Section 13(5A) to 13(5C) SARFAESI: The Secured Creditor as Bidder

A sale can stall when no buyer will meet the reserve price. Before 2013 the creditor could only re-advertise and wait. Sections 13(5A) to 13(5C), inserted with effect from January 2013, let the secured creditor itself bid at a subsequent sale, adjust the price against its dues, and then hold the property only within the limits of the Banking Regulation Act. This note sets out the trigger, the adjustment and holding rules, and the reasons and safeguards behind the power.

1. The Trigger and the Bid

Figure 1: From a failed sale to the creditor's own bid

• A failed sale first. The power arises where the sale of immovable property, for which a reserve price was fixed, has been postponed for want of a bid not less than that reserve price (Topic 25)
• The creditor may bid, s.13(5A). At any subsequent sale, an officer of the secured creditor, if authorised by it, may bid for the property on the creditor's behalf.
• Price adjusted, s.13(5B). If the creditor is declared the purchaser, the purchase price is adjusted towards its claim, so no cash changes hands for that amount.
• Immovable property only. The provision speaks of immovable property with a reserve price; it is a tool for land and buildings, where stalled auctions were most common.

2. Holding the Property

Figure 2: Acquired to realise, not to keep

• Banking Regulation Act applies, s.13(5C). Section 9 of the Banking Regulation Act 1949 applies, as far as may be, to immovable property the secured creditor acquires under s.13(5A)
• The seven-year rule. Section 9 bars a banking company from holding immovable property, other than for its own use, for more than seven years, a period the RBI may extend.
• So the bank must sell on. The creditor buys to realise the asset later, not to become a property owner, and must dispose of it within the permitted time.
• Inserted in 2013. Sub-sections (5A) to (5C) were inserted by the 2012 Amendment Act, in force from January 2013 (Topic 65)

3. Purpose and Safeguards

Figure 3: Ending the deadlock without abandoning fairness

• Breaks the auction deadlock. Where no outside bidder meets the reserve price, the creditor can step in rather than let the sale stall indefinitely.
• Only after a failed sale. The power is not a first resort: it arises only after a sale has failed for want of a bid at the reserve price.
• The borrower gets credit. The bid price is credited against the dues, reducing the borrower's liability, and any balance remains recoverable under s.13(10) (Topic 28)
• Fairness still matters. Because the buyer is the creditor itself, the reserve price and the Rules still bind, guarding against an inside purchase at an undervalue (Topic 52)

4. Frequently Asked Questions

Can a bank buy the secured property at its own SARFAESI auction?

Yes, but only in defined circumstances. Under Section 13(5A), where the sale of an immovable property for which a reserve price was specified has been postponed because no bid of at least the reserve price was received, an officer authorised by the secured creditor may bid for the property on the creditor's behalf at any subsequent sale. If the creditor is declared the purchaser, Section 13(5B) requires the purchase price to be adjusted towards the creditor's claim. The power is not available as a first resort, and the reserve price and the Enforcement Rules continue to apply, protecting the borrower against an inside purchase at an undervalue.

How long can a bank hold property it acquires under Section 13(5A)?

Section 13(5C) applies Section 9 of the Banking Regulation Act 1949 to property acquired this way. Section 9 prohibits a banking company from holding immovable property, howsoever acquired, except what it requires for its own use, for more than seven years from acquisition, though the Reserve Bank may extend the period. The bank therefore acquires the property as a step in realising its security, not as a long-term investment, and must dispose of it within the permitted time. These provisions were inserted by the 2012 Amendment Act, in force from January 2013.

5. Related Topics

• Topic 25: The Enforcement Rules 2002. Reserve price and the conduct of the sale.
• Topic 65: The 2013 Amendment. The amendment that inserted these provisions.