The Andhra Pradesh High Court has established a critical procedural safeguard for borrowers under the SARFAESI Act, holding that financial institutions must disclose all post-notice payments in affidavits filed under Section 14. This ruling reinforces that procedural compliance is not a mere formality but a jurisdictional prerequisite for enforcement actions.
Background & Facts
The Dispute
The petitioner, Srinivasa Rao Gundubogula, is a principal borrower who defaulted on a loan secured by a residential property measuring 2045 sq.yds in Anakapalli District. The 1st respondent, Sriram City Union Finance Ltd, issued a notice under Section 13(2) of the SARFAESI Act demanding repayment. Subsequently, the financial institution filed an application under Section 14 seeking police assistance to take physical possession of the property. The 2nd and 3rd respondents, the District Magistrate and Superintendent of Police, issued orders authorizing possession based on this application.
Procedural History
- 14.07.2023 to 30.09.2025: Petitioner made multiple repayments toward the outstanding loan after receipt of the Section 13(2) notice.
- 19.09.2025: The 2nd respondent issued D.Dis.No.1607/2025/DT directing police to assist in taking possession.
- 27.01.2026: Writ petition filed under Article 226 challenging the legality of the possession order.
Relief Sought
The petitioner sought a writ of mandamus to set aside the possession order, arguing that the affidavit filed under Section 14 omitted material facts regarding post-notice payments, rendering the application non-maintainable.
The Legal Issue
The central question was whether the affidavit filed under Section 14 of the SARFAESI Act must disclose all payments made by the borrower after issuance of the Section 13(2) notice, and whether omission of such payments vitiates the entire possession proceeding.
Arguments Presented
For the Petitioner
Counsel argued that Clause VIII of the proviso to Section 14(1) mandates that the affidavit must affirm whether the borrower has made any payment after the notice. The petitioner produced evidence of payments totaling over ₹12 lakhs between July 2023 and September 2025, which were entirely omitted from the affidavit. Reliance was placed on the statutory language and the principle that procedural fairness is integral to enforcement under SARFAESI.
For the Respondent
The financial institution contended that disclosure of post-notice payments is not mandatory under Section 14, and that the affidavit need only establish default at the time of notice issuance. The State counsel supported this view, arguing that the court should not interfere with recovery mechanisms designed to protect financial stability.
The Court's Analysis
The Court undertook a textual and purposive interpretation of Section 14(1), emphasizing that the proviso to this provision explicitly requires the authorized officer to affirm in the affidavit whether the borrower has made any payment after the notice under Section 13(2). The Court observed that the statutory framework is designed to prevent abuse of power and ensure transparency.
"The requirement under Clause VIII of the proviso to Section 14(1) is not directory but mandatory, as it goes to the root of the jurisdiction of the Magistrate to grant assistance for possession."
The Court rejected the respondent’s argument that only the default at the time of notice matters, noting that subsequent payments materially alter the factual basis for enforcement. Omission of these payments renders the affidavit incomplete and misleading, thereby violating the principle of natural justice and depriving the borrower of a fair opportunity to contest the claim. The Court held that such a defect is not curable by subsequent filing and vitiates the entire proceeding.
The Verdict
The petitioner succeeded. The High Court set aside the possession order dated 19.09.2025 for non-compliance with Section 14 of the SARFAESI Act. The Court held that affidavits under Section 14 must include all post-notice payments, and directed the financial institution to file a fresh application with full disclosure.
What This Means For Similar Cases
Affidavit Disclosure Is Mandatory
- Practitioners must verify that every Section 14 affidavit includes a sworn statement on all payments made by the borrower after the Section 13(2) notice.
- Failure to disclose even partial payments renders the application void ab initio.
- Financial institutions must maintain real-time repayment records and integrate them into legal filings.
Courts Will Not Tolerate Procedural Omissions
- This judgment reinforces that procedural compliance under SARFAESI is jurisdictional, not discretionary.
- Borrowers can now successfully challenge possession orders on the ground of incomplete affidavits, even if default is established.
- Magistrates must scrutinize affidavits for compliance with Clause VIII before granting assistance.
Recovery Proceedings Require Updated Documentation
- Financial institutions must update their internal compliance protocols to ensure affidavits reflect the latest repayment status.
- Legal teams should conduct pre-filing audits of repayment history before initiating Section 14 proceedings.
- Courts may now treat omission of payments as a ground for costs or contempt if repeated.
