SARFAESI Rights explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A secured creditor in a liquidation has always had a choice — join the pool or enforce its own security. The 2026 Amendment changes what each choice now costs, and halves the time available to make it.
The statutory interface
Section 251 of the Code provides that the SARFAESI Act, 2002 shall be amended in the manner specified in the Seventh Schedule. The two statutes were designed to operate together rather than in competition, and the SARFAESI rights of a secured creditor are shaped by both.
Collective decision-making
Under the Code, where multiple secured creditors finance a financial asset, no single creditor can exercise their rights independently unless consensus is reached among creditors representing at least 60% of the total outstanding amount as of a specified record date. That collective decision is binding on all secured creditors involved.
In a liquidation the proceeds from the sale of secured assets must be distributed in accordance with section 529A of the Companies Act, 1956, which prioritises workmen's dues and governs allocation among creditors.
The two options
SARFAESI rights are not lost on a liquidation order — they become one arm of a binary choice:
| Choice | Consequence |
|---|---|
| Relinquish the security interest | The creditor becomes part of the liquidation estate and ranks just below insolvency resolution costs and workmen's dues in payment priority |
| Realise the security interest | The creditor enforces outside liquidation and recovers directly from the proceeds of the secured assets — subject to notifying other creditors and potentially sharing excess proceeds with the liquidator |
The extension of section 14(1) moratorium protection to the liquidation phase, under the new provision in section 33, directly affects the SARFAESI position. During liquidation:
- secured creditors who have relinquished their security interest are subject to moratorium protection of the liquidation estate;
- secured creditors who have not relinquished retain rights to enforce under SARFAESI, but are excluded from the CoC until they relinquish; and
- the timelines for the relinquishment or enforcement decision have been shortened to 14 days from the liquidation commencement date, from 30 days, under amended Regulation 21A.
The exclusion from the committee is the real lever
Retaining SARFAESI rights while sitting on the committee of creditors was always the most attractive position — influence over the process plus the ability to realise collateral outside it. The amendment removes it. A creditor that keeps its security is out of the committee until it gives that security up.
The same principle already governed voting: under Regulation 24 of the bankruptcy regulations and in the CIRP context, a secured creditor's voting share depends on relinquishment — the full debt if relinquished, the unsecured shortfall if not. The 2026 change extends that logic from the size of the vote to the existence of the seat.
Fourteen days is a real constraint
Halving the window from 30 days to 14 days from the liquidation commencement date compresses a decision that requires:
- a current view of the realisable value of the specific collateral;
- an estimate of the likely distribution from the liquidation estate if the security is surrendered;
- an assessment of the time and cost of enforcing under SARFAESI, including the 60-day notice and the 75% agreement requirement where other secured creditors share the asset; and
- the workmen's dues exposure a realising creditor takes on.
In practice the analysis has to begin before the liquidation order, not after it.
The two governing sections of the Code
- Section 52 sets out the rights and options of secured creditors regarding their security interests during insolvency proceedings, and requires that any enforcement action be agreed by a majority of secured creditors.
- Section 53 establishes the waterfall for distributing liquidation proceeds, prioritising certain classes including workmen and secured creditors.
The workmen's dues undertaking
- Secured creditors must provide an undertaking to cover any outstanding workmen's dues after realising their security interest.
- The liquidator must inform secured creditors of the estimated workmen's dues, adding accountability and transparency in managing liquidation assets.
This is what stops realisation being a costless exit. A creditor that takes its collateral out of the pool still carries the workmen's dues that would have ranked alongside it under section 53 — which is why the liquidator's estimate is a necessary input to the 14-day decision.
Common mistakes
- Assuming a creditor can keep both its SARFAESI rights and its seat on the committee.
- Advising that SARFAESI rights survive a relinquishment.
- Working to the old 30-day window under Regulation 21A.
- Treating realisation as free of any workmen's dues exposure.
- Enforcing individually where the asset is shared with other secured creditors.