SARFAESI Act,
2002
SARFAESI Act, 2002 empowers banks /
financial institutions to recover their non-performing assets without the intervention
of the Court.
The Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI)
empowers Banks / Financial Institutions to recover their non-performing assets
without the intervention of the Court. The Act provides three alternative
methods for recovery of non-performing assets, namely:
Securitisation. Asset Reconstruction. Enforcement of Security without the
intervention of the Court.
The provisions of this Act are
applicable only for NPA loans with outstanding above Rs. 1.00 lac. NPA loan
accounts where the amount is less than 20% of the principal and interest are
not eligible to be dealt with under this Act.
Non-performing assets should be backed
by securities charged to the Bank by way of hypothecation or mortgage or
assignment. Security Interest by way of Lien, pledge, hire purchase and lease
not liable for attachment under sec.60 of CPC, are not covered under this Act
The
Act empowers the Bank:
To issue demand notice to the
defaulting borrower and guarantor, calling upon them to discharge their dues in
full within 60 days from the date of the notice.
To give notice to any person who has
acquired any of the secured assets from the borrower to surrender the same to
the Bank.
To ask any debtor of the borrower to
pay any sum due or becoming due to the borrower.
Any Security Interest created over
If on receipt of demand notice, the
borrower makes any representation or raises any objection, Authorised Officer
shall consider such representation or objection carefully and if he comes to
the conclusion that such representation or objection is not acceptable or
tenable, he shall communicate the reasons for non acceptance WITHIN ONE WEEK of
receipt of such representation or objection.
A borrower / guarantor aggrieved by
the action of the Bank can file an appeal with DRT and then with DRAT, but not
with any civil court. The borrower / guarantor has to deposit 50% of the dues
before an appeal with DRAT.
If the borrower fails to comply with
the notice, the Bank may take recourse to one or more of the following
measures:
Ø Take
possession of the security.
Ø
Ø Manage the
same or appoint any person to manage the same.
The Security Interest ( Enforcement ) Rules 2002
1)
S.38 Sub-Sec.(1) & clause (b) of sub-sec.(2)
2)
S.13 – S.S.(4),(10) & (12)
Powers conferred by above sections,
following Rules are made
1) AUTHORISED OFFICER :
Not less than
Chief Manager of Public Sector Bank or equivalent.
2)
TO SERVE
DEMAND NOTICE
Demand Notice
to be given by Authorised Officer
It
should be given to :-
Ø Borrower or
Ø His agent (who
is empowered to accept the notice or document)
Notice to be delivered at a
place where borrower/Agent is
Ø Residing or
Ø Carrying on
business or
Ø Personally
works for gain
It should be sent by
Ø Registered
post with Acknowledgement Due
Ø Speed Post or
Ø By Courier or
Ø By Fax or
e-mail
If the borrower / Agent is
avoiding notice
Ø Affixing a
copy of the Demand Notice on outer door or conspicuous part of house/building
&
Ø Also
publishing the contents in the leading newspapers, one in vernacular language.
Ø IN CASE OF
BODY CORPORATE NOTICE SHALL BE SERVED ON REGISTERED OFFICE
* NOTICE TO BE
GIVEN TO EACH BORROWER.
3)
PROCCEDURE AFTER ISSUE OF NOTICE
If the amount
is not paid within specified period, the Authorized Officer can take following
steps as per S.13 (4)
4) MOVABLE PROPERTY:-
1)
Possession of movable property should
be taken in the presence of TWO witnesses after PANCHNAMA drawn and
signed. (As per Appendix-I)
2)
Make inventory and give copy of
inventory to borrower(Specimen App.-II)
3)
Property taken should be kept in
possession of AUTHORISED OFFICER or any person authorised or appointed.
4)
In case property is of perishable
nature or the expenses of keeping such property are likely to exceed its value,
the Authorised Officer may sell such property.
5)
Authorised Officer to take
preservation of Asset. In case of necessity INSURE the same.
(a)
A debt not secured by Negotiable Instrument OR
(b)
A SHARE in Body Corporate
(c)
Other movable property not in possession of the borrower
The Authorised Officer shall obtain
possession or recover the debt by service of notice as under :-
i)
In case debt, prohibiting the borrower
from recovering, and directing the debtor to make such payment to A.O.
ii)
In case of shares in body corporate,
directing the borrower to transfer the same to secured credit and also
directing body corporate not to transfer such shares to any other person. A copy of the notice so sent may be endorsed
to Registrar.
iii)
In case of other movable property,
calling upon the borrowers and the person to hand over the same to A.O.
iv)
Movable secured assets other than
those covered in this rule shall be taken in possession of A.O.
