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WELCOME

WELCOME. LEGAL ASPECTS OF ADVANCES STATE BANK LEARNING CENTRE, RANCHI. ISSUES FOR DISCUSSION. TYPES OF BORROWERS DOCUMENTATION STAMP DUTY MORTGAGE & OTHER SECURITIES REGISTRATION OF CHARGE LIMITATION ACT LEGAL OPTIONS FOR RECOVERY OF NPAs. BORROWERS. COMPANIES

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WELCOME

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  1. WELCOME LEGAL ASPECTS OF ADVANCES STATE BANK LEARNING CENTRE, RANCHI

  2. ISSUES FOR DISCUSSION • TYPES OF BORROWERS • DOCUMENTATION • STAMP DUTY • MORTGAGE & OTHER SECURITIES • REGISTRATION OF CHARGE • LIMITATION ACT • LEGAL OPTIONS FOR RECOVERY OF NPAs

  3. BORROWERS • COMPANIES • LEGAL ENTITY-DISTINCT FROM ‘OWNERS’ OR SHAREHOLDERS; PERPETUAL SUCCESSION; LIMITED LIABILITY OF SHAREHOLDERS; COMMON SEAL; GOVERNED BY THE INDIAN COMPANIES ACT 1956 • u/s 11 :REGISTRATION REQUIREMENTS (BANKING BUSINESS >10 PERSONS; OTHER BUSINESS>20 PERSONS)

  4. COMPANIES • PRIVATE LTD. CO. (u/s 3(1)(iii));MIN. MEMBERS 2,MAX 50.MIN DIRECTORS 2;SHARES CANNOT BE TRANSFERRED TO THIRD PARTIES WITHOUTTHECONSENT OF OTHER SHAREHOLDERS • PUBLIC LTD.CO. MIN MEMBERS 7, MIN DIRECTORS 3 • NON-LIMITED COMPANIES

  5. COMPANIES • CERTIFICATE OF INCORPORATION OR (both In Pvt Ltd and Public Ltd Company) DOCTRINE OF CONSTRUCTIVE NOTICE • MEMORANDUM OF ASSOCIATION • (OBJECT CLAUSE;MAIN OBJECTS;ANCILLARY OBJECTS;OTHER OBJECTS) • SHAREHOLDERS CAN AMEND THE OBJECT CLAUSE • ARTICLES OF ASSOCIATION OR DOCTRINE OF INDOOR MANAGEMENT • CERTIFICATE OF COMMENCEMENT OF BUSINESS only in Public Limited Company • DOCTRINE OF ULTRA VIRES – any action against memorandum of association can not be rectified at a later date even by Genl Body Meeting. • COMMON SEAL- an identity & signature of company

  6. PARTNERSHIPS • DESCRIBED UNDER SEC 4 OF INDIAN PARTNERSHIP ACT. NO WRITTEN DEED NECESSARY BECAUSE AS PER LAW A PARTNERSHIP CAN ALSO BE AN ORAL AGREEMENT. • ALL PARTNERS ARE JOINTLY, SEVERALLY AND CO-EXTENSIVELY LIABLE FOR ALL ACTS OF THE FIRM • BANKS ASK FOR A REGISTERED DEED OF PARTNERSHIP AS WELL AS PERSONAL GUARANTEE OF ALL PARTNERS

  7. PARTNERSHIPS • A MINOR HAS TO DECLARE WITHIN 6 MONTHS OF BECOMING A MAJOR OR LEAVE; ELSE HE WILL BE DEEMED TO HAVE JOINED THE PARTNERSHIP AND WILL BE LIABLE RETROSPECTIVELY. • LEGAL HEIRS OF A DECEASED PARTNER ARE NOT PERSONALLY LIABLE • A FIRM IS BOUND BY ALL THE ACTS OF A PARTNER DONE IN THE USUAL COURSE OR WAY OF THE FIRM’S BUSINESS

  8. SOCIETIES • ONLY A REGISTERED SOCIETY ATTAINS A SEPARATE IDENTITY AND CAN BE SUED • 60 DAYS’ NOTICE u/s 126 OF THE CO-OPERATIVE SOCIETY ACT IS REQUIRED FOR FILING A SUIT AGAINST A SOCIETY • CONSTITUTION & BYE LAWS SHOULD BE CAREFULLY EXAMINED • WHETHER AFFILIATED TO ANY OTHER SOCIETY • RESOLUTION AUTHORISING BORROWING OR OPERATION OF ACCOUNT REQUIRED.OBTAIN PERSONAL GUARANTEE OF ALL OFFICE BEARERS

