DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, ANDHRA PRADESH

SUBJECT

BANKING LAW

PROJECT TITLE

LAWS AND PROCEDURE ON ENFORCEMENT OF SECURITY INTEREST

NAME OF THE FACULTY

Asst. Prof. POOSARLA BAYOLA KIRAN

NAME OF THE CANDIDATE

SAHAL SHAJAHAN

ROLL NUMBER

l8LLB131

SEMESTER –VI

DIVISION-B

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ACKNOWLEDGMENT: 
 
I am highly indebted to my Hon’ble Banking Law Asst. Prof. POOSARLA BAYOLA KIRAN , for
giving me a wonderful opportunity to work on the topic: “LAWS AND PROCEDURE ON
ENFORCEMENT OF SECURITY INTEREST ”, and it is because of his excellent knowledge,
experience and guidance, this project is made with great interest and effort. I would also take this as an
opportunity to thank my parents for their support at all times. I have no words to express my gratitude to
each and every person who has guided and suggested me while conducting my research work. 

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TABLE OF CONTENT

1) INTRODUCTION…………………………………………………………………………......04
2) LAW IN DIFFERENT JURISDICTIONS………………………………………………05
3) LAW AND PROCEDURE ON ENFORCEMENT OF SECURITY INTEREST...........07
4) KEY STEPS FOR THE ENFORCEMENT OF SECURITY INTEREST……………...13
5) CASE LAWS…………………………………………………………………………....19
6) CONCLUSION……………………………………………………………………….…23

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INTRODUCTION

WHAT IS A SECURITY INTEREST?

A security interest is an interest which is taken for property i.e. in real estate or otherwise, that makes
sure performance of obligation like repayment of debt or any other promised act. If the person or party
that sanctions the security interest doesn’t fulfill their promise, then the security interest holder has the
right to normaly take ownership or possession of the property or asset in the deal and auction or sell it
in order to recover any losses. Security interest certainly reduces the amount of risk a lender faces,
thereby allowing for lesser interest rates and other advantages to borrow money. If a security interest is
given, the money exchange is known as a 'secured transaction.'
A mostly seen example of a security interest is a deed of trust or real estate mortgage. Here, the person
who borrows pledge the property as colateral for securing re-payment of the loan to the money lender.
Under an agreement, the money debtor's personel possession (non-real estate) and in-tangibles, such as
intellectual property, are mostly used as the collateral. 

Certain examples of machinery, inventory, equipments, crops, farm products, deposit accounts,
fixtures, appliances, contract rights, accounts receivable and general intangibles are some of the
commonly seen collateral. If money debter fails on repayment, the secured party or the creditor has the
right to sell or keep the colateral.

TYPES OF SECURITY INTEREST

There are 9 main types of proprietary security interests under the English Law and in most
common law jurisdictions derived from English law ( the U.S is an exception ). They are:

1. equitable mortgage;
2. statutory mortgage;
3. 'true' legal mortgage;
4. floating equitable charge;

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 5. fixed equitable charge, or bill of sale;
6. hypothecation, or trust receipt;
7. equitable lien;
8. legal lien; and
9. pledge, or pawn.

The conditional sale of personal property as another form of security interest, has been brought
forth by the U.S, which is now obsolete.

In common law, security interests are either possessory or non-possessory, depending on

whether the secured party actually has to take over the possession of collateral. Or they rise by
mutual agreement between the parties (normally by executing a security agreement), or by
operating the stated law.

The developing of the law of non-possessory security interests in personel possession or property
has been certainly messy and convoluted. The judgment in Twyne's Case (l60l) considered
fraudulent conveyance, the transfer of interest in personal property without right away
transferring possession.  Before such security interests were recognized as legitimate over 200
years would pass.

English law on security interests has been followed in most common law countries, and they
have similar property statutes regulating the common law rules.

