100 MCQs ON SARFAESI ACT WITH SUPREME COURT PRINCIPLES
PART-I (1–20)
Basic Framework of SARFAESI Act
1. The SARFAESI Act was enacted in:
A. 1993
B. 2000
C. 2002
D. 2005
Answer: C
Explanation: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 allows banks to enforce security without court intervention.
2. The main objective of the SARFAESI Act is:
A. Criminal prosecution of borrowers
B. Speedy recovery of secured debts
C. Arbitration of loan disputes
D. Consumer protection
Answer: B
Explanation: The Act enables secured creditors to recover loans quickly by enforcing security interests.
3. SARFAESI Act primarily applies to:
A. Unsecured loans
B. Secured loans
C. Agricultural loans
D. Government loans
Answer: B
Explanation: The Act applies where security interest is created over assets.
4. The Act applies to loans above:
A. ₹50,000
B. ₹1 lakh
C. ₹5 lakh
D. ₹10 lakh
Answer: B
Explanation: SARFAESI cannot be invoked if the amount due is less than ₹1 lakh.
5. Which authority regulates Asset Reconstruction Companies?
A. SEBI
B. RBI
C. Ministry of Finance
D. DRAT
Answer: B
Explanation: ARCs must be registered with RBI under SARFAESI Act.
6. Security interest means:
A. Ownership transfer
B. Right of creditor over secured asset
C. Lease
D. Mortgage only
Answer: B
Explanation: It refers to legal rights created in favour of secured creditors.
7. Which of the following institutions can invoke SARFAESI?
A. Secured creditors
B. Civil courts
C. Arbitration tribunals
D. Cooperative societies only
Answer: A
Explanation: Only banks and financial institutions with secured interest can invoke the Act.
8. SARFAESI Act does not apply to:
A. Agricultural land
B. Mortgaged property
C. Hypothecated goods
D. Pledged goods
Answer: A
Explanation: Agricultural land is excluded from SARFAESI enforcement.
9. Asset Reconstruction Companies are established for:
A. Loan sanction
B. Recovery and reconstruction of bad loans
C. Insurance business
D. Deposit acceptance
Answer: B
Explanation: ARCs acquire and manage non-performing assets.
10. The Act allows banks to enforce security without:
A. Arbitration
B. Court intervention
C. Government approval
D. RBI permission
Answer: B
Explanation: This is the core objective of SARFAESI.
PART-II (21–40)
Demand Notice & Enforcement
21. Notice under Section 13(2) provides borrower:
A. 30 days
B. 45 days
C. 60 days
D. 90 days
Answer: C
Explanation: Borrower must clear dues within 60 days of demand notice.
22. If borrower fails to repay, bank may take measures under:
A. Section 13(4)
B. Section 17
C. Section 18
D. Section 34
Answer: A
Explanation: Section 13(4) allows possession and sale of secured assets.
23. Measures under Section 13(4) include:
A. Taking possession of secured assets
B. Taking over management of borrower business
C. Appointing a manager
D. All of the above
Answer: D
Explanation: All these actions are permitted under Section 13(4).
24. Borrower’s right to representation against notice is provided under:
A. Section 13(3A)
B. Section 13(4)
C. Section 17
D. Section 18
Answer: A
Explanation: Borrower may submit objections to the demand notice.
25. Bank must reply to borrower’s representation within:
A. 10 days
B. 15 days
C. Reasonable time
D. No requirement
Answer: C
Explanation: The bank must consider and reply to objections within reasonable time.
PART-III (41–60)
Appeals & Tribunal Jurisdiction
41. Borrower can challenge SARFAESI measures before:
A. Civil Court
B. DRT
C. High Court
D. Arbitration Tribunal
Answer: B
Explanation: Section 17 provides remedy before DRT.
42. Appeal against DRT order lies before:
A. DRAT
B. Civil Court
C. Supreme Court
D. RBI
Answer: A
Explanation: Section 18 provides appeal before DRAT.
43. Borrower must deposit how much before DRAT appeal?
A. 25%
B. 50%
C. 75%
D. 100%
Answer: B
Explanation: Minimum 50% of the debt amount must be deposited.
44. DRAT may reduce deposit to:
A. 10%
B. 20%
C. 25%
D. 30%
Answer: C
Explanation: Deposit may be reduced but not below 25%.
45. Civil court jurisdiction is barred under:
A. Section 17
B. Section 18
C. Section 34
D. Section 35
Answer: C
Explanation: Section 34 bars civil court jurisdiction.
