Introduction:
In Mst. Sundri and Ors. v. J&K Bank & Anr. (2025), the Jammu & Kashmir High Court, in a significant ruling on the interpretation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), clarified that a secured creditor is not required to serve a fresh notice to the legal heirs of a deceased borrower before invoking Section 14 of the Act. A Division Bench comprising Justice Sanjeev Kumar and Justice Sanjay Parihar dismissed a writ petition filed by the legal heirs of a deceased borrower challenging the action of the respondent bank to take possession of mortgaged property under Section 14. The petitioners argued that since they were not served with a fresh notice after the borrower’s death, the proceedings were invalid. However, the Court held that the SARFAESI Act does not mandate such a requirement, and once a notice under Section 13(2) is served upon the borrower and the borrower fails to repay the dues within 60 days, the secured creditor is entitled to proceed under Section 14. The Court further noted that the petitioners neither paid the outstanding dues nor demonstrated any willingness to repay them, even after a lapse of two years from the borrower’s death.
Arguments:
On behalf of the petitioners, Advocate Shakir Haqani, assisted by Advocate Asif Ahmad Wani, argued that the proceedings initiated by the bank were vitiated due to non-compliance with the principles of natural justice. The petitioners contended that the bank failed to issue a fresh notice under Section 13(2) of the SARFAESI Act to the legal heirs after the death of the original borrower, which deprived them of an opportunity to clear the outstanding dues and protect their property from being repossessed. It was submitted that the legal heirs were not made aware of the recovery proceedings until the bank sought the intervention of the Chief Judicial Magistrate under Section 14 to take possession of the mortgaged property. The petitioners claimed that had they been served with proper notice, they might have explored settlement options or arranged for the repayment of the loan, and therefore the failure to notify them rendered the bank’s actions illegal and arbitrary.
The respondent bank, represented by Advocate Adil Asmi, refuted these claims, arguing that the SARFAESI Act contains no provision requiring a fresh notice to legal heirs of a deceased borrower. It was emphasized that the statutory process had been duly followed when a notice under Section 13(2) was initially served on the borrower, granting 60 days to discharge the liability. Upon the borrower’s failure to comply, the bank exercised its statutory right under Section 14 by approaching the Chief Judicial Magistrate to take possession of the secured asset. The bank further submitted that the petitioners neither made any payment nor expressed readiness to settle the dues even after two years of the borrower’s demise. It was argued that the petition was a delaying tactic aimed at thwarting legitimate recovery proceedings. The respondent bank also noted that the SARFAESI Act’s objective is to ensure expeditious recovery of secured debts without unnecessary judicial interference, and the petitioners’ demand for a fresh notice would run contrary to the intent and scheme of the legislation. The bank also assured the court that if the petitioners approached the bank under any existing One Time Settlement (OTS) scheme with the requisite deposit, their request would be considered in accordance with the applicable guidelines.
Judgement:
After considering the submissions and examining the statutory framework of the SARFAESI Act, the Division Bench held that the arguments advanced by the petitioners had no merit. The Court observed that the issuance of a notice under Section 13(2) to the borrower is a mandatory requirement, and once that notice is duly served and the borrower fails to discharge the liability within the stipulated 60 days, the secured creditor is legally entitled to take measures under Section 13(4) and subsequently seek assistance from the Chief Judicial Magistrate under Section 14 to take possession of the secured assets. The Court categorically rejected the argument that a fresh notice must be issued to the legal heirs of a deceased borrower, clarifying that such a requirement is not contemplated under the SARFAESI Act. Justice Sanjeev Kumar, speaking for the bench, remarked, “We are not persuaded to agree with the contention of the learned Counsel for the Petitioners that before invoking Section 14 of the Act of 2002, the secured creditor should have issued fresh notice to the legal heirs of the borrower.” The Court emphasized that the SARFAESI Act aims to provide a speedy mechanism for recovery of secured debts, and adding procedural requirements not stipulated by the statute would defeat this objective.
The Court further noted that the petitioners, despite having ample time following the death of the borrower, neither attempted to settle the outstanding dues nor showed any intention or readiness to pay. The Bench observed, “Assuming for the sake of arguments that the Petitioners were required to be given a fresh notice under Section 13(2)… is it the case of the Petitioners that they had the money and were ready and willing to discharge their liability within sixty (60) days?” The Court answered this rhetorical question by pointing out the absence of any such claim from the petitioners’ side. The judges also took note of the fact that nearly two years had passed since the borrower’s death, yet the petitioners had taken no steps to either approach the bank for settlement or challenge the outstanding dues.
The Division Bench concluded that the proceedings initiated by the bank under Sections 13 and 14 of the SARFAESI Act were in strict conformity with the statutory provisions, and there was no requirement under law to issue a fresh notice to the legal heirs. While dismissing the writ petition, the Court added that if any One Time Settlement (OTS) scheme was currently available, the petitioners could approach the bank with a fresh application and requisite deposit, and the bank would consider the application on its merits. The judgment reinforces the legal principle that the SARFAESI Act prioritizes the rights of secured creditors while providing a defined timeline and process for borrowers to discharge their liabilities. The Court also reiterated that the legal heirs of a borrower inherit both the assets and liabilities, and therefore they cannot escape the consequences of default merely on the technical ground of lack of fresh notice.
This judgment carries significant implications for banks and financial institutions, as it reaffirms that they are not obliged to restart the recovery process from scratch upon the death of a borrower, provided that due process has been followed during the lifetime of the borrower. It also serves as a cautionary note to legal heirs of defaulting borrowers to proactively engage with creditors and explore settlement options, as they cannot rely on procedural loopholes to delay or defeat recovery proceedings under the SARFAESI framework.