How to Challenge Illegal Possession by Bank Recovery Team
When bank recovery agents arrive at homes and offices, what began as a default on a loan agreement can quickly become a crisis of repossession. Borrowers are suddenly awakened to find people at their doorstep, notices stuck on their doors, locks changed or inventories pasted. Family members of the borrower may not even know which account was attached for recovery.
Visits by bank officers to a property do not necessarily mean lawful repossession. Just because there is a default on a loan agreement does not mean that every entry made by bank officials is unlawful. What is at issue in each case is whether the secured creditor was lawfully in possession of the property in question; and if they completed the necessary steps for recovery under Indian law.
Courts have held repossessions by bank recovery agents to be unlawful where they seized or attempted to seize property: without following the SARFAESI due process; without authority to take possession; against the wrong asset; or by conduct exceeding what was allowed by law in the course of recovery. Any one of these issues can relate to the notices issued, the asset identified, the rights under the mortgage, the taking of possession or the use of force.
One lesson BK Singh Advocate has learned from handling such cases is that borrowers can become shortsighted about their payment history when they are confronted with several months of pending EMIs. Whether or not there is a debt is irrelevant. The legality of possession hinges on a timeline – a series of events.
The consequences of disputed possession are more immediate for residential households. Everything they own is at stake. Disputed possession can threaten their living conditions, children’s schooling, elderly family members and personal assets. Businesses too can face closures. Recovery agents can prevent owners from accessing their inventory, stop employees from entering the workplace and disrupt business relationships.
Understanding what is at risk can help borrowers before assuming every action of a bank directed recovery team was statutorily justified.
Why Illegal Bank Possession Is a Serious Problem in India
Banks/NBFCs and other institutions can enforce a valid security interest under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI ACT”). SARFAESI Act as it is commonly known confers sweeping recovery powers in favor of secured creditors in qualifying secured- loan relationships.
Such powers are not absolute
Under Section 13, the secured creditor is ordinarily required to comply with the statutory process set out under the Act prior to initiating enforcement action against the secured asset. 60 days is usually what the borrower gets to repay the demanded liability on receiving a notice under Section 13(2). Actionable measures under Section 13(4) such as taking possession of a secured asset are undertaken at a later stage and are also subject to various provisions of the Act and Rules made thereunder i.?. Security Interest (Enforcement) Rules, 2002 (“Rules”).
Problems arise when the recovery squad interprets a phone call instruction/branch letter/internal instruction as if that allows them to wield their badge of office and take physical possession overnight. A Recovery agents’ card is no magical talisman that dispenses with the need to follow the statutory process.
Delhi NCR has the added risk of Apartments/Flats/Commercial Units and sometimes even residential flats owned by businessmen being hypothecated as security for business loans. The borrower could be located in Delhi, Noida, Ghaziabad/ Gurugram/ Faridabad and the property charged, could be located at and the branch which disbursed the money and where the loan documents are maintained could all be in different jurisdictions.
Advocate BK Singh has seen jurisdictional errors prevent families from even understanding what property is actually charged and at which bank branch they need to be filing applications to stop enforcement proceedings. Sometimes by the time they discover this, a possession notice/auction related activity could have been performed against the property.
A bank’ SARFAESI power derives from a security interest. Problems arise when the premises visited by the recovery agents were never mortgaged, was released from charge or is not similar to the secured asset mentioned in the loan paperwork.
Matchbox addresses can lead to huge conflicts. Two different floors can belong to two different owners of the same building. Shop numbers can change due to municipal renumbering. Agricultural and non-agricultural shares can belong to the same revenue record of land but not necessarily to the same mortgage.
When an enforcement team seals off an adjoining flat or prevents access to an uncharged area, the issue stops being about defaulting on loans. It escalates to the bank’ overreach on that property.
Possession without a valid security interest
A bank’ SARFAESI power is derived only on the basis of a security interest. Conflict happens when the premises visited by the recovery agents was never mortgage, was discharged from charge or is different than the secured asset described in the loan documents.
Matchbox addresses can create massive conflict. Two floors can have two different owners of the same building. Shop numbers change when municipalities decide to renumber buildings. Agricultural/nongovernmental shares can have the same revenue record of land but not the same mortgage.
When a bank seals off an adjacent flat or denies access to an uncharged property, it is no longer a problem of loan defaulters. It becomes the bank’ overstepping on that property.