PART-IV (61–80)
Possession & Sale of Secured Assets
61. Magistrate assistance for possession is provided under:
A. Section 13
B. Section 14
C. Section 17
D. Section 18
Answer: B
Explanation: District Magistrate or CMM may assist banks.
62. Sale of secured asset usually conducted through:
A. Private sale
B. Court decree
C. Public auction or e-auction
D. Arbitration
Answer: C
Explanation: SARFAESI Rules prescribe transparent auction process.
63. Possession notice must be published in:
A. One newspaper
B. Two newspapers
C. Three newspapers
D. Gazette only
Answer: B
Explanation: One must be vernacular language newspaper.
64. Authorized Officer acts on behalf of:
A. Borrower
B. Bank
C. Court
D. Government
Answer: B
Explanation: The officer conducts SARFAESI enforcement actions.
PART-V (81–100)
Important Supreme Court Judgments
81. Which Supreme Court case upheld constitutional validity of SARFAESI Act?
A. Mardia Chemicals v. Union of India
B. ICICI Bank v. APS Star Industries
C. Transcore v. Union of India
D. Swiss Ribbons v. Union of India
Answer: A
Explanation: In Mardia Chemicals Ltd. v. Union of India (2004), the Supreme Court upheld the validity of SARFAESI but struck down the requirement of 75% pre-deposit for filing appeal before DRT.
82. In Transcore v. Union of India (2006) the Supreme Court held that:
A. SARFAESI and DRT proceedings are mutually exclusive
B. Both remedies can be used simultaneously
C. Only civil court remedy exists
D. Arbitration is mandatory
Answer: B
Explanation: The Court held SARFAESI and DRT proceedings are complementary remedies.
83. In ICICI Bank v. APS Star Industries Ltd. (2010) the Court held that:
A. Assignment of debts to ARCs is valid
B. SARFAESI is unconstitutional
C. Civil courts have jurisdiction
D. Banks cannot sell NPAs
Answer: A
Explanation: Banks can assign financial assets to ARCs.
84. In Harshad Govardhan Sondagar v. International Assets Reconstruction Co. (2014) the Court held:
A. Tenants can challenge SARFAESI action in certain cases
B. Tenancy always invalid
C. Tenants have no rights
D. Only bank rights prevail
Answer: A
Explanation: Genuine tenants may seek protection before DRT.
85. In Authorized Officer, Indian Overseas Bank v. Ashok Saw Mill (2009) the Court held:
A. DRT has wide powers under Section 17
B. DRT cannot review bank actions
C. Civil courts decide SARFAESI disputes
D. DRAT has no power
Answer: A
Explanation: DRT can examine legality of bank actions under SARFAESI.
MCQs 86–100
SARFAESI Act – Important Supreme Court Judgments
86. In United Bank of India v. Satyawati Tondon (2010) the Supreme Court held that:
A. High Courts should routinely entertain writ petitions in SARFAESI matters
B. Borrowers must first exhaust remedies under SARFAESI before approaching High Courts
C. Civil courts have jurisdiction in SARFAESI disputes
D. SARFAESI Act is unconstitutional
Answer: B
Explanation: The Supreme Court held that where effective statutory remedy under Section 17 before DRT exists, High Courts should normally not entertain writ petitions under Article 226.
87. In Transcore v. Union of India (2006) the Supreme Court clarified that:
A. Banks must choose either DRT proceedings or SARFAESI proceedings
B. Both remedies can be pursued simultaneously
C. Only civil suits are permissible
D. SARFAESI cannot be used after filing a DRT case
Answer: B
Explanation: The Court held that remedies under the DRT Act and SARFAESI Act are complementary, not mutually exclusive.
88. In Standard Chartered Bank v. V. Noble Kumar (2013) the Supreme Court held that:
A. Banks must first take possession before approaching the Magistrate
B. Banks may directly approach the Magistrate under Section 14
C. Civil court permission is required
D. Arbitration must be initiated first
Answer: B
Explanation: The Court clarified that banks can directly approach the Magistrate under Section 14 for assistance in taking possession.
89. In Harshad Govardhan Sondagar v. International Assets Reconstruction Co. (2014) the Court held that:
A. Tenants always lose possession under SARFAESI
B. Tenants have no remedy
C. Genuine tenants may approach DRT to protect possession
D. Tenancy rights automatically override SARFAESI
Answer: C
Explanation: The Supreme Court held that lawful tenants created prior to mortgage may seek protection before the DRT.
