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Use of digital signatures by an Authorised Officer under SARFAESI Act

Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, the use of digital signatures by an Authorised Officer is permissible, provided it complies with the Information Technology Act, 2000, and the relevant provisions of the SARFAESI Act and its Rules.​

1. Legal Framework

The Information Technology Act, 2000, recognizes digital signatures as legally valid, provided they are affixed using a secure digital signature certificate issued by a Certifying Authority under the Act. Section 13 of the SARFAESI Act empowers the Authorised Officer to take measures for the enforcement of security interests, including issuing notices and conducting auctions. While the SARFAESI Act does not explicitly address digital signatures, their use is not prohibited. Therefore, an Authorised Officer may use a digital signature, provided it meets the legal requirements under the Information Technology Act. does not contravene any provisions of the SARFAESI Act or its Rules.

2. Demand notice :

2.1  The service of demand notice as referred to in sub-section (2) of section 13 of the Act shall be made by delivering (including hand delivering) or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by Speed Post or by courier or by any other means of transmission of documents like fax message or electronic mail service.

2.2   Modes available for service of 13(2) notice

1) Registered post with Acknowledgment due

2) Speed post

3) Courier

4) Certificate of posting

5) Fax message 

6) E-mail service

2.3 Copy of the notice, receipt for dispatch, and acknowledgement for having served should be retained safe till account is closed.

2.4. Where authorized officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality.

2.4 a Where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1).

2.4 b Any other notice in writing to be served on the borrower or his agent by authorized officer, shall be served in the same manner as provided in this rule.

         2.4 c Where there are more than one borrower, the demand notice shall be served on each borrower.

         2.4 d The demand notice may invite attention of the borrower to provision of sub-section (8) of section 13 of the Act, in respect of time available to the borrower, to redeem the                secured assets.

3. Section 13 (2) contemplates only one notice.

Under section 13(2) of the SARFAESI Act, only one notice is required to be issued to the defaulting borrower for all the loans availed by him providing him a minimum 60 days’ time to liquidate the outstanding liability.

4. Demand notice is to be issued to the Borrower and not to the power of attorney holder.

If NRI son is availed loan from the Bank by giving power of attorney to his father. In case of default, demand notice has to be issued to the borrower and no to the power of attorney holder.

5. Notice under section 13 (2) amounts to attachment in validating subsequent attachment.

As explained by the Supreme Court in Transcore vs. Union of India, a notice under section 13 (2) of the SARFAESI Act is not merely a show cause notice. It was held that notice under section 13 (2) operates as an attachment / injunction restraining the borrower from disposing of the secured assets and therefore such notice is not mere a show cause notice but it is an action taken under provision under SARFAESI Act.

6.    Withdrawal of prior notice no bar to subsequent notice.

If the bank and financial institution failed to proceed against the borrower for long time may be for any reasons, bank and financial institution may issue fresh notice again under section 13 (2) of the SARFAESI Act. Once the second notice is issued, the effect of first notice will automatically come to an end.

7. Notice whether gives cause of action to borrower – effect of notice is mere attachment.

Notice under section 13 (2), Constitutes mere attachment of the secured assets and borrower cannot create any charge of whatsoever in nature on the secured assets once the notice under section 13 (2) is issued. Section 13 (13) of the SARFAESI Act operate as an attachment / injunction restraining borrower from disposing of the secured assets. However, cause of action will arise only when bank and financial institution invoked its right conferred on it under the Act under section 13 (4), then only cause of action arise to the borrower to file securitization application under section 17 (1) of the SARFAESI Act.

8.    Notice to whom?

As per section 13 (2) of Act, notice is to be served on each and every person such as borrower, mortgagor and guarantor who are involved in transaction and liable to make the payment of outstanding dues If the property is occupied by third party, then the notice should be sent to him informing about the actions of secured creditors under SARFAESI Act against the borrowers (MAA Shakum Bhari Synthetics Ltd. Vs. Canara Bank : 2011(89) ALR 532).

9.     Notice is to be issued I Class legal heirs, in case of accidental death of the borrower.

Housing Loan is availed by a Hindu Doctor employed in Government.  During the subsistence of loan, Doctor died in a motor accident. He is survived by his parents, wife, 6 months baby and a sister and brother. Notice has to be issued to I Class legal heirs, who are all entitled to inherit the estate as per Hindu Law i.e. to the following viz. i) Mother ii) Wife iii) 6 months old baby.

10. Notice issued to borrower to his latest correct address available as per records. But it is returned unserved as “left”- Presumption is Notice Served.

