Auction Process under SARFAESI Act

The bank's authorized officer issues a demand notice under Section 13(2) of the SARFAESI Act to the defaulting borrower, demanding payment of the full overdue amount within 60 days. This written notice clearly states the amount due and warns that the bank will seize and sell the secured asset if the dues are not paid.

The borrower can respond to this notice by paying the dues or raising objections. If the borrower sends objections or a representation, the bank must reply within 15 days, giving reasons if it rejects the objections.

If the borrower clears the dues within 60 days, the process stops. But if 60 days pass without payment or a satisfactory arrangement, the bank moves to the next step.

Once the 60-day notice period expires without repayment, the bank can take possession of the collateral asset (for example, take over the house or vehicle that was mortgaged). This can initially be a "symbolic possession" – the bank gives a public notice that it has taken control of the property on paper.

Soon after, the bank will usually take physical possession (actual custody) of the property. Sometimes, if the borrower refuses to hand over the asset, the bank may seek the help of the local District Magistrate or Chief Metropolitan Magistrate under Section 14 of the Act to enforce possession with police assistance.

Taking possession means the bank can now legally sell the asset. The borrower is given a final intimation that the asset is seized and will be sold to recover the loan.

Before the bank can actually sell the property, it must issue a public auction notice. As per the SARFAESI Rules, the bank has to give the borrower and the public at least 30 days' notice before the sale date.

This sale notice is published in at least two newspapers (one leading English daily and one local language newspaper), and is also uploaded on the bank's website and on a designated e-auction or government tender platform.

The notice contains all the important details of the auction, such as:

• Description of the property (location, type, details of the asset being auctioned).
• Reserve Price – the minimum price at which bidding starts or the lowest price the bank is willing to accept.
• Earnest Money Deposit (EMD) – the refundable deposit amount that interested bidders must pay to participate (usually about 10% of the reserve price).
• Inspection and contact details: The date and time when bidders can inspect the property, and contact info for the bank officer in charge.
• Auction date, time and venue/mode: The scheduled date and time of the auction and whether it will be an e-auction (online) or physical auction at a specific venue.
• Bidding terms: How to submit bids (for example, filling out a tender form or online registration) and the last date to apply.

Once the auction notice is out, interested buyers can take steps to participate in the auction. For a member of the public, buying a property via a bank auction can be a good opportunity (such properties are often sold at attractive prices). The steps for buyers typically include:

• Submit the EMD: The bidder must pay the Earnest Money Deposit as specified in the notice (usually 5–10% of the reserve price) to the bank before the auction. This is a security deposit that shows you are a serious bidder.
• Register and KYC: The bidder needs to register for the auction by submitting their KYC documents (ID, address proof, etc.) and the proof of EMD payment to the bank or the auction portal by the deadline given.
• Inspect the Property: Buyers are advised to inspect the asset and do their due diligence. Since auctions are "as is where is" sales, the buyer is responsible for checking the property's condition, title, and any liabilities.
• Understand the Terms: The buyer should read the auction terms in the notice, such as the incremental bid amount, any taxes applicable, and the timeline for payment if they win.

On the day of the auction, the bidding process takes place as per the notice:

• If it's an e-auction, bidders will login at the specified time window and place their bids online. If it's a physical auction, it may be an open auction at the bank's premises or a sealed tender process.
• Bidding usually starts at the reserve price (bids below the reserve price won't be accepted). Multiple bidders then compete by offering higher prices.
• The highest bid at the close of the auction is declared the winner, as long as it meets or exceeds the reserve price.
• In many cases, auctions are conducted for a fixed duration (say, 1-2 hours), and if a last-minute bid comes in, the auction may auto-extend for a few minutes to allow counter-bids.

The highest bidder (auction winner) now has to complete the payment to actually buy the property. The auction terms will dictate the schedule, but generally it works as follows:

• Deposit 25% immediately: The winner must pay 25% of the bid amount (minus the EMD already paid) immediately or within 24-48 hours of the auction closing.
• Pay the remaining 75% within 15-30 days: The remaining 75% of the sale price must be paid within a stipulated period after the auction, typically within 15 days (some banks allow up to 30 days as mentioned in the auction notice).
• Consequences of default: If the highest bidder fails to pay the remaining amount in time, they lose their EMD/initial deposit and the sale is canceled.

Once the successful bidder has paid the full price, the sale is confirmed. The bank will not entertain any late payment from the buyer or any further claims from others once this is done.

After full payment is received, the bank will issue a Sale Certificate or Sale Deed in the buyer's name, which is a legal document that transfers ownership of the property to the auction winner.

The buyer can then have this sale certificate registered with the local land registry to update official records. The bank's authorized officer will also hand over possession of the property to the buyer.

Finally, the bank uses the sale proceeds to recover the loan dues and any costs. If there is any surplus money after clearing the loan and expenses, that remaining amount is returned to the original borrower (owner).