SARFESIA

SARFAESI ACT

A BIRD EYE VIEW&

PRACTICAL HINTS

By

NARENDER SINGH

SCOPE OF APPILCATION

• APPLIES TO ALL NPA LOANS & ADV UNDER HYPOTHECATION, ASSIGNMENT OR MORTGAGE EXCEPTING

• SANCTIONED LOANS NOT EXCEEDING 1 LAC• SECURITY INTEREST IN AGRICULTURAL LAND• AMT DUE IS < 20 % OF PRINCIPAL & INTEREST• LIEN & PLEDGE OF MOVABLE GOOD• INTEREST IN AIRCRAFT OR VESSEL• CONDITIONAL SALE, HIRE PURCHASE & LEASE

FREQUENTLY ASKED QUESTIONS

1. IS ACT ALTERNATIVE TOOL OR REMEDY ?

2. AGAINST WHOME IT CAN BE INVOKED ?

3. CAN NOTICES UNDER ACT BE STAYED ?

4. POSITION OF AUTHORISED OFFICER IN THE ACT

1. NO . IT IS ADDITIONAL TOOL

2. AGAINST SECURED ASSETS ONLY

3. NO CIVIL COURT HAS JURISDICTION SEC 34

4. QUASI JUDICIAL, TOTAL IMMUNITY PROVIDED ACTS IN GOOD FAITH & FOLLOW PROCEDURE PROVIDED IN THE ACT

IMPORTANT SECTION- 13(1) Empowers enforcement without court intervention on expiry of 60 days(2) Empowers demanding full amount within 60 days from date of notice

failing which creditor shall exercise rights available in 13(4) of Act.(3) Requires that notice should provide details of amt payable by borrower

& secured assets intended to be enforced. Service of notice is a must. Any objection raised be analyzed and replied within 7 days of receipt.

(4) Confers powers to take (a) possession & sell (b) takeover management (c) appoint manager (d) demand money due to borrower by any person who has acquired any of secured assets.

(5) Provides that payment made by any person in accordance with 4(d) shall give him a valid discharge.

(6) Transfer of assets by secured creditor shall vest in the transferee all rights in relation to secured asset as if transfer has bn made by owner.

(7) Expenses properly incurred for action is recoverable from borrower.

SECTION – 13 contd.(8) Provides if entire dues including expenses & charges are

tendered any time before date fixed for sale or transfer, no further step shall be taken for transfer or sale.

(9) In consortium loans before action under 13(4) consent of creditors representing 75% in value is must.

(10) In case of shortfall on sale proceeds, an application has to be filed with civil court/DRT for recovery of balance dues.

(11) Bank shall be entitled to proceed against guarantor or sell pledged assets without first taking any of the measures mentioned in clauses (a) to (d) of sub-section(4)

(12) Rights may be exercised by one or more officers authorized in this behalf. Confer powers to nominate Autho. Officers.

(13) Restrains the borrower from Sale/Lease/Transfer after receipt of notice without written consent of Bank. Violation will attract punishable action under section 29.

SECTION -14 Casts a duty on CMM/DM to assist Bank in taking possession

(1) Banks may for the purpose of taking possession or control of any secured asset, request in writing to CMM/DM and the CMM/DM shall, on such request being made (a) take possession of such assets and documents relating thereto; and (b) forward such assets and documents to Bank.

(2) For the purpose of securing compliance with the provision of (1) above CMM/DM may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.

(3) No act of CMM/DM done in pursuance of this section shall be called in question in any Court or before any authority.

OTHER SECTIONS

15 Methods of taking over management.16 No compensation to directors for loss of office.17 Any person ( including borrower) aggrieved by the action under

13(4)[only] may appeal to DRT within 45 days from the date on which such measure has been taken.

18 Appeal appellate tribunal against DRT order.19 Borrowers right to receive compensation in certain cases-if

action being not in accordance of Act. AO has to act fairly with reasonableness at every stage, as possessing more drastic powers calls for exercise of higher degree of good faith and fairplay.

20 Central Registry formation. 21 to 28 sections pertains to it.

SECTIONS29 If any person contravenes/abets or attempts to contravene provision of

this act, or any rules made thereunder, he shall be punishable with imprisonment for a term which may extend to one year, or fine or both.

30 No Court inferior to that of a Metropolitan Magistrate of the First class shall try any offence punishable under this Act.

