There was an acute need being felt for assistance to the Banks and
other financial Institutions in the recovery of loans, for there were heavy
losses being incurred on account of unpaid debts, in exercise of the powers
conferred by clause (1) of Article 123 of the Constitution of India, the
President on 21st August 2002, promulgated the SECURITISATION AND
RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST( second
) Ordinance 2002. This was introduced
and passed by both the Houses of Parliament in the winter session of 2002 and
it received the assent of the President on 17th December,2002.
Under Sec. 31
(h) of the Act, any security interest for securing repayment of any financial
asset not exceeding one lakh rupees.
3. Is it necessary for the Secured Creditor to be
invariably get registered with RBI for taking steps for recovery of dues
against the borrower under this SARFAE SI ACT.
Any Securitisation
Company or reconstruction Company shall
obtain prior approval of the RESERVE BANK OF INDIA under sub-section (6) of
Section 3 of the SARFAE SI Act, 2002.
No
Securitisation Company or reconstruction Company which has been granted a
Certification of Registration under sub-section (4) of Section 3, shall commence or carry on the business of
securitization or asset reconstruction without
(a) obtaining
a Certificate of registration granted; and
(b) having
the owned fund of not less than two crore rupees or such other amount not
exceeding fifteen per cent of total financial assets acquired or to be acquired
by the securitization company or reconstruction company, as the RESERVE BANK OF
INDIA, may, by notification, specify.
Provided that the RESERVE BANK, by
notification, specify different amount of owned fund for different class or
classes of securitization companies or reconstruction companies.
4. Is it necessary that the Secured Creditor should proceed against those properties which are mortgaged in its favour by the borrower for recovery of outstanding dues.
Yes. In case the borrower fails to discharge his
liability in full within the period specified in sub-section (2) of Section 13
of the Act, the Secured Creditor may take recourse to one or more of the
following measures to recover his secured debt, namely:
(a) take
possession of the secured assets of the borrower including the right to
transfer by way of lease, assignment or sale for realizing the secured assets;
(b) take
over the management of the secured assets of the borrower including the right
by way of lease, assignment or sale and realize the secured asset;
(c) appoint
any person ( hereafter referred to as the MANAGER ), to manage the secured
assets the possession of which has been taken over by the Secured Creditor.
(d) Require
at any time by notice in writing, any person who has acquired any of the
secured assets from the borrower and from whom any money is due or may become
due to the borrower, to pay the secured
Creditor, so much of the money as is sufficient to pay the secured debt.
5. Whether the Secured Creditor can proceed against the guarantor for realization of outstanding dues, without first taking action against the borrower.
Yes, as per
sub-section (11) of Section 13 of the Act, without prejudice to the rights
conferred on the Secured Creditor under or by this section, the Secured
Creditor shall be entitled to proceed against the guarantors or sell the
pledged assets without first taking any of the measures specified in clauses
(a) to (d) of sub-section (4) in relation to the secured assets under this Act.
6. Whether it can be deemed that the borrower has acknowledged the receipt of notice, in case the borrower did not respond to the notice even after completion of statutory period of 60 days.
Where any
borrower, who is under a liability to a Secured Creditor under a security
agreement, makes any default in repayment of secured debt or any instalment
thereof, and his account in respect of such debt is classified by the Secured
Creditor as Non-performing Asset, then, the Secured Creditor may require the
borrower by notice in writing to discharge in full his liabilities to the
Secured Creditor within sixty days from the date of notice, failing which the
secured Creditor shall be entitled to exercise all or any of the rights under
sub-section (4).
The notice
referred to above shall give details of the amount payable by the borrower and
the secured assets intended to be enforced by the Secured Creditor in the event
of non-payment of secured debts by the borrower.
The service of
DEMAND NOTICE shall be made by delivering or transmitting at the place where
the borrower or his agent, empowered to accept the notice or documents on
behalf of the borrower, actually and voluntarily resides or carries on business
or personally works for gain, by registered post with acknowledgement due,
addressed to the borrower or his agent empowered to accept the service or by
Speed Post or by Courier or by any other means of transmission of documents
like fax message or electronic mail service.