Defective or absent demand notice
Issuance of Section 13(2) notice starts the crucial statutory process. Borrowers challenge it on the grounds that they never received it, it was sent to an outdated address (even when the entity had updated these details) or the individual against whom possession is being sought was never named in the recovery notice.
Simply put, non-receipt is not per se evidence of illegality because service was done through the legally acceptable mode and as per the bank’ documentations. However, a broken chain of notice defeats the purpose of determining if the borrower got a chance as intended by law.
“As is often the case,” points out BK Singh Advocate, “family members may come to know of the possession notice when it is pasted on the property. Earlier notices may have been sent to the borrower’s previous office or home address or email id.”
Unclear consideration of objections
Section 13(3A) pertains to representations or objections after service of demand notice. One of the common complaints has been that the bank either issues a templated rejection or proceeds with enforcement while the borrower feels there are substantive objections unanswered.
The issue could be pertaining to incorrect dues, payment allegedly made not reflected in the statement, incorrect classification of the asset, mortgage documents being disputed or inclusion of another guarantor’s asset in same asset declaration. A templated rejection leaves the borrower unable to decipher if the substantive objection was even looked into.
This dissent does not extinguish the debt. It however questions the credibility of the statutory recovery proceedings.
Recovery personnel exceeding their authority
Agents appointed by banks to recover dues can meet you, visit your house or do whatever work they are asked to do. They will not have blanket authority to use force.
When harassment includes threats, breaking locks, abusive language, threatening senior citizens, parading in public or snatching belongings, it crosses the line from debt collection into something else. There is a bank officer, a public official, a recovery agent and a private investigator – all playing different roles. Many borrowers are unable to figure out who has what authority since everyone present at the scene introduces themselves as “someone from the bank.”
BK Singh Advocate has seen clients who were never even shown any written authorization. They were asked to not share their names and were forced to hand over keys on the spot. This lack of transparency only complicates the dispute over possession.
Symbolic Possession and Physical Possession Are Not the Same
o Symbolic Possession only implies that the secured creditor has taken possession of the secured asset through the statutory process. Simultaneous to this act, actual occupants can continue to live on the premises. Actual Possession would imply taking over the reins of the premises. Actual & Symbolic Possession refers to taking control of the premises.
Confusing one with the other leads to serious problems.
Because there is a possession sticker on the door, does not mean that the recovery agent can just go ahead and physically evict all occupants and lock up their belongings. Because occupants continue to live on the property does not imply that the possession notice was ineffective. Possession does not necessarily involve physical takeover.
The lines get blurred when families continue to live in properties that have a mortgage against it or businesses continue to operate from a premise that has been secured. One borrower may think nothing has happened because he has the keys to the house. Another borrower may think that because there is a sticker on the door, the agents are coming to throw him out forcibly that very moment.
The post Can the DRT stop bank from taking possession of house? highlights the legal premise for WHEN taking possession is relevant. If the taking over is challenged, it still leads to the question of what type of possession was the bank claiming to have and what actually happened on the ground.
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ossession the bank thought it had taken and what actually happened at
Problems Connected with Section 14 Assistance
Section 14 empowers a secured creditor to approach the Chief Metropolitan Magistrate or the District Magistrate to take help of his staff and regain possession of the secured asset. But sometimes occupiers mistake the official support provided under Section 14 as being tantamount to adjudication upon every issue relating to title, tenancy or validity of mortgage.
Such a belief is misconceived.
Issuance of an order or direction under Section 14 might lend some solemnity to the exercise of taking possession but questions may be raised afterwards whether the team entered the wrong premises, exceeded the permitted boundary or acted beyond the extent of assistance authorised.
BK Singh Advocate rightly points out that occupants are sometimes shown only a few pages of the order, a blurred photocopy or an order without a legible schedule of property. If the building houses multiple units, possession of an undivided property can lead to sealing/dispossession of a stranger in possession.
Similar anomalies relate to the interval between the order and its execution. Even if assistance is legally sanctioned, complaints can be made that the officers forced open other areas not covered under the secured asset, carried away strangers property or failed to make an inventory of the articles found on the premises.
Tenants, Co-owners and Family Members May Also Be Affected
Things don’t always go smoothly during SARFAESI possession. Tenants, joint owners, parents, siblings, employees or buyers can be found on the premises, asserting their own rights against the borrower named in the enforcement action.