After taking possession
and before sale A.O. shall obtain estimated price of movable secured asses and
thereafter fix RESERVE PRICE in consultation with Secured Creditor.
Sale of
movable Secured Assets :
a)
A.O. may sell the movable secured assets by
adopting following methods
a)
Obtain quotations or
b)
Invite tenders or
c)
Holding Public Auctions or
d)
By Private Treaty
b)
The A.O. shall serve a NOTICE OF 30 DAYS for sale of
movable secured assets to the borrower.
If the sale is
effected by either INVITING TENDERS from public or BY HOLDING PUBLIC AUCTION, Secured Creditor
should give NOTICE in TWO leading
newspapers, one vernacular language, which may include-
§ Details about
the borrower and the Secured Creditor
§ Description,
identification marks or numbers on them
§ Reserve Price
and time and manner of payment.
§ Time and place
of public auction or the time after which sale by any other mode shall be
completed.
§ Depositing
EARNEST MONEY
§ Any other
thing A.O. considers material.
7)
Issue of
Certificate of
1) Where movable secured assets is sold, sale
price of each lot shall be paid as per
terms of public auction.
2) On payment A.O. shall issue SALE CERTIFICATE
(Specimen App/-III). It is evidence of
title to the purchase
8)
a)
A.O. shall take possession by delivering
possession notice (Specimen Appendix –IV) to the borrower and By affixing the
possession notice on the outer door or at such conspicuous place of property.
b)
The possession shall be published in TWO leading newspapers,
one in vernacular language by A.O.
c)
Such property shall be kept in his custody or in
the custody of any person authorised/appointed and he will take much care of property.
d)
A.O. shall take steps for preservation and
protection of secured assets and INSURE THEM, if necessary.
a)
By obtaining QUOTATION or
c)
By holding PUBLIC AUCTION or
10)
The A.O. to serve a NOTICE OF 30 DAYS to the borrower for SALE OF IMMOVABLE SECURED
ASSETS
a)
The DESCRIPTION of the immovable property to be
sole (including the details of the encumbrances known to the secured creditor
b)
The SECURED DEBT for recovery of which property to
be sole
c)
RESERVE PRICE below which the property may not be
sold
d)
TIME AND PLACE of Public Auction or TIME after
which sale by any other mode shall be completed.
e)
Depositing EARNEST MONEY as may be stipulated by
the Secured Creditor
f)
Any other thing which A.O. considers it material
for a purchaser to know in order to judge the nature and value of the property.
a)
NOTICE OF SALE shall be affixed on a
conspicuous part of immovable property and may put on the WEB-SITE of SECURED
CREDITOR on INTERNET.
11)
Time of
a)
b)
The
c)
NO
d)
If the A.O. fails to obtain price higher than the
reserve price, he may, with the consent of the borrower and the secured
creditor effect the sale at such price.
e)
Purchaser shall immediately pay a deposit of 25%
of amount of sale price and in case of default property shall be sold again.
f)
The balance amount of purchase price shall be paid
by purchaser on or before 15th day of confirmation OR within extended period
agreed in writing.
g)
In case of default the deposit shall be forfeited
and property shall be resold.
h)
On confirmation by Secured Creditor and if the
terms of payment have been complied with, the A.O. shall issue a CERTIFICATE OF
SALE (Specimen Appendix-V)
i)
If the property is subject to any encumbrances the
purchaser should deposit money required to discharge the encumbrances and
interest, if any.
j)
The A.O. to issue notices to the concerned
persons.
k)
The A.O. shall deliver the property to the
purchaser free from encumbrances.
l)
10)The certificate of sale shall specifically
mention that whether the purchaser has purchased the immovable secured asset
free from any encumbrances known to the secured creditor.
a)
The Board of Directors or Board of
Trustee shall appoint Manager in consultation with borrower to manage asset.
b)
He is Agent of the borrower and
borrower shall be solely responsible for commission or omission of the acts of
Manager.
c)
The Manager shall have power to
recover any money which is due to the borrower.
d)
The Manager shall give valid discharge
who has made payment.
e)
The Manager shall apply monies
received in accordance with the provisions
13)
PROCEDURE FOR RECOVERY OF SHORTFALL OF
SECURED DEBT. (R.11)
a)
Application for recovery of balance
amount shall be presented to DRT (Specimen App.-VI) by A.O.
b)
Provisions of DRT will apply
mutatis mutandis.
c)
Application shall be accompanied with
fee as per Rule-7 of DRT Rules 1993.
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