Provided that
where the Authorised Officer has reason to believe that the borrower or his
agent is avoiding the service of the notice or that for any other reason, the
service cannot be made as afore said, the service shall be effected by affixing
a copy of the demand notice on the outer door or some other conspicuous part of
the house or building in which the borrower or his agent ordinarily resides or
carries on business or personally works for gain and also by publishing the contents of the demand
notice in two leading news papers, one in vernacular language, having sufficient
circulation in that locality.
Where the
borrower is a body corporate, the demand notice shall be served on the
registered office or any of the branches of such body corporate.
Any other
notice in writing to be served on the borrower or his agent by authorized
Officer, shall be served in the same manner.
Where there
are more than one borrower, the demand notice shall be served on each borrower.
7. Is it sufficient for the Secured Creditor/Bank to mention the outstanding dues payable by the borrower, as on a given date.
Yes, it will
suffice to mention the outstanding dues payable by the borrower, which are
legally recoverable as of a given date or on the date of demand notice.
8. In case the borrower fails to pay the outstanding dues payable and if the Secured Creditor / Bank proceed with sale of such properties held under mortgage, whether the Secured Creditor /Bank can include the expenses incurred, legal charges and the interest accrued from the date of notice to date of realization of outstanding dues.
Yes, the Secured Creditor /Bank is having every
right to claim the interest due thereon together with such additional amount
that may be sufficient to meet the contingencies or further costs, expenses and interest as
may be determined by him which are legally recoverable.
As per
sub-section (7) of Section 13 of the Act, it is envisaged that where any action
has been taken against a borrower under the provisions of the Act, all costs,
charges and expenses which, in the opinion of the secured creditor, have
been properly incurred by him or any
expenses incidental there to,shall be recoverable from the borrower.
9. What is the time to be given to the borrower for repayment of outstanding dues, before actual sale of such properties?
The Authorised Officer shall serve to the borrower a notice
of thirty days for sale of the secured assets. If the dues of the secured creditor together with all costs, charges and
expenses incurred by him are tendered to the Secured Creditor at any time
before the date fixed for sale or transfer, the secured asset shall not be sold
or transferred by the Secured Creditor, and no further step shall be taken by
him for transfer or sale of that secured asset.
No, the
borrower cannot participate in the sale proceedings. However, If the dues of the secured creditor
together with all costs, charges and expenses incurred by him are tendered to
the Secured Creditor at any time before the date fixed for sale or transfer,
the secured asset shall not be sold or transferred by the Secured Creditor, and
no further step shall be taken by him for transfer or sale of that secured
asset.
11.Whether the PURCHASER of property shall have right title over the property purchased by him in the sale proceedings, as in case of normal sale transaction.
As per
sub-section Rule 7 (2) of The Security Interest (Enforcement) Rules,2002, on payment of sale price, the Authorised
Officer shall issue a Certificate of sale in the prescribed form, specifying
the movable secured assets sold, price
paid and the name of the Purchaser and there after the sale shall become
absolute. The Certificate of sale so
issued shall be prima facie evidence of title of the Purchaser.
In respect of
immovable properties, on confirmation of sale by the Secured Creditor and if
the terms of payment have been complied with* ,the authorized officer
exercising the power of sale shall issue a Certificate of sale of the immovable
property in favour of the Purchaser in
the prescribed format.
Further, the
Authorised Officer shall deliver the property to the Purchaser free from
encumbrances known to the Secured Creditor on deposit of money as
specified. The Certificate of sale
issued by the Authorised Officer shall
specifically mention that whether the Purchaser has purchased the immovable
property free from any encumbrances known to the Secured Creditor or not.
*On every sale of immovable property, the
Purchaser shall immediately pay a deposit of twenty-five per cent, of the
amount of the sale price, to the authorized Officer conducting the sale and in
default of such deposit, the property shall forthwith be sold again. The balance amount of purchase price payable
shall be paid by the Purchaser to the Authorised Officer on or before the
fifteenth day of confirmation of the sale of the immovable property or such
extended period as may be agreed upon in writing between the parties.
