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SARFAESI Act Flipbook PDF
SARFAESI Act
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6/9/2016
Articles : Checklist for action under SARFAESI Act
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Checklist for action under SARFAESI Act by c.p.s. ramachary on 18 September 2014
Authorised Officer who is clothed with statutory power has to exercise higher degree of caution and care in following the prescription law while taking action under the Act. Taking action in any other manner than the prescription is not permissible in law. This cardinal principle is covered by Latin Maxim “expressio unius est exclusio alterius”. This is followed by Supreme Court and High Courts as can be seen from catena of judgments. The Authorised Officer may follow the check list for initiating the action. Sl.N. STAGE WISE ACTION
SUGGESTION/ADVISE
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Sarfaesi Act poroceeds on the Sec.13(2): Where any borrower, who is under a basis that borrower created liability to a secured creditor under a security security interest in favour of bank agreement, makes any default in repayment of and his liability stood crystalised secured debt or any instalment thereof, and his on account of his default and his account in respect of such debt is classified by the account is classified as NPA secured creditor as nonperforming 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 subsection(4)
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Initiation of action begins on The opinion Supreme Courtin Mardia Chemicals service of demand notice Ltd. &Anr. Vs. Union of India &Ors.:AIR 2004 (4) SCC 311)that the demand notice is show cause is clarified by Supreme Court in (Transcore Vs. Union of India &Anr. AIR 2007 SC 712) as initiation of action
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How to calculate the quantum of Please ensure that, the balance outstanding in the claim amount in the demand bank’s book and the undebited portion of interest notice accrued but not reflected in the bank’s book (on account of status of the loan account as NPA) are added and incorporated in the demand notice. The Authorised Officer (for short “A.O.”) need not approach any Court or Tribunal for determination of the quantum of amount of claim.
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Demand notice and its contents: i). Please ensure that the demand notice covers all the details of the facilities granted to the borrower(s), dues and securities and measures to be taken in the event of default as stated in the guide and all the borrowers are addressed correctly as per the records. ii). The Act or the Rules have not prescribed any format of demand notice.
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Whether action under RDDB & Fi Action under RDDB & FI Act 1993 or a suit/claim Act 1993 or a suit/ claim already already filed in civil court/DRT/transferred from civil filed in civil court/drt/transferred court, does not save limitation for taking action from civil court, saves limitation under SARFAESI Act. for initiating action under SARFAESI Act
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Whether action initiated under No. SARFAESI Act 2002 saves limitation for filing claim for recovery of the unrealised portion of debt.
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How many demand notices a There is no bar. Any number of notices can be secured creditor can issue issued provided the security interest sought to be enforced is not barred by limitation.
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Res Judicata
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Service of demand notice: Please 3(1) The service of demand notice shall be made by note changes in the addresses of delivering or transmitting at the place where the
No application. Action under the Act can be taken any number of times if the secured debt or security interest is not barred by limitation.
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the borrowers if any before borrower or his agent, empowered to accept the addressing the demand notice. notice or documents on behalf of the borrower, Change of address of borrower(s) actually and voluntarily resides or carries on must be obtained in writing. Oral business or personally works for gain, by registered information is not reliable as it is post with acknowledgement due, addressed to the construed as not born out of borrower (or his agent empowered to accept the record. Servedemand notice as service) or by Speed Post or by courier or by any contemplated in Rule 3 of other means of transmission of documents like fax Security Interest (enforcement) message or electronic mail service. Rules 2002.
ii). Procedure where borrower Proviso to Rule 3(1):Where authorised officer has avoids service of demand notice reason to believe that the borrower or his agent is or for any reason notice could not avoiding the service of the notice or that for any be served. other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality. Evidence of this exercise is to be reduced to writing (record panchanama). Preserve full page of the relevant Newspapers as the same are required in evidence. iii) Service of notice to wife of If borrower’s marital relationship is not judicially borrower is sufficient service separated or dissolved by order of competent court iv). If borrower is abody corporate Rule 3(2): Where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under subrule (1).
v). The manner of service of any Rule 3(3): Any other notice [i.e. Possession notice notice Rule 3(3) of S.I.(E) Rules under 13(4) of SARFAESI Act or Rule 8(6) of S.I.(E) Rules] in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in Rule 3.