32 No suit, prosecution or other legal proceedings shall lie against Bank or any of its officers exercising any of the rights of the secured creditor or borrower for anything done or omitted to be done in good faith under the Act.

33 Offences by companies. Director, manager, secretary will be personally responsible.

34 No Civil Court shall have jurisdiction to entertain any suit or proceeding to determine and no injection shall be granted by any court or other authority in respect of action taken or to be taken in pursuance of any power conferred by or under this Act.

SECTIONS

35 Bank can take action under 13(4) within limitation period .

36 Provisions of this Act to override other laws- TPA

37 This Act is in addition to and not in derogation of the Companies Act, Securities contract Act, SEBI Act, DRT Act or any other law for time being in force.

SECURITY INTEREST (ENFORCEMENT)RULES 2002

3 Service of demand notice shall be made by delivering or transmitting by registered post with acknowledgment due or by Speed Post or by courier or by any other means of transmission or documents like fax message or electronic mail service. Where borrower avoids, service shall be effected by affixing a copy of demand notice on the outer door or some other conspicuous part of the house or building in which the borrower ordinarily resides or carries on business or personally works for gain and also by publishing the contents of demand notice in two leading news papers, one in vernacular language, having sufficient circulation in the locality.

S I RULES

3A If borrower raises objection to notice, AO should examine same& if feels objections are tenable, he should modify the notice accordingly If on examination AO comes to conclusion that representation or objections are not acceptable or tenable, he shall communicate within one week of receipt of such representation, the reasons for non-acceptance of the representation or objection, to the borrower. However such reply does not confer right to borrower to go to DRT.

ENFORCEMTN RULE 4When amt demanded is not paid within 60 days AO shall proceed to

realize any one or more measures under 13(4) & take possession

MOVABLE ASSETS

1 Take possession in presence of two witnesses after a Panchnama drawn & signed by the witnesses.

2 AO shall make inventory & deliver one copy to borrower.

3 AO shall ensure care of assets as an owner of ordinary prudence, insurance etc.

4 Debts , shares & others5 AO shall obtain valuation

IMMOVABLE ASSETS1 Take possession by delivering

p notice to borrower & affixing it on outer door or conspicuous place of property.

2 P Notice shall be published in two news paper within 7 days.

3 Physical possessed properties requires care, protection & insurance till it is disposed.

4 AO shall obtain valuation, get reserve price fixed.

Sale of assetsAO may sell assets by giving 30 days notice for sale through

(a) Obtaining quotations from parties; or(b) Inviting tenders from public; or(c) Holding public auction ; or(d) By private treaty If sale is through (b) or (c) Public notice in two leading

news papers, setting out terms of sale, is a must. If sale is through (a) or (d) shall be on such terms as may

be settled between parties in writing. In case of immovable assets, notice of sale shall be

affixed on a conspicuous part of the property. AO may put on the web site of the Bank on Internet.

TERMS OF SALES – MOVABLE

(a) Details about the borrower & Bank(b) Description of movable assets to be sold with

identification marks or no. if any.(c) Reserve price & time and manner of payment(d) Time & place of public auction(e) Earnest money stipulations(f) Any other thing which AO deems material for a

purchaser to know & judge the nature & value of movable secured assets.

TERMS OF SALE- IMMOVABLE

(a) The description of property, including encumbrances known to the Bank

(b) Secured debt for recovery of which property is to be sold.

(c) Reserve price, below which property may not sold(d) Time & place of auction or the time after which sale by

any other mode shall be completed(e) Earnest money stipulations(f) Any other thing which the authorized officer considers it

material for purchaser to know in order to judge the nature & value of property.

SECURITY INTEREST (ENFORCEMENT) RULE 9 (VERY IMPORTANT) SUB RULE

1 No sale of IMMOVABLE property take place before expiry of 30 days from notice publication or notice of sales is served.

2 Sale shall be confirmed in favor of person who has offered highest price & shall be subject to confirmation by Bank. If AO fails to obtain price higher than RP, he may, with the consent of borrower and Bank effect the sale at such price.

3 Purchaser shall immediately pay 25% of the amount of sale to AO 4 Balance amount shall be paid on or before the fifteenth day of

confirmation of sale or such extended period as may be agreed upon in writing between the parties.

