THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002

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1.  What is the main purpose of introduction of this SARFAESI ACT, 2002.

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 21^st 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 17^th December,2002.

2.  What is the minimum amount of debt for the recovery of which this SARFAESI Act can be invoked.

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.    

10. Whether the borrower himself can participate in the sale proceedings.

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.

23. Within what period the PURCHASER has to pay the balance amount.

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. 

QUESTIONS ON PROPERTY MATTERS

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Whether a grandson has any right of share in the property of his grandfather during his life time?          

                                                                   

A grand son has no right in the property of his grand-father. A grandfather is competent to deal with his self acquired property in whatever the fashion he likes including disposal of his self acquired property by way of WILL in favour of his choice person. But, if the property held by the grand father is an ancestral property then he is prevented from dealing with this property at his will. In such a case, upon partition of the family property, the grandson will get a share out of the share of his father.

What is the mode of payment under the SAS ? I have lost / misplaced the tax receipt for theproperty tax paid last year. What should I do to obtain a duplicate copy ?

Property tax under the Self Assessment Scheme [SAS] may be paid by way of cheque, DD or cash. In addition to the 30 Range Offices, nearly 80 branches of various banks (Dena Bank, Syndicate Bank, ING Vysya Bank, Mysore Bank, Corporation bank, Bank of Baroda, Andhra Bank, and Canara Bank) have been authorized to receive the property tax and issue receipts on behalf of the BBMP.

You can request the Assistant Revenue Officer to issue an endorsement saying that the property tax for a particular property has been paid.

Ihave purchased a house in January 2003.The sub-registrar of Basavanagudi, wherethe sale deed was registered, did not agree for the stamp duty paid on the saledeed and served us a notice to pay additional stamp duty of Rs.6,575/- whichwas also paid and the sale deed was registered. The registered sale deed iswith me. I am in possession of the house. But recently I have received a noticefrom the Department of under valuation stating that the property is undervaluedand to pay additional stamp duty of as Rs. 4,255. As I have paid the stamp dutyas demanded by the sub-registrar why this notice? Can I ignore the notice ?  Please advice.

It is wrong to ignore any notice issued by government departments, courts, and advocates. The notices have to be replied and complied with, stating the actual position. This is in general.

With regard to your specific query, about the receipt of notice from under valuation dept, The Karnataka Stamp Act 1957, under section 45-A has given powers to the Deputy Commissioners to re-examine the documents such as registered sale deeds to detect cases of under valuation. He may also issue a notice to the parties to pay the deficit stamp duty. However, this action has to be done within two years from the date of registration. Though you have paid stamp duty as determined by the sub-registrar, the Deputy Commissioner is empowered to re-examine the issue. If you think that the property is not undervalued and correct stamp duty is paid, you may contest through an advocate with supportive documents. If not you may pay the stamp duty as demanded. The department will give an endorsement for having paid the deficit stamp duty.

My uncle has given Power ofAttorney to his friend to develop certain properties, negotiate and sell them.He has also received the consideration. The stamp duty paid on Power of Attorney is Rupees One Thousand only andthe Power of Attorney is not registered. The Attorney holder has developed the property and has sold to various purchasers. But, now my uncle wants to giftsome portion of the said property to his sister. Since the stamp duty paid onPower of Attorney is only Rupees One Thousand and not as per sale deed and isnot registered, can my uncle claim the sale deeds executed by his friend, Power of Attorney holder, as irregular and not enforceable and gift the property to his sister.    

                                 

The stamp duty payable on Power of Attorney given to a promoter to develop the property and to sell the property is only Rupees One Thousand and not as payable on sale deed and the Power of Attorney given by your uncle to his friend is properly stamped. The Registration of such Power of Attorney is also not mandatory as per Indian Registration Act. If the person other than the executor of the sale deed presents the document for registration as a Power of Attorney holder and admits the execution such Power of Attorney requires registration. But, if the person who is signing the documents and the person who presents the sale deed for registration admits the execution are one and the same, such Power of Attorneys need not be registered. In the instant case, the Power of Attorney holder himself has executed the sale deed and has admitted the execution.

