The resolution of non-performing loans (“NPLs”) secured by a Hak Tanggungan (a security right over land under Indonesian law) is an important part of the banking system’s debt recovery mechanism. Under Articles 6 and 20(1)(a) of Law No. 4 of 1996 on Security Rights over Land and Land-Related Objects (the “Hak Tanggungan Law”), a creditor holding a Hak Tanggungan may, in principle, execute on the collateral through a public auction if the debtor defaults. However, the creditor’s enforcement rights do not exempt the creditor or the auction organizer from complying with applicable legal requirements and procedures. In practice, execution auctions frequently give rise to legal disputes involving the creditor’s authority to execute, the validity and completeness of supporting documents, notice requirements, reserve price determination, and compliance with auction procedures.
Based on publications by the Directorate General of State Assets (“DJKN”) indicate that lawsuits challenging auction proceedings remain a recurring issue at various State Assets and Auction Service Offices (Kantor Pelayanan Kekayaan Negara dan Lelang or “KPKNL”). These include reports of more than 20 lawsuits involving substantially similar issues at KPKNL offices under the North Sumatra Regional Office of DJKN, frequent lawsuits challenging execution auctions at KPKNL Singkawang, and reports from KPKNL Parepare that more than 95% of the lawsuits filed against its office concern auction implementation.
These examples highlight the importance of procedural compliance by creditors as auction applicants and KPKNL as the authority responsible for conducting auctions in accordance with applicable regulations. Legal disputes concerning execution auctions do not arise solely from the actions of KPKNL. Banks may also be named as defendants when their conduct before or during execution is challenged, particularly in relation to:
- The accuracy of the outstanding debt calculation and its supporting documentation;
- The completeness of the documents and the legal basis for execution;
- Compliance with notice requirements, including evidence of delivery of warning letters and auction notices to the relevant parties; and
- The determination of the reserve price (nilai limit), which must comply with applicable requirements and be supported by an appropriate valuation.
These issues underscore the importance of careful document verification and procedural compliance by both creditors and KPKNL under applicable laws and regulations, including Ministry of Finance Regulation No. 122 of 2023 on Auction Implementation Guidelines (“PMK No. 122/2023”).
Procedural Requirements for the Execution of a Hak Tanggungan
The execution of a Hak Tanggungan through a public auction must comply with the applicable legal requirements at every stage, from preparation and submission of the auction application to post-auction settlement. Under PMK No. 122/2023, the auction applicant and the Auction Official have distinct responsibilities and authorities throughout the process.
- Preparation and Auction Application
Before submitting an auction application, the creditor must ensure that the legal grounds for execution have been established, including that the debt is due and payable, the debtor has defaulted, and the creditor is legally entitled to execute on the collateral.
Article 12(1) of PMK No. 122/2023 provides that the auction applicant is responsible for its authority to sell, the completeness of the required documents, auction announcements, the determination of the reserve price, and the legal consequences arising from non-compliance with applicable requirements.
The principal requirements include the following:
- Completeness of Auction Application Documents
Under Article 32 of PMK No. 122/2023, the auction applicant must submit the required general and specific supporting documents. KPKNL reviews the submitted documents and examines the formal legality of the parties and the auction object in accordance with Article 25.
Accordingly, the completeness of the application documents is the responsibility of the auction applicant, while the examination of formal legality falls within KPKNL’s authority.
- Required Statements and Certificates
Under Article 39 of PMK No. 122/2023, an auction involving land must be accompanied by a statement issued by the competent authority. Missing or incomplete required documents may affect compliance with the auction requirements and may fall within the grounds for cancellation under Article 47.
- Determination of the Reserve Price
Under Article 55 of PMK No. 122/2023, the auction applicant must determine the reserve price and include it in the auction announcement. Under Articles 56 and 57, the reserve price must be based on an appraisal report where the applicable requirements so provide.
Article 60(1) stipulates that an appraisal report is valid for a maximum of 12 months. Accordingly, the auction applicant must ensure that the valuation supporting the reserve price complies with the applicable requirements.
- Ownership Disputes Concerning the Auction Object
Under Article 34 of PMK No. 122/2023, if a third party other than the debtor, the owner of the collateral, or the owner’s spouse brings a claim concerning ownership of the auction object, an execution auction under Article 6 of the Hak Tanggungan Law cannot proceed. In such circumstances, execution must instead be pursued through an executorial title with a court order (fiat pengadilan).