The tenant may have a lease to produce. Except that the bank will say it was executed post-mortgage or devised specifically to defeat enforcement. The joint owner may claim that only his undivided share was given as charge. Parents can complain that their son/borrower charged documents related to a larger family property without their permission.
Advocate BK Singh says these matters go awry because while the people who come for possession have to deal with documents presented by the secured creditor, the occupant has a different set of title deeds, rental agreements, family settlement or proof of payments.
Loan disputes in respect of companies lead to a similar problem. A personal asset of a director, asset of the company and an asset mortgaged by a guarantor are three different things in law. But language used in some recovery communications isn’t always so clear cut.
Delays can work against the person raising the dispute. They may be locked out before they can properly explain their rights in the property.
Inventory, Valuables and Business Stock Create Further Disputes
What happens at the time of possession is taken? Who knows what furniture, machinery, records, jewellery, electronics and stock are actually inside of the building? Taking possession of a mortgage against real estate does not necessarily settle the score on everything that may be personal property on the premises.
Litigation can go on for years based upon what was or was not included in the taking. The tenants can say cash jewelry was stolen. The repo agents can say there was no jewelry or cash. Tax returns, client lists, computers or stock could walk out of the owner’s reach forever. Photos and video can help prove the facts of the possession taking. A video may only show part of the story and open up a whole new can of worms. The camera may have started filming after someone kicked in the door. The camera may have stopped rolling before the boxes were removed from the building.
BK Singh Advocate “The distinction between secured collateral real property and unsecured non-c collateral movable property is commonly a grey area of fact. Financial repercussions can extend past the real property-possession disagreement…”
Translation: Once the fight over who gets the property is settled, owners who lose stock during a possession, experience downtime during repossession and cannot recover important documents may suffer short term business losses.
How Procedural Irregularities Increase Auction Risk
Possession may lead to these subsequent steps. Valuation, fixation of reserve price, advertisement of sale notice and auction of secured assets.
Therefore one defect in possession can continue to affect later stages. An incorrect asset description can roll forward to the auction notice. Lack of access to premises can stop an owner from inspecting the condition of the premises. A contested inventory can deter real bidders or lower property value.
Users encountering this widened conflict may refer to our discussion on Can a person oppose bank possession notice before DRT?. That article discusses the legal action aspect. Here we continue discussing reasons that make possession itself problematic.
BK Singh Advocate writes If we now introduce the auction purchaser who is a third party to the dispute. The conflict between borrower and bank will then lead to questions regarding confirmation of sale, payment by the purchaser and subsequence rights.
Documents That Commonly Reveal the Nature of the Problem
Possession cases are document-driven. Documents that typically expose the locus standi are listed below:
- Loan approval letter and loan agreement
- Mortgage deed, MDPDs and property documents
- Section 13(2) notice along with service copies
- Defendant/respondent borrower’s objections and bank’s reply
- Section 13(4) notice of possession
- Newspaper clipping in relation to possession
- Section 14 papers/possession-helping documents
- Power carried by bank’s attorney
- Possession status, panchnama, inventory, photos and video recording
- MBR,RTC orUDA document identifying premises
- Lease deeds,propriety documents or documents proving identity of occupant.
- Correspondences referring auction, valuation or reserve price.
Absence of one document can’t be taken to prove something illegal. Similarly presence of documents can’t be used to say that proper property was attached properly. BK Singh Advocate frequently encounters varying property descriptions in the mortgage deed, Section 13(4) notice and MBR. Such minor discrepancy – floor, plot area, boundary or khasra number can lead to major ambiguities at time of physical possession.
Consequences of Ignoring a Disputed Possession
Silence can turn a disputed possession into accepted fact. Locks may never be changed back, business may cease until later sale transactions operate on the assumption that possession was rightfully given.
Financially speaking, the impact of a disputed possession goes beyond the unpaid loan. Rent may no longer be paid by tenants. Business orders may be cancelled if customers encounter a locked door. Employees may depart, and your neighbors are certain to find out about the loan dispute if you post any notices publicly.
Family issues can be just as dramatic. Families can be pressured into moving, torn between the borrower and the guarantor, and scared by the removal of furniture and personal items from the home. Elderly occupants may not know what loan paperwork they signed, but they definitely feel the repercussions when possession occurs.