Further your uncle has received the consideration and his friend has developed and sold the property in furtherance of powers given to him. As such your uncle cannot claim that the sale deeds are irregular not enforceable and also cannot revoke the Power of Attorney. He has no right to gift a portion of the said property to his sister.

I have recently purchased some immovable properties at Banaswadi out of my earnings.  I do not have any children and have adopted aboy who is 17 years old. I want to gift some of my properties to my sister by will but natural parents of my adopted son are objecting to this stating that it is against law.

You are at liberty to deal with properties which are acquired out of your own funds as you like, provided no agreement is made at the time of adoption about non-alienation of property. You may bequeath the property to your sister by will. Section 13 of Hindu adoption and maintenance act is very clear in this regard. However, apart from legal aspect you have a duty to your adopted son and should provide for him also.

I have mortgaged my property to bank to avail loan. The mortgage is simple mortgage which is registered. Iam in possession of the property which is vacant. Can I let out this mortgaged property, which would help me financially to discharge the loan?

Transfer of Property Act deals with this situation. The relevant section is 65-A, which you may refer. The mortgagor, if in lawful possession of the mortgaged property shall have all powers to let out / lease the property which is binding on the mortgagee. If the terms of your mortgage do not prohibit such leasing / renting of the property you may let out the property, subject to certain conditions stipulated in the act. Such lease should be in the ordinary course of management of the property and in accordance with local law, usage and custom.

Further, such lease shall reserve the best rent that can be reasonably obtained and should not have any premium or rental advance. The lease should not provide for renewal. The lease should commence not later than six months from the date of lease.  In the case of lease of buildings, whether leased with or without the land on which they stand, the duration of lease shall not exceed three years and the terms of the lease shall provide for reentry on failure to pay the rent within the time specified. However, these terms may be varied or changed by the mortgage deed itself. So please verify the mortgage deed executed by you and proceed.

I have purchased a site nearKrishnarajapuram. The site is formed in converted land for non-agriculturalresidential purpose the site is assessed for property tax by the villagePanchayat. I have planned to construct ahouse in the site and plans are being submitted to village Panchayat forapproval. But I apprehend the land maybe notified for acquisition by BDA in due course. What will be the position of the house constructed in case BDA notices the land for acquisition?

The BDA may notify the land for acquisition at any time. The BDA first issues preliminary notification where in it calls for any objections. BDA also conducts the survey of lands proposed to be acquired and documents the developments and constructions. Thereafter considering the objections and the developments, final notification will be issued. Any constructions prior to the preliminary notification will be integrated into the layout. You may go ahead with construction of house after obtaining approval of plan and thereafter get the property assessed for tax. In case BDA notifies the land for acquisition you may file objections with relevant documents.

PRECUATIONARY MEASURES BY PURCHASERS FOR PROJECTS UNDER CONSTRUCTION

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There is every need to ensure that the documentation of the property proposed to be purchased, is legally valid and enforceable in Law. In case of a ready made flat or house, this process may be little bit easier, but in case of projects under construction there needs strict due diligence.

A broad guideline on the steps to be taken in right direction for this task, is the following:

The first thing one should do, in case of projects that are still under construction, is to make sure that the builder has all the necessary approvals in place, without which it would be considered illegal. The first of these, is the necessary permission to develop the land into a residential complex. For such development, the Builders need to get approval from the Competent Authority of the Government for conversion of agricultural land or land specially designated for industrial purposes into land for residential area. In case, if the builder has gone ahead without obtaining this approval, the entire project is illegal and it is very risky.    

For obtaining conversion of land, it also need several clearance from  environment and other departments such as fire, safety, municipal administration,airport authority, telephone department, etc. In addition to these, the builder should ensure that his project does not interfere with the urban and town planning and that the entire project has unrestricted access to road and other public utility services.

Secondly, the purchaser should find out, whether the builder has necessary authority to transfer the undivided share of land to each flat owner and the entire plot to the Society of Apartment, on completion of the Project.

