Adv. Harsha Swaroop P, B.E., LL.B., LL.M. (Corporate & Commercial Law)
Corporate, Projects & Regulatory
Published [date]. Last reviewed [date]. Law stated as at this date.
On an illustrative INR 25 crore non-performing exposure, a month of drift anywhere in the SARFAESI sequence costs about INR 38 lakh, roughly 1.5 per cent of the outstanding, and most of it is destroyed rather than transferred. Neither side collects it. The statutory calendar has not moved since the 2016 amendments, but the regulatory wrapper around it was rewritten on 28 November 2025, and three judgments delivered between September 2025 and June 2026 have made the back end of the process, the auction and its confirmation, far less final than lenders had assumed.
Two things, one regulatory and one judicial.
On 28 November 2025 the Reserve Bank issued entity-wise Directions replacing the scattered circulars that governed stressed-asset work. For banks, the instrument is the Reserve Bank of India (Commercial Banks - Resolution of Stressed Assets) Directions, 2025, RBI/DOR/2025-26/165, DOR.STR.REC.84/21.04.048/2025-26. It folds the restructuring norms, the compromise settlement and technical write-off framework, the treatment of changes in date of commencement of commercial operations for project loans, and the prudential treatment of government debt relief schemes into a single document, with parallel Directions of the same date for NBFCs, urban co-operative banks, regional rural banks, small finance banks, local area banks and All India Financial Institutions. A separate instrument of the same date, DOR.FIN.REC.No.85/20-16-003/2025-26, restates the wilful and large defaulter regime that had been issued as a Master Direction on 30 July 2024. On 29 April 2026 the Reserve Bank amended the NBFC Directions to insert a natural-calamity resolution chapter, effective 1 July 2026.
The substance of the 2019 prudential framework survives the consolidation. The thirty-day review period after default, the 180-day window to implement a resolution plan, the inter-creditor threshold of 75 per cent by value and 60 per cent by number, and the additional provisioning of 20 per cent and then 35 per cent all read across. What the consolidation does is remove the argument that a lender was following one circular rather than another.
The judicial change is sharper. In M. Rajendran v. KPK Oils and Proteins India (2025 INSC 1144, 22 September 2025) the Supreme Court held that the amended section 13(8) worked a radical change, and that redemption ends at publication of the sale notice, with no distinction between auction, private treaty, lease or assignment. Seven months later, in E. Muthurathinasabathy v. Sri International (2026 INSC 303, 1 April 2026), the Court held that where the auction purchaser paid the balance consideration some fifteen months late, the sale was inchoate, confirmation did not preclude scrutiny, and the mortgagor's right to redeem survived until completion by registered deed. In M.R. Vasumathi v. Authorized Officer (2026 INSC 633, 9 June 2026) the Court quashed a confirmed sale where the balance price came five days after the fifteen-day period in Rule 9(4) and the secured creditor could show no written agreement extending time. Non-adherence, the Court said, is a material irregularity going to the root of the matter.
Enforcement under section 13 is available only once the account is a non-performing asset. Section 31 then carves out security interests below INR 1 lakh, security created in agricultural land, and any case where the amount due is less than twenty per cent of the principal and interest. Below those lines, the Act is simply unavailable and recovery runs through the Debts Recovery Tribunal or the civil courts.
The 2019 framework, now carried into the 2025 Directions, binds scheduled commercial banks other than regional rural banks, the All India term financial institutions, small finance banks, and both systemically important non-deposit taking and deposit-taking NBFCs. Co-operative lenders and the smaller NBFCs have their own instruments.
On the defaulter side the thresholds are low and are worth stating plainly. An outstanding of INR 25 lakh and above brings an account within the wilful defaulter machinery; INR 1 crore and above makes the borrower a large defaulter for reporting purposes. The classification exercise is to be completed within six months of the NPA classification, through an Identification Committee headed by a whole-time director or equivalent, a show cause notice carrying twenty-one days to respond, and a Review Committee that must offer a personal hearing. Legal representation at that hearing is not permitted, which changes how the written response has to be built.
The figures below are illustrative and are set out so they can be replaced. The structural point is that penal charges, since the Reserve Bank's circular of 18 August 2023, are a charge and not an addition to the rate of interest, and cannot be capitalised.