- Auction Announcements and Notice Requirements
The creditor, as the auction applicant, must ensure that auction announcements comply with the applicable requirements concerning timing, publication media, and content.
Under Article 63 (1) of PMK No. 122/2023, the auction must be announced twice, with an interval of 15 calendar days between the first and second announcements. The first announcement may be made through flyers, the auction organizer’s website, or a daily newspaper. The second announcement must be published in a daily newspaper at least 14 calendar days before the auction and must not fall on a public holiday.
The newspaper must also satisfy the requirements under Article 68, including publication in the city or regency where the Hak Tanggungan object is located and a circulation of at least 2,000 copies.
Under Articles 70 and 71, the auction applicant must submit proof of the announcements to the Auction Official no later than one business day before the auction.
In addition to public announcements, the creditor must ensure that notice of the planned auction has been given to the debtor and the owner of the collateral in accordance with the applicable requirements. Under Article 47(i), failure to satisfy the prescribed five-day notice requirement constitutes a ground for cancellation of the auction.
- Conduct of the Auction
Under Article 72(5) of PMK No. 122/2023, execution auctions are conducted electronically through the Auction Application at portal.lelang.go.id using the open bidding method.
During the auction, the creditor and the Auction Official must ensure compliance with the following requirements:
- Bidder security deposit. Under Articles 52 and 53, bidders must deposit a security amount ranging from 10% to 50% of the reserve price. The funds must be effectively received no later than one calendar day before the auction. Deposits that do not meet the applicable amount or timing requirements are invalid.
- Eligibility of bidders. Under Article 22(2), the debtor and the party subject to execution are prohibited from participating as bidders.
- Minimum bid and appointment of the buyer. Under Articles 77(1) and 85(1), a bid must reach at least the announced reserve price. The Auction Official then designates the highest qualifying bidder as the buyer.
Under Article 44, the Auction Official may cancel an auction at the request of the auction applicant, pursuant to a court order or judgment, or on other grounds specified in PMK No. 122/2023. Under Article 46, a court order or judgment must be received before the auction begins. Therefore, filing a lawsuit does not automatically suspend or cancel an auction. Any request for suspension or cancellation must be assessed in light of the applicable legal grounds and the stage of the auction process. Third-party claims concerning ownership of the collateral must also be assessed under the relevant provisions.
- Post-Auction Settlement
After the buyer has been designated, the auction process must be completed through payment, preparation of the Minutes of Auction (Risalah Lelang), and delivery of the ownership documents.
Under Article 88(1) of PMK No. 122/2023, the buyer must pay the auction price and applicable auction fees no later than five business days after the auction, unless otherwise provided by applicable laws and regulations. Under Article 23, the buyer may not take possession of the auction object before fulfilling the applicable payment obligations.
The Auction Official must prepare the Minutes of Auction as an authentic deed, as defined in Article 1, point 34. Under Article 95(1), the original Minutes of Auction (minuta Risalah Lelang) must be completed no later than six business days after the auction. The buyer subsequently receives an Extract of the Minutes of Auction (Kutipan Risalah Lelang) for administrative purposes and the transfer of title.
The auction applicant must deliver the original ownership documents to the buyer no later than one business day after the buyer presents the Extract of the Minutes of Auction and proof of payment, in accordance with the applicable requirements.
Legal Remedies for Procedural Defects in Hak Tanggungan Execution Auctions
Where procedural violations occur in the execution of a Hak Tanggungan or other requirements under PMK No. 122/2023 are not satisfied, an affected party may pursue legal remedies depending on the nature of the violation and the stage of the auction process.
The available remedies may include:
- Administrative objection. Submitting a written objection to the creditor as the auction applicant and/or KPKNL, supported by evidence of the alleged procedural violations.
- Request for postponement or cancellation. Seeking postponement or cancellation of the auction where a sufficient legal basis exists under PMK No. 122/2023.
- Court proceedings. Filing a civil claim, including a claim for unlawful acts (perbuatan melawan hukum or “PMH”), where there are legal grounds to challenge the validity of the auction and seek its cancellation.
