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4. Pre-conditions. The pre-conditions for the exercise of Special Rights are as follows:
(a) The borrower must have created a mortgage / security interest in respect of some or all of
their assets in favour of the lender. A security interest has been defined in broad, generic
terms to mean any right, title or interest of any kind, in property, created in favour of the
Secured Creditor, including any mortgage, charge, hypothecation or assignment. Property is
itself defined in broad terms to mean immoveable and moveable property, debt or a right to
receive payment, secured or unsecured, existing and future receivables and intangible assets
including know-how, patents, copyrights, trademarks, licenses, franchise, and other similar
business or commercial rights.
Bangalore Office: # 301 & 302 Rams Infantry Manor, No. 70, Infantry Road, Bangalore 560 001
Ph: + 91 80 25325821 / 22
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Take possession of the secured assets, including the right to lease/ sell it, to realise the
amount. To this end, the assistance of the local Chief Metropolitan Magistrate/ District
Magistrate may be sought. Possession of moveables can be taken by drawing up a panchnama
in the prescribed format, presence of two witnesses. Moveables such as shares in a company
or a debt not secured by a negotiable instrument may be attached by issuing notice to the
person/company/authority holding the asset, not to pay any money to the borrower or to
transfer the asset in favour of any person apart from the secured creditor. Possession of
immoveable assets may be taken by drawing affixing a Possession Notice on the property and
having it published in two local newspapers. The assets may then be valued and sold in
accordance with the prescribed procedure
ii.
If a substantial part of the business of the Borrower is offered as security, take over
management of the business, including the right to lease/sell it, by publishing a notice to this
effect in newspapers. If a part of the business is offered as security and this is severable, this
part may be taken.
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iii.
iv.
Direct any person who has acquired the assets of the Borrower and from whom money is/will
become due, to pay those monies to the Company.
v.
Where the secured assets are insufficient to cover the dues, the Company can apply to the
Debt Recovery Tribunal (DRT) for recovery of the balance amount.
The costs of these recovery measures must be borne by the borrower and funds realised
from the enforcement of the interests under the Act may be applied first to costs and then
towards the recovery dues. In addition to proceeding against the assets of the borrower, the
guarantor may also proceed against the assets of the guarantors.
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mortgage. Therefore, the following items of property, amongst others, are exempt
from action under the Act unless they are specifically charged with the debt:
a. Necessary wearing-apparel, cooking vessels, beds and bedding of the
borrower, his wife and children, and personal ornaments that cannot be parted
with by a woman for religious regions.
b. An artisans tools and an agriculturists implements of husbandry and such
cattle and seed-grain as are necessary to enable him to earn his livelihood.
c. Houses and buildings, along with the sites and lands belonging to an
agriculturist and occupied by him.
d. A right to sue for damages or a right of personal service.
e. Stipends to pensioners, wages of labourers and servants, the first thousand
rupees and 2/3rd of the remainder of a persons salary.
f. Compulsory deposits and sums in/derived from a Provident Fund/PPF.
g. Money payable under a policy of insurance of the life of the borrower.
h. A lessees interest in a residential premises governed by Rent Control
Legislation.
8. Avenues for the Borrower. The borrower or any other person aggrieved by measures taken by
a Secured Creditor can make an application before the Debt Recovery Tribunal, by paying a
prescribed fee. In these cases, the Debt Recovery Tribunal will consider when the Secured
Creditor has acted in accordance with the Act and applicable Rules. The Debt Recovery
Tribunal may declare that the measures taken by the Notified Entity are in accordance with
law, in which event the Notified Entity may proceed to realise the secured assets. If the Debt
Recovery Tribunal finds that measures taken by the Notified Entity are not in accordance
with the Act/Rules, it will order restoration of the asset to the borrower and may also award
compensation. The law requires that applications made to the Debt Recovery Tribunal must
be decided if possible within 60 days, and at most, within a period of 4 months. If this is not
done, either party may approach the DRAT seeking directions for early disposal. There is no
provision making the mere filing of the application by the borrower operate as an automatic
stay on further proceedings by the Secured Creditor. Therefore, unless the DRT grants a stay,
the Secured Creditor can proceed with the measures undertaken for recovery.
From an order of the Debt Recovery Tribunal as set out above, an appeal may be preferred to
the Debt Recovery Appellate Tribunal (DRAT) by paying the prescribed fee. If the borrower
seeks to file the appeal, he must deposit 50% of the amount claimed by the creditors or 50%
of the amount due as determined by the DRT, whichever is less, with the Appellate Tribunal.
However, for reasons to be recorded, this deposit amount could be reduced by the Appellate
Tribunal to not less than 25%.
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