Received an E-Auction Sale Notice? 5 Things You Must Check Immediately
Issuance of an e-auction sale notice under SARFAESI can escalate a bank recovery matter overnight.
Till now, the borrower might have been only receiving recovery calls/messages, Section 13(2) demand notice, subjected to possession proceedings or continuos discussions with the branch. An auction notice however is distinct. An auction notice informs you that the secured creditor is getting ready to sell away the mortgaged asset, to recover its dues.
For an individual, that asset could be his residence. For a small business owner, it could be his factory/warehouse/office/ commercial shop or land which he may have hypothecated for working capital. A guarantor may find his flat or motorbike that he provided as guarantee now advertised for e-auction because the primary borrower has defaulted.
Don’t obsess about the auction date.
Action needed on five fronts – Sale-notice period, description of secured asset, Reserve price and valuation record, Possession/enforcement history, Outstanding loan/settlement record. Receipt of an auction notice does not automatically mean that all is lost and the borrower has an avenue for legal recourse. Each of these five categories, if found to have defects or discrepancies, would need to be challenged legally.
However, successful challenge to one or more of these categories would not automatically restrain the secured creditor from selling the asset.
The SARFAESI Act, 2002 provides for enforcement of secured assets by the secured creditor in accordance with the provisions of the Act read with the Security Interest (Enforcement) Rules, 2002. Rule 8 specifies the procedure to be complied with for sale of immovable secured assets. Rule 9 then regulates the timing and conditions for conducting such a sale. There is a mandatory 30-day period for the first sale, while a subsequent sale (in the event of a prior failed sale) would fall within the shorter statutory notice period required for repeat sales.
Advocate BK Singh recommends borrowers cross verify each of these points before approaching a lawyer.
“Don’t look at an e-auction notice in isolation. The default notice sent earlier, the possession proceedings (if any) undertaken by the bank, the valuation and reserve price, any Section 14 notifications sent by the bank and your payment history, all are relevant and need to be checked,” says Advocate Bk Singh.
If you are a borrower or a guarantor threatened with sale of your property, please contact DRT Advocates for help with SARFAESI/DRT matters anywhere in Delhi NCR or India.
Why You Should Read Your E-Auction Notice And Act FAST
One can safely assume that most stages of secured-debt enforcement are over by the time an auction notice is received.
Possession steps may have already been initiated against the property. Valuation & reserve-price determinations may have also been finalized. What this means is that third parties will be able to bid for the secured asset on the appointed date.
Third party bids create certainty as to selling price. Which means that a debtor who “plays for time” by asking bank branch managers to meet during the interim could find himself stranded at the finish-line when the auction process moves ahead without him.
Negotiations do not pause an e-auction. Requests do not delay e-auctions. Sending an email to the bank requesting more time will not postpone the e-auction date.
If you want to fight the auction, you should quickly go over the documents & timeline of enforcement. Senior Advocate BK Singh often asks me to first highlight dates when reviewing an auction-related dispute. That is because many such matters are inherently time-sensitive.
E-auctions are held in Delhi, Noida, Ghaziabad, Gurugram, Faridabad, Meerut, Lucknow, Jaipur, Mumbai, Pune, Ahmedabad, Bengaluru, Hyderabad, Chennai, Kolkata and various other commercial centres for both commercial & residential properties. SARFAESI and the Rules still apply, although the local DRT will vary.
Why an E-Auction Notice Requires Immediate Attention?
One can safely assume that most stages of secured-debt enforcement are over by the time an auction notice is received.
Possession steps may have already been initiated against the property. Valuation & reserve-price determinations may have also been finalized. What this means is that third parties will be able to bid for the secured asset on the appointed date.
Third party bids create certainty as to selling price. Which means that a debtor who “plays for time” by asking bank branch managers to meet during the interim could find himself stranded at the finish-line when the auction process moves ahead without him.
Negotiations do not pause an e-auction. Requests do not delay e-auctions. Sending an email to the bank requesting more time will not postpone the e-auction date.