LAW IN DIFFERENT JURISDICTIONS

European Union

The laws related to seizure and enforcement of securities vary from country to country,
depending on whether it is derived from common law or civil law. In the European Union, the
Financial Collateral Arrangements Directive provides for appropriations as a remedy to
guarantee financial guarantees. In the United Kingdom, this was introduced under the 2003
Financial Collateral Arrangement Regulations (No. 2), in which the mortgaged assets are
"financial security" and the mortgage instrument regulations apply to this regulation. Allocation

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is a way for the mortgagee to obtain ownership of the asset, but the fair market value must be
stated to the debtor (must be specified in the mortgage document), but no court order is required.

In 2oo9, the Judicial Committee of the Privy Council ruled that according to English law:

l. Grants are closer to sales than foreclosures. In fact, this is the sale of the collateral receiver to
itself at a price determined by the agreed valuation process.

2. For valid grants, the recipient of the collateral does not have to be the registered holder of the
shares.

3. Commercial practicality requires obvious behavior, indicating the intention to exercise the
right of embezzlement, and communicating to the guarantee provider. In 2013, Cukurova
Finance International Ltd v. Alfa Telecom Turkey Ltd expressed the principle that fair
compensation can be sought when the funds are exercised in accordance with English law.

United States (the Uniform Commercial Code)

In the late l94os, the American legal profession reached a consensus that the traditional
distinctions of common law were outdated and useless. They tend to have too many unnecessary
litigations on whether the creditor has chosen the correct type of security interest. People are
increasingly realizing that different types of security interests have developed only because, on
the one hand, many judges believe that there is an inherent error in allowing a person to tax all
his assets immediately out of despair or stupidity. As collateral for loans, on the other hand,
debtors and creditors will try to achieve the desired results through any necessary means, even if
it means suing many kinds of collateral to cover different types of movable property. There are
also problems with the earlier British cases mentioned above, treating such collateral as
fraudulent means of transportation and failing to recognize their legitimate use in the modern
industrial economy. Therefore, since the history of the collateral itself shows that judicial
resistance to the enforcement of a wide range of collaterals will not prevent debtors from trying
to provide them as creditors’ incentives to provide financing, and they are useful to society under
appropriate circumstances, the best option is to make the collateral The result of the law as clear
and simple as possible is Article 9 of the Uniform Commercial Code (UCC), which stipulates the
physical security of movable property (as opposed to immovable property), and establishes a

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unified interest security as the concept of rights to the debtor’s property to guarantee Payment or
performance of debts. Article 9 was later promulgated by all 50 states, the District of Columbia,
and most territories, but it was not unchanged. According to Article 9, the security interest is
established through a guarantee contract, according to which the debtor provides a security right
to the debtor’s property as a guarantee for loans or other obligations. Regarding property, when
certain events occur, such as non-payment of loans. The creditor may possess the above-
mentioned assets in accordance with relevant obligations. The holder will sell the above-
mentioned property through public auction or private sale, and use the proceeds to perform
related obligations. If the income exceeds the amount of the related obligation, the debtor is
entitled to the excess. If the product is insufficient, the security holder is entitled to a judgment
on the deficiency, and the holder can initiate additional legal procedures to recover the full
amount, unless it is a non-recourse debt like many mortgage loans in the United States.

LAW AND PROCEDURE ON ENFORCEMENT OF SECURITY INTEREST

SECTION l3: ENFORCEMENT OF SECURITY INTEREST

“l3. (l) Notwithstanding anything contained in section 69 or section 69A of the Transfer of
Property Act, l882 (4 of l882), any security interest created in favour of any secured creditor
may be enforced, without the intervention of the court or tribunal, by such creditor in
accordance with the provisions of this Act.

(2) 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).

Provided that-

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(i) the requirement of classification of secured debt as non-performing asset under this sub-
section shall not apply to a borrower who has raised funds through issue of debt securities; and

(ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in
the same manner as provided under this section with such modifications as may be necessary
and in accordance with the terms and conditions of security documents executed in favor of the
debenture trustee.

(3) The notice referred to in sub-section (2) 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.