  9. DOCUMENTATION • PROPER DOCUMENTS TO BE EXECUTED IN A PROPER MANNER BY THE PERSONS AUTHORISED THEREFOR • INCOMPLETE DOCUMENTS ARE LIKELY TO BE TERMED AS ‘UNRELIABLE’ AND ‘NOT ADMISSIBLE AS EVIDENCE’ • INTEREST • FUTURE RATE OF INTEREST

  10. DOCUMENTATION • PROVISO - I SECTION 34 OF CPC FUTURE RATE OF INTEREST CAN BE BROUGHT DOWN • PROVISO II AGREED RATE OF INTEREST TO BE APPLIED IN COMMERCIAL TRANSACTION • PROVISO III IF THERE IS NO AGREED RATE,THEN MAX 12 % SIMPLE RATE OF INTEREST MAY BE AWARDED

  11. DOCUMENTATION • WHO SHOULD FILL THE DOCUMENTS • PREFERABLY THE PERSON WHO HAS FILLED THE REST OF THE DOCUMENT OR A PERSON WHO WAS ATTACHED TO THE BRANCH AT THE MATERIAL TIME • A DOCUMENT WITH GAPS / BLANKS, IF MENTIONED IN THE PLAINT, MAY BE ADMITTED AS SECONDARY EVIDENCE

  12. STAMP DUTY • LEGAL REQUIREMENT • INDIAN STAMP ACT 1899 REQUIRES THAT DOCUMENTS SPECIFIED IN ENTRY 91 OF UNION LIST SHOULD BE PROPERLY STAMPED • AN UNSTAMPED OR UNDERSTAMPED DOCUMENT MAY BE PRODUCED BEFORE THE REGISTRAR OF ASSURANCES;ELSE, SUIT MAY BE FILED WITH A REQUEST TO THE COURT TO SEND THE DOCUMENT TO ROA FOR PROPER STAMPING. • STAMPS AFFIXED AFTER DATE OF EXECUTION ARE NOT ADMISSIBLE

  13. STAMP DUTY • ANY INSTRUMENT DRAWN AND EXECUTED OUTSIDE INDIA MUST BE STAMPED WITHIN THREE MONTHS OF ENTRY IN INDIA • UNSTAMPED OR UNDERSTAMPED D.P.NOTES AND BILLS OF EXCHANGE CANNOT BE ‘CORRECTED’ EVEN IF THE PENALTY IS PAID. • ADHESIVE STAMPS CAN BE AFFIXED ONLY IF THE DOCUMENT IS PRINTED.ADHESIVE STAMPS MUST BE DULY CANCELLED • STAMP PAPER MUST BE PURCHASED IN THE NAME OF ONE OF THE PARTIES TO THE CONTRACT

  14. SECURITY MORTGAGE • SEC 58 OF T.P.ACT SIMPLE,ENGLISH,EQUITABLE, • OWNERSHIP FREE HOLD, LEASE HOLD, GOVERNMENT OWNED • ANY RESTRICTIVE CLAUSES ? • CASE OF ADVERSE POSSESSION ? • T I T L E – CLEAR, MARKETABLE, CHAIN-complete • SEARCH REPORT

  15. MORTGAGE • IN THE CASE OF A LIMITED CO., RESOLUTION TO BE PASSED IN THE GENERAL BODY MEETING TO CREATE MORTGAGE ON THE CO’S PROPERTY. • ANOTHER RESOLUTION TO BE PASSED BY THE BOARD AUTHORISING A REPRESENTATIVE OF THE CO TO CREATE THE MORTGAGE BY DEPOSIT OF THE TITLE DEEDS • IF LAND IS OWNED BY A TRUST, TRUSTEES MUST HAVE THE RIGHT TO MORTGAGE THE TRUST’S PROPERTY

  16. SECURITY PLEDGE • DEFINED u/s 172 OF INDIAN CONTRACT ACT.PLEDGEE HAS THE RIGHT TO POSSESSION. • REASONABLE NOTICE u/s 176 REQUIRED TO BE GIVEN TO THE BORROWER BEFORE SELLING THE PLEDGED GOODS.BANK IS LIABLE u/s 151 TO TAKE GOOD CARE OF THE SEIZED GOODS