If you want to fight the auction, you should quickly go over the documents & timeline of enforcement. Senior Advocate BK Singh often asks me to first highlight dates when reviewing an auction-related dispute. That is because many such matters are inherently time-sensitive.
E-auctions are held in Delhi, Noida, Ghaziabad, Gurugram, Faridabad, Meerut, Lucknow, Jaipur, Mumbai, Pune, Ahmedabad, Bengaluru, Hyderabad, Chennai, Kolkata and various other commercial centres for both commercial & residential properties. SARFAESI and the Rules still apply, although the local DRT will vary.
Quick Facts
- An e-auction notice is issued with respect to proposed sale of secured asset for realization of dues.
- The sale of immovable secured assets is covered mainly by Rules 8 and 9 of the Security Interest (Enforcement) Rules.
- As per Rule 9, on first occasion of sale, the property should not be sold before the expiry of period of 30 days from the date of relevant sale notice/ publication.
- Where there has been a prior sale and it did not fructify and a second or subsequent sale is being effected then the amended Rule talks about giving a notice of 15 days at the minimum.
- Reserve price to be determined in consonance with valuation process specified under the Rules.
- An aggrieved person is given a remedy before the appropriate Debt Recovery Tribunal (DRT) under Section 17 against SARFAESI actions provided such actions qualify as “measures” under Section 17.
- Mere pendency of request for settlement does not automatically revoke auction date.
What Is an E-Auction Sale Notice Under SARFAESI?
An e-auction sale notice is a notice for sale of secured asset by proposed electronic auction published by the secured creditor after the enforcement of his powers under the SARFAESI Act.
Sale notice regarding immovable property shall include particulars like description of the property, reserve price, earnest money deposit, inspection of property, date of auction, payment terms etc.
This is different from section 13(2) demand notice.
By the time of auction, the enforcement proceedings have gone quite a ways ahead. Hence it would be advisable for the borrower to compare the auction notice with each of the previous notices instead of looking at the auction notice in isolation. Sometimes the important snag is concealed in the timeline and not in the banner headline of the auction notice itself.
Check 1: Was the Appropriate Sale-Notice Period Observed?
Time is one of the first things to review.
Rule 9 says that a first sale of immovable property ought not occur until at least 30 days from the relevant public notice of sale or service of the sale notice upon the borrower has elapsed.
Subsequent sales, however, have a shorter period after an earlier attempt has failed. If a fresh subsequent sale is being contemplated under the amended Rule 9 regime, then a period of no less than 15 days is required to be given.
Don’t be confused. A borrower needs to determine whether the notice concerns:
- a first auction; or
- a subsequent auction following an earlier unsuccessful attempt to sell.
Don’t just count back 30 days from the date at the top of the notice.
Service, publication, history of previous auctions, and the actual intended date of auction can all play a role.
Give copies of both the current and prior auction notices to Advocate BK Singh where a previous sale effort was made.
Check 2: Does the Property Description Match?
Read the schedule of property attached to the notice.
Borrowers often dive right into the reserve price and ignore basic identifiers.
Cross reference the e-auction notice with the mortgage, title deed and possession notice if one was served.
Property number, plot or flat number, area, boundaries, floor, survey number or khasra details if applicable, how the owner is described, and anything else which can be used to identify the property should be verified.
Just because there is a typographical error does not mean the property being sold is not the property you looked at. Though they may seem similar, a typographical error and a material dispute over property identification are very different.
Issues arise where the notice appears to convey property which was never actually mortgaged, misdescribes the property which secured the loan or is ambiguous about the property being sold.
Be careful if the property is jointly owned as well.
Just because a property has multiple owners does not necessarily mean there is a problem. The mortgage documents and how the property was originally offered as security should be reviewed first.
Advocate BK Singh can read the auction schedule with the original security document to determine if any discrepancy is material.
Check 3: What Price Did the Bank Reserve?
Reserve price refers to the minimum benchmark price fixed for the proposed sale under the relevant auction rules.
Under Rule 8, for immovable property, the Reserve Price should be fixed based on valuation from an approved source and in consultation with the secured creditor before any sale.
A borrower therefore should:
- Observe the reserve price mentioned in the notice;
- Determine if the property was offered for sale at a prior auction at a different reserve price;
- Inquire whether previous auctions have been unsuccessful;
- Review when the valuation was made and in what context, if known; and
- Take note of any other material facts relating to the property which may impact valuation.
Just because you think the property is “worth much more.” doesn’t mean it is.
Statements like that are meaningless for purposes of litigation. An actionable challenge is typically made by examining the prescribed process and supporting evidence rather than stating your own opinion of the market value.
This is especially true for commercial buildings, industrial land and locations that are appreciating rapidly.
Advocate BK Singh can help determine if there is a legitimate issue with how the valuation was done or the reserve price fixed rather than simply giving an unsupported estimate of the market value.
Check 4: What Preceded the Auction Notice?
The issuance of an auction notice is not the beginning of the SARFAESI process.
There are previous stages of enforcement.
A complete history may include a Section 13(2) demand notice, receipt of objections under Section 13(3A), application for possession under Section 13(4), service of possession notice under the Rules, and in certain cases, initiation of Section 14 proceedings for physical possession of the secured asset.
All events should be chronologically ordered.
Questions to consider include:
- Did the borrower receive the Section 13(2) notice?
- Did the borrower make any representations to the bank?
- Did the bank respond?
- When did the bank claim possession had been taken?
- Was mere symbolic possession bothered?
- Did the bank file Section 14 proceedings?
- Has the bank previously issued auction notices?
- Have previous auctions been conducted?
- Did they fail?
An alleged deficiency at one stage may have suffered from similar legal issues. The context can matter. Not every flaw will prevent the bank from selling the property.
Advocate BK Singh typically reviews all prior events in the enforcement process before determining if a Section 17 application to the DRT has merit.
Check 5: Is the Outstanding Amount and Settlement History Correct?
Verify the amount claimed against the loan account record.
Review payments made after the demand notice was issued, deposits made during settlement talks, restructuring communication, OTS offers and any written terms of settlement.
An auction cannot be slowed or stopped by simply making a phone call to the bank’s local branch.
If the bank has sent a written Settlement Letter, read every term.
Just because a settlement “agreed” doesn’t mean it isn’t subject to completion on specific dates. If you don’t pay when promised, the bank may be able to restart recovery actions under the terms agreed and the law.
Sending an OTS letter doesn’t automatically “settle” the matter either.
The secured creditor must accept your offer and any conditions to that acceptance must be able to be shown from the record.
If you have made sizable payments that are not reflected in the computation of account, preserve evidence of those payments immediately.
Advocate BK Singh can review your payment receipts, bank statements and settlement correspondence along with the auction notice.
Who Should Take an E-Auction Notice Particularly Seriously?
If your home or business property is being sold, you should take heed.
Guarantors should take heed as well.
Often guarantors think that all of the principal debtor’s resources have to be exhausted before the mortgaged property offered by them can be sold. Such a presumption should not be made until the security and guarantee documents are read.
Business borrowers are even more exposed.
Machinery, employees, suppliers, inventory, production agreements and even business operations can be impacted by the auction of a factory.
The sale of a home can cause stress to the family, fear of displacement and the perception that strangers are bidding on your home.
Advocate BK Singh is a lawyer who represents borrowers, corporate debtors, owners, guarantors and individuals with an interest in secured property in SARFAESI matter.
Documents to Keep Ready
File together the following documents.
- Copy of E-auction sale notice.
- Prior auction notices (if any).
- Section 13(2) demand notice.
- Section 13(3A) objection and bank response.
- Section 13(4) notice of possession.
- Section 14 documents / order of possession (if any).
- Loan sanction letter.
- Loan and security agreements.
- Mortgage Deeds.
- Title documents of the property.
- Loan statements.
- Receipts of payments made.
- OTS & settlement letters.
- Any documents related to Valuation (If any).
- Prior DRT orders / affidavits (if any RTI applications / replies pending) (If proceedings already started)
Ideally these documents should be arranged in a chronological manner.
A well maintained file would enable Advocate BK Singh to quickly grasp the real issue at hand instead of spending precious time playing connect the dots.
When Should You Consult a DRT Lawyer?
Ideally, the moment you get notice of auction.
Urgently, if the auction is scheduled very soon, this is a second auction with a shorter timeline, possession has already taken place or there is an existing DRT matter.
You may also need advice if: the property description is wrong; the secured asset is that of a guarantor; payments have been excluded from the account; there is a written settlement agreement; there have been several auctions with moving reserve prices; or the borrower feels the sale in question hasn’t complied with the mandated sale procedure.
Advocate BK Singh can review the notice in light of the entire SARFAESI file and advise on a legal remedy.
How DRT Advocates Can Assist With E-Auction Notice?
At DRT Advocates, we handle SARFAESI matters & Debt Recovery Tribunal cases related to bank auctions, bank possession proceedings, secured asset, guarantor – property related disputes.
It all begins with the paper work.
Detailed scrutiny of e-auction notice is done along with previous demand notices sent by the bank, possession notices, mortgage deed, any documents related to valuation, account run papers, settlement letters etc. Once it is analysed whether a viable DRT remedy exists, we can initiate DRT proceedings keeping in mind the facts of the case and territorial jurisdiction.
Advocate BK Singh can also assess cases where the client has started OTS negotiations while auction proceedings are already initiated and guide the client to realise that settlement negotiations and legal protection are two separate things.
No Advocates would ever assure their client that the auction will be cancelled. Result of the case depends on facts, documents, applicable laws and judgment of the concerned forum.
Where an auction is imminent, the availability of a legal remedy to seek relief from an auction must be assessed in the context of the relevant documents and the stage of enforcement. A request for relief does not itself guarantee that the sale will be stopped.
Frequently Asked Questions
Q1. What is the meaning of receiving auction sale notice?
Ans. Secured creditor intends to sell the secured asset using auction process for recovery of dues. It is advisable to go through SARFAESI chronology as a whole. Please do not read the auction notice only. (Read by Advocate BK Singh)
Q2. How many days of notice will bank give before first auction?
Ans. Rule 9. Sale of immovable property on first occasion. – The sale in respect of immovable property shall not be held before the expiry of a period of 30 days from the date of sale notice/ publication under sub-rule (1).
Q3. Is it always 30 days notice for every auction?
Ans. No. If a prior sale has already been attempted and failed, and a second sale is to be held, the Rules allow for a shorter period of notice of at least 15 days.
Q4. Can I object to a very low reserve price?
Ans. Objection to Reserve Price to be made with reference to valuation process and evidence. Merely because you think there is more money in the property does not by itself mean you can successfully challenge the Reserve Price in a court of law.
Q5. Can bank still auction my property if I have asked for OTS?
Ans. OTS request pending is not a bar to stop SARFAESI action from taking place. Check for any written acceptance from Bank for OTS request along with terms of settlement. Check for any order from a Court/Tribunal/Authority which may forbid bank from taking SARFAESI action.
Q6. Can bank auction property of a Guarantor?
Ans. Yes they can. Provided the Guarantor’s property was part of the security offered to the Bank & all conditions under law are met for enforcement of security. Check the mortgage & Guarantee documents.
Q7. What happens if my auction notice contains incorrect property info?
Ans. Incorrect/missing information can make the auction notice invalid. However, analyze the sale notice, possession certificate and mortgage deed carefully. Any insignificant error may not affect the validity of sale.
Q8. Can District Debts Recovery Tribunal (DRT) stop e-auction?
Ans. Any person affected by any action performed under SARFAESI Act has the right to appeal to DRT for relief from such action. Granting of temporary relief is subjected to facts of the case, legal grounds and the discretion of DRT. A borrower may also need to consider a suitable remedy to seek a stay of bank auction where the facts and applicable law support it.
Q9. Should I wait for auction outcome before seeing a lawyer?
Ans. No. It’s usually easier to understand the facts & legal position before the auction goes too far. Waiting for results will reduce your chance to analyse all the documents related to the property.
Q10. When is the best time to call Advocate BK Singh regarding auction notice?
Ans. It would be preferable to speak to Advocate BK Singh as soon as you receive or become aware of the e-auction sale notice. This is particularly important where the auction is imminent or if a second auction has been scheduled.
Q11. Will bank lower down reserve price in second e-auction?
Ans. Yes. The reserve price may be different at a second auction, depending on the valuation and sale process adopted by the secured creditor. Any lowering of price should be reviewed along with the prior auction documents, valuation report and the SARFAESI procedure followed.
Q12. What if I never received the copy of e-auction notice, but it was published?
Ans. Service and publication are both important factors in SARFAESI sales proceedings. Validity of any legal objection would depend on how the notice was actually served, what was published and what documents are reflected in the bank’s enforcement record.
Q13. Can the bank auction my jointly owned property?
Ans. Jointly owned properties can give rise to additional concerns, based on who created the mortgage, what proportion was offered for security and how the title documents were drafted. The auction notice must be reviewed with reference to the mortgage and title records.
Q14. Can I object against auction as bank has not credited my recent payments?
Ans. Yes, if material payments have not been accounted for properly in the loan account. All payment receipts, bank statement along with loan settlement correspondence must be kept safe and cross-checked with the amount claimed as outstanding in the auction documents.
Q15. What if nobody bids for the property in e-auction?
Ans. If the auction is unsuccessful due to no bidders, the secured creditor can arrange for a second sale, subject to applicable legal requirements. The timeline for a second sale may also differ from the timeline prescribed for the first auction.
Q16. Can I request bank not to go ahead with e-auction?
Ans. Request for postponement or settlement can always be made, however the bank is not obliged to suspend the auction just because a request is made. Any agreed postponement in the auction should ideally be confirmed through a written documentation.
Q17. Is physical possession necessary before every e-auction?
Ans. The legal position would depend on the stage of enforcement, type of possession and the facts of the case. Symbolic possession is different from physical possession, and the entire SARFAESI file should be reviewed before reaching any conclusions.
Q18. Can bank sell the property below reserve price?
Ans. A sale below reserve price is something which cannot be assumed to be legal, without reviewing the applicable Rule 9 requirements and checking what consent was provided or procedure was adopted. The sale documents must be reviewed meticulously.
Q19. The auction is scheduled in just a few days, now what?
Ans. The situation becomes very urgent. Immediately review auction notice, prior SARFAESI notices, possession status, valuation report and payment history to determine if you can file a DRT petition.
Q20. Can Advocate BK Singh help me review my e-auction notice?
Ans. Absolutely. Advocate BK Singh can assist you in reviewing the e-auction notice, prior SARFAESI proceedings, reservation price, property details, payment history and loan settlement documents to determine the legal position and DRT remedies available to you.
Conclusion
An e-auction sale notice under SARFAESI should be read loud n clear and never in isolation.
Verify five points quickly: Notice period governing, description of property, reserve price also read with valuation parameters, previous history of possession/enforcement if any and the outstanding-payment/settlement trail.
Read the dates again.
A fresh auction is not always follow the same notice period as that of a repeat auction. Negotiations of settlement also does not automatically stay statutory enforcement actions.
If a real legal wrongdoing is available then the appropriate remedy by DRT also needs to be evaluated only with reference to the precise stage of enforcement, documents & limitation status.
Advocate BK Singh can be approached for professional guidance relating to SARFAESI e-auction disputes, possession, guarantor/property disputes and filing replies to DRT Orders across Delhi NCR and India wherever jurisdiction of the appropriate forum lies.
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