Movable Secured Assets under SARFAESI: Rules 4 to 7

Most SARFAESI discussion centres on land and buildings, but a great deal of bank security is movable: hypothecated stock, machinery and vehicles. Rules 4 to 7 of the Enforcement Rules set a separate procedure for these, built around actual possession, an inventory, safe custody, and a sale on notice. This note sets out how movables are taken and kept, how they are valued and sold, and how the procedure differs from that for immovable property.

1. Possession and Custody

Figure 1: Rules 4 and 5

• Actual possession, Rule 4. For movables the authorised officer takes actual possession of the goods; a merely symbolic possession on paper does not serve.
• Inventory before witnesses. An inventory or panchnama is prepared in the presence of witnesses, in the prescribed form, and a copy is given to the borrower.
• Custody and insurance. The officer must keep the goods in safe custody and insure them until they are sold, since movables can deteriorate or disappear.
• Valuation, Rule 5. The goods are valued before sale, so that the price rests on an estimate rather than on chance.

2. Sale and Certificate

Figure 2: Rules 6 and 7

• Thirty days' notice, Rule 6. The borrower must receive thirty days' notice before the movable asset is sold, giving a chance to pay and redeem.
• Methods of sale. The goods may be sold by quotations from dealers, public tender, public auction or private treaty, as with immovables.
• Proceeds. The proceeds go first to costs, then the secured debt, with any surplus to the borrower, under s.13(7) (Topic 28)
• Certificate of sale, Rule 7. On sale, a certificate of sale in the prescribed form transfers the goods to the purchaser.

3. Movables and Immovables Compared

Figure 3: Two procedures under one Act

• Possession. Movables need actual possession; immovables may first be taken symbolically by a possession notice, with physical possession later (Topics 28, 56)
• Record and publicity. Movables need a panchnama and custody; immovables need a possession notice affixed and published in two newspapers (Topic 25)
• Sale documents. Movables pass by a certificate of sale under Rule 7; immovables by a sale certificate under Rule 9, with deposit and balance timelines (Topic 61)

4. Frequently Asked Questions

How does a bank take possession of hypothecated goods under SARFAESI?

Under Rule 4 of the Security Interest (Enforcement) Rules 2002, the authorised officer takes actual possession of the movable secured asset, such as hypothecated stock, machinery or vehicles. An inventory or panchnama is prepared in the presence of witnesses in the prescribed form and a copy is delivered to the borrower. The officer must then keep the goods in safe custody and insure them until they are sold. Under Rule 5, the goods are valued before any sale. Symbolic possession, which is used for immovable property, does not serve for movables.

What notice is required before movable secured assets are sold?

Rule 6 requires that the borrower be given thirty days' notice before a movable secured asset is sold, so that the borrower has an opportunity to pay the dues and redeem the goods. The sale may then be made by obtaining quotations from dealers, by public tender, by public auction or by private treaty. The proceeds are applied first to the costs of enforcement, then to the secured debt, with any surplus going to the borrower under Section 13(7). On sale, the authorised officer issues a certificate of sale to the purchaser under Rule 7.

5. Related Topics

• Topic 25: The Enforcement Rules 2002. The procedure for immovable property.
• Topic 28: Section 13(4) Measures. Possession and the application of proceeds.