09 November 2021 Banking Law >> Business & Commercial Law   |   Banking/Finance >> Corporate Law   |   Sarfaesi >> Corporate Law  

A recent court case highlights the importance of proper procedure in bank auctions under the SARFAESI Act. The case involved a borrower, Kanti Devi, who passed away after a bank issued a sale notice for her property due to loan delinquency.

The bank had initiated the foreclosure process and issued a sale notice as per the Act. However, before the auction could take place, Kanti Devi unfortunately passed away. Her heirs informed the bank about her death, but crucially, they were not included in the subsequent proceedings.

The crux of the issue lies in the legal requirement of due process. The sale notice serves a dual purpose: it grants the borrower an opportunity to settle the dues and allows anyone with a stake in the property to challenge the sale. With the borrower deceased and the heirs left out of the loop, these rights were not upheld.

The court acknowledged this failing and ruled that the exclusion of the legal heirs rendered the entire sale process flawed. The bank, in essence, had attempted to sell the property of a deceased person, violating fundamental legal principles of fairness and due process.

The outcome of the case protects the rights of borrowers and their successors. Even in cases of loan default, the legal framework ensures that property sales are conducted with proper notification and a chance for those involved to address the situation.

This case serves as a reminder for both banks and borrowers. Banks must meticulously follow the established procedures under the SARFAESI Act, especially when borrower circumstances change. Borrowers facing foreclosure should also stay informed about their rights and take necessary steps to protect their interests or those of their heirs.

  Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002