Outstanding at NPA date INR 25,00,00,000
Contract interest, 11.5% p.a. INR 23,95,833 per month
Penal charges, 2% p.a., not capitalised INR 4,16,667 per month
= dues accrual INR 28,12,500 per month
Secured property, value at NPA date INR 20,00,00,000
Erosion at 0.5% per month once the asset
is idle and possession is contested INR 10,00,000 per month
= cost of one month of delay INR 38,12,500
= as a share of outstanding 1.53% per month
Sixty-day section 13(2) window, dues only INR 56,25,000
Section 18 deposit, 50% of INR 25 crore INR 12,50,00,000
carried at 7% p.a. INR 7,29,167 per monthThe last line is the one borrowers underestimate. Money locked up as a pre-deposit is dead for the duration of the appeal and earns nothing against the debt. The one lenders underestimate is the erosion line. It is a separate calculation from the national recovery rate, which the Economic Survey 2025-26 records as having improved from 25.4 per cent in FY24 to 31.5 per cent in FY25, because that rate is an aggregate against amounts involved across all SARFAESI cases and is not a security-valuation measure for any single account.
The fifteen days in section 13(3A). A borrower's representation obliges the secured creditor to consider it and, where it is not acceptable, to communicate reasons within fifteen days. Reasons means reasons, not a form rejection. Equally, a borrower who never files a representation cannot later build a case on the absence of a reply, which is what defeated the challenge in M. Rajendran.
Rule 9(4). Fifteen days from confirmation for the balance price, extendable only by written agreement between the parties, and even then not beyond three months in aggregate. Two Supreme Court benches in 2026 have now set aside sales for breach of it. An oral indulgence by the authorised officer is worth nothing.
Forty-five days under section 17. It runs from the date the measure was taken, not from the date the borrower learnt of it or from the last of a series of measures.
Thirty days and the deposit under section 18. The appeal is to be filed within thirty days of receipt of the order, and no appeal is entertained without fifty per cent of the debt due as claimed or as determined by the Tribunal, whichever is less. The Appellate Tribunal may reduce that to twenty-five per cent for recorded reasons. It cannot waive it. In HDFC Bank v. Pradeep Gordhandas Vora (8 June 2026) the Bombay High Court applied that even to an appeal against an order refusing condonation of delay, and declared the contrary line per incuriam.
In manufacturing, the security is usually a mix of land, building and plant. Plant and machinery loses value in a way land does not, and a shut unit deteriorates from the first month. The erosion assumption above is conservative for a chemicals or textiles unit with process equipment, and too high for a standalone industrial plot.
In infrastructure and real estate, the complication is that the secured asset is often project land over which third parties have rights. A RERA-registered project carries allottee interests that do not disappear because a mortgage is enforced, and the section 14 route delivers possession of land, not of a clean title. Here the Muthurathinasabathy line matters most, because delay between auction and registration leaves the entire structure open to attack.
In financial services, an NBFC is frequently on both sides. It enforces against its own borrowers under section 13 and is simultaneously a borrower under a bank facility governed by the NBFC Directions of 28 November 2025 as amended on 29 April 2026. A liquidity event therefore triggers two clocks at once, and the thirty-day review period at the bank level tends to run faster than the NBFC's own recovery cycle.
Three questions.
Whether the forty-five days under section 17 can be extended. The Madhya Pradesh and Gauhati High Courts have held that section 5 of the Limitation Act applies because SARFAESI does not exclude it. Tribunals at Chennai and Kolkata have held the opposite. The Supreme Court has agreed to examine the point and has not decided it. Our position is that the question is academic for planning purposes. Forty-five days should be treated as hard.
Whether E. Muthurathinasabathy reopens what M. Rajendran closed. Read widely, it restores the pre-2016 position that redemption survives until registration. Read narrowly, it says only that a sale which was never completed according to the Rules cannot be treated as complete for the purpose of extinguishing redemption. Our position is the narrow reading. The 2016 amendment moved the cut-off deliberately, and a bench cannot undo it by construction. What the 2026 judgments do is make Rule 9 compliance a condition of the lender's own timeline, not create a new redemption right.
Whether the section 14 order carries an enforceable timeline. The Punjab and Haryana High Court held in IIFL Home Finance v. State of Haryana (31 March 2026) that the Magistrate's role is administrative and confined to verifying the factual correctness of the application, and imposed costs on two States for inaction. The provision remains directory on Supreme Court authority. Our position is that the two are reconcilable: the period is not a jurisdictional bar, but sitting on the file is reviewable inaction.
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Adv. Harsha Swaroop P, B.E., LL.B., LL.M. (Corporate & Commercial Law)
Corporate, Projects & Regulatory
Published [date]. Last reviewed [date]. Law stated as at this date.
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