Lastly, the purchaser should never forget that there may be many a slip between the ‘blue print’ and the actual ‘final product’. In general, the developers tend to charge a premium for additional features, such as ‘swimming pool’ or ‘designer furniture’ etc. However, unless you ask the builder to incorporate all the promised features in the Agreement and make provisions for penalty in case of non-ful filment, you stand on shaky ground. Also, watch out for the fine print, because the builders may slip in a clause in the agreement and may claim that they reserve the right to alter any of the promised features.

As an adequate precaution, please take a look at the approved construction plans and ensure whether they match with things which were promised to you.  You can ask the builder to show you the requisite permits/approvals obtained from the concerned authorities. While the approved construction plans have to be mandatorily displayed at the construction site at all times, all the important approvals should be made available at the builder’s office. As per the provisions contained in Transfer of Property Act and Maharashtra Ownership of Flats Act, a seller is required to disclose all facts relating to the property, which include various permissions secured by him. In case the builder refuses to do so, a prospective buyer has recourse under the same acts.   

In addition to these documents, you should also take a look at the Commencement Certificate for Projects in Mumbai. As the name itself suggests, this Certificate is given to the builder to begin construction, only after ensuring that the builder has obtained all therequisite clearances.   

PROPERTY EXCHANGE DEED

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As per provisions contains in Section 118 of Transfer of Property Act, when two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both the things being money only, such a transaction is called an exchange. This definition is not restricted to immovable property only.

Thus, exchange implies, when two separate property owners mutually agree to transfer the ownership rights by exchanging the property. Further, exchange also mean exchange of lands and barter of goods too.

If one of the items that has been transferred in money, then it is not an exchange but sale, because sale should always be for a price. But money in one form can be exchanged for money in another.

In case of exchange, the transfer of ownership of one thing is not the price paid or promised to pay, but something else in lieu. For example: if a person transfers a land valued Rs.20,00,000/- to another and in return, the other person transfers a shop valued Rs.18,00,000/- and pay Rs.2,00,000/- in cash, it is an exchange.

This type of exchange transactions can be reduced into writing in the form of Property Exchange Deed. This Exchange Deed document for transfer of property rights need to be registered with the jurisdictional sub Registrar’s Office by paying prescribed stamp duty. While drafting the exchange deed and its registration including the document execution, its presentation and admission utmost care need to be taken, since this is a complex process.

Before drafting such complex type deed of transfer, it is very important to ensure that all the necessary requirements for the effective enforcement of such deeds are incorporated which only give legal sanctity to the document. The essential requirements for such deeds are discussed below:

Description of the Deed

The deed has to specify the description, such as “This Deed of Property Exchange”, which may not necessarily be in bold letters, but is preferable, in order to highlight the nature of the deed.

Date of execution

It is very important to mention the date of execution of the deed since the same is required to determine the limitation and also for recording of such exchange in the revenue records. Further, the date of execution of the document may vary from the date of registration. However, the documents can be presented for registration, anytime within four months from the date of execution.

Parties to the deed

All the proper and necessary persons pertaining to the property intended to be exchanged have to be mandatorily made as parties to the deed in order to avoid possible future legal disputes, which may likely to be raised by the parties having interest over the exchanged property. It is also important to properly depict the status of each party to the deed.

Recitals

The deed shall contain the previous history pertaining to the property in a precise way, explaining the nature of the interest and motive behind the exchange of property, which only authenticate the title, and is called as Recitals in the legal terminology.

Covenants

A covenant is an agreement wherein either or both the parties to the deed bind themselves to certain terms and conditions, which create an interest over the property, which may either be express or implied. In recent times, with the advent of Apartment culture, it is very necessary to incorporate covenants of various types besides those for maintenance of common areas and facilities in the deed.

Testimonium

This is the part of the deed which states that the parties have signed the deed. This is very important in order to prove the authentication of the execution of the deed and the necessary involvement of the proper parties having interest in the property in legally conveying to the parties of the other part.

Testatum

This is the witnessing clause wherein the witnesses signing the deed are introduced, along with their names, address and signature. This clause is also very important for the reason that the witnesses also play an important role to prove the execution of the document. However, it is advisable that both the witnesses are from purchaser / transferee’s side.

Operative words

This part of the deed depends upon the nature of conveyance. However, operative words clearly depict the intention of the parties conveying the property in favour of the other parties, which is necessary for transfer of rights over the property.