(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or
raises any objection, the secured creditor shall consider such representation or objection and if
the secured creditor comes to the conclusion that such representation or objection is not
acceptable or tenable, he shall communicate 3[within fifteen days] of receipt of such
representation or objection the reasons for non-acceptance of the representation or objection to
the borrower:

The premise is that the reasons communicated in this way or the actions that the secured creditor
may take at the stage of communicating the reasons do not give the borrower any right to choose
to apply to the Debts Recovery Tribunal under section 17 or the Court of District Judge under
section 17A.”

(4) In case the borrower fails to discharge his liability in full within the period specified in sub-
section (2), 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 realising the secured asset;

(b) take over the management of the business of the borrower including the right to transfer by
way of lease, assignment or sale for realising the secured asset:

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Provided that the right to transfer by way of lease, assignment or sale shall be exercised only
where the substantial part of the business of the borrower is held as security for the debt:

Provided further that where the management of whole of the business or part of the business is
severable, the secured creditor shall take over the management of such business of the borrower
which is relatable to the security for the debt;

(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) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured
creditor shall give such person a valid discharge as if he has made payment to the borrower.

(5A) Where the sale of an immovable property, for which a reserve price has been specified, has
been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful
for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to
bid for the immovable property on behalf of the secured creditor at any subsequent sale.

5B) Where the secured creditor, referred to in sub-section (5A), is declared to be the purchaser
of the immovable property at any subsequent sale, the amount of the purchase price shall be
adjusted towards the amount of the claim of the secured creditor for which the auction of
enforcement of security interest is taken by the secured creditor, under sub-section (4) of sec-13.

(5C) The provisions of section 9 of the Banking Regulation Act, l949 (10 of 1949) shall, as far
as may be, apply to the immovable property acquired by secured creditor under sub-section
(5A).

(6) Any transfer of secured asset after taking possession thereof or take over of management
under sub-section (4), by the secured creditor or by the manager on behalf of the secured

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creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as
if the transfer had been made by the owner of such secured asset.”

(7) “Where any action has been taken against a borrower under the provisions of sub-section (4),
all costs, charges and expenses which, in the opinion of the secured creditor, have been properly
incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and
the money which is received by the secured creditor shall, in the absence of any contract to the
contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and
expenses and secondly, in discharge of the dues of the secured creditor and the residue of the
money so received shall be paid to the person entitled thereto in accordance with his rights and
interests.

(8) Where the amount of dues of the secured creditor together with all costs, charges and
expenses incurred by him is tendered to the secured creditor at any time before the date of
publication of notice for public auction or inviting quotations or tender from public or private
treaty for transfer by way of lease, assignment or sale of the secured assets—

(i) the secured assets shall not be transferred by way of lease assignment or sale by the secured
creditor; and

(ii) in case, any step has been taken by the “secured creditor for transfer by way of lease or
assignment or sale of the assets before tendering of such amount under this sub-section, no
further step shall be taken by such secured creditor for transfer by way of lease or assignment or
sale of such secured assets.

(9) Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of
financing of a financial asset by more than one secured creditors or joint financing of a financial
asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights
conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed
upon by the secured creditors representing not less than 8 [sixty per cent.] in value of the amount
outstanding as on a record date and such action shall be binding on all the secured creditors:

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Provided that in the case of a company in liquidation, the amount realised from the sale of
secured assets shall be distributed in accordance with the provisions of section 529A of the
Companies Act, l956” (l of l956):

“Provided further that in the case of a company being wound up on or after the commencement
of this Act, the secured creditor of such company, who opts to realise his security instead of
relinquishing his security and proving his debt under proviso to sub-section (l) of section 529 of
the Companies Act, l956 (l of l956), may retain the sale proceeds of his secured assets after
depositing the workmen’s dues with the liquidator in accordance with the provisions of section
529A of that Act:

Provided also that liquidator referred to in the second proviso shall intimate the secured creditor
the workmen’s dues in accordance with the provisions of section 529A of the Companies Act,
l956 (l of l956) and in case such workmen’s dues cannot be ascertained, the liquidator shall
intimate the estimated amount of workmen’s dues under that section to the secured creditor and
in such case the secured creditor may retain the sale proceeds of the secured assets after
depositing the amount of such estimate dues with the liquidator:

Provided also that in case the secured creditor deposits the estimated amount of workmen’s
dues, such creditor shall be liable to pay the balance of the workmen’s dues or entitled to receive
the excess amount, if any, deposited by the secured creditor with the liquidator:

Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the
balance of the workmen’s dues, if any.