  17. SECURITY HYPOTHECATION • RIGHTS CAN BE EXERCISED THROUGH A COURT OF LAW • HYPOTHECATION IS NOT DEFINED • IT IS A NOTIONAL,SPECIAL AND EQUITABLE CHARGE • BORROWER IS FREE TO SELL THE HYPOTHECATED GOODS • PROVISIONS OF T.P.ACT AND CONTRACT ACT NOT APPLICABLE

  18. SECURITY • LIEN • RIGHT TO RETAIN PROPERTY TILL PAYMENT OF DEBT. BANKER’S LIEN u/s 171 OF THE INDIAN CONTRACT ACT IS A ‘WITHOUT LIMITATION’ IMPLIED PLEDGE • SET OFF • STATUTORY RIGHT,REQUIRES PRIOR NOTICE. BANK CANNOT SET OFF BALANCE IN BORROWER’S JOINT ACCOUNT WITH ANOTHER PERSON TO LIQUIDATE DEBT OUTSTANDING IN THE BORROWER’S NAME

  19. REGISTRATION OF CHARGE(IN CASE OF COMPANIES) • CHARGE DEFINED u/s 100 OF T.P.ACT (NOT DEFINED IN COMPANIES ACT) • FLOATING CHARGE; FIXED CHARGE • HYPOTHECATION, MORTGAGE, HIRE PURCHASE REQUIRE REGISTRATION BUT NOT THE CHARGE OF PLEDGE • FILING OF PARTICULARS OF CHARGE – FORMS MUST BE SIGNED BY BOTH, THE CO’S AUTHORISED OFFICIAL(S) AND THE CHARGE HOLDER • WHENEVER TERMS & CONDITIONS, EXTENT OR OPERATION OF ANY CHARGE IS MODIFIED, SUCH MODIFICATION IS ALSO REQUIRED TO BE REGISTERED

  20. REGISTRATION OF CHARGE(IN CASE OF COMPANIES) • FORMS • FORM 8REGISTRATION/MODIFICATION OF CHARGE • FORM 13REGISTER OF CHARGES • FORM 17SATISFACTION OF CHARGE • FORM 18CHANGE OF SITUATION OFOFFICE • FORM 32APPOINTMENT/CHANGE OF DIRECTORS

  21. IMPORTANT SECTIONS OF COMPANIES ACT • SEC 124 CHARGE TO INCLUDE MORTGAGE • SEC 125 CHARGE VOID IF NOT REGISTERED (PARTICULARS OF CHARGE MUST BE FILED WITHIN 30 DAYS OF THE CREATION OF CHARGE) • SEC 126 DATE OF NOTICE OF CHARGE • SEC 127 MODIFICATION OF CHARGE IN RESPECT OF PROPERTIES ACQUIRED SUBJECT TO CHARGE • SEC 130 REGISTER OF CHARGES TO BE KEPT BY THE REGISTRAR OF COMPANIES • SEC 135 MODIFICATION OF CHARGE • SEC 136 COPY OF INSTRUMENTS CREATING CHARGE TO BE KEPT AT COMPANY’S OFFICE

  22. IMPORTANT SECTIONS OF COMPANIES ACT • SEC 138 – 140 SATISFACTION OF CHARGE.CHARGEHOLDER HAS A DUTY TO INFORM ROC WITHIN 30 DAYS OF SATISFACTION OF CHARGE • SEC 141 POWER OF COMPANY LAW BOARD TO AMEND THE REGISTER OF CHARGES • SEC 142 PENALTY • SEC 149(2A) RESTRICTIONS ON COMMENCEMENT OF BUSINESS • SEC 292 POWER OF THE BOARD TO BORROW • SEC 293(i) (a) SHAREHODERS’ RESOLUTION OF THE PUBLIC LTD CO.TO BACK THE MORTGAGE OF THE PROPERTY OF THE COMPANY • SEC 293(i)(d) RESOLUTION TO BE PASSED BY SHAREHOLDERS IF THE AMOUNT OF LOAN >PUC+FREE RESERVES

  23. REMEMBER • SURETY HAS THE RIGHT TO BENEFIT OF SECURITY SEC 139 & 141 OF INDIAN CONTRACT ACT • POWER OF ATTORNEY CHECK IF THE PRINCIPAL (ASSIGNOR) HIMSELF HAS THE POWER THAT HE INTENDS TO ASSIGN. DOES THE P/A HOLDER HAVE THE POWER TO MORTGAGE PROPERTY FOR THE BENEFIT OF THE PRINCIPAL OR THE P/A HOLDER OR A THIRD PARTY • ONLY ACTIONABLE CLAIMS CAN BE ASSIGNED u/s 130 OF T.P. ACT • STAMPED INDEMNITY (u/s 124 OF INDIAN CONTRACT ACT) SHOULD ONLY BE TAKEN • SOME DOCUMENTS ARE REQUIRED TO BE WITNESSED TO BECOME ADMISSIBLE AS EVDENCE (e.g. REGISTERED MORTGAGE) • CONVEYANCE MORTGAGE OF FIXED ASSETS (LEASE >1 YEAR) TO BE COMPULSORILY REGISTERED WITH THE SUB-REGISTRAR OF ASSURANCES • IN THE CASE OF MORTGAGE OF AGRL LAND, SIMPLE MORTGAGE SHOULD BE PREFERRED

