Allahabad Bank e-Learning Project

IRT, Panchkula

In order to strengthen recovery of bad debts / Non- performing Advances, the Government of India has enacted the SARFAESI Act 2002 ie., Securitisation, Reconstruction of Financial Assets and Enforcement of Security Interest Act. The provisions of the said Act have empowered the Bank to take possession of mortgaged securities without intervention of the Court and to dispose of the same for recovery of NPA dues. Among various modes of recovery of NPAs, the SARFAESI Act 2002 is the most effective mode of recovery. It is relatively less time consuming and most importantly time consumed, the effectiveness of which depends upon the efforts and interest put in by the Bank in recovery process using this tool of recovery. In order to ensure recovery of the Bank’s dues under the said Act in time, the following basic points must be borne in in mind while invoking SARFAESI Act. a) The Act is applicable to the accounts which have been classified as NPA by the bank. b) The Act is not applicable to the accounts where the bank’s dues are not exceeding one lakh rupees. c) The Act is applicable only in respect of Secured Assets. It is not applicable to loans where security is mortgage of Agricultural land, pledged movable or lien on any goods, money or security. d) The Act is not applicable to accounts where amount due is less than 20% of principal amount and interest thereon. e) In case of joint financing & lending under consortium, rights under the Act can be exercised only if secured creditors representing more than ¾th in value of the amount outstanding as on a record date agree upon. f) In case borrower has taken loans from different creditors individually, there will be no need to satisfy the requirement of ¾ th in value of the amount outstanding and each creditor can go to realize its dues by taking independent action under the Act. g) In case proceedings are pending before BIFR(Board for Industrial and Financial Reconstruction) /AAIFR (Appellate Authority for Industrial and Financial Reconstruction) and the Consortium banks/ multiple banks representing more than 75% of the total dues of all the secured Creditors have taken steps like taking possession of the property under Section 13 (4) of the Act (after expiry of the period of notice issued under Section13 (2) of the Act i.e. 60days) , then the banks have to inform the BIFR/AAIFR of the same and the proceedings before BIFR/AAIFR will be abated. Then the Company comes out of the purview of BIFR/AAIFR. h) All steps under the Act should be completed before expiry of Limitation period. After taking certain steps under the Act, if it is realized that the Limitation period available to the bank is going to expire, immediate steps should be taken for filing suit for recovery of the dues.

This is culled from various sources by IRT Panchkula and STC Kolkata Users must refer to latest circulars for finality

a fresh notice of demand should be issued and ensure not to repeat the same fate of notice in future. The steps that are to be followed for implementing the SARFAESI Act... d. Replying Objections Received. 3. The demand notice shall also contain details of the secured assets intended to be enforced by the secured creditor in the event of nonpayment of secured debts by the borrower. 13(4).Allahabad Bank e-Learning Project IRT. if any In case any objections are received from the borrower or guarantor to the demand notice issued.. 60 days ‘Demand Notice 1. For taking physical possession of the property. . Before going for taking possession of the property.. ..% per ……………. 2002 are as under :- A.with …………rest is payable onward till repayment of entire dues. if the circumstances so warrants. Taking Possession of the Property after informing borrower/guarantor in writing After expiry of the 60 days Notice period. Once bank has abandoned action as envisaged under section 13(4) of the Act. Immovable Property a. Issuing possession notice to borrower/guarantor f. Identifying eligible NPA accounts and eligible assets Identify the eligible NPA accounts and eligible assets in respect of which action under SARFAESI Act is to be taken. the assistance of Chief Metropolitan Magistrate/District Magistrate may also be taken. (which should be as near as possible to the date of notice) and should clearly mention that the interest @. Publishing in two leading news papers After taking possession. Such possession may be symbolic or actual. the borrower/guarantor is to be informed in writing that on such and such date & time the bank is going to take possession of property and on that particular date & time possession should be taken. Issue 60 days ‘Demand Notice’ under Section 13(2) of the Act. b. Non. possession of the property is to be taken under Sec.responding to the said objection will amount to acceptance of objection/representation & waivement of our rights to proceed further. 2. the same should be replied within a week of receipt of such objections by giving cogent reasons by Authorised Officer. e.e. In case SARFAESI Act is invoked but no action has been initiated for long time.. officer not below the rank of scale-IV officer. 2002 is to be taken by Authorised Officer only i. c. it cannot revive action and proceed on the basis of notice. Panchkula VARIOUS STEPS UNDER SARFAESI ACT. possession notice will be delivered to the This is culled from various sources by IRT Panchkula and STC Kolkata Users must refer to latest circulars for finality . The demand notice should also contain the date of NPA. 2002 All the action under SARFAESI Act. The demand notice shall contain details of the amount payable by the borrower as on ……….