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See Sec.2 (2) of SARFAESI Act. According to Section 2(1)(f) of SARFAESI Act "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance According to Sec.2(2) of the Act the Words and expressions used and not defined in this Act but defined in the Indian Contract Act, 1872 (9 of 1872) or the Transfer of Property Act, 1882 (4 of 1882) or the Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall have the same meanings respectively assigned to them in those Acts. 3
Inspection of secured assets
It is advisable to inspect the secured asset(s) and find out its/their status / situation.
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Computation of 60 days
The date of service of the demand notice or publication of the demand notice after affixing it (as stated in the proviso to Rule 3(1) of S.I.(E) Rules) and the 60th day to be expired are to be excluded for computing the 60 days.
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Representation/Objection: against After service of the notice if the borrower makes the demand notice Sec13 (3A). any representation or objection against the demand notice the A.O. should immediately send it to the Communication of reply is secured creditor who in turn should send a reply or mandatory in both the events. advise the A.O. to communicate reply to the borrower within “fifteen days” (recent amendment substituted for one week) of receipt of such representation or objection by registered post with AD or Courier. Evidence of communication is to be preserved for evidence. Representation: seeking for extension of time for payment or OTS. Objection: Challenging the validity of the demand notice on various grounds.
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Articles : Checklist for action under SARFAESI Act
PROCEDURE FOR TAKING Taking symbolic possession of movable secured POSSESSION OF MOVABLE assets is not permissible in law. Procedure for SECURED ASSETS taking possession of movable secured assets is different from the procedure relating to the immovable secured assets.
i). In case the secured assets are movable, the A.O. has to take possession of them in the presence of two witnesses and draw a panchanama, as nearly as possible as given in AppendixI [ See Rule 4(2) of S.I.(E) Rules] (Evidence to be preserved).
INVENTORY REPORT
ii). After taking possession of the movable secured assets, the A.O. has to record ‘Inventory Report’ as per Appendix–II [See Rule 4(1) of S.I.(E) Rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the A.O. has to mention the name of the person appointed by him in whose custody the secured assets are preserved.
PRESERVATION
To take care to preserve movable secured assets which owner of ordinary prudence would take. In case of factories or stores the secured creditor has to entrust the same for custody of an authorised person or approved repossessors / security persons.
INSURANCE COVER
A.O. has to take insurance cover if necessary until sale is completed. Comprehensive policy with a clause to pay the sum assured to the company which would discharge the insurance company against adverse claim of borrower if any.
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CIRCUMSTANCES IMMEDIATE SALE
FOR There are two circumstances for immediate sale of movable secured assets. 1. If movable secured assets are subject to speedy or natural decay 2. or the expense of keeping such property in custody is likely to exceed its value, the authorised
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officer may sell them at once. (Issue sale notice but need not wait for expiry of 30 days of the sale notice). AO has to record reasons if necessary by drawing a panchanama in this regard.
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PLANT AND MACHINERY Plant and machinery should be treated as part of ATTACHED TO EARTH the immovable secured asset if they are fastened to the earth with cement and concrete as on the date of taking possession. In the possession notice (AppendixIV) the same must be mentioned specifically giving brief description of the particulars of the machinery vide separate annexure attached to it. PLANT AND MACHINERY IF If Plant and machinery are detachable from earth as DETACHED FROM EARTH on the date of taking possession then A.O. has to record ‘Inventory Report’ as per Appendix–II [See Rule 4(1) of S.I.(E) Rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the A.O. has to mention the name of the person appointed by him in whose custody the secured assets are preserved. VALUATION OF SECURED ASSETS
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MOVABLE After taking possession under subrule (1) of rule 4 and in any case before sale, the authorised officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to he sold in realisation of the dues of the secured creditor.
REQUIREMENTS TO MOVE 1. Application making a request to render CMM/DMFOR ASSISTANCE assistance. 2. List with copies of documents. 3. Affidavit disclosing all the particulars.