Explanation.—For the purposes of this sub-section,—

(a) record date means the date agreed upon by the secured creditors representing not less than
8[sixty per cent.] in value of the amount outstanding on such date;

(b) amount outstanding shall include principal, interest and any other dues payable by the
borrower to the secured creditor in respect of secured asset as per the books of account of the
secured creditor.

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(l0) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the
secured assets, the secured creditor may file an application in the form and manner as may be
prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case
may be, for recovery of the balance amount from the borrower.

(ll) Without prejudice to the rights conferred on the secured creditor under or by this section,
secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets
without first taking any of the measured specifies in clauses (a) to (d) of sub-section (4) in
relation to the secured assets under this Act.

(l2) The rights of a secured creditor under this Act may be exercised by one or more of his
officers authorised in this behalf in such manner as may be prescribed.

(l3) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of
sale, lease or otherwise (other than in the ordinary course of his business) any of his secured
assets referred to in the notice, without prior written consent of the secured creditor.”

Important Point Of Enforcement Of Security Interest:-

If the borrower is not fully liable within the time period specified in sub-section 2, the secured
lender may use one or more of the following methods to collect the secured debt: Borrower's
rights to the collateralized asset. This includes the right to sell the secured property through a
lease. , assignment or sale. ratio. Take over the borrower's collateral assets. This includes the
right to realize the encumbered asset by lease, transfer or transfer by sale. There is a person
(hereinafter referred to as the manager) who manages the secured goods that have been approved
by the creditor, whose ownership is guaranteed. Under the SARFAESI Law, the insured person's
right to foreclosure arises if the borrower's account on the insured (bank or financial institution's)
books is not classified as NPA in accordance with the guidelines of the Reserve Bank of India.
India (RBI). “A guaranteed loan must notify the borrower 60 days in advance to carry out the
withholding and require the borrower to pay the asset back. If the borrower is not liable to the
secured creditor, the secured creditor may (ii) take possession of the secured goods and exercise
security rights in the secured goods (I) by renting, distributing or selling the secured goods with a

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transfer right. There is. Management of receipts (IV) The person receiving the collateral of the
borrower is obliged to pay the necessary amount to fulfill his obligations. Security authorities
said the parties demanded that the mortgagee could not use the mortgage guarantee to recover
the full amount.

KEY STEPS FOR THE ENFORCEMENT OF SECURITY INTEREST

l. Furnish of Demand Notice after borrower’s account has been classified as Non-
Performing Asset (NPA):

l.l After categorizing the borrower's account as an NPA, the guarantor must provide the borrower
with a written notice requesting it to perform its obligations within sixty (60) days. The notice of
claim will include detailed information on the amount payable by the borrower and the secured
property that the guarantor intends to enforce in the event of default. (Article l3(2) and Article
l3(3))

l.2 The borrower reserves the right to make any statement or raise any objection to the notice
within the sixty (6o) day notice period. The secured creditor should consider this
statement/objection. If such an objection or statement is made and the secured creditor considers
the statement/objection to be unacceptable or unsustainable, the borrower will be notified within
l5 days and the statement/objection will be attached. Written reasons for acceptance. [Article
l3(3A)]

l.3 The refusal of the borrower’s statement and the reasons communicated does not entitle any
right to apply to the Debt Recovery Tribunal (DRT) or the District Court.

l.4 After receiving the notice of claim, the borrower shall not sell or lease Or transfer any of your
secured assets mentioned in the io) of your business by other means (except during the normal
process) without the prior written consent of the guarantor. [Article 13 (13)]

Recourse to remedies provided under Section 13(4) in case of failure to discharge debt:

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 If the secured debt is not paid within the notice period (6o days), the secured creditor can
enforce the security interest and take one or more of the actions listed in Article 13(4) of the law.
These include the following rights:

2.2 Possession of the borrower’s secured assets. This includes realizing the rights of encumbered
assets through leasing, transfer or sale.