  24. LIMITATION ACT 1963 • DEBT BECOMES TIME BARRED 3 YEARS FROM THE DATE IT BECOMES DUE AND CANNOT BE RECOVERED BY LEGAL PROCESS • THE LAW ONLY EXTINGUISHES THE REMEDY AND NOT THE RIGHT. GOODS PLEDGED TO BANK CAN BE SOLD EVEN AFTER THE EXPIRY OF THE LIMITATION PERIOD • LIMITATION PERIOD MAY BE EXTENDED UNDER CERTAIN CIRCUMSTANCES • SEC 4 : IF PRESCRIBED PERIOD EXPIRES WHEN COURT IS CLOSED, SUITMAY BE FILED ON THE NEXT DAY WHEN THE COURT REOPENS • SEC 6 : LEGAL DISABILITY (MINOR, INSANE OR IDIOT) • SEC 11:SUITS AGAINST TRUSTEES AND THEIR REPRESENTATIVES SHALL NOT BE BARRED BY ANY LENGTH OF TIME

  25. LIMITATION ACT 1963 • SEC 12 (I): DAY OF EXECUTION OF DOCUMENTS TO BE EXCLUDED • Sec 14 & 15 : EXCLUSION OF TIME IN CERTAIN CASES (FOR EXAMPLE TIME SPENT FOR PROCEEDING BONA FIDE IN A COURT WITHOUT JURISDICTION OR TIME TAKEN FOR OBTAINING PRIOR PERMISSION OF GOVERNMENT WHEN REQUIRED FOR INSTITUTING A SUIT OR THE TIME DURING WHICH THE DEFENDANT HAS BEEN ABSENT FROM INDIA ETC.) • SEC 18 : REVIVAL/ACKNOWLEDGEMENT OF DEBT • SEC 19: PAYMENT/DEPOSIT OF ANY AMOUNT BY THE BORROWER HIMSELF BY A SIGNED VOUCHER EXTENDS LIMITATION PERIOD FURTHER BY 3 YEARS

  26. RECOVERY OF NPAsLEGAL OPTIONS • LAW SUITS • RECOVERY THROUGH DRTs • RECOVERY CERTIFICATES • SUMMARY SUITS • ACTION UNDER PUBLIC DEBT RECOVERY ACT (WHERE APPLICABLE)

  27. LAW SUITS • CHECK WHETHER DOCUMENTS ARE IN ORDER AND ENFORCEABLE • KEEP ALL RELEVANT DOCs/BOOKS/ RECORD IN A SEPARATE FOLDER • SEND LEGAL NOTICE • TRY TO SELL PLEDGED GOODS AFTER GIVING DUE NOTICE (u/s 176 OF CONTRACT ACT) BEFORE INSTITUTING THE LAW SUIT • SCRUTINISE THE PLAINT CAREFULLY; GET IT VETTED BY THE LAW OFFICER IF REQD. • CAN A MORTGAGE SUIT BE FILED (UNDER ORDER 34 RULE 4 OF CPC) ? COURTS HAVE NO POWERS TO REFIX/REPHASE REPAYMENT IN CASE OF MORTGAGE SUITS

  28. LAW SUITS contd … REQUEST FOR • INTERIM/INTERLOCUTARY ORDERS SUCH AS ATTACHMENT BEFORE JUDGEMENT, APPOINTMENT OF RECEIVER,ORDER FOR CUSTODY, PRESERVATION AND/OR SALE OF SECURED ASSETS,ISSUE OF AD INTERIM INJUNCTION ETC. • EXPEDITE SERVICE OF SUMMONS. IF REQUIRED, PRAY FOR SUBSTITUTED SERVICE (UNDER ORDER 5 RULE 20 ) • ARRANGE FOR WITNESSES TO BE PRODUCED;CONTEST ADJOURNMENTS • AFTER PRONOUNCEMENT OF JUDGEMENT, APPLY FOR A CERTIFIED COPY THEREOF AND SCRUTINISE THE SAME CAREFULLY