Parcels

This means description of the property following the operative words. Anything intended to be conveyed/assigned has to be specifically mentioned. Every minute detail about the identification of the property has to be clearly incorporated. Any ambiguity about the description of the schedule property may lead to serious problems.

Exceptions and Reservations

Property intended to be transferred by way of exchange must not fall within the ambit of those prohibited under any statute or the Government notification. This part of the deed speaks about the conditions restraining the alienation and assurance that such alienation does not involve any restrictions.

Exception refers to some property or definite right which is existing on the date of conveyance and the same would transfer if not expressly excluded.

Whereas, Reservation refers to the right which is not existing but created at the time of transfer.

Completion of transaction

The deed can be enforceable only if the same is properly stamped under Indian Stamp Act. Apart from this, it is also necessary that the same has to be registered under the Indian Registration Act. Only after the registration of such documents, the right, interest and title over the property is validly transferred from thetransferor to the transferee.

Execution

Execution of the document will be complete only after the parties put their signatures on the deed. However, special care should be taken when any of the deed is signed by the party who is an illiterate or blind or Pardanash in lady. In case any document is signed by some person by putting thumb impression, the documents has to be signed by the person who has taken the same and if any map or plan sketch is annexed to the document, then the same has to be signed by the parties.

Possession of property

It is very important that the transferor transfers possession of the property in favour of the transferee. It is not necessary that actual possession has to be handed over to the transferee, but even constructive possession will transfer and create right and interest over the property.

Thus, the transfer or assignment of right, title and interest over the property, irrespective of the nature of transfer, entirely depends upon the deed of conveyance. Any ambiguity, inadvertent addition or deletion in the deed may give rise to lot of legal problems, therebyobstructing peaceful possession and enjoyment of the property.

10 THINGS YOUR REAL ESTATE BROKER WILL NOT TELL YOU

Advocate Selvakumar, Advocates, property advocates in Bangalore, property lawyers in Bangalore

1."Your open house is really a party for me."

Hire a real estate broker to sell your home and one of the first things he'll likely suggest is hosting an open house, so potential buyers can casually check out your property on a weekend afternoon. While open houses are promoted as a great way of finding a buyer.

Having an open house serves another important purpose - for the broker. It gives him a database of clients, At open houses, you get all kinds of people walking in. Some are [trying] to see how much they should sell their own places for; others just want to get a look at what's out there. All are perfect pickings for a broker looking to increase his roster of buyers and sellers. The broker is devoting a couple hours of a weekend. He won't do that unless it helps him in a big way.

2."My fees are negotiable."

Brokers like to make it sound as if their fees are engraved in stone, but that's rarely the case - especially in a brisk market, when brokers fiercely compete for properties they can unload fast. Some times the brokers lowered their fee by a full percentage point because there was so much demand for good properties that he needed leverage. The sellers should shop around for broker's fees. It suggests their negotiating tactics: If somebody's willing to commit to sell one place and buying another, they give a discount. If you're in a particularly desirable neighborhood with a house that will bring a lot of traffic that can be used, because the broker will use the flow of people to get potential customers. And with some [smaller] brokers, all you need to do is ask and they'll lower the commission.

3."Think you've had no offers? Actually, there've been several."

Legally, the broker you hire to sell your home is obligated to tell you about all offers that come in. In reality, some don't. Perhaps he thinks the offer is insultingly low for you, but more likely, the broker thinks it's too low for his own purposes. He wants to hold out for a bigger commission, Or else there's an outside broker (or "co-broker") circling your house, and the primary broker is waiting for one of his own clients to make an offer so that he can keep his full commission..

You must be clear with your broker that you want to be informed of all offers, otherwise, you may be leaving him to make decisions that you should be making. Check the listing agreement drawn up when you hire the broker; if the promise to disclose all offers isn't listed explicitly, insist that it be added.

4."I talk about you behind your back."