2.3 Undertake the management of the borrower's business. "This also includes realizing the
rights of encumbered assets through leasing, transfer or sale. However, in the case of taking over
business management, the right to transfer can only be exercised if the main part of the
borrower's business is used as collateral for debt. In addition, in the case where business
management is severable, the secured creditor will take over the management of the borrower’s
business related to the guarantee or debt.

2.4 Appointment of any person as the "manager" for the management of encumbered assets

2.5 Anyone who has obtained any encumbered assets of the borrower and the borrower owes or
may owe debts is required to pay the secured creditor instalments. creditor. Such requests must
be accompanied by written notice. The payment made by the person to the secured creditor will
be effectively forgiven as if the payment had been made to the borrower. 2.6 If the secured
creditor’s installment (including the costs, fees and expenses incurred) is submitted at any time
before the determined sale or transfer date, the secured creditor will not sell or transfer the
secured property, and cannot no longer provide A further step in the transfer or sale of the
encumbered asset. [Article 13 (8)]

Procedure After Issue Of Notice.—

If the amount mentioned in the required notice is not paid within the time specified in it, the
authorized official shall take one or more of the measures specified in Article 13(4) of this
Regulation to enforce the amount in order to take the movable property The possession of the
property, namely:—
(l)When the secured movable property in the possession of the secured creditor is the movable
property in the possession of the borrower, the authorized official shall occupy the movable
property in the presence of two witnesses by the witness in Appendix I of these rules After
drafting and signing a Panchnama as closely as possible.

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(2)After obtaining the property in accordance with the above paragraph (l), the authorized person
shall make or arrange the property list as far as possible in accordance with the method specified
in Appendix II of these rules, and deliver or arrange for the delivery of the property to the
borrower or to be authorized to collect Anyone who arrives provides a copy of the above list.

(3) The authorized person shall keep the property possessed under paragraph (l) in his own
custody or in the custody of any person authorized or designated by him, and the person shall
also take care of the property in his custody as the owner of ordinary property. Under similar
circumstances, Prudence will take away such property: if such property will be damaged quickly
or naturally, or if the cost of keeping such property may exceed its value, authorized personnel
can immediately sell it.

(4) Authorized officials shall take necessary measures to preserve and protect the encumbered
assets, and if necessary, insure them until they are sold or otherwise disposed of.

(5) In case any secured asset is—

(a) a share in a body corporate; or
(b) a debt not secured by negotiable instrument;
(c) For other personal property not owned by the borrower, except for property deposited in or
custody of any court or similar institution, authorized personnel will obtain possession or
recovery of debts through the following notices or notices:
(i) In the case of debts, it is prohibited The borrower recovers the debt or any interest
and the debtor’s payment, and orders the debtor to pay the amount to an authorized
official;
(ii) (ii) For the shares of a legal person, order the borrower to transfer it to a secured
creditor and order the legal person not to transfer the above-mentioned shares To
someone other than the secured creditor. A copy of the notice so sent to the Registrar
of the relevant legal entity may be endorsed by the share issuance or transfer agent (if
any);

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 (iii) Other movable property (except for the above cases), the borrower and the possessor
will hand over the movable property The trustee, the trustee shall keep the movable
property in the above sub-rules (l) to (3) in accordance with the regulations;
(iv) (iv) In addition to the personal property covered by this rule, the secured personal
property will be covered by the secured property described in the certificate of
possession The document of ownership is possessed by authorized officials.

