Section 13(2) SARFAESI: The Demand Notice

Enforcement begins with a notice. Section 13(2) requires the secured creditor to give the borrower sixty days to pay the secured debt in full before it may take any measure, and Section 13(3) fixes what the notice must contain. The notice is the jurisdictional foundation of the whole enforcement: get it wrong, and everything built on it can fall. This note sets out the notice, its required contents, and the consequences of non-payment or a defective notice.

1. The Notice

Figure 1: Sixty days to discharge the debt

• A written notice. Where the account is an NPA and the borrower in default, the secured creditor requires the borrower, by notice in writing, to discharge the secured liabilities in full.
• Sixty days to pay. The borrower is given sixty days from the notice to pay the secured debt, a clear statutory period the creditor cannot shorten.
• Only after NPA classification. The notice can issue only after the account is classified an NPA, so valid classification is the precondition to the notice (Topic 9)
• The opening step. The s.13(2) notice is the first formal step of enforcement: nothing under s.13(4) may be done until it is given and the sixty days run out (Topic 24)

2. What the Notice Must Contain

Figure 2: The Section 13(3) particulars

• Details of the amount payable. Section 13(3) requires the notice to give details of the amount payable by the borrower, so the borrower knows exactly what is claimed and can pay or dispute it.
• The secured assets intended to be enforced. The notice must also specify the secured assets the creditor intends to enforce, fixing the scope of the enforcement and warning the borrower what is at risk.
• Particulars are not a formality. A notice that is vague about the amount, or silent on the assets, fails the s.13(3) requirement and can be challenged as defective.
• It frames the whole action. Because later steps build on the notice, its particulars define the enforcement that follows, which is why they matter.

3. Effect and Consequences

Figure 3: Pay, default, or challenge

• Pay within sixty days. If the borrower discharges the debt in full within the period, the enforcement ends there; the notice has done its work.
• Fail to pay. On the sixty days expiring without full payment, the secured creditor becomes entitled to take the s.13(4) measures, possession, sale and the rest (Topic 24)
• Defective notice. A notice issued before valid NPA classification, or lacking the s.13(3) particulars, is defective and open to challenge before the DRT under s.17 (Topic 35)
• Jurisdictional foundation. Because the notice is the foundation of enforcement, a fatal defect in it can unravel the measures that follow, so the creditor must get it right.

4. Frequently Asked Questions

What is a Section 13(2) demand notice under the SARFAESI Act?

A Section 13(2) demand notice is the written notice by which a secured creditor requires a borrower, whose account has been classified a non-performing asset, to discharge the secured liabilities in full within sixty days. It is the first formal step of enforcement, and no measure under Section 13(4), such as taking possession or selling the asset, may be taken until the notice has been given and the sixty-day period has expired without full payment. Under Section 13(3), the notice must give details of the amount payable by the borrower and the secured assets the creditor intends to enforce. The notice can issue only after valid classification of the account as a non-performing asset.

Can a borrower challenge a defective Section 13(2) notice?

Yes. The demand notice is the jurisdictional foundation of the enforcement, so a defect in it can be challenged before the Debt Recovery Tribunal under Section 17. A notice issued before the account was validly classified a non-performing asset, or one that fails the Section 13(3) requirement by being vague about the amount payable or silent on the secured assets intended to be enforced, is defective. Because the later measures build on the notice, a fatal defect can unravel the enforcement that follows. The borrower cannot, however, approach the Tribunal merely on the notice; the Section 17 remedy arises once a Section 13(4) measure is taken.

5. Related Topics

• Topic 27: Section 13(3A) Representation. The borrower's reply to this notice.
• Topic 9: Non-Performing Asset. The classification the notice depends on.