You spot your dream house as you're driving through a neighborhood and call the broker listed on the For Sale sign. That's how a lot of buyers stumble on a broker - who, in turn, happily shows you other houses, asking about your needs, laughing at your jokes. It's easy to get loose-lipped and forget whom you're dealing with: someone else's agent. Brokers are obligated to provide their sellers with any information that can help them to get the best prices fortheir homes, If you tell the broker that you're willing to pay Rs.5,00,000 but want to offer Rs.4,50,000, they'll pass that on to the seller. They have to. Also, some brokerage companies encourage prospective buyers to get pre-approved for loans. While that can make a buyer more attractive to a lender, it also tells a broker whether a buyer can afford a Rs.6,00,000 house when he's trying to haggle on a Rs.4,00,000 property. When somebody asks for a preapproval, find out who they're representing. Such details can short-circuit your negotiating leverage. If they represent a seller - or someone in their office does - they shouldn't have it. The broker may tell you that he will be impartial, but how can he be?

5."Sometimes I forget whose side I'm on."

The past 10 years have seen the proliferation of the buyer broker; agents who are supposed to work strictly in the buyer's interest, helping him get a fair price on a home as well as avoid pitfalls along the way. Unfortunately, things don't always unfold so nicely. While buyers may think they're getting a broker who isn't commission-hungry, many buyer agents are just that: They usually get about 3%, the same amount any broker typically earns when he gets involved with another agent's listing. Buyer brokers are sometimes too focused on closing the sale and getting that commission, so it's often in their best interest to see you pay as high a price as possible.

Even worse, some brokers who call themselves buyer advocates are actually working for companies that also represent sellers. Brokerages offer bonuses to buyer agents if they sell an in-house listing.. A good way to get a broker who has no such conflicts of interest.

6."I know zilch about zoning."

Real estate agents love to suggest big ideas to prospective buyers - say, removing trees to enhance a view, or even squeezing a rental unit out of a roomy garage - meant to happen once the deal is done and they're out of the picture. We had a client who bought a dilapidated house with a beautiful piece of property. The broker told him that he could fix the house up however he wanted, insisting that this was a sleepy little town where nobody would care what he did. He put up a Rs.75,000 shed in his backyard, pulled down trees, filled in some of the marshland. Now the town is making him put things back because of environmental zoning regulations. The lesson: Before you buy into your broker's creative thinking, check with your local zoning commission.

7."I won't let termites - or pesky inspectors - kill a deal."

If a broker is selling a house, you figure he knows the place pretty intimately - after all, he talks a good game about the new kitchen, the big closets, the heated garage. What you need to worry about, though, are the home's features that he keeps to himself. We have had cases where brokers have  been deceptive about termites and flood damage.

You'd figure that the home inspector, who comes to check out the place before you close the sale, might notice those things. And he will - if he's not in cahoots with the broker. Realtors give potential home buyers lists of home inspectors. Those are people who will rubber-stamp the house in return for repeat business. As one who works outside those lists, says that he sometimes butts heads with overly controlling brokers. One time I had a broker tell me that unless I told him the results of my inspection - which is confidential between myself and my client - he wouldn't let me get up on the roof. I got out my ladder and told him that unless he was big enough to stop me, I was going up there. He wasn't big enough.

8."I'm not a lawyer, but I play one in your house."

Most states strictly regulate the contracts used in real estate transactions, stipulating the use of boilerplate agreements that offer little room for creativity - but some brokers can't keep their clause-adding instincts in check. I see brokers pushing the envelope all the time with amendments and addenda. They draft language that can have consequences without really understanding it - but they want to keep the sale going.

For example, it's fairly common for a transaction to close on one day but possession doesn't happen until a later date, in which case the buyer rents the house back to the seller for those days. The issues of responsibility for the house require more than a couple lines from the broker's pen. If a clause is worded improperly, you as the buyer could end up liable for damage done by your "rental tenant." Same goes for purchases of non-real-estate items(such as patio furniture) and owner carry back (in which the seller provides some of the financing). In both cases payment terms might not get spelled out clearly, and can result in one party taking advantage of the other. Whether you're the buyer or the seller, it's worth the legal fees to get the offer contract reviewed by your lawyer before you sign.

9."My Web site is a dead end."

Considering that over 50% of house hunters look on the Web, according to the National Association of Realtors, sellers might assume that using a broker with a site can help make a sale happen. But some brokers' sites are better than others, and you need to look beyond a well-designed home page to figure that out.