Sale of movable secured assets.—

l)  The movable secured assets taken possession under sub-rule (l) of rule 4 can be sold by the
authorized officer in one or more lots by adopting any of the following methods to secure
maximum sale price for the assets, to be so sold—
(a) inviting tenders from the public; or
(b)  obtaining quotations from parties dealing in the secured assets or otherwise interested in
buying such assets ; or
(c) by private treaty; or
(d) holding public auction.

2) The authorized official shall, in accordance with the provisions of paragraph (l), issue a 3o-
day notice of the sale of secured movable property to the borrower: the premise is that if the sale
of secured property is publicly conducted through bidding or through a public auction, there is a
guarantee Creditors must publish notices in two main newspapers, one of which is in vernacular
with sufficient local circulation to determine the terms of sale, which may include:

(a)borrowers and secured creditors;

(b) For secured movable property to be sold, if any, with an identifying mark or number;
(c) Reserve price, if any, and the time and method of payment;
(d) The location of the public auction or the time of completion of the sale in any other way;
(e) Guaranteed The deposit required by the creditor;
(f) Any other cooperative authorized official believes that the buyer must know in order to judge
the nature and value of the secured personal property.

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(3) Sales conducted by any method other than public auction or public bidding will be conducted
in accordance with the conditions agreed in writing by both parties.

Sale of immovable secured assets.—

(l) When the secured property is real property, the authorized official shall obtain or procure
possession, deliver to the borrower the notice of possession prepared as far as possible in
Appendix IV of these rules, and post the notice of possession. On the outside door or on the
property in such an obvious place (2) Sub-rule (l), the notice of possession described in the rule

(2) will also be published in two main newspapers. One is in vernacular with sufficient
circulation locally.

(3) If the possession of real property is actually taken by an authorized official, the said assets
will be kept by him or by anyone authorized or designated by him, They will take care of the
property in his custody like ordinary prudent owners under similar circumstances.

(4) The authorized person shall take necessary measures to preserve and protect the secured
assets. If necessary, insure them until they are sold or otherwise disposed of.

(5) In the sale of Article 9 Before the immovable property mentioned in paragraph (l), the
authorized official must obtain a property valuation from the authorized appraiser, negotiate with
the secured creditor to determine the price of the reserve property, and may sell it in whole or in
part through any of the following methods Real estate:-

(a) Obtain quotations from people who deal with similar insurance assets or who are interested in
purchasing such assets;
(b) Public tenders;
(c) Public auctions; or
(d) Private treaties.

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(6) According to article (5) The authorized official will issue a 3o-day notice to the borrower to
sell the secured real estate: the premise is that if the sale of the secured asset is made by
invitation to the public or holds a public auction, the secured creditor will Notices are issued in
several major newspapers, one of which is in vernacular with sufficient circulation in the local
area to determine the terms of sale, including

(a) a description of the real estate for sale, including details of the lien known to the guarantor;
(b) ) Used to recover the secured debt of the property;
(c) The reserve price, below which the property will not be able to
(d) The time and place of public auction or the time to complete the sale in any other way;
(e) The required security deposit e The holder of the security right;
(f) Any other matters deemed by the authorized officer that the buyer must know in order to
judge the nature and value of the property.

(7) Any sales notice will be posted on the visible part of the real property, and may be posted on
the guarantor’s Internet website as deemed appropriate by the authorized officer.

(8) Sales conducted by any means other than public auctions and public bidding will be carried
out in accordance with the conditions agreed upon in writing by both parties.