However, filing an objection or lawsuit does not automatically suspend or cancel the auction. The appropriate legal remedy must therefore be determined based on the nature of the alleged violation, the available evidence, and the stage of the auction proceedings.
One of the Supreme Court precedents, Decision No. 1908 K/Pdt/2014, concerns a dispute over the enforcement auction of a Mortgage Right (Hak Tanggungan), including notice of the auction being provided only one day before the auction date and the determination of a reserve price allegedly far below the property’s market value. The case illustrates that alleged procedural violations and issues concerning the reserve price may constitute grounds for challenging the validity of an auction in court. Accordingly, where legally relevant procedural defects are identified, the debtor or collateral owner may consider filing a lawsuit to challenge the validity of the auction. However, the legal consequences for the auction will depend on the facts, evidence, and the court’s findings in the case.
Conclusion
The validity of a Hak Tanggungan execution auction depends not only on the creditor’s authority to execute on the collateral, but also on compliance with the requirements and procedures under the Hak Tanggungan Law and PMK No. 122/2023. From the legal basis for execution and the completeness of the supporting documents to the debt calculation, reserve price, auction announcements, notice requirements, and post-auction settlement, each stage carries potential legal consequences if the applicable requirements are not satisfied. Procedural violations may give rise to disputes and, where sufficient legal grounds exist, may support a challenge to the validity of the auction or a request for its cancellation.
For debtors and collateral owners facing an execution auction, reviewing the credit documents, outstanding debt calculation, auction notices, and procedures followed is an important step in assessing their legal position and determining the appropriate legal remedies. For prospective borrowers, reviewing the credit facility, contractual obligations, and security documents before entering into an agreement can help identify potential legal risks and mitigate the possibility of future disputes.
Mangatur Nainggolan Law firm provides legal assistance and consultation concerning credit facilities, Hak Tanggungan execution, and auction disputes, as well as reviews of credit facilities and security documents to help mitigate legal risks from the outset. Whether you are facing an existing dispute or seeking to assess the legal implications of a proposed credit facility, contact Mangatur Nainggolan Law Firm to discuss your circumstances, identify potential risks, and determine an appropriate legal course of action.
Sources:
- Minister of Finance Regulation No. 122 of 2023 concerning Auction Implementation Guidelines
- Law No. 4 of 1996 concerning Mortgage Rights over Land and Land-Related Objects
- Indonesian Civil Code, Article 1365, concerning tort or unlawful acts.
- Directorate General of State Assets (DJKN), North Sumatra Regional Office, “Auction under Article 6 of the Mortgage Rights Law and Auctions Based on an Executorial Title” https://www.djkn.kemenkeu.go.id/kanwil-sumut/baca-artikel/12694/LELANG-PASAL-
- DJKN, Singkawang State Asset and Auction Service Office (KPKNL), “Handling Civil Cases in District Courts” https://www.djkn.kemenkeu.go.id/kpknl-singkawang/baca-artikel/16586/Penanganan-Perkara-Perdata-di-Pengadilan-Negeri.html
- DJKN, Parepare State Asset and Auction Service Office (KPKNL), “Certainty in Processing Title Transfers Following Mortgage Rights Enforcement Auctions” https://www.djkn.kemenkeu.go.id/kpknl-parepare/baca-artikel/14494/Kepastian-pengurusan-Peralihan-Hak-pada-lelang-eksekusi-Hak-Tanggungan.html
- DJKN, Purwokerto State Asset and Auction Service Office (KPKNL), “Dynamics of Civil Lawsuits Concerning Mortgage Rights Enforcement Auctions” https://www.djkn.kemenkeu.go.id/kpknl-purwokerto/baca-artikel/18836/Dinamika-Gugatan-Perkara-Perdata-Mengenai-Lelang-Eksesusi-Hak-Tanggungan.html
- Supreme Court of the Republic of Indonesia, “Balancing Creditor and Debtor Rights in Mortgage Rights Auctions: A Normative and Practical Analysis” https://marinews.mahkamahagung.go.id/artikel/keseimbangan-hak-kreditur-dan-debitur-dalam-pelelangan-0zM
- Supreme Court Decision No. 1908 K/Pdt/2014.
Author: Arcefrida Imanuella Girsang,S.H.
Editor: Robby Simamora,S.H.,M.H.