Guarantors and mortgagors
Section 2(1)(f) of the SARFAESI Act defines a borrower to include a person who has given a guarantee or created a mortgage or pledge as security for financial assistance. A guarantor or third party mortgagor therefore receives the demand notice and can be proceeded against to the extent of the secured asset offered.
Scope of liability
A guarantor's liability is generally co-extensive with that of the principal debtor unless the guarantee says otherwise. Under SARFAESI, however, enforcement is against the security interest. Where the guarantor has furnished no security, the bank must generally pursue a personal guarantee claim before the DRT or another appropriate forum.
Remedies available
Guarantors and mortgagors can respond to the Section 13(2) notice, raise objections and apply under Section 17. They should examine whether the guarantee was validly executed, whether the loan terms were varied without their consent, and whether the bank released other security in a way that prejudices them.
Tenants in the secured property
In Vishal N. Kalsaria v. Bank of India (2016), the Supreme Court held that a tenant whose tenancy is protected by law and was validly created can approach the DRT, while a tenancy that was not lawfully created does not bind the bank and possession may be delivered under Section 14.
Leases created after the mortgage
In Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd (2014), the Court held that a lease created by the mortgagor after the mortgage, without the lender's consent, does not bind the secured creditor. The Act was later amended to add Section 17(4A), under which the Tribunal examines whether a claimed lease or tenancy is valid and grants relief where it is.
Practical steps
A tenant should keep the lease deed, rent receipts and proof of the date from which they occupy the premises. A guarantor should obtain the complete loan file. In both cases the 45 day limit under Section 17 applies from the date of the measure, so act promptly.
Frequently Asked Questions
Q. Can a bank recover from my personal assets as a guarantor under SARFAESI?
A. SARFAESI enforces security interests. Recovery against unsecured personal assets generally requires a claim before the DRT or a suit.
Q. Does a tenant have to vacate immediately?
A. Not automatically. A lawful tenant can approach the DRT, but the outcome depends on when and how the tenancy was created.
Disclaimer: This article is for general information only and is not legal advice. The law may change, and the facts of each matter differ.