13. In case the sale proceeds of the secured assets,are insufficient of amount payable by the borrower, what is the remedy available to the Secured Creditor /Bank for the recovery of balance amount payable by the borrower.
As per Rule 11
of The Security Interest (Enforcement) Rules,2002, an application for recovery
of balance amount by any Secured Creditor pursuant to sub-section (10) of
Section 13of the Ordinance shall be presented to the Debt Recovery Tribunal in
the prescribed format, by the Authorised Officer or his agent or by a duly
authorized legal practitioner, to the Registrar of the Bench within the
jurisdiction his case falls or shall be sent by Registered Post addressed to
the Registrar of Debts Recovery Tribunal. Such an application shall be
accompanied with fee as specified under DRT Rules,1993.
14. What is the remedy available for the borrower to stall the sale proceedings initiated by the Secured Creditor under SARFAE SI Act.
In terms of
Section 17 of the Act, any person ( including Borrower ),aggrieved by any of
the measures taken by the Secured Creditor or his Authorised Officer, may
prefer an appeal to the Debts Recovery Tribunal
having jurisdiction in the matter within forty-five days from the date
on which such measures had been taken. Where an appeal is preferred by a borrower, such appeal shall not be
entertained by the Debts Recovery Tribunal unless the borrower has deposited
with the Debts Recovery Tribunal seventy – five ( now amended and reduced to
fifty ) percent of the amount claimed in the notice referred to. Provided that the Debts Recovery Tribunal
may, for reasons to be recorded in writing, waive or reduce the amount to be
deposited.
15. Is it mandatory that the borrower should deposit an amount equivalent to 50% of the amount claimed by the Secured Creditor /Bank in the notice referred to.
In terms of
sub-section (2) of Section 17 of the Act, the Debts Recovery Tribunal may, for
reasons to be recorded in writing, waive or reduce the amount to be deposited.
However, any
person aggrieved, by an Order made by the Debts Recovery Tribunal, may prefer
an appeal to an Appellate Tribunal within thirty days from the date of receipt
of the order of Debts Recovery Tribunal.
16. In case the DEBT RECOVERY TRIBUNAL to whom the borrower approaches for redressal of his grievance, waive the amount to be deposited by the borrower and allows its appeal, whether the Secured Creditor /Bank can prefer an appeal against such decision of the DRT, since the very purpose of initiating action for recovery of outstanding dues from borrower,under SARFAE SI Act itself failed.
Yes, as per Section
18 of the Act, any person aggrieved, by an Order made by the Debts Recovery
Tribunal, may prefer an appeal to an Appellate Tribunal within thirty days from
the date of receipt of the order of Debts Recovery Tribunal.
17. Whether the agricultural land properties held as security by way of mortgage can also be put for sale, for recovery of outstanding dues payable by the borrower.
No. Provisions
of this Act shall not apply to any security interest created in agricultural
land.
18. What is the procedure to be adopted by the Secured Creditor in taking possession of movable properties of the borrower.
If the amount
mentioned in the demand notice is not paid within the time specified there in,
the Authorised Officer shall proceed to realise the amount, for taking
possession of movable property –
Where the
possession of the secured assets to be taken by the Secured Creditor are
movable property in possession of the borrower, the Authorised Officer shall
take possession of such movable property in the presence of two witnesses after
a Panchanama drawn and signed by the witnesses.
After taking
possession, the Authorised Officer shall make or cause to be made an inventory
of the property and deliver or cause to be delivered, a copy of such inventory
to the borrower or to any person entitled to receive on behalf of the borrower.
The Authorised
Officer shall keep the property taken possession either in his own custody or
in the custody of any person authorized or appointed by him, who shall take as
much care of the property in his custody as an owner of ordinary prudence
would, under the similar circumstances, take of such property.