The Hon’ble Supreme court has held in AIR 1989 SC 630, if a registered letter addressed to a person at his residential address does not get served in the normal course and is returned, it can only be attributed to the addressee's own conduct. If he is staying in the premises, there is no reason why it should not be served on him.

In this situation, we have to choose the more reasonable, effective, equitable and practical interpretation and that would be to read the words "Served" as "Sent By Post", correctly and properly addressed to the tenant, and the word "Receipt" as the tender of the letter by the postal peon at the address mentioned in the letter. No other interpretation, we think, will fit the situation as it is simply not possible for a landlord to ensure that a registered letter sent by him gets not served on, or is not received by the tenant”

Our comments:

Instead of entering into any controversy, it is advisable to paste demand notice on the conspicuous part of the property where the borrower resides or working for gains and get it published in the newspapers out of which one is in a vernacular language.

11. What is the recourse, if the borrower avoids the service of notice and it is returned with remark that no such addressee is available.

Authorized officer should affix a copy of the demand notice on the outer door of the property and to publish the contents of notice in two leading regional newspapers out of which one is in a vernacular language.

12. Computation of 60 days of the demand notice.

60 days’ notice under Sec 13(2) is to be counted from the date of notice and not from the date of its receipt. The secured creditor would be able to initiate further proceedings under section 13 (4) of the Act only after completion of statutory period of 60 days to the notice as stated above.  II 2008 BC 634 DB Allahabad.

13. Demand notice can be barred under Law of limitation.

Sec.36 of the SARFAESI Act provides that period of limitation prescribed under Limitation Act 1963 is applicable. The period prescribed for enforcing the right of mortgagee against the secured interest is 12 years. IV (2005) BC 357 Orissa High Court – Indumathi Pattanaik Vs Bank of India.

14. Demand Notice is not served on all legal heirs of the mortgagors.

When Notice is served on some of the legal heirs of the deceased, then there is substantial and sufficient representation of interest of the legal heirs. Hence, Notice not issued to some of the legal heirs will not be fatal.

2008 (3) SCC 233- Mohammed Hussain (Dead) by LRs. Vs. Gopi Bhai and others.

15. Partial payment subsequent to the Demand Notice – whether can make the asset come out of NPA?: NO.

Any Payment made by the borrower subsequent to issuance of invocation of the SARFAESI proceedings by the Bank, the loan amount of the borrower cannot come out of NPA classification.

Chembity Brahmaih Chowdhary V/s. State Bank of Hyderabad 2010 (4) ALD 408 AP (DB) and Azam Food products Pvt. Ltd. V/s. DRAT, Chennai 2010 (4) ALD 424 AP (DB)

16. Notice to dead person - void - fresh notice to legal heirs necessary.

The proceedings initiated against a person died, would automatically stand abated and the bank has to issue fresh notice (Neelam Vs. State Bank of India : 2015 (2) BJ844).

17. Inaction after notice – Fresh notice necessary.

When there is an inordinate delay in taking action after service of notice, action under section 13 (4) would be impermissible and afresh notice would become necessary to initiate action under section 13 (4) as action on same notice would be opposed to justice, fair play and conscience. This is because there is no bar or prohibition to issue second notice under section 13 (2) of the SARFAESI Act if the first notice issued under section 13 (2) of SARFAEASI Act has not been given effect. (Dauji Farms Ltd. Vs. Dena Bank AIR 2009 Chh 22)

18. No bar for the issuance of fresh/second Demand notice under Section 13(2).

Issue of fresh / second notice is not barred under the SARFAESI Act unless it is prohibited by the Court / Tribunal. Once the second notice has been issued, first notice will be treated as cancelled under the SAFAESI Act. SARFAESI Act has not provided any limit within which period, steps or measures enumerated under Section 13 (4) have got to be accomplished.

Omeshwar Balddwa v/s Vasavi Co operative Urban Bank Ltd. 2010 (1) DRTC 167 AP (DB).

Davji Farms Ltd V/s Dena Bank . 2009(1)DRTC570 Chattisgarh High Court, Bhuvanendran v/s LIC Housing Finance Ltd2009 (4) Kerala High Court.

19. Error in calculation of interest – fresh notice necessary.

In the matter of Rathika Kumaran Vs. State Bank of India, MANU/ TN/ 2624/ 2015 (MAD) it is held that Bank is not permitted to calculate interest on the entire amount although 50% of amount was received from Insurance Company. The notice issued under section 13 (2) was quashed and the bank was permitted to issue fresh notice.

✍️ Sadashiv B. Pimplaskar

Legal Advisor, MyRinBazaar