Eyewitness – Jakarta
Tuesday, April 7, 2026
It is a common occurrence for legal entities and individuals to seek additional capital by applying for credit facilities from banks. Once a debtor’s land rights are approved as collateral, the bank extends credit facilities up to an agreed limit.
This article examines the “politics of auction” regarding the execution of security rights (hak tanggungan) carried out by certain banks over a debtor’s collateral. Such practices can lead to the transfer of ownership without the debtor’s knowledge. Furthermore, in several cases, auctions are conducted at irrational prices—far below market value.
In principle, the bank as a creditor is merely the holder of security rights over the collateral. An auction itself is intended as a final instrument if a debtor defaults (wanprestasi). Therefore, a “superior mentality” should not be inherent to banks. In practice, however, this situation is often accompanied by an “abuse of circumstances” (misbruik van omstandigheden), where banks exploit their dominant position.
Consequently, the value of a debtor’s collateral can be reduced to near zero. This is evident through several methods, including: withholding the loan agreement from the debtor, lacking information regarding the collateral value based on official appraisals, alleged collusion with auction participants, and failing to provide information regarding the date and location of the auction, which prevents the determination of the highest bid.
Legal Framework and Ownership
By definition, Article 1 point 1 of Law No. 4 of 1996 concerning Security Rights on Land and Objects Related to Land (UU Hak Tanggungan) stipulates that security rights are guarantee rights imposed on land rights as referred to in Law No. 5 of 1960 concerning Basic Agrarian Regulations, including or excluding other objects forming a unity with said land, for the settlement of specific debts.
Regarding land rights that can be encumbered by security rights, Article 4 paragraph (1) of Law No. 4 of 1996 includes: (a) Ownership Rights (Hak Milik); (b) Cultivation Rights (Hak Guna Usaha); and (c) Building Rights (Hak Guna Bangunan).
An analysis of these two articles reveals a fundamental element: ownership of the security object does not transfer to the creditor. Even in the event of a default (quod non), the creditor must strictly adhere to prevailing auction procedures.
Should a default occur, the creditor is bound by auction protocols. Aside from public auctions as stipulated in Article 6 of Law No. 4 of 1996: “If the debtor defaults, the first security right holder has the right to sell the security object on their own authority through a public auction and satisfy their receivables from the proceeds of the sale.”
Furthermore, auctions must be conducted with an “increasing price” mechanism, as regulated in Article 1 of the Auction Regulations (Vendu Reglement) Staatsblad 1908 No. 189, as amended by State Gazette 1940 No. 56. In this context, it mandates that the auction or sale of goods to the public be conducted with an ascending price.
Decline of Legitimacy
The execution of security right auctions by certain banks without a sound legal basis is not only classified as an unlawful act (onrechtmatige daad) but also demonstrates a complete lack of legitimacy.
Reciprocally, the credit facility products offered to the public are suspected of being a mere camouflage for such practices.
About the Author:
Pablo Christalo, S.H., M.A. is an advocate based in Jakarta and an alumnus of the Faculty of Graduate Studies, Mahidol University, Thailand. He previously served as Campaign Officer for the Indonesia and Malaysia Desk at the Asian Forum for Human Rights and Development (FORUM-ASIA), Thailand (2003), and as a researcher at the Asian Legal Resource Centre/Asian Human Rights Commission (AHRC), Hong Kong (2005).
Reporter: Daniel Herry