  29. LAW SUITS contd… • INTERIM DECREE (ISSUED UNDER ORDER 35 CPC IN CASE OF MORTGAGE SUITS) • FINAL DECREE • PROCEED FOR EXECUTION; IF DETAILS OF THE ASSETS OF JUDGEMENT DEBTORS ARE NOT KNOWN, FILE AN APPLICATION IN THE COURT UNDER ORDER 21, RULE 41 OF CPC • IN CASE EXECUTION PROCEEDINGS ARE FILED WITHIN 2 YEARS OF THE DATE OF JUDGEMENT ATTACHMENT ORDERS WILL BE ISSUED STRAIGHTAWAY; OTHERWISE, SUMMONS WILL HAVE TO BE ISSUED AGAIN TO THE JUDGEMENT DEBTORS, AND THE RECOVERY PROCESS WILL BE FURTHER DELAYED.

  30. SUMMARY SUITS • SUMMARY SUITS MAY BE FILED SELECTIVELY UNDER ORDER 37 IF NO SECURITY IS AVAILABLE WHEREUPON DEFENDENTS WILL HAVE TO PRAY FOR LEAVE TO DEFEND AND SHOULD THEY FAIL,DECREE WILL BE AWARDED. HOWEVER, IF THE DEFENDENTS GET THE LEAVE TO DEFEND, THEN THE SUIT WILL BE CONVERTED INTO A NORMAL MONEY SUIT.

  31. DEBT RECOVERY TRIBUNALS(THE RECOVERY OF DEBT DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT 1993) • COVERS ALL STATES EXCEPT J & K • DRTs AND DRATs CONSTITUTED (SEC 3 (1) , 8(1)) • SEC 17 : JURISDICTION; POWERS; AUTHORITY • SEC 18 : BAR OF JURISDICTION PROCEDURE: -APPLICATION u/s 19 SUBMITTED ALONGWITH DOCUMENTS , AFFIDAVITS OF WITNESSES AND PRESCRIBED FEE (SEC 19(2)) -DEFENDENTS TO SHOW CAUSE WITHIN 30 DAYS OF SERVICE OF SUMMONS (SEC 19(3)) -AFTER HEARING THE CASE, ORDER PASSED WHEREUPON THE PRESIDING OFFICER ISSUES THE RECOVERY CERTIFICATE

  32. DRTs contd….. PROCEDURE FOR APPEAL: • BOTH PARTIES CAN APPEAL • APPEAL TO BE FILED WITHIN 45 DAYS ACCOMPANIED BY PRESCRIBED FEE (SEC 20) NO APPEAL IN CASE ORDER IS ISSUED WITH THE CONSENT OF BOTH THE PARTIES • AT LEAST 75 % OF DEBT DUE TO BE DEPOSITED BY THE DEFENDENTS PREFERRING AN APPEAL BEFORE THE DRAT (SEC 21) MODE OF RECOVERY : SEC 25 AND SEC28 REMEMBER • EVIDENCE MUST BE FILED ON AFFIDAVIT • ENSURE METICULOUS FOLLOW UP WITH PANEL ADVOCATES • CERTIFIED EXTRACTS OF ACCOUNTS MUST BE ATTACHED TO CLAIM APPLICATION UNDER THE RELEVANT PROVISIONS OF BANKER’S BOOKS EVIDENCE ACT AND IT ACT

  33. REMEMBER • ADVOCATES MUST BE PRESENT ON ALL THE DATES OF HEARING • CLAIM AFFIDAVITS MUST COMPREHENSIVELY DEAL WITH ALLTHE PONTS RAISED IN THE DEFENCE IN THEIR WRITTEN STATEMENTS • DETAILS OF MORTGAGED PROPERTY MUST BE ENCLOSED. THERE IS NO NEED TO SEEK ATTACHMENT OF MORTGAGED PROPERTY BUT ASK FOR INJUCTIONS ON THE DEFENDENTS TO RESTRAIN THEM FROM ALIENATING THEIR OTHER ASSETS • DO NOT PRAY FOR ALL THE RELIEFS AT A TIME AS IT MAY DELAY THE FINAL DECISION • RESIST ADJOURNMENTS • TRY TO OBTAIN INTERIM RECOVERY CERTIFICATE TO THE EXTENT CLAIM IS ADMITTED BY THE DEFENCE

  34. THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETