Reg: SARFAESI Act - Master Circular/Handbook

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Part-A: Salient Features of the Act.

Part-B: Procedure to be followed for taking possession and sale of the secured assets (in brief).

DEFINITIONS

Secured debt:  means a debt which is secured by any ‘security interest’.

Security  interest: means,  right,  title  and  interest  of  any  kind,  whatsoever  upon  property existing  or future, created  in favour  of any ‘secured  creditor’  and includes  any mortgage, charge, hypothecation & assignment.

Secured Asset: means property on which security interest is created.

Secured  creditor:  means,  any bank  or financial  institution  or any consortium  or group  of banks or financial institutions and includes – a debenture trustee appointed by any bank or financial  institution  or  a  securitization   company  or  reconstruction   company,  any  other security  trustee  in  whose  favour,  security  interest  is  created  for  due  repayment  of  any financial assistance by any borrower.

Financial Assistance: means any loan or advance granted or any guarantees given or letters of credit established or any other credit facility extended by any bank or financial institution.

Property:  means  immovable  property;  movable  property;  any debt or any right to receive payment of money, whether secured or unsecured;  receivables  whether existing or future; intangible assets such as, patent, copyright, trade mark, license, etc.

Default: means non-payment of any principal debt or interest  thereon  or  any other amount payable by a borrower   to  any   secured   creditor consequent   upon which the account of such   borrower  is classified  as  non-performing  asset  in the   books    of   account  of  the secured creditor in accordance   with   the   directions  or guidelines  issued by the Reserve Bank.

Hypothecation:  means charge  on any movable  property,  existing  or future, created  by   a borrower   in   favour of a secured creditor without delivery of   possession   of the movable property   to such creditor as a security   for   financial   assistance   and   includes,   floating charge  and  crystallization of such charge into fixed charge on  movable  property.

Possession: means taking possession of the immovable property under Sec 13(4) of the Act. If the mortgagor  hands  over vacant  possession  on demand,  physical  possession  can be taken and kept under Bank’s lock and key. If it is a vacant site, physical possession can be taken by erecting a notice board. In other cases, only symbolic possession can be taken by affixing the possession notice on the wall/door of the property. Symbolic possession is not defined  in the Act.  After  taking  symbolic  possession,  Bank  can  approach  CMM/CJM  for taking physical possession.

Paper Publication: means Possession Notice under Sec.13(4) of the SARFAESI Act & Sale Notification   (Auction,   Tender   &  Tender-cum-Auction   Methods)   under   Rule-6   &  8  of SARFAESI  Rules  shall  be  published  in  two  news  dailies  (including  one  in  vernacular newspaper in vernacular language. Eg., Telugu version in Telugu Newspapers) having circulation in the place where the secured assets are situate.

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PART - A

I.          POWERS:  It  empowers  the  Banks  to  enforce  their  rights  over  the  securities  to recover its dues in NPA accounts without the intervention of any Court or Tribunal.

Sec.13(4) of the Act reads as follows:   In  case  the borrower fails to discharge his liability  in  full  within  the  period    specified [60 days], the  secured  creditor    may take  recourse   to one or  more  of  the  following measures to recover his secured debt, namely:-

a)         Take possession of the secured assets of the  borrower/guarantor,   including  the right to transfer by  way  of  lease,  assignment or sale for realizing the secured asset;

b)         take   over the management  of the secured assets of   the borrower   including  the right  to  transfer by way  of  lease,  assignment   or  sale and  realize  the  secured asset;

c)         appoint   any   person (hereinafter  referred   to   as   the   Manager),   to manage the secured  assets  the    possession    of  which  has  been  taken  over  by  the  secured creditor;

d)         require  at any time by notice in writing,  any  person  who  has  acquired any of the secured  assets   from   the   borrower   and from  whom  any money  is due or may become  due  to the borrower, to pay the secured  creditor,  so  much  of the money as is sufficient to pay the  secured  debt.

II.          EXEMPTIONS: Provisions of the Act will not apply in the following cases:

a)         a  lien  on any goods, money or security   given  by  or  under  the  Indian Contract

Act, 1872 or  the  Sale  of  Goods Act, 1930 or any other law;

b)         a pledge of movables;

c)         any   conditional   sale, hire-purchase  or lease   or   any   other   contract in which no security interest has  been created;

d)         any properties not liable to attachment or sale  under  the  first proviso to sub-sec(1)

of Sec.60 of the  Code  of Civil Procedure, 1908;

e)         any security   interest for securing repayment   of  any financial asset not exceeding one lakh rupees;

f)          any security interest created in agricultural land;

g)         Aircrafts and ships;

h)         any case in which the amount due is less than   20%   of   the principal amount and interest thereon.

III.         Jurisdiction  of Civil Court barred: The Act further empowers  that no Civil Court has got jurisdiction to entertain any suit or proceeding in any matter and the Debts Recovery Tribunal or the Debts Recovery Appellate Tribunal alone are empowered. In otherwords,  no Civil Court can grant an injunction  or stay restraining  the Banks from possessing  the secured properties.  The High Courts also are not vested with powers  to interfere  in the normal  course,  but they may entertain  Writ Petitions  in deserving cases.

IV.         Limitation: All the powers conferred on the secured creditors (viz.,) Banks could be exercised  only  during  the  period  of  limitation  that  will  be  available  in the  normal course  and  no  action  will  lie  under  the  Act  if  the  account  becomes  time  barred already.

In  other  words,  after  expiry  of  the  limitation  period,  Banks  cannot  invoke  the provisions  of the Act and all actions  for recovery  should  be completed  within  the limitation period.

V.          Cases  referred  to  B.I.F.R.:  In  case,  a  sick  industry  has  preferred  a  reference u/s.15(1)   of  the SICA before BIFR, if the creditors who has  got share of 75%   or more of   the total dues decide not to support any rehabilitation  and wants   to take action under this Act, in such cases, the reference   made  by  the  company under Sec.15(1) of the  SICA  will  become  abate.

VI.         Consortium/Multiple  Banking Arrangement  advances:  In  the case of financing of a financial asset by more   than   one   secured   creditor or joint financing by  secured creditors,  action  under  the  provisions    of   the    Act   can          be initiated  only  if it is agreed upon by the secured creditors  representing  not  less  than 3/4th   in value of the amount  outstanding  as  on  record  date and such action shall be binding on all the  secured  creditors.

VII.        Companies  under liquidation:  In   case of companies  where a Liquidator  has been appointed   in  the   winding up proceedings,  the Official   Liquidator   should   submit the details of the amount due and payable  to the   workers  and   if   he is not in a position to   arrive at  the quantum,  estimated  dues are to be deducted from and out of   the   proceeds   and   upon receipt of the request from the Official Liquidator   in writing,   out   of the sale proceeds of the  secured   assets,   the   workmen dues as stated  above  should  be  paid  first  and  thereafter,    after  deducting  the  expenses incurred for the sale of the secured  assets,  the balance amount only to be taken to the loan  account  of the borrower.

The  Act further empowers that in the case of  company  or  industry,  after service of due  notice  to   the   company,    the Banks   and Financial  Institutions  can appoint person/s to be  the  director/s in the Board of the company and the existing directors of    the  company  or  for  that  matter  the  Management    cannot    object    to  such appointment  of directors  in the Board  of the company  by   the   secured  creditor. Likewise, the shareholders cannot nominate any  other person to be the director and any resolution  passed  by   the   General   Body   for appointing  or nominating  any director  in  any  meeting  of the shareholders shall not give any effect unless  it  is approved by the secured creditor (viz.,) Banks and  Financial  Institutions.

Another  important  provision  is  that  the  Courts  cannot  grant  winding  up  of  the company except with the specific consent of the secured creditor.

In  the case  of  Company under  liquidation,  any  amount  realized from the sale of secured assets  shall  be distributed  in  accordance with the provisions of

Sec.529A of the Companies  Act,  1956.

VIII.      Action against guarantor: Banks can proceed against the guarantor in the same way as  against  the  principal  borrower.     Banks  are  entitled  to  proceed  against  the guarantor  or sell the secured assets without first taking any measures specified in Clause- (a) to (d) of Sec.13 (4).

IX.         Take over of the management by the Banks: When the Management of business of a borrower  is  taken    over    by    a  secured  creditor,  the  secured  creditor  may  by publishing    a   notice   in   a   newspaper    published   in   English  daily and   in   a newspaper   published in an Indian language in circulation in  the  place  where  the principal office of the borrower  is  situated,  appoint as many persons as it thinks fit.

a)        to  be   the  directors  of  the  borrower,  if   the   borrower    happens  to  be  a company.

b)        in any other case to be Administrator of the  business of the borrower.

X.        Appointment of Manager: For carrying out such powers conferred on the Banks and Financial  Institutions,  the Banks  and Financial  Institutions  are at liberty to appoint Managers for the purpose of possessing the secured assets, sale of the same, etc.

XI.        Chief   Metropolitan  Magistrate/Chief   Judicial   Magistrate or  District   Magistrate   to assist upon request: After   the expiry of the clear notice period of sixty   days,   the Authorized Officer of the bank can take   possession   of   the secured assets. If the bank   finds   it  difficult   to     take     possession   of  the  secured   assets,   in  such circumstances,   through   our   Advocate,    an application   can   be filed before   the Chief  Metropolitan   Magistrate, Chief  Judicial    Magistrate or  District  Magistrate [ Dist. Collector]  within  whose  jurisdiction,  the  secured assets or  other  documents relating  thereto  may be situate or found.

Upon  receipt of such request from   the    secured    creditor    (viz.,)     Banks    and Financial     Institutions,  the Chief Metropolitan  Magistrate  or the District Magistrate shall  take  possession   of  the secured asset and other documents relating  thereto and forward such assets and documents to  the  secured    creditor and    such  act of  the  said   Chief  Metropolitan  Magistrate   or  the  District  Magistrate  cannot be questioned  in Court.

Reference  to the said Judicial  Authority  can   be   made   if the branch is not in a position   to   take   physical possession   of the secured assets by itself and   in the application to be filed before   the  Judicial   Authority,   reasons for their intervention should be furnished.

XII.       Cost/expenses  recoverable:  All  the  expenses  to  be  incurred  by  the  Banks  and Financial Institutions while possessing the secured properties, such expenses can be deducted from and out of the sale proceeds.

XIII.      Action  for recovery of the residual amount after sale of the secured asset:  If the sale proceeds are not sufficient to cover the dues after selling or disposing of   the

property and if any shortfall  arises, then the Banks and Financial Institutions  shall have the right  to  proceed against such borrower and guarantor   and  such  action can  be initiated by filing a suit either  in  the  Civil  Court  or  in  the Debts Recovery Tribunals  depending  upon  the  quantum of the outstanding in the said account.

XIV.   Right to appeal by any person (including borrower): If any  person (viz.,) the  borrower or  the guarantor  from  whom   the   secured assets are possessed by the Banks and Financial   Institutions,   if aggrieved by the measures taken by the  secured   creditor, such  borrower  or the  guarantor  may prefer  an appeal    to   the   Debts    Recovery Tribunal or the  Debts  Recovery  Appellate  Tribunal within 45 days from the date of such possession   of   the   secured   assets  provided,  the affected  borrower  or   the guarantor   should deposit a sum equivalent to 75% of the dues with the  said  Debts Recovery Tribunal and prefer an appeal to Debts Recovery Appellate Tribunal within

30 days from the date of receipt of the order from the Debts Recovery Tribunal.

However, it is to be noted that the Debts Recovery Tribunal or the Debts Recovery Appellate Tribunal shall have the powers to reduce or waive the conditional amount to be deposited for the reasons to be recorded in writing.

XV.     Right   of  the borrower to receive compensation   and  cost    in certain cases:  If the Debts  Recovery  Tribunal  or the Appellate  Tribunal   as   the   case may be on an appeal filed, holds the possession of  the  secured  assets by the secured creditor as wrongful, the  secured  assets should be returned to the borrower and the borrower shall   be entitled  to such  compensation  and cost  as may be determined  by   the DRT/DRAT.

XVI.      Action against the alienee of the security property:  If      the      secured       property, subsequent  to the creation   of   the   charge   in   favour of the Banks and Financial Institutions,  have  been  alienated by the borrower or the title        holder as the case may be, can make the demand to the said alienees, recover  the amount and  credit the same to the balance  outstanding  in  the  particular borrowal  account and upon such payment by  the  said  alienees, the Banks and Financial Institutions can give a valid discharge.

XVII.     Transfer of secured assets by the   borrower   not   permitted   after statutory notice: The borrower shall not, after receipt of statutory notice, transfer by way of sale, lease or otherwise (other than  in  the ordinary course of  his business) any of  his secured assets referred to in the notice, without prior written consent of  the secured creditor. If done without prior written consent, such transaction  is void and not enforceable. Bank can approach a Civil Court and get the transaction nullified.

XVIII.   Reply to any representation received from the borrower must be given within 14 days without fail as otherwise the entire process gets vitiated.

XIX.     As per Sec 13(4) (d), Rule No.4 (5) ( c) (i) the AO is empowered to send a notice in writing  to any Bank or person from whom  any money is due to the borrower  and require the necessary  amount of money to be paid to the AO. AO can also attach other movables such as shares by sending notice.  So also, the tenant occupying the secured premises can be directed to remit the rentals direct to the bank which will give  a proper  receipt  which  can be deemed  as a remittance  made  to the  lessor (mortgagor) of the security property.

XX.      Sale of secured assets can be done by following 4 methods: (a) holding public auction;

(b) inviting tenders from public;

(c) obtaining quotations from parties dealing in the secured assets or interested to purchase them;

(d) by private treaty. ( This method can be used only with approval of Legal Dept.)

Tender-cum-auction   method  also  may  be  adopted.    Branches/DOs  are  given powers  only to adopt  the first three procedures  plus Tender-cum-auction  method. For selling  under  private  treaty,  the prior  consent  of  the borrower  / mortgagor  is essential.    Hence,  the last step should  be resorted  to only after  getting  the prior approval from Central Office-Legal Department.

XXI.     Payment   of  surplus:   After  meeting  the  cost  of  removing  encumbrances   and contingencies,  if there is any surplus available  out of the money deposited  by the purchaser, such surplus shall be paid to the purchaser within fifteen day, from date of finalization of the sale. (Rule 9, sub-rule (7))

XXII.    No suit,  prosecution  or other  legal  proceedings    shall   lie   against   any secured creditor or any of its Officers or Manager  for anything done or omitted in good faith.

PART – B - PROCEDURE TO BE FOLLOWED (in brief)

STAGE-I  – Upto taking Physical possession

Pre-Notice stage:

    Ensure that Account became NPA. Demand / recall notice should have been given before taking further steps.

    Account should be eligible for initiating action under SARFAESI Act. (Property should not  be  Agricultural  land; total dues should not be less than `1 Lakh; the balance due should not be less than 20% of the amount originally lent, etc.,)

    Submit suit filing format with all details and get permission from DO/CMC.

    Ensure loan/ mortgage documents are in order in all aspects and not barred by limitation.

    Action under SARFAESI Act can be initiated even in accounts where suits are filed and pending  before  Civil  Court/DRT.  Suit  can be filed  even  after  initiating  action under SARFAESI.

Pre-Possession stage:

     Send ‘Statutory Notice’ under Sec.13(2)  of the Act to the borrower, giving 60 days clear time, strictly  as per the format  annexed.  In case, if the property  belongs  to guarantor,  a  notice  to  the  guarantor  should  also  be sent  as  per  the  Annexure-I. Please note that  the notice is provided in such a way, the same can  be  used  for both  the principal  borrower  and  the  guarantor.

     Notice   shall   be  sent  in  all  the  three   modes   viz.,  (1)  Registered   Post  with Acknowledgement  Due, (2) Through Courier & (3) Under Certificate  of Posting.   In addition to the above modes, if the borrowers have e-mail I.D., or Telefax, a copy of the notice shall be sent through that mode also.

     If notice is returned un-served or parties’ whereabouts  are not known, affix copy of the notice  on the door/wall of the business  premises/residential  premises/security property premises, etc., and take witnesses and photograph.

     Publish  abridged  form of notice (not full text) in two newspapers  (one must be in vernacular language news paper and the text also should be in vernacular language).

     Wait for 60 days from the date of service of notice or from the date of publication of the notice which ever is later.

     If any reply or representation  is received from parties for extension of time or disputing the amount due, etc., take up the matter immediately with DO/Legal Dept., and a detailed and reasoned reply must be sent within 14 days from the date of receiving the letter without fail. In such case, taking possession  shall be postponed suitably so that, sufficient time is available to the party after the reply is sent by the bank.

     After  one  month  but  before  taking  possession,   take  fresh  EC  and  ascertain encumbrances.

Possession stage:

    Authorized Officer shall visit the place on the appointed date and time [after 7 am and before 5 pm];

     Wherever the AO faces resistance or obstruction in taking possession or there is an apprehension of breach of peace, physical possession is to be taken by approaching the  Chief  Metropolitan  Magistrate  / District  Magistrate  / District  Collector  by filing necessary Petition;

     After 50 days, obtain upto date EC and one page Valuation Report;

    Take a Photographer/ Videographer to record the events;

    Take two independent witnesses along with Authorized Officer;

    If the secured  asset is a building,  prepare  a Panchnama  of the movables,  if any, found in the building, duly signed by witnesses. If the premises is vacant, we should put our lock and seal it;

    In case the secured assets are movables,  take inventory  and Panchanama  in the presence  of  the  borrower  or  his  representative  duly  witnessed  by  independent persons  (not  employees  of  the  bank).  It  should  be  prepared  in  triplicate.  The inventory should be witnessed by two independent witnesses preferably one witness from the Bank's side and another from the other side.    In  the spot itself, a copy  of the  inventory  should  be handed over to the borrower and/or  guarantor from whom the asset is going to be possessed  by us   and   the acknowledgement  should  be taken from him in all the  pages;

    Panchnama  and Inventory should be signed by the borrower/guarantor.  If they are not willing to sign, the same may be recorded in the Panchanama;

    Engage the services of technical personnel wherever required for taking possession, i.e., factory premises, big buildings etc;

    In  case  if  the  hypothecated   goods/machineries   can  be  removed,  they  can  be removed and transferred to a safe godown under our lock and key.  If the movables cannot be removed, the premises can be locked with our lock and key and a watch and ward should be appointed and continued till the disposal of the assets;

     The possession notice issued shall be published in two news dailies (including one in vernacular language in vernacular newspaper) as stipulated in the Act / Rules  within seven days from the date of taking possession  of the secured assets.  THIS IS A MUST.    Not  publishing  the  same  will  vitiate  the  entire  process  which  has  to  be started afresh.  While issuing/publishing  the possession notice, care should be taken to make a mention of the subsequent remittance made by the borrower / guarantor or through sale of certain movable/immovable  secured assets after the 13(2) notice was issued and the present  due payable  by the borrower.   If this exercise  is not properly done, there is a possibility of the borrower approaching DRT raising a plea that the bank  had not accounted  the remittances  made  and making  a claim  of a wrong amount in the possession notice issued/published by them.

If the property is under the possession of  tenant, AO can:

a)  Still take symbolic possession and demand the tenant to pay the rent to him;

b)  Demand  the  tenant  to vacate  the  premises  and  handover  the  vacant  possession within 1 month time.

c)   However,  if the tenant refuses  to vacate, then AO cannot forcibly evict the tenant.

Property can be sold with tenancy and only the purchaser of the property can take steps to evict the tenant.

d) In  such  cases,  branch  should  approach  the  Collector/Chief  Metropolitan Magistrate/CJM with a request to take possession u/s 14 of the Act and handover the same to AO, in which case, the Collector/CMM/CJM  will initiate steps for evicting the tenant.

Post-Possession stage:

    Engage sufficient watchmen through a security agency. (not necessary if the asset is vacant site)

    Take  insurance  policy  on  the  possessed  assets,  if  not  available  already.  (not necessary if the asset is vacant site)

    Allow 30 days clear cooling period to enable the borrower to remit the loan dues and take back the possessed assets from the bank.

    Arrive at the Reserve Price of the property by engaging the services of an engineer approved under Sec.34AB of Wealth Tax Act 1957. [If the engineer in our approved panel is not so qualified, the valuation may be done by any other qualified engineer even though not in our approved panel]

    Obtain Encumbrance Certificate on the security property upto date from the previous date of EC to verify subsisting encumbrances.

STAGE-II- SALE OF POSSESSED SECURED ASSETS

Sale of Immovable Assets:

     Take   measurement   of   the   secured   immovable   asset   and   compare   with   the measurement  as  available  in  the  records.  If  there  is  any  variation,  ascertain  the reasons for such variation.  Only the lesser of the extent mortgaged  to bank or the extent  which  is actually  available  alone can be taken possession  and brought  for sale.

     Fix  Sale  date  so that  there  is clear  30  days  after  the  date  of  paper  publication.

Choose   a   working   day,   auspicious   day/convenient    day   for   conducting   the auction/opening tenders.

     Publish   notices   of   sale   through   Auction/Tender/   Auction-cum-Tender    method (whichever  is  suitable)  in  two  leading  Newspapers  (out  of  which  one  Notice  in Vernacular language in vernacular news paper) in the prescribed format. Send copy of the notice  to the borrower/mortgagor  through  registered  post-acknowledgement due.

    Sale notice through paper publication is required only for sale of immovable assets through (a) Tender; (b) Tender-cum-Auction  & (c) Auction only and not applicable if the sale is proposed to be done through Quotation method or Private Treaty.

     Affix  the  Sale  notice  on  a  conspicuous  place  of  the  immovable  property  &  take photograph.

     Issue Sale Certificate to the successful bidder in prescribed format ONLY and not in any other format requested by the bidder. In view of the recent Madras High Court Judgment,   please   note   that   the  Sale   Certificate   shall   be  issued   only  on appropriate Non-Judicial Stamp Paper or by payment of applicable stamp duty in the mode relevant to the place/State of execution, the cost of which shall be borne by the successful purchaser. It is not mandatory under Law to register the Sale Certificate.

     But,  if  the  successful  bidder  requires  registration,  the  same  may  be  done  at his expenditure,  but in the same prescribed  format,  within 120 days from the date of issue of Sale Certificate. This should be informed to the bidder. Apart from the Sale certificate, no other document such as sale deed shall be executed by the AO.

Sale of movable Assets

     Publish   notices   of  sale   through   Auction/Tender/   Auction-cum-Tender/Quotation method (whichever is suitable) in two leading Newspapers  (out of which one Notice in Vernacular  language  in vernacular  news  paper)  in the prescribed  format.  Send copy of the notice to the borrower through ‘registered post-acknowledgement  due’.

     Affix the Sale notice on a conspicuous place of the premises wherein the goods are stored and take photograph.

     Fix Sale date so that there is clear 30 days after the date of paper publication. If the movables  are  perishable  in  nature  or  subject  to  speedy  or  natural  decay  or  the expenses of keeping the movables in custody is likely to exceed its value, AO may sell them at once by identifying suitable buyers in the same trade.

     Issue Certificate of Sale to the successful bidder in prescribed format. Apart from the Certificate of Sale, no other document such as sale deed shall be executed by the AO. Certificate  of Sale cannot be issued in any other format other than the format prescribed in the Act/Rules.

     In  some  of  the  States,  sales  tax  is  payable  even  in  respect  of  sale  of  seized movables by banks. It should be ascertained and if sales tax is to be paid, the same shall be collected form the purchaser and paid to commercial tax authorities. For this purpose, Branches have to register themselves as ‘Dealers’ with commercial tax authorities.

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Detailed guidelines:

I. PREPARATION OF NOTICE

a)         In the notice, full name of the borrower and the guarantor and the correct and present address should be mentioned.

b)         Particulars  of  the  advance  should  be  mentioned  along  with  the  Mirror  Account balance in the space provided for furnishing such information.

c)         There are schedules furnished in the notices and in the schedule of Secured Assets, name of the owner along with full description of the property and address with all the four boundaries should be properly filled up and not in telegraphic language.

II.TO WHOM THE NOTICES SHOULD BE SENT:

1)         Borrower/s;

2)         Guarantor/s;

3)         In case, if it is a partnership firm: to all its partners;

4)         In case, if it is a limited company, notice should be sent to the Company only;

4-a)     If the Directors in the Company have given their personal guarantees, Notice should be sent to the said Director/s also. Names of other directors shall not be mentioned in the notice;

4-b)     If the Company is facing winding up proceedings and if a Provisional Liquidator has been appointed, Notices   should   be sent   to the Provisional Liquidator;

4-c)     In case, if the Company is wound up and a Liquidator has been appointed, Notices should be sent to the Liquidator;

5)         In case, if it is a Trust and if the Trustees  have given their personal  guarantees, Notices should be sent to the said Trustees also;

6)         In case, if it is a Hindu Undivided Family (HUF), to the Manager or the Karta as  well as to the major co-parceners  if   any   and   such   co-parcerners   have given   their personal guarantee;

7)         In case of Insolvency, if any Official Receiver has been appointed, Notices should be sent to the Official Receiver;

8)         In case the borrower  and/or  the guarantor  is dead: Notices  should  be sent to the legal  heir/s  of such deceased  borrower  and/or  guarantor.    If their  names  are not known, the notice shall be addressed as below:

‘LEGAL REPRESENTATIVES  OF LATE ………..…………………………………..’,  to the last known address of the deceased.

In respect of the cases referred in Clauses 4-b, 4-c, 5, 6, 7 & 8 above, draft of the notices can be obtained from Central Office as and when required.

For other constituents, the branches can refer the matter to central office. III. MODE OF SENDING NOTICE:

a)         Notice duly signed by the AO of the Bank should be sent by all the following three modes:

1.         Registered Post Acknowledgement Due;

2.         Local Delivery / Through Courier;

3.         Under Certificate of Posting.

In addition, Notice can also be sent through e-mail and Fax. Delivery receipt shall be printed and preserved as proof. Notice shall be signed only as AO and not as CM/AGM.

b)         The registration receipt issued by the Postal Authority and the proof of delivery in the case of local delivery/Courier should  be  kept along with the notice copy maintained by   the   branch  and  they should  be made  available  till such time the account  is closed.

c)         If the acknowledgement is received, the same should be kept along with the notice.

d)         If  the  covers are returned   undelivered,   the  covers  should  not be opened under any circumstances and  such  returned  covers should be kept along with the copy  of the notice sent by the branch.

e)         If the branch is able to identify the borrower/guarantor,  after the notices are returned undelivered, a copy of the 13(2) notice can also be delivered in person against his / her acknowledgement in the local delivery register maintained by the branch.

f)          Notices shall be served to all the borrowers.   If the notices are not served and if AO has reason to believe that the borrower is avoiding service of notice, the service shall be  effected  by  affixing  a  copy  of  the  notice  on  the  outer  door  of  some  other conspicuous  part  of  the  house/building  in  which  the  borrower  ordinarily  resides  / carries on business / personally works for gain.  The contents of the demand notice (abridged  version)  shall  also  be  published  in  two  leading  newspapers  (one  in vernacular newspaper in vernacular language).

IV. EXERCISE TO BE DONE WITHIN THE NOTICE PERIOD:

a)       As per the Act, the borrower is given a 60 days time from the date of notice to remit the dues claimed in the notice and release the securities from bank’s charge.   The due date of such notice shall be duly diarized by the branch as well as by DO.  The date of notice, date of dispatch and the date of receipt of notice by the parties shall be duly recorded at the branch without fail.

b)         Wait    for    clear sixty days from the date of notice and thereafter initiate action for possessing the assets.

c)         Branch should make  necessary  arrangements   for search with the Sub-Registrar of Assurances and  get  an  Encumbrance   Certificate/Search  report  for  the  secured assets.

d)         Branches should also find out whether the principal borrower and/or  the guarantor is liable  to pay any Sales  Tax, land revenue,  dues  to municipal  authorities,  building society etc., to   avoid any priority that may be   claimed  by such authorities.  Such dues  will  have  a  prior  charge  on  the  property  and  hence,  they  shall  be  clearly mentioned in the sale notification as well as sale certificate and the bidder is required to pay the same.

e)         Arrive at the Reserve Price of the property by engaging the services of an engineer approved under Sec.34AB of Wealth Tax Act 1957. [ If the engineer in our approved panel is not so qualified, the valuation may be done by any other qualified engineer even though not in our approved panel ].

f)          In  case any  advance had been made to an Industry or a Company,  within  that sixty days time  available,   the  branch  should  ascertain from the  management   of  the company   about the salaries payable to the workmen and the amounts to be paid thereon.

g)         In case of the secured asset being a running Industrial Unit, care should be taken while taking possession  of the secured asset.   Bank can also resort to change of management   instead   of  taking   possession   of  the  running   unit  to  avoid   any complication involved therein such as, labour unrest, payment of statutory dues, electricity and maintenance charges, security services charges, etc.

h)         In case of any advance to the Company, a Search Report should be obtained from the Registrar of Companies to find out the details of the other secured creditors.

i)          The  branch     should     also  ascertain     from     the  Provident  Fund     Department

/Employees  State Insurance (ESI) as  to  whether the company or the industry has any arrears  to be paid to the Provident Fund Authority/ESI or not.

j)          Within  this  sixty  days,  the  branches  should  arrange  for  persons  who  may  be interested  to  purchase  the  property  mortgaged  to  us,  record  their  names  and addresses,  so that, it will be easier for the bank to sell the properties  without any problem or whatsoever.

k)         In case of property occupied by any tenants,  the  name  and address of the tenants, advance  amount  paid,  monthly rent payable should be  ascertained  and keep the particulars  ready in the branch. Service  of the notices  on the borrower  and/or  the guarantor should be intimated to the tenant orally.

l)          Service of the notices on the borrower and/or the guarantor should be intimated to the  Designated  Authority  (CO/DO)  along  with  the  copy  of  the  notice  sent  to  the borrower and/or the guarantor.

V. Taking Possession:

After expiry of 60 days period, the Authorized Officer shall take possession of the property. If it is a vacant site, possession can be taken by affixing the possession notice on a board erected in the site.  If it is a house or building, possession can be taken by pasting the notice on the door or outer wall of the building in a conspicuous manner and photograph should be taken.   If the borrower/  mortgagor  hands  over possession  peacefully,  the same may be recorded  in Panchnama.    If entry inside  the building  is obstructed  or borrower/guarantor does  not vacate  the premises  and handover  the vacant  possession,  physical  possession should be taken with the help of Chief Metropolitan Magistrate or District Magistrate.

The  possession   notice  shall  be  published  in  two  newspapers   (one  must  be  in vernacular language news paper and the text also should be in vernacular language) within 14 days of taking possession without fail.  Failure to publish will invalidate the entire proceedings.

TAKING PHYSICAL POSSESSION:

The Madras High Court (Madurai Bench) has delivered a land mark judgment on September

09, 2008 in Crl.O.P.(MD).No.3102  of 2008 in a case between Indian Overseas Bank, K.Abishekapuram  Branch, Vs. 1.Mr.Arun  Shankar,  Managing  Director, M/s. Sree Aravindh Steels Limited, Tiruchirappalli & Others. The same was reported in 2009 (1) CTC 341. In his judgment,  the  Hon’ble  Judge,  after  referring  Division  Bench  judgments  of High  Court  of Madras has made the following important observations:-

1.         The term 'Chief Metropolitan  Magistrate'  will have reference to a metropolitan  area and  the  term  'Chief  Judicial  Magistrate'  will  have  reference  to an  area  outside  a metropolitan area, and therefore, the Chief Judicial Magistrate has also got power to entertain  a petition  under  Section  14 of  the  SARFAESI  Act,  in an area which  is outside a metropolitan area. Hence, petitions can be filed before CJM also.

2.         The   Bank   or   Financial   Institution   shall,   before   making   an   application   under

Section.14 of the SARFAESI Act, shall verify and confirm that notice under Section

13(2) of the Act is properly given, that the secured asset falls within the jurisdiction of CMM/CJM/DM and the loan account is eligible for recovery under SARFAESI Act by satisfying all the criteria.

3.         CMM/DM is not required to give any prior notice either to the borrower or to the 3rd party, before ordering physical possession to be taken.

4.         CMM/DM  has to only verify from  the Bank  or Financial  Institution  whether  proper notice under Section  13(2) of the  SARFAESI  Act is given or not and whether  the secured  assets  fall within  his jurisdiction.  He should  not adjudicate  upon the loan transaction by calling for records evidencing creation of mortgage/ loan etc.

5.         If the above conditions  are not fulfilled, then only the CMM/CJM/DM  can refuse to pass  an  order  under  Section  14  of  the  NPA  Act  by  recording  that  the  above conditions  are not fulfilled. If the above conditions  are fulfilled, he cannot refuse to pass  an order  under  Section  14.  In other  words,  he has  no discretion  to refuse passing an order. It is to be further noted that as per Sec 14 (3) of SARFAESI Act, no act of the CMM/CJM or DM shall be called in question in any Court or before any authority. Hence, the Authorized Officers can bring this judgment to the notice of our advocates in those situations where any of the issues discussed above are involved so that, the advocates  in turn can represent for speedy disposal of the petitions in our favour.

6.         The remedy provided under Section.17 of the SARFAESI Act to appeal before DRT is  available  to  the  borrower  as  well  as  to the  third  party  which  is an efficacious alternative  remedy  where all grievances  can be raised. Hence, the parties  cannot approach Civil Courts, High Court or Rent Control Courts etc. They have to approach DRT alone.

VI.SALE OF SECURED ASSETS: After possessing the assets,

i)       Paper notification in English daily and in vernacular language should be given with 30 days clear notice period and such notice should contain the particulars of the assets to be sold and the value thereof.

ii)       A definite date and time should be fixed in the notice for the sale of the property and/or the movables.   Also the time for scrutiny  of the documents  should  be fixed  in the notice.    For  the  scrutiny,  only  Xerox  copies  of  the  documents  should  be  given. Whoever ask for   perusal of the original documents  in writing, can be   permitted   to peruse    the  same  in the presence of  the  Branch  Manager and it shall be the duty of the Manager to  see  that nobody tamper with the documents and the documents so shown should be taken back and kept in safe custody.

EMD at 10% of the reserve price should be fixed. This should be clearly spelt out in percentage terms related to the reserve price as well as in rupee terms.

iii)     Within that period,  the branch should mobilize bidders for the purchase of the assets and the branches   should take  the help of the nearby branches   for  identifying   the prospective  purchasers  and  request  the  nearby branches  to bring those people on the date  fixed  for  auction.

iv)      The auction should be conducted only in the branch premises or DO, preferably in the forenoon session.

v)       In   case   the movables are in the premises of the borrower and/or the guarantor itself, auction can be conducted in that premises.

vi)      In  case  the  movables have been  shifted  to  another place,  auction can be made at that place provided  the  notice  of auction should contain the venue,  time  and  date.

vii)     As already stated, the upset price should be fixed on the basis of the valuation report and if there are no prospective purchasers, re-advertisement  should be given for the sale of the properties.

viii)    On the auction date, the successful bidder should deposit a minimum 25% of the total sale consideration  (inclusive of the EMD amount already paid).   In case of default of the highest bidder in making payment of the said sum, the AO is entitled to sell the property forthwith again. The balance of the sale price (75%) should be paid within 15 days from the date of confirmation of sale or such extended period as may be agreed upon  in writing  between  the AO  and  the successful  bidder.   In case  of  default  of payment within the stipulated period, the deposit so made by the successful bidder will be forfeited and the property shall be brought for resale.   The person whose deposit was forfeited, cannot stake any claim to the property or to any of the amount for which the property was sold later.

ix)      Till  such   time,   the  entire amount  is  paid,  possession of the properties should not be parted with and  the  auction purchaser  will  not have right to  hold  the  property either movable or immovable.

x)       The   secured   property   so   possessed   should   not   be   altered,   demolished   or reconstructed either by the Bank or the auction purchaser. In other words, the property (both movable and immovable) should be sold in ‘as is where is condition’ at the time when we took possession of the same.

xi)      Loan  documents  executed    by   the  borrower  and/or  the  guarantor  should  not  be handed over  to  the  auction purchaser and they should be  kept  in  safe custody, till such time the entire account is closed.