CASE LAW

l)Speed Track Cargo v. State Bank of Patiala & Others

FACTS

It is the case of the petitioner (i) the respondents no.l to 3 Bank on l3th May, 2014 published an
advertisement of e-auction, under Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act, 2002, of immovable property situated at
Jhajjar and Gurgaon; (ii) the petitioner bid and made EMD for both the properties; (iii) e-auction

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was scheduled for l9th June, 20l4 between 2.00 p.m. to 3.oo p.m.; (iv) the respondents no.l to 3
Bank had appointed the respondent no.4 M/s ABC Procure - Procurement Technologies Limited
to conduct the e-auction; (v) that the petitioner after making the EMD learnt that neither of the
two properties was in physical possession of the respondents no.l to 3 Bank; (vi) that the
respondents no.l to 3 Bank had however not disclosed the said fact in the Notice dated l3th May,
2ol4 of the e-auction; (vii) upon learning the said fact, the petitioner was uncertain regarding
participation in the e-auction; (viii) that the petitioner tried to create an ID and password for
participating in the e-auction but failed therein and thus could not participate in the e-auction;
(ix) though the petitioner demanded refund of the EMD made by him but the respondents no.l to
3 Bank took a stand that the same had been forfeited in terms of the order of the Supreme Court
in the case of National Highway Authority of India v. Ganga Enterprises, 1

ISSUES

The petition seeks a mandamus to the respondents no.l to 3 State Bank of Patiala (Bank) to
return the Earnest Money Deposit (EMD) made by the petitioner in the sum of Rs.8,l0,000/-
along with interest at the rate of Rs.l8% per annum from the date of deposit till realisation.

REASONING

I think judicial recourse is not suitable for the compensation requested. On March 10, 2011, the
Chamber of the Court in WP (C) No 8418/2010 entitled Madhucon Projects Ltd. v. The National
Highway Administration of India has ordered the refund of 5% of the bid bond, of which 5% has
been lost. However, the Supreme Court issued SLP (C) No. 15689/2011 on March 18, 2015,
entitled “National Highway Administration of India v. MEIL-EDB LLC (JV) handled the matter
as follows:-"We are faced with a situation where there is a contract between the two parties,
which is formally signed by the respondent, and the contract restricts the forfeiture of 5% of the
value of the offer guarantee. Obviously it was not passed Sanctions. Of course, as expected, the
respondent did not agree. On the contrary, he insisted that deductions/confiscations are
inherently terrorist and punitive. Implemented by institutions vulnerable to jurisdiction, such as
NHAI, is undoubtedly punitive, but you Detailed calculations must be avoided. That dispute

1
(2003) 7 SCC 410

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should be left to the civil court’s decision, that is, if deduction/confiscation, in this case, whether
the value of the 5% offer guarantee is punitive.

We believe that the recommended approach is to blame the parties on the civil court. To
determine whether Aut has suffered damage to the National Highway Administration of India,
and if so, is the 5% deduction a fair prior estimate or punitive As the plaintiff seeks to
extend/extend the time for filing a claim, both parties act in good faith in the legal process, so the
court will consider all circumstances before approving the order.

JUDGEMENT

“I am also of the opinion that the present controversy shall entail disputed questions of fact and
which can be at best adjudicated in a suit and cannot be addressed in a writ petition under Article
226 of the Constitution of India. The petition is thus dismissed as not maintainable with liberty
however to the petitioner to take appropriate remedies. No costs. Petition dismissed.”

2)Gm, Sri Siddeshwara Co-Op.Bank Ltd v. Sri Ikbal

FACTS

“The facts are these: on o8.o2.l996, the respondent no.l, Ikbal (hereinafter referred to as
borrower), took a housing loan of Rs. 5,00,000/- from Sri Siddeshwara Co-operative Bank Ltd.
(for short, the Bank). He mortgaged his immovable property being RS No.872, Plot No.29,
Mahalbagayat situate at Bijapur. The borrower committed default in repayment of the said
housing loan. Despite several reminders when the borrower failed to make payment of the loan
amount, the Bank issued a notice on l6.02.2005 calling upon him to repay the outstanding loan
amount of Rs.10,43,000/- with interest and costs failing which it was stated in the notice that the
mortgaged property will be sold according to law. The borrower failed to make payment of the
outstanding loan amount as demanded in the notice dated l6.02.2005. The Bank then issued a
notice to him on 3o.o6.2oo5 under Section l3(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2oo2 (for short, SARFAESI Act). In
that notice borrower was informed that if he failed to discharge the outstanding dues within 6o
days, the Bank may exercise action under Section l3(4) of the SARFAESI Act and the