90. In Phoenix ARC Pvt. Ltd. v. Vishwa Bharati Vidya Mandir (2022) the Supreme Court held that:
A. Civil suits challenging SARFAESI measures are maintainable
B. Civil court jurisdiction is barred where DRT remedy exists
C. Arbitration must be used first
D. High Court must decide all disputes
Answer: B
Explanation: The Court reaffirmed that civil courts cannot entertain suits where SARFAESI provides a specific remedy before DRT.
91. In Authorized Officer, Indian Overseas Bank v. Ashok Saw Mill (2009) the Supreme Court held that:
A. DRT has limited powers
B. DRT has wide powers to examine legality of SARFAESI action
C. Civil courts must supervise SARFAESI proceedings
D. DRAT decides possession disputes
Answer: B
Explanation: The Court clarified that DRT can examine the legality of all measures taken under Section 13(4).
92. In Hindon Forge Pvt. Ltd. v. State of U.P. (2018) the Supreme Court held that:
A. Borrower must wait until possession is taken to approach DRT
B. Borrower can approach DRT even before physical possession is taken
C. Only High Court can grant relief
D. Magistrate must decide disputes
Answer: B
Explanation: The Court held that Section 17 remedy becomes available once measures under Section 13(4) are initiated, even before actual possession.
93. In ICICI Bank Ltd. v. APS Star Industries Ltd. (2010) the Supreme Court held that:
A. Assignment of debts to ARCs is invalid
B. Banks can assign financial assets to ARCs
C. SARFAESI does not permit asset assignment
D. Only RBI may purchase NPAs
Answer: B
Explanation: The Court upheld the validity of assignment of financial assets by banks to Asset Reconstruction Companies.
94. In Mardia Chemicals Ltd. v. Union of India (2004) the Supreme Court held that:
A. SARFAESI Act is unconstitutional
B. SARFAESI Act is valid but certain provisions were struck down
C. Civil courts have jurisdiction over SARFAESI actions
D. Banks must obtain court decree before enforcement
Answer: B
Explanation: The Court upheld the Act but struck down the requirement of 75% pre-deposit before filing appeal before DRT.
95. In State Bank of Travancore v. Mathew K.C. (2018) the Supreme Court held that:
A. High Courts should encourage writ petitions in SARFAESI matters
B. Borrowers should use DRT remedy rather than writ petitions
C. Civil suits are preferred remedy
D. Arbitration is mandatory
Answer: B
Explanation: The Court emphasized that statutory remedies under SARFAESI must be exhausted before invoking writ jurisdiction.
96. In Agarwal Tracom Pvt. Ltd. v. Punjab National Bank (2018) the Supreme Court held that:
A. SARFAESI applies only to banks
B. Financial institutions can also invoke SARFAESI
C. SARFAESI applies only to cooperative banks
D. Only government banks may invoke SARFAESI
Answer: B
Explanation: The Act applies to both banks and financial institutions classified as secured creditors.
97. In Jagdish Singh v. Heeralal (2014) the Supreme Court held that:
A. Civil courts can entertain property disputes under SARFAESI
B. Civil court jurisdiction is barred where DRT remedy exists
C. High Court must decide disputes first
D. Arbitration tribunal has jurisdiction
Answer: B
Explanation: The Court reaffirmed that Section 34 bars civil court jurisdiction in SARFAESI matters.
98. In Kanaiyalal Lalchand Sachdev v. State of Maharashtra (2011) the Supreme Court held that:
A. Borrower cannot challenge SARFAESI action
B. Remedy lies before DRT under Section 17
C. Civil court is the proper forum
D. Arbitration must be used
Answer: B
Explanation: The borrower’s remedy is to approach the DRT under Section 17 after measures under Section 13(4).
99. In Indian Bank v. Blue Jaggers Estates Ltd. (2010) the Supreme Court emphasized that:
A. SARFAESI proceedings must follow statutory rules strictly
B. Banks may ignore procedural rules
C. Civil court approval required
D. RBI permission required for auction
Answer: A
Explanation: Enforcement actions must comply with SARFAESI Rules, 2002 regarding possession and sale.
100. The consistent view of the Supreme Court regarding SARFAESI litigation is that:
A. Civil courts should decide disputes
B. High Courts should entertain writ petitions freely
C. Statutory remedy before DRT should normally be followed
D. Arbitration tribunals must decide disputes
Answer: C
Explanation: The Supreme Court has repeatedly held that DRT is the primary forum for challenging SARFAESI measures, ensuring speedy recovery of bank dues.