Post on 21-Nov-2014
transcript
• Securitisation & Reconstruction of Financial Assets &
Enforcement of Security Interest Act 2002 – Promulgation on
23.08.2002
• Amended during 2004 on Supreme Court suggestion in case
of Mardia Chemicals Vs Union of India.
• Major step in Financial Sector Reforms.
• For Movables – The Indian Contract Act 1872
For Movables & Immovables etc – SARFAESI Act 2002
• Prior to Act, help of legal system was a must for selling
immovable property which used to take unduly long time.
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• This Act allows to lay hand on the securities. Not applicable in
respect of clean loans.
• The Act extends to the whole of India including the states of
Jammu & Kashmir.
• The Act has retrospective application i.e. it applies for loans and
securities created prior to the Act coming into operation.
• The a/c has to be classified as NPA as per RBI norms before
taking action under SARFAESI Act.
• After possession, the aggrieved party may go to DRT by paying
only court fees & in case of verdict in favour of the Bank,
aggrieved party may appeal to DRAT by paying 50% of dues
(may be reduced to 25% but not less than that).
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• BIFR Cases – Cases already referred to BIFR can be called back
if 75% of lenders agree for that. Even if matter is pending with
BIFR, the lender can take possession of security.
• Consortium Accounts or Multiple Lending Arrangement
If 75% of the secured creditors in value agree to initiate
recovery action, the same shall be binding on all secured
creditors.
• DRT pending Cases
Action as regards possession & subsequent can be initiated
under SARFAESI Act in DRT pending cases as per Supreme
Court judgement in Transcore Vs Union of India.
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Provisions of SARFAESI Act 2002
In the event of default by a borrower, a secured creditor
(bank/FI) will have the following powers
1. Take possession, sell or lease the secured assets.
2. Take over the management of the business of the borrower.
3. Appoint a manager (powers vested with scale IV officers in
banks).
4. Recover any money payable by 3rd parties to the borrowers.
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Loans not eligible under SARFAESI Act
1. Loans with outstanding upto Rs.1 Lac.
2. Agriculture land cannot be sold.
3. Where the amt. due is less than 20% of the principal and
interest.
4. Loans secured by pledge, lien & security of bank deposits.
5. Where limitation has expired.
6. Where security is not charged to bank.
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Sale of Charged Securities
Under Securities Interest (Enforcement) Rules 2002, Ministry
of Finance notified rules for taking possession and subsequent
sale of assets of defaulters.
Possession
An authorised officer of lender (scale IV officer in bank) would
have to take possession of the same by service of a 60 days
possession notice (Sec.13(2))
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Receipt of notice by Borrower
If after receiving possession notice, the borrower makes any
representation or raises any objection, the secured creditor shall
consider such representation or objection. If secured creditor –
objection / representation not tenable, shall communicate within
one week of receipt, the reasons for non – acceptance of objection
/ representation to the borrower.
Application by borrower to DRT
Borrower may make an application (with fees) to DRT, without
deposit of any amount within a period of 45 days (sec. 17)
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Action by DRT
If measures taken by secured creditor – not in accordance with
provisions of Act – DRT may declare measures taken by
secured creditor as invalid & restore possession of secured
assets to borrower. If measures in accordance with provisions
– secured creditor entitled to take steps to recover debt – DRT
to dispose off the application within – 60 – days (Max.– 4 –
months)
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Appeal to DRAT – Deposit of Amt. before appeal
Appeal to Appellate Tribunal within 30 days – borrower to
deposit with Tribunal 50% of the amount of debt due – as
claimed by secured creditor or determined by DRT whichever
is less. ( The Tribunal may reduce the amt. to not less than
25% of debt) (Sec.18)
Sale of Assets
• Sale by way of public tenders or through public auction has
to be backed by public notices in two newspapers one of
which in local vernacular language.
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• Minimum notice period
30 days, notice to be given to owner by designated officer
after taking possession by authorised officer and eventual
sale of property.
• Reserve Price
Proper valuation by approved valuer prior to sale of
property.
• Offer Price
If price higher than reserve price cannot be obtained, assets
can be disposed off at lower price with consent of both the
borrower & the lender.
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• Sale will be confirmed after deposit of 25% by the highest
bidder. Balance within 15 days of confirmation of sale.
• When secured creditor is required to take possession or
control of the secured asset or for sale, help of Chief
Metropolitan Magistrate or District Magistrate be taken by
request in writing. (Sec. 14)
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Summary of Time Periods in SARFAESI Act
a) Notice before possession – 60 days.
b) Reply to objections by borrower – one week.
c) Borrower can approach DRT against possession notice – 45
days.
d) Appeal to DRAT against decision of DRT – 30 days.
e) Notice before sale – 30 days.
f) Period of balance payment 75% by the buyer of assets –
15 days.
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Central Registry
• Central Govt.- Set up Central Registry- Registration of following transactions.
• (i)Securitisation & Reconstruction of Fin. Assets
• (ii)Creation of security interest under SARFAESI Act
• Filing of details of transaction- Within 30 days• Delay-for next 30 days-on payment of 10 times
of prescribed fees.
Modification & Satisfaction of charge
• Within 30 days. Modification- additional 30 days- Fees 10 times of fees.
• Satisfaction-Notice to secured creditor- to show cause within 14 days why satisfaction be not recorded as initialled.
• Penalties- (Sec 23) Rs.5000 for each day of delay for reg./mod./satisfaction.
• Penalties-Non-compliance of RBI Directives- Fine of Rs. 5 lacs- then Rs. 10000 per day