Inside the Auction: Reserve Price, EMD and the Twenty-Five Per Cent Rule
By the time a SARFAESI auction is notified, most borrowers have stopped reading the papers. That is a mistake, because the auction stage is where the most valuable objections usually lie, and it is also where an outsider — including a borrower's relative or a business associate — can participate on defined terms.
The secured creditor must publish the auction notice in the prescribed manner, ordinarily at least thirty days before the date of sale, and the notice must state the description of the property, the reserve price, the earnest money deposit, the terms of payment and the contact details for inspection. Defects that regularly appear in Kolkata notices include a reserve price fixed on a stale valuation, a description that does not identify the portion being sold, a sale of the entire property when only a share was mortgaged, and a failure to publish in the required newspapers or languages.
Under the Security Interest (Enforcement) Rules, 2002, the successful bidder must deposit twenty-five per cent of the bid amount immediately, and the balance within fifteen days of the sale, failing which the deposit is forfeited and the property may be re-sold. The sale is confirmed in favour of the highest bidder, and a sale certificate is issued and registered. A borrower who intends to challenge the sale must move quickly, because the clock runs from the confirmation and registration, and courts are reluctant to unwind a completed sale to a bona fide purchaser who has paid.
| Stage | What the borrower can still do | Deadline to watch |
|---|---|---|
| Demand notice | Representation to the creditor raising the account, the amount and the valuation | Sixty days from receipt |
| Possession notice | Application to the DRT challenging the measures | Forty-five days from the measure |
| Auction notice | Challenge to valuation, publicity, reserve price; negotiate a settlement | Before the fall of the hammer |
| Sale confirmed | Challenge on fraud, collusion or material irregularity; claim surplus | Immediately, with evidence |
| Sale certificate registered | Redemption is effectively over; focus shifts to surplus and damages | No practical window |
Tenants, Family Members and the Section 14 Possession
Physical possession in Kolkata is usually taken through an application to the District Magistrate or the Chief Metropolitan Magistrate under Section 14 of the Act, and the order is executed with police assistance. The Magistrate's role is limited to verifying that the requirements of the Act have been met; it is not a forum for deciding title. That is why objections raised before the Magistrate rarely succeed and why the effective challenge belongs before the DRT.
Tenants and occupants who are not borrowers are in a different position. A lease that predates the mortgage may be protected, depending on its terms and on whether the creditor had notice of it; a lease created after the mortgage to defeat the creditor is vulnerable. Family members residing in the property without a registered right usually have no independent standing, but courts are sensitive to genuine hardship, particularly where children or elderly parents are involved, and a reasonable time to vacate is sometimes granted. Each of these situations turns on documents — the registered lease deed, the rent receipts, the date of the mortgage — and not on possession alone.
Buying at a Bank Auction: The Risks Nobody Explains
Auctions can produce genuine bargains, but the buyer takes the property subject to what the bank can lawfully convey. Before bidding, obtain the notice, the valuation report, the title documents that the bank holds, and the encumbrance certificate. Inspect the property physically and confirm who is in occupation. Check whether municipal dues, electricity arrears or maintenance charges are outstanding, because the sale certificate does not extinguish all of them and the buyer often inherits the liability.
Also verify the borrower's remaining rights. Until the sale is completed by registration of the certificate, the borrower can redeem by paying the dues, and a bidder who has paid a deposit may find the sale undone. Read the terms on which the deposit is refunded in that event, and never bid on a property you have not inspected on the ground that the photographs in the notice looked acceptable.
Whether you are a borrower facing a sale next month, a guarantor whose property is listed, or a buyer assessing a lot, the documents decide the outcome. Contact the chamber before the auction date rather than after it.