BK Singh Advocate has even discovered that borrowers will tear down or remove any posted notices due to embarrassment. This type of behavior destroys proof of the date, language and description of the property that the bank used at the time of posting which could make proving the timeline more difficult.
A disputed possession will often become intertwined with auction processes. The article covering a bank auction of the property after it is sold chronicles how issues become even more complex once sale related rights emerge.
Frequently Asked Questions
Can recovery agents break the door of a mortgage property?
Ans. One cannot give an entirely clean chit to every recovery agent for breaking and entering a house. Was breaking and entering lawful ? Depends on all the facts and circumstances including whether statutory stage of recovery were followed properly-See written power, process of taking possession & extent of help received from borrower/any person. Section 14 Explained,BK Singh Advocate
Can I dispute possession if no notice was served on me personally?
Ans. No. You can still dispute possession even if personal service was made to somebody. You can definitely dispute the mode of service but personal delivery is only one factor to be considered. Mode of service authorised under the law, address for service shown in records, newspaper publication and possession order must be read together.
Can I file a dispute if disputed possession was taken of property that wasn’t even given as mortgage?
Ans. Normally SARFAESI is employed for enforcement against a charged asset. If the team has taken possession of an asset which was not charged/allotted or area which was blocked but outside mortgage description, then a serious question regarding their authority and identification arises. BK Singh Advocate
Can disputed possession be taken when notice under Section 13(2) is issued by bank?
Ans. Issuance of Notice under Section 13(2) and taking of possession under Section 13(4) are two different stages. If you read the demand notice itself as authority to immediately enter and take physical possession of the property then you are land into bigger law trouble!
Can bank forcefully evict tenants when taking possession of a property?
Ans. Tenancy aspects can lead to further questions regarding date of tenancy, validity of tenancy, type of tenancy along with mortgage history and recovery history of the property. Tenants are the worst sufferers even when they have nothing to do with the loan given to the borrower. BK Singh Advocate
What should I do about my belongings which were left inside the locked house?
Ans. Dispute can be made over who prepared inventory, who has custody, who allowed access to the house, disappearance of belongings. Creates more suspicion when belongings were left inside locked house when possession was taken & possession report does not clearly mention about movables left in the premises.
Can outstanding loan amount made every action by the recovery agents legal?
Ans. Not exactly. Question of whether borrower owe you loan is different inquiry than the legality of particular act of agents at the time of taking possession. Borrower owing you loan can still dispute taking of possession as unlawful.
If property is jointly mortgaged by co-owners, can bank take possession of entire house?
Ans. Does your answer depends upon what was actually given as security interest by co-owner. Yes. Many clients have disputed cases where only share was supposedly mortgaged by co-applicant but bank still went ahead with possession of whole house. BK Singh Advocate
Does granting of symbolic possession mean we have evicted the borrower from property?
Ans. NoSymbolic possession only establishes your legal possession. You have not physically affected possession of the property till date. Many people mistake both the terms and tends to panic. Physical vs. Symbolic Possession
Why does disputed possession become even worse if I agree for auction?
Ans. Auction attracts third party bidder and rights pertaining to them after sale. Now problem is not only between borrower and bank but also involves bidder. Hence wrongful possession can create more serious factual and legal issues if property is auctioned.
Final Thoughts
Illegal bank possession cannot be decided simply based on the fact that your loan is overdue, or that officials showed up at your door with a bank letter. Whether they rightfully had possession often hinges on issues related to the security interest, statutory notices, identity of the property, authority of individuals present and how possession was actually taken.
Advocate BK Singh says Disputes over possession are heavily dependent on documents and the specifics of each situation. A missing notice, incorrect floor number, unauthorized individual, incomplete inventory or taking possession from the wrong occupant can significantly change the dynamics of the matter at hand.
Whether an individual is a family or business owner, the harm can start long before an auction is even held. Loss of access to your property, public notifications, disrupted business and uncertainty surrounding your possessions can cause immediate monetary and emotional stress. Knowing precisely how things went wrong is the first step in understanding your rights in the dispute.
Author Bio
Advocate BK Singh specializes in banking recovery, SARFAESI, DRT proceedings and suits relating to possession and auction of properties in Delhi NCR and other regions in India. He deals with cases related to recovery including serving of disputed possession notice, enforcement against secured assets/mortgaged property, misconduct of recovery teams and procedural flaws under SARFAESI Act. He deals with clients such as borrowers, guarantors, owners of properties and others before
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