Allahabad Bank e-Learning Project

IRT, Panchkula

SARFAESI ACT 2002

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 Banks 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 banks 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 th 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 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

Allahabad Bank e-Learning Project

IRT, Panchkula

VARIOUS STEPS UNDER SARFAESI ACT, 2002 All the action under SARFAESI Act, 2002 is to be taken by Authorised Officer only i.e. officer not below the rank of scale-IV officer. The steps that are to be followed for implementing the SARFAESI Act, 2002 are as under :-

A. Immovable Property
a. 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. b. 60 days Demand Notice 1. Issue 60 days Demand Notice under Section 13(2) of the Act. In case SARFAESI Act is invoked but no action has been initiated for long time, a fresh notice of demand should be issued and ensure not to repeat the same fate of notice in future. 2. The demand notice shall contain details of the amount payable by the borrower as on .. (which should be as near as possible to the date of notice) and should clearly mention that the interest @... ..% per ... .with rest is payable onward till repayment of entire dues. 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. The demand notice should also contain the date of NPA. c. Replying Objections Received, if any In case any objections are received from the borrower or guarantor to the demand notice issued, the same should be replied within a week of receipt of such objections by giving cogent reasons by Authorised Officer. Non- responding to the said objection will amount to acceptance of objection/representation & waivement of our rights to proceed further. Once bank has abandoned action as envisaged under section 13(4) of the Act, it cannot revive action and proceed on the basis of notice. d. Taking Possession of the Property after informing borrower/guarantor in writing After expiry of the 60 days Notice period, possession of the property is to be taken under Sec. 13(4). Before going for taking possession of the property, 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. Such possession may be symbolic or actual. For taking physical possession of the property, the assistance of Chief Metropolitan Magistrate/District Magistrate may also be taken, if the circumstances so warrants. e. Issuing possession notice to borrower/guarantor f. Publishing in two leading news papers After taking possession, 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

Allahabad Bank e-Learning Project

IRT, Panchkula borrower/guarantor and also will be affixed on the outer door or at a conspicuous place of the property. The possession notice shall also be published within seven days from the date of taking possession, in two leading newspapers, one in vernacular language having sufficient circulation in that locality. g. 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 Banks board) and fix the reserve price of the property. While fixing reserve price the Authorised Officer is required to secure best price, there must be application of mind while considering valuers report & fixing reserve price. The reserve price is to be communicated to the borrower/owner also. h. 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. This provision is mandatory. i. 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. (ii) Inviting tender from public. (iii) by holding public auction (iv) by private treaty. For (ii) & (iii), a public notice of 30 days is to be given in two leading newspapers, one in vernacular language having sufficient circulation in that locality. The terms of sale should be specified in the Sale Notice. 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 order to fulfill the requirement of 30 days notice to the borrower/guarantor and public both, 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 30 days notice of sale should be published in two leading Newspapers (of which one should be in a vernacular language). j. Confirmation of Sale 1. The sale shall be confirmed in favour of the purchaser, 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.e. Bank. No sale shall be confirmed if the amount offered by the sale price is less than the reserve price. 2. On every sale of immovable property, the purchaser shall immediately pay 25% of the amount of sale price to the Authorised Officer and in default of such deposit, the property shall forthwith be sold again. 3. 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

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IRT, Panchkula agreed upon in writing. In default of payment of the balance amount. 4. If by sale of one property only, entire recovery could be made then, it is not necessary that all properties (securities) should be sold or possession be taken under section 13(4) of the Act.

B. Movable Property
a. 60 days Demand Notice After expiry of the 60 days Notice period, possession of the property can be taken. Such possession can be physical only and is to be taken in the presence of two witnesses who will sign the Panchnama. b. 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. c. Valuation of Movable Assets Valuation of movable secured Assets to be made by Valuer approved by the Board of Directors of the Bank.

d. 30 days notice to borrower for sale of movable property 30days notice is to be given to the borrower for sale of the property. However , if such property is subject to speedy or natural decay, or the expense of keeping such property in custody is likely to exceed its fetchable value, the Authorized Officer may sell it at once.

e. Publishing Notice for tender/Auction in 2 news papers f. 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; or (ii) inviting tenders from the public; or (iii) holding public auction; or (iv)by private treaty. For (ii) & (iii), publication in two leading News Papers, one in Vernacular language having sufficient Circulation in that locality is mandatory. The terms of sale should be specified in the sale notice. Where movable secured assets are sold, 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. g. Issuance of Sale Certificate On payment of sale price, the authorized officer shall issue a Sale Certificate.

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

Allahabad Bank e-Learning Project

IRT, Panchkula Recovery of Balance Amount after taking action under SARFAESI Act If after taking action, the sale proceeds of the charged assets are insufficient to cover the total dues, for recovery of the balance due, 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). 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. 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, 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 asset. Section 13(8) of the Act provides for right of redemption to the borrower. The borrower has the right to pay and take back his property before the date fixed for sale or transfer. However, this right of redemption is available to the borrower only upon tendering of the dues of the bank along with costs, charges and expenses incurred by the bank. Upon such payment, no further steps shall be taken by the bank to transfer or sell the asset. Simultaneous Action by the bank Simultaneous action under SARFAESI Act and DRT/Civil Court may be taken, but the action under SARFAESI Act should be taken only after appropriate orders from DRT/ Civil Court , if : i. A Receiver is appointed by the Civil Court/ DRT or ii. An interim order like injunction/attachment is passed by DRT/Civil Court or iii.Recovery Certificate has been issued by DRT (in case of matter in DRT only) Right to Appeal (Sec.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. 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. Under SARFAESI Act 2002, extraordinary powers have been conferred upon the bank, which should be exercised judiciously, and with utmost care, caution and in transparent manner. All the provision of SARFAESI Act and rules thereunder are to be followed meticulously. Moreover according to section 29 of the SARFAESI Act- If any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or any rules made there under, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both.
This is culled from various sources by IRT Panchkula and STC Kolkata Users must refer to latest circulars for finality