The procedure for the sale of security interests under the SARFAESI Act is as follows:
- Notice of default: The first step in the sale of security interests under the SARFAESI Act is the issuance of a notice of default. This notice is sent by the bank or financial institution to the borrower and states that the borrower has defaulted on the loan. The notice gives the borrower a specified period of time to rectify the default.
- Possession of security: If the borrower fails to rectify the default within the specified period of time, the bank or financial institution may take possession of the security. This is done by giving the borrower a notice of possession, which states that the bank or financial institution has taken possession of the security.
- Appointment of receiver: The bank or financial institution may appoint a receiver to manage the security and ensure that it is sold in a manner that is consistent with the provisions of the SARFAESI Act. The receiver has the power to sell the security and distribute the proceeds among the creditors.
- Sale of security: The receiver may sell the security to other banks, financial institutions, or investors. The sale must be conducted in a transparent and fair manner, and the proceeds from the sale must be used to pay off the debt owed by the borrower.
- Realization of proceeds: The proceeds from the sale of the security must be used to pay off the debt owed by the borrower. If there are any surplus funds after the debt has been paid off, they must be returned to the borrower.
It is important to note that the sale of security interests under the SARFAESI Act is subject to certain conditions and limitations. For example, the sale of security interests may not be used to recover certain types of debt, such as debt incurred as a result of illegal activities. Additionally, the sale of security interests may not be used to recover debt owed by certain classes of borrowers, such as small-scale industries, farmers, and certain micro and small enterprises.