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PROCEDURE IN CASE OF Take possession of immovable secured asses IMMOVABLE SECURED (whether symbolic or physical), serve possession ASSETS notice (AppendixIV) under Sec.13(4) read with
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Rule 8(1) and(2), obtain acknowledgment of service, affix it to secured asset and publish it in two leading newspapers(one in vernacular) having sufficient circulation in the locality. If borrower refuses to acknowledge service of the possession notice, then the AO may send it by registered post /courier and preserve evidence and the same may be recorded at the foot of the possession notice and obtain signature of two witnesses. 10
VALUATION OF IMMOVABLE Rule 8(5) of S.I.(E) Rules contemplates valuation of SECURED ASSETS immovable secured assets by approved valuer BY APPROVED VALUER before effecting sale.
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APPROVED VALUER:
1.Registered under Sec.34AB of Wealth Tax Act 1957 2.Approved by the Board of the company.
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RESERVE PRICE
Valuation minus 15% or 20% See Swastic Agency Vs. State Bank of India
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SALE NOTICEPERSONAL Rule The Authorised Officer shall serve to the borrower a 8(6) notice of thirty days for sale of the immovable secured assets, under subrule (5)
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SERVICE OF SALE NOTICE
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PUBLICATION NOTICE
OF
Sale notice must be served in the same manner as the demand notice and possession notice are served in the same manner as contemplated in the sub rule(1) of Rule 3 of S.I.(E) Rules 2002. See Rule 3(3) demanding the borrowers to pay the debt as demanded in the demand notice and possession notice together with interest
SALE If the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers
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one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the 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 the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. 16
AFFIXTURE OF SALE NOTICE
Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the website of the secured creditor on the Internet.
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SALE BY OTHER METHODS
Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
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SALE CANNOT BE EFFECTED No sale of immovable property under these rules BEFORE EXPIRY OF THIRTY shall take place before the expiry of thirty days from DAYS the date on which the public notice of sale is published in newspapers as referred to in the proviso to subrule (6) or notice of sale has been served to the borrower.
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IDENTIFICATION
OF A bidder who has offered highest prize shall be
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SUCCESSFUL BIDDER
identified as successful bidder and he has to deposit 25% of the bid amount immediately
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CONFIRMATION OF SALE BY The sale shall be confirmed in favour of the SECURED CREDITOR purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor
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SALE BELOW RESERVE PRIZE No sale shall be confirmed, if the amount offered is less than the reserve price
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PAYMENT BY BIDDER IN The balance amount of purchase price payable WHOSE FAVOUR THE BID IS shall be paid by the purchaser to the authorised CONFIRMED officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.
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BIDDER’S NOMINEE
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FORFEITURE AND RESALE OF In default of payment within the period mentioned in SECURED ASSET subrule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.
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CONSENT OF BORROWER
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PARTIPATION OF THE Borrower can participate as tenderer / bidder to BORROWER IN THE PROCESS purchase the secured asset in the process of sale OF SALE AS TENDERER/BIDDER
Bidder cannot appoint nominee for obtaining sale certificate
If the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.
PARTIPATION OF THE Borrower cannot participate as spectator or witness BORROWER IN THE PROCESS in the process of sale OF SALE AS SPECTATOR OR http://googleweblight.com/?lite_url=http%3A%2F%2Fwww.lawyersclubindia.com%2Farticles%2FChecklistforactionunderSARFAESIAct6333.asp&ei=SV… 9/11
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WITNESS 27
SALE CRTIFICATE
On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules. (Note: The sale is caused under the Act in “as it is what it is and where it is basis. Hence the S.I.(E) Rules devised the sale certificate. Sale Certificate does not contain any indemnity clause as in case of sale deed and the rule “sans recourse” is not applicable to the sale i.e. the secured creditor is not answerable for any defects in the title to the secured asset sold). The sale certificate shall be the prima facie evidence of title of the purchaser
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ENCUMBERANCES
The purchaser has to deposit the encumbrances if any in respect of the secured asset sold. Where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him.
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NOTICE TO PERSONS On such deposit of money for discharge of the INTERESTED IN THE AMOUNT encumbrances, the authorised officer shall issue OF (CROWN DEBTS) notices to the persons interested in or entitled to the ENCUMBRANCES money deposited with him and take steps to make, the payment accordingly
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NON PRIORITY DUES
The following are not crown debts: 1.Electricity dues 2.Custom & Excise Duty 3.Income Tax dues prior to creation of mortgage
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PAMENT OF SURPLUS TO THE Provided that if after meeting the cost of removing PURCHASER encumbrances and contingencies there is any
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surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from date of finalisation of the sale.
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