Answer: The Secured Creditor can take possession of secured assets and sell the same without filing any case in any Court or Tribunal. However the secured creditor cannot act as per its own sweet will.

In the case of Mathew Varghese Versus M. Amrita Kumar reported in (2014)5 Supreme Court Cases Page 610, Supreme Court held that whatever may be the extent of borrowing, the secured creditor acts as a Trustee and the power under Sarfaesi Act, 2002 cannot be exercised arbitrarily, whimsically to the utter disadvantage of the borrower.

Answer: A secured Creditor can take action under the Sarfaesi Act, 2002 only if a Borrower, who is under a liability to a Secured Creditor and if Security Interest has been created in respect of his property in favour of the Secured Creditor, makes default in repayment of the Secured Debts and his loan account is classified as non-performing asset. If these conditions are not satisfied, Sarfaesi action cannot be taken. See Section 13(2) of Sarfaesi Act, 2002

Answer: Sarfaesi steps and measures cannot be taken if Security Interest (mortgage, hypothecation, etc) has not been created in favour of the secured creditor as security for the loan. Similarly, even if the Security Interest has been created but has not been created in accordance with law and is therefore invalid, Sarfaesi action cannot be taken. See Section 13(2) of Sarfaesi Act, 2002.

Answer: Security interest, inter alia, means mortgage, charge, hypothecation, assignment or any other right , title or interest of any kind on tangible assets retained by the secured creditor. Section 2(1)(zf) of Sarfaesi Act, 2002.

Answer: Action under Sarfaesi Act, 2002 cannot be taken in respect of property of the Borrower which has not been mortgaged or Hypothecated.

Answer: Action under Sarfaesi Act, 2002 cannot be taken in respect of personal property of the guarantor , which has not been mortgaged or Hypothecated

Answer: Action under Sarfaesi Act, 2002 cannot be taken in respect of personal property of the directors of the Borrower Company which has not been mortgaged or Hypothecated

Answer: Bank and Financial Institution cannot take action under Sarfaesi Act, 2002 in respect of personal property of the partners of the Borrower firm which has not been mortgaged or Hypothecated.

Answer: Action under Sarfaesi Act, 2002 cannot be taken in respect of personal property of the owner of the sole proprietorship Borrower Company which has not been mortgaged or Hypothecated

Answer: Action under Sarfaesi Act, 2002 cannot be taken in respect of personal property of the relatives of the Borrower, like husband, wife, father, mother, Son, daughter, etc., which has not been mortgaged or Hypothecated.

Answer: Sarfaesi Action can be taken in respect of a flat in a cooperative society.

In the case of Hill Properties Limited Versus Union Bank of India reported in (2014)1 DRTC Page 155, Supreme Court held that Multi-storeyed flats are being constructed and sold by Companies registered under the Companies Act as well as the Co-operative Societies registered under the Registration of Co-operative Societies Act etc. Flats are being purchased by people by either becoming members of the Co-operative Society or shareholders of the Company and the flat owners have an independent right as well as the collective right over the flat complex. Flat owners' right to dispose off its flat is also well recognized, and one can sell, donate, leave by Will or let out or hypothecate his right. However, the Supreme Court while holding that a flat in a cooperative society can be sold under Sarfaesi Act, 2002, gave a valuable right to the owner of the flat by observing as follows:-

“We may reiterate that the Appellant will certainly have the right of pre-emption, but not at any value lesser than the market value of the Suit flat at the time of the sale.”

Answer: The banks and Financial Institution cannot take Sarfaesi steps and measures if there is no default in the loan account. For example, there may be default as per the original repayment schedule of the loan. However, if the loan account has been restructured and fresh repayment schedule has been fixed and if the borrower is making payment as per the fresh repayment schedule, it cannot be said that the borrower has committed default in repayment of the loan and hence Sarfaesi action cannot be taken.

Answer: Banks and Financial Institutions cannot take Sarfaesi steps and measures unless the loan account has become NPA and has been classified as NPA. Moreover, if the Banks and Financial Institutions have classified a loan account as NPA even though the loan account has not actually become NPA, Sarfaesi action cannot be taken.

Answer: It has been held by Madras High Court in the case of Kirubanandum Versus State Bank of India reported in (2013)1 DRTC page 117, Madras High Court that Sarfaesi Action can be taken after Certificate has been issued in Original Application filed by the secured creditor under the Recovery of Debts and Bankruptcy Act, 1993.

Answer: Sarfaesi Action can be taken against a mere guarantor who is not the borrower. However, the guarantor must have mortgaged/ hypothecated his personal assets as security for the loan taken by the borrower. Under Section 2(1)(f) of Sarfaesi Act,2002 , the expression borrower includes a person who has given a guarantee as security for the financial assistance granted by any bank or financial institution. Hence, under Sarfaesi Act, 2002, borrower includes a guarantor and Sarfaesi Action can be taken against a guarantor, if he has mortgaged his personal property for the loan taken by another person.

Answer: Sarfaesi Action can be taken against a person who has mortgaged and hypothecated his personal property for the loan taken by another person. 

Under Section 2(1)(f) of Sarfaesi Act,2002 , the expression borrower includes a person who has created any mortgage as security for the financial assistance granted by any bank or financial institution. Hence under Sarfaesi Act, 2002, borrower includes a mortgagor and Sarfaesi Action can be taken against a mortgagor, if he has mortgaged his personal property for the loan taken by another person.