Provided that
if such property is subject to speedy or natural decay, or the expense of
keeping such property in custody is likely to exceed its value, the Authorised
Officer may sell it at once.
The Authorised
Officer shall take steps for preservation and protection of secured assets and
insure them, if necessary, till they are sold or otherwise disposed of.
In the case of
other movable property, calling up on the borrowers and the person in
possession to hand over the same to the Authorised Officer and the Authorised
Officer shall take custody of such movable property in the same manner as
furnished supra.
Movable
secured assets other than those covered above, shall be taken possession of by
the Authorised Officer by taking possession of the documents evidencing title
to such secured assets.
19. What is the procedure to be adopted by the Secured Creditor in taking possession of immovable properties of the borrower.
As per Section
8 of the Act, where the secured asset is an immovable property, the Authorised
Officer shall take or cause to be taken possession, by delivering a possession
notice prepared as per Rules, to the borrower and by affixing the possession
notice on the outer door or at such conspicuous place of the property.
The possession
notice as referred above shall also be published in two leading newspapers, one
in vernacular language having sufficient circulation in that locality, by the
Authorised Officer.
In the event
of possession of immovable property is actually taken by the Authorised
Officer, such property shall be kept in his own custody or in the custody of
any person authorized or appointed by him, who shall take as much care of the
property in his custody as a owner of ordinary prudence would, under the
similar circumstances, take of such property.
The Authorised
Officer shall take steps for preservation and protection of secured assets and
insure them, if necessary, till they are sold or otherwise disposed of
20. What is the time limit for initiation of sale proceedings of movable properties / immovable properties by the Secured Creditor for realization of outstanding dues payable by the borrower.
As per
sub-section (2) of Section 6 of the Act, the Authorised Officer shall serve to
the borrower a notice of thirty days for sale of the movable for realization of
outstanding dues. Further, no sale of
immovable property under the Rules shall take place before the expiry of thirty
days from the date on which the public notice of sale is published in news
papers as referred or notice of sale has
been served to the borrower.
21. Whether the Secured Creditor should obtain any valuation report from an approved valuer for fixing the price of the property.
Yes. As per
Section 5 of the Act, after taking possession of movable assets, however in any
case before sale, the Authorised Officer shall obtain the estimated value of
the movable secured assets and thereafter, if considered necessary, fix in
consultation with the Secured Creditor, the reserve price of the assets to be
sold in realization of the dues of the Secured Creditor.
Similarly, as
per Section 8 of the Act, before effecting sale of the immovable property , the
Authorised Officer shall obtain Valuation of the property from an approved
valuer and in consultation with the Secured Creditor, fix the reserve price of
the property and may sell the whole or any part of such immovable property secured
asset for realization of the dues of the Secured Creditor
22. What is the amount to be paid by the PURCHASER onthe day of successful bidding or confirmation of sale.
As per
sub-section (3) of Section 9 of the Act, on every sale of immovable property, the
purchaser shall immediately pay a deposit of twenty-five per cent, of the
amount of the sale price, to the Authorised Officer conducting the sale and in
default of such deposit, the property shall forthwith be sold again.
As per
sub-section (4) of Section 9 of the Act, the balance amount of purchase price shall be
paid by the Purchaser to the Authorised Officer on or before the fifteenth day
of confirmation of sale of the immovable property or such extended period as
may be agreed up on in writing between the parties.
24. Whether the Secured Creditor / Bank can forfeitthe deposit and proceed with resale of the property, in case the PURCHASERcommits default in payment within the stipulated period.
Yes, as per Section 7 of the Act, where movable
secured asset is sold, the sale price of each lot shall be paid as per the
terms of the public notice or on the terms as may be settled between the
parties, as the case may be and in the event of default of payment, the movable
secured assets shall be liable to be ordered for sale again.
In respect of
immovable secured assets, as per Sub-section (5) of Section 9 of the Act, in
default of payment within the period mentioned, the deposit shall be forfeited
and the property shall be resold and the defaulting purchaser shall forfeit all
claim to the property or to any part of the sum for which it may be
subsequently sold.
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