5 Default of payment within above mention period will render the deposit forfeited & property shall be resold.

6 On confirmation of sale by Bank and compliance of terms of payment AO shall issue a Certificate of Sale.

Practical hints for Branch Managers

• Immediately on becoming any account NPA should recall the advance, with consent of RO, may be through legal notice.

• Ensure that documents are not time barred & Borrower is alive. • Identify the secured property. • Prepare notice of 13(2) with correct details loans, uptodate demand &

property.• Correct Present address of the borrowers.• Get the notice signed by Authorised Officer of the Bank.• Ensure service of notice as per ACT & keep record of service.• In case of objection by borrower supply all the relevant details to

enable AO judge the tenability of representation/objection• Pursue the borrower finally to pay or bear the cost of this action.

Practical hints- BMs-contd• If borrower, instead of closer, wishes to regularize the account, take a

TUMSUK deed & with the consent of AO withheld the action.• Otherwise help AO for action under 13(4) after expiry of 60 days time.• Prepare & ensure service of intimation-notice of taking action under

13(4) which interalia informs& advise the borrower to handover the possession on the specified date and time.

• Keep AO updated & prepare notice of 13(4) .• Liaise with local police to maintain law & order on the date of possession.• Keep arrangements for photographer, painter, locks, white cloth, sealing

gum & branch brass seal. Press reporter, if possible. Ensure taking poss.• Ensure timely publication in two leading newspapers widely circulated.• Arrange for the security of property / movables & other related things.• Get the valuation done through approved valuer & ensure RP fixation.• In 15 days (advisable) get the things done & arrange for 30 days notice of

sale publication in such a way property is auctioned/sold not before 45 days of action under 13(4)

Practical hints-BMs-contd.

• Put up the sale notice on notice board not only to inform maximum persons but also to pass on a message to other NPA accounts.

• Arrange a wide publicity of the auction near the property through pamphlets, Banners and painting on the walls of the property

• Any other local method to ensure maximum bidders for the same on auction date.

• Ensure the property is clean & well maintained before the scheduled inspection by prospective purchasers so as to fetch good value.

• Arrange for photographer or video shooting, police help, some press reporter for auction date & help smooth auction process.

• Keep AO updated about the payment made by the purchaser as per the schedule.

• Ensure confirmation of sale, timely receiving total payment & issuance of Sale Certificate.

AUTHORISE OFFICERPOWERS & RESPONSIBILITY

• AO must ensure the property proposed for possession is listed in the notice of 13(2)

• Demand notice has been properly served• 60 days period is over• Must accompanied by two independent witness,

photographer and police, in case of need.• Designation should be used as AUTHORISED

OFFICER• After possession valuation must be done by

approved valuer only.

AUTHORISED OFFICER -CONTD

• Any objection raised by the borrower has been judged judiciously & has been replied accordingly within 7 days

• Borrower has already been advised to handover possession of property on a specified date & time.

• Possession activity should be completed in day time.• Ensure proper care of the property.• If the borrower is not willing to handover the possession,

AO should take symbolic possession & immediately file an application under section 14 to CMM/DM for physical possession.

• Possession notice is affixed on the outer door or at conspicuous part & photograph is taken.

AO contd

• Notice of having taken the possession is published in two leading newspapers within 7 days.

• In big accounts where the borrower is intending to frustrate the action through some appeal a caveat should be taken before action under 13(4)

• Reserve price should be got fixed• 30 days sale notice should be served to borrower and published in two

news papers setting terms of sale• Property should be sold to highest bidder and if any chance to increase

the offer should be given to all bidders.• 25% of sale amount should be got deposited immediately after sale

and rest amount in 15 days of confirmation of sale or as per agreed terms reduced in writing.

• After receiving full amount sale certificate is issued to bidder himself.

TIME TABLE SARFAESI

• Demand Notice 13(2) -60 days• Borrower objection to be replied –7 days• Possession to be taken on expiry of 60 days• Publication of possession in two leading

news paper within 7 days• Sale notice is given for 30 days• Auction after expiry of above 30 days but

not before expiry of 45 days of possession

TIME TABLE SARFAESI

• Deposit of 25% of sale immediately after auction or tender opening.

• Deposit of Rest 75% within 15 days of sale confirmation or as per agreed written terms.

• Issue of Sale Certificate immediately on receiving full value as per terms

THANK YOU

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