Read as:  All the same no owner expects that if.....

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