One common flaw: posting houses that sold long ago. While the mistake can be simple negligence, others think that it's a bait-and-switch-style ploy. It brings people in, but it gets them upset when they find out that the property's gone. If a broker has to advertise properties that are already sold, it tells you that he doesn't have enough inventory to keep his roster of houses full.

Aside from checking up on a site's prominently placed listings, prospective sellers should also make sure that a site is easy to navigate. You want to use a broker who keeps himself relatively high on the search engines, he pays a Webmaster to make sure this happens for his site, which is linked with Realtor.com, Yahoo! and the Re/max site. One of the big things a broker should have on his site is community information, which attracts people who are thinking of moving to the community.

10."You may not need me at all."

Brokers like to create a lot of mystique about selling homes, insisting that the process is complicated and best left to professionals with multiple listings and loads of house hunters. Not so, say homeowners who have sold their homes themselves about 20 to 30% do so each year. The properly priced and advertised, a house sells itself,  adding that sellers should plant a yard sign and post online ads with local sites aligned with print publications (call current advertisers to see if the given site is effective). After all, when it comes to the inevitable negotiations between buyers and sellers, Supple figures that brokers and their commissions get in the way: Usually, the haggling occurs over a petty difference, and that is, more or less, the broker's cut of the sale price. You don't need him.

Just be sure you price your home well. The way most self-sellers hurt themselves, is in setting either an unreasonably high or tragically low asking price. Hire an independent appraiser, and he will tell you the parameters of what to charge. In a strong market with low interest rates, the asking price can be 10 or 15% above what the appraiser thinks it will go for; in a weak market it might be wise to price at or below the appraisal.

HIGH COURT ORDERS DEMOLITION OF BUILDING FOR BYE-LAWS VIOLATIONS

Advocates, business lawyers, senior advocates, property lawyers in Bangalore, property advocates in Bangalore

Bengaluru : The High Court on Wednesday directed the Respondents to demolish a building constructed in violation of Building Bye-laws at Shanthinagar in the City.

Hearing a Petition by Kamalesh Kumar, owner of a property in Shanthinagar, seeking to demolish the building adjoining to his property alleging building bye-law violations, Justice Ram Mohan Reddy directed the Respondents to demolish thebuilding that violates the bye-laws. The Court also imposed a fine of Rs.25,000/- on Sushil Kumar and Dimple Kumar (owners of the disputed building – Respondent Nos: 4 and 5) payable to the Petitioner.

The Court, which had also summoned the Bruhat Bangalore Mahanagara Palike (BBMP) Commissioner, directed him to demolish the structure, in case if the Respondents failed to do so within a month. “Issue directions to Respondent 4 and 5 to bring down the building constructed in violation of building plan within a month. If the Respondents fails to do so, the Commissioner is directed to pull down the Building”. Justice Reddy observed.

“The Respondents 4 and 5 are directed to pay the Petitioner a sum of Rs.25,000/-. The Commissioner has been directed to take note that the Respondent 4 and 5 are liable for criminal prosecution under Section 436 of KMC Act,” the Court observed further.

The Petitioner, Kamalesh had alleged that the Respondents, who owned a property (Sy. No.8/1) at Shanthinagar, neighbouring his property (Sy. No.8/2) had begun constructing a building . Alleging building bye-laws violations, he brought it to the notice of the BBMP Officials. When there was no action on the part of the Officials, he moved the High Court. The Court directed the BBMP to initiate action against the Respondents. When the Respondents failed to do so, he moved the Karnataka Administrative Tribunal, which also directed to initiate action. However, when the matter prolonged further and the Respondents completed the construction, the Petitioner approached the High Court stating that the BBMP authorities have failed to initiate action against the Respondents and sought directions to the BBMP authorities to implement building bye-laws and dismantle the illegal construction.

The Court lashed out at BBMP for not implementing the bye-laws and said: “The City has become a hornet’s nest for illegal construction”. He directed the Respondents to demolish the illegal building and failing to it, the Commissioner is directed to demolish the structure and the cost be borne by the building owner.