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mortgaged property shall be sold.5. On o9.l2.2005, the Bank got the mortgaged property valued
which was fixed at Rs.9,00,000/-.6. On l8.l2.2005, the Bank published the auction notice in the
local newspapers. The conditions of the public notice were also mentioned in the auction notice.
Bashir Ahmed (appellant in two appeals and respondent no.3 in the appeals of the Bank), who
we shall refer to hereafter as auction purchaser made the payment of Rs.9o,ooo/- towards earnest
money deposit on l8.l2.2005 itself. The public auction was conducted on ll.ol.2oo6. The auction
purchaser gave the bid of Rs.8,50,000/- which was accepted being the highest bid. The auction
purchaser made payment of Rs.l,45,000/- towards 25% of the sale consideration. However, he
did not make the payment of remaining 75% within l5 days of the confirmation of sale in his
favour. He made the payment towards balance sale price in installments on various dates and the
final payment was made on 13.11.2006. On 16.11.2006, the Bank issued the sale certificate in
favour of the auction purchaser.8. The proceeds from the sale of the mortgaged property fell
short of the total outstanding amount against the borrower. As on 09.02.2007, Rs.2,27,000/-
remained outstanding against him. The Bank moved the Joint Registrar of Co-operative
Societies for recovery of the outstanding amount. In those proceedings, on 26.02.2007 an ex
parte award for a sum of Rs.2,37,038/- including the interest and miscellaneous expenses was
passed against the borrower. The Bank levied execution of the ex parte award somewhere in
2011. It was then that the borrower challenged the sale certificate issued in favour of the auction
purchaser and the notice dated 09.02.2007 in two writ petitions before the Karnataka High
Court, Circuit Bench at Gulbarga”

ISSUE

Whether quashing the sale certificate dated l6.ll.2006 issued in favour of the auction purchaser
justified according to procedure of Enforcement of Security Interest?

REASONING

Indeed, before the High Court, the borrower rejected the November 13, 2006 letter and argued
that the previous document was prepared on a signed blank sheet, but neither the academic judge
nor the court accepted it. Said version of the borrower. Instead, their basis is that the letter dated

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November 13, 2006 was written by the borrower to the World Bank. We have no reason not to
accept the authenticity and credibility of the letter dated November 13, 2006. In view of the
content of our discussion above, the wise sole judge has no reason to cancel the sales certificate
issued on November 16, 2006 to support the auction buyer. The notice date is September 2007.
On the 2nd. The district courts also wrongly upheld the wrong orders of the knowledgeable sole
judge.

JUDGEMENT

“The auction-purchaser over and above the sale price of Rs.8,50,000/-, has discharged the entire
liability of the borrower towards the bank by making further payment of more than Rs.2,37,000.
We are, thus, satisfied that impugned orders cannot be sustained. Appeals are, accordingly,
allowed. The impugned orders are set aside. The writ petitions filed by the borrower before the
High Court are dismissed with no order as to costs.”

CONCLUSION

The financial sector has always been one of the main drivers of India’s rapid economic
development. Because our existing legal framework related to business transactions
has not kept up with changing business practices and the pace of financial sector
reforms. This has led to a slow recovery of non-performing loans, and the level of non-
performing assets of banks and financial institutions has continued to rise. The
Narasimham Committees I and II and the Andhyarujina Committee are composed of the
central government. The purpose is to review the reform of the banking industry and
consider the need for legal system reforms in these areas. Among other committees,
these committees recommend new securitization legislation and authorize banks and
financial institutions to obtain securities and sell securities without any court
intervention. Improve the health of banks and financial institutions by allowing banks to
reduce their non-performing assets to significantly lower levels. Due to the availability of
dual remedies, namely remedies under the Securitization Law and the DRT Law, banks
and financial institutions have been able to substantively resolve the NPA.

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