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What are the precautions to be taken at the time of issuing demand notice under Section 13 of SARFAESI Act?
Sarfaesi Act is an effective tool in the hand of financial institution for getting a speedy remedy in case of willful defaulters of loans or advances. The first step is however issuing a recall notice for closing the account. Then the time for issuing demand notice will come. Certain things should be ensured by the banks or financial institutions before issuing demand notice. Some of them are mentioned below.
(1) The account should have been classified as NPA and recalled.
(2) The security sought to be enforced should be hypothecated or mortgaged to the secured creditor.
(3) The security interest or rights created should not come under the excluded categories in Section 31 of the Act.
(4) The total liability in the account should be above one lakh rupees.
(5) The demand notice should be issued within the limitation period.
(6) It should be ensured that the correct address of the borrower/mortgagor is ascertained prior to issue of notice.
(7) Correct particulars must be entered in the notice. If any error occurs, a fresh notice has to be issued recalling the earlier one.
(8) Always keep the acknowledgement card of the issued notice for future use.
(9) Always physically verify the particulars of property.
(10) It is advisable to file a Caveat in Civil Court to avoid unnecessary hurdles caused by crooked borrowers.

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  1. Cveat should be filed in DRT not in civil court

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  2. It should be before the DRT concerned. Eventhough high courts have no jurisdiction to entertain SARFAESI matters, it is advisable to file caveat before HC as well.

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  3. Let me clarify my point regarding filing of Caveat in Civil Court. But first I would like to thank Sri.S.V.Ram Mohan sir and the dear Anonymous person who commented on this post. I definitely agree with you regarding filing of Caveat in DRT. But it can also be lodged in a civil Court. If you kindly excuse my explaining the principle of Caveat I may submit as follows:
    Section 148A of Civil Procedure Code,1908:"Where an application is expected to be made, or has been made, in a suit or proceedings instituted, or about to be instituted, in a Court, any person claiming a right to appear before the Court on the hearing of such application may lodge a caveat in respect thereof." Now that the section is clear, we will go for an illustration: A party may file a civil suit against the bank along with the owner of security property and may obtain an injunction with respect to that property. This he may obtain by making use of any falsely created document between the owner of the property and himself by which he is able to show that he has a prima facie case. I have seen so many cases like that in local courts and some civil courts may even grant an injunction. Obviously the bank may succed later, but only after serving notice on them after order of injunction is passed. These suits are not filed in DRT. They are filed in Munsiff Courts or Sub Courts or civil judge courts which have territorial jurisdiction over the property. In such cases, filing of Caveat in DRT wont help.
    Moreover, when the question of DRT's jurisdiction will come. The DRT will get first time its jurisdiction when any borrower or third party files appeal under section 17 of SARFAESI Act. There may be other cases also. In all such cases, filing Caveat before DRT may help. As Sri.S.V.Ram Mohan sir said, Caveat can be filed in DRT. But DRT will only be able to send notice to bank when the party files any application in DRT itself and in no other cases. If any one moves suit in a civil court regarding the security property, filing of Caveat in DRT will be of no help. What I think is that you may file Caveat in DRT and also in the civil court having territorial jurisdiction over the security property.

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