SARFAESI Act Section 13(2) Demand Notice: 10 Legal Points to Check Before Responding

The law makes it necessary for the bank to provide the details of amount payable by the borrower as well as the property which is sought to be sold in case the borrower fails to repay the loan within 60 days of receipt of demand notice.

The intend of the law to make it necessary for the bank to issue demand notice is to let the borrower know the amount which is legally due against him and unnecessary amounts are not levied under the disguise of cost, charges and other expenses.

The points which are necessary to be observed when served with a demand notice under SARFAESI Act, 2002.

1. It must be clearly mentioned that the demand notice has been issued under Section 13(2) of SARFESI Act, 2002: as a consequence of receipt of demand notice there is a freeze on transfer of property therefore it is necessary that the borrower is made aware that the notice is issued under this law.
2. The demand notice must clearly mention the details of the amount payable by the borrower and the security interest intended to be enforced in the event of non-payment of loan amount by the borrower.
3. The bank may be restrained from taking physical possession of the immovable property in case the demand notice does not contain the break-up of the outstanding principal and interest amount [relevant judgment on this issue is one of the Gujarat High Court in the case of Abaj Food Pvt. Ltd. vs. Punjab National Bank III (2023) BC 174 (Guj.)].
4. The bank cannot issue demand notice without declaring the loan account as a Non Performing Asset (NPA): it is necessary for the bank to mention in the demand notice that the loan account of the borrower was declared as a Non-Performing Asset on account of default in repayment of loan.
5. The demand notice must give 60 days time to the borrower to repay the amount: the period of 60 days must start from the date on which the demand notice is received by the borrower and not the date which is mentioned in the notice.
6. The actual date of receipt of demand notice can be traced through the tracking report of speed post or courier service (as the case may be) and the day on which the said notice is received will be excluded while counting the period of 60 days.
7. The demand notice must also invite attention of the borrower to Section 13(8) of SARFAESI Act, 2002 which tells the borrower which is available with him to get his property back.
8. The bank’s demand must be in accordance with the loan agreement and interest payable as per such agreement, the borrower may insist on getting evidence of the amount mentioned in demand notice, the bank is then obligated to provide a certified copy of statement of account maintained by the bank in its course of business (as per Bankers’ Book Evidence Act, 1891).
9. The bank cannot claim penal interest since the same is not debited to the borrower’s account: if the amount mentioned in the demand notice includes penal interest then the claim of the bank becomes doubtful.
10. If the amount which is payable to the bank is determined by the Debts Recovery Tribunal (DRT) under Recovery of Debts and Bankruptcy Act, 1993, then the bank cannot raise demand of an amount higher than that determined by DRT by sending notice under Section 13(2) of SARFAESI Act, 2002.