the 30 days notice of sale should be published in two leading Newspapers (of which one should be in a vernacular language). a public notice of 30 days is to be given in two leading newspapers. i. In order to fulfill the requirement of 30 days notice to the borrower/guarantor and public both. 2. 30 days’ public notice for sale of property by tender / public auction The Authorised Officer may sell the immovable property by any of the following methods (i) by obtaining quotation.Allahabad Bank e-Learning Project IRT. The sale shall be confirmed in favour of the purchaser. For (ii) & (iii). No sale shall be confirmed if the amount offered by the sale price is less than the reserve price. 30 days’ clear notice for sale of property to borrower/guarantor 30 days clear notice is to be given to the borrower/guarantor for sale of the immovable property. (iii) by holding public auction (iv) by private treaty. one in vernacular language having sufficient circulation in that locality. h. The reserve price is to be communicated to the borrower/owner also. Panchkula borrower/guarantor and also will be affixed on the outer door or at a conspicuous place of the property. j. the purchaser shall immediately pay 25% of the amount of sale price to the Authorised Officer and in default of such deposit. the 30 days sale notice is to be served upon the borrower/guarantor first and then after a gap of say 7-8 days. the property shall forthwith be sold again. On every sale of immovable property. It should be kept in mind that 30 days is to be counted from the date of publication of notice in newspaper and not from the date mentioned in the sale notice. in two leading newspapers. Obtaining valuation and Fixing Reserve Price The Authorised Officer shall obtain valuation of the property from an approved valuer (which should be approved by the Bank’s board) and fix the reserve price of the property. The terms of sale should be specified in the Sale Notice. The balance amount of price payable shall be paid on or before 15 days of confirmation of sale of the immovable property or such extended period as This is culled from various sources by IRT Panchkula and STC Kolkata Users must refer to latest circulars for finality . there must be application of mind while considering valuer’s report & fixing reserve price. (ii) Inviting tender from public. This provision is mandatory. The possession notice shall also be published within seven days from the date of taking possession. While fixing reserve price the Authorised Officer is required to secure best price.e. 3. Bank. g. Confirmation of Sale 1. one in vernacular language having sufficient circulation in that locality. who has offered the highest sale price in his bid or tender or quotation or offer to the Authorised Officer which shall be subject to confirmation by the secured creditor i.

d. the Authorized Officer may sell it at once. the movable secured assets shall be liable to be ordered for sale again. or (iii) holding public auction. or (iv)by private treaty. The terms of sale should be specified in the sale notice. c. Publishing Notice for tender/Auction in 2 news papers f. e. or the expense of keeping such property in custody is likely to exceed its fetchable value. Where movable secured assets are sold. the authorized officer shall issue a Sale Certificate. if such property is subject to speedy or natural decay. it is not necessary that all properties (securities) should be sold or possession be taken under section 13(4) of the Act. publication in two leading News Papers. Issuance of Sale Certificate On payment of sale price. Sale of Movable Assets The Authorised Officer may sell the movable secured assets in one or more lots by adopting any of the following methods (i) obtaining quotations from parties dealing in secured assets or otherwise interested in buying such assets. 60 days Demand Notice After expiry of the 60 days Notice period. Movable Property a. entire recovery could be made then. 30 days’ notice to borrower for sale of movable property 30days notice is to be given to the borrower for sale of the property. as the case may be and in the event of default of payment. B. Valuation of Movable Assets Valuation of movable secured Assets to be made by Valuer approved by the Board of Directors of the Bank. 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. 4. For (ii) & (iii). or (ii) inviting tenders from the public. In default of payment of the balance amount. one in Vernacular language having sufficient Circulation in that locality is mandatory. Panchkula agreed upon in writing. Such possession can be physical only and is to be taken in the presence of two witnesses who will sign the Panchnama. If by sale of one property only. However .Allahabad Bank e-Learning Project IRT. Taking Possession and Delivery of a copy of list of Inventory After taking possession an inventory of the property is to be made or cause to be made and a copy of such inventory is to be delivered or cause to be delivered to the borrower or any person entitled to receive on behalf of borrower. b. g. possession of the property can be taken. This is culled from various sources by IRT Panchkula and STC Kolkata Users must refer to latest circulars for finality .

the sale proceeds of the charged assets are insufficient to cover the total dues. or with both. Hence it is to be ensured that appropriate legal action is initiated in those cases also where SARFAESI Act has been invoked within limitation period and more specifically much prior to the expiry of the period of limitation. Right of Redemption available to the borrower Section 13(8) -“If the dues of the secured creditor together with costs. An interim order like injunction/attachment is passed by DRT/Civil Court or iii. and no further step shall be taken by him for transfer or sale of that asset. which should be exercised judiciously. or with fine. charges and expenses incurred by the bank. the bank can file a suit in DRT (if the amount due is 10 lacs or more) or Civil Court (in case the amount due is less than 10 lacs). for recovery of the balance due. A Receiver is appointed by the Civil Court/ DRT or ii. Upon such payment. Panchkula Recovery of Balance Amount after taking action under SARFAESI Act If after taking action. caution and in transparent manner.” Section 13(8) of the Act provides for right of redemption to the borrower. Under SARFAESI Act 2002.Allahabad Bank e-Learning Project IRT. However. Here it is to be noted that mere initiation of proceedings under SARFAESI Act 2002 will not extend limitation for filing suit/application before the court/DRT. this right of redemption is available to the borrower only upon tendering of the dues of the bank along with costs. the secured asset shall not be sold or transferred by the secured creditor. no further steps shall be taken by the bank to transfer or sell the asset.Recovery Certificate has been issued by DRT (in case of matter in DRT only) Right to Appeal (Sec. The borrower has the right to pay and take back his property before the date fixed for sale or transfer. but the action under SARFAESI Act should be taken only after appropriate orders from DRT/ Civil Court .17) Any person (including borrower) aggrieved by the measures taken by the bank (secured creditor) under section 13(4) of the SARFAESI Act 2002 may make an application to the Debt Recovery Tribunal within 45 days from the date on which such measures had been taken. Moreover according to section 29 of the SARFAESI Act. Civil Court not to have Jurisdiction (Sec.34) The Civil Court is not having jurisdiction to entertain any suit/proceeding in respect of any matter in which Debt Recovery Tribunal/Appellate Tribunal is empowered to determine and also it shall not grant any injunction in respect of any action taken/to be taken in pursuance of any power conferred under SARFAESI Act 2002.“If any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or any rules made there under. All the provision of SARFAESI Act and rules thereunder are to be followed meticulously. and with utmost care. Simultaneous Action by the bank Simultaneous action under SARFAESI Act and DRT/Civil Court may be taken.” This is culled from various sources by IRT Panchkula and STC Kolkata Users must refer to latest circulars for finality . extraordinary powers have been conferred upon the bank. if : i. he shall be punishable with imprisonment for a term which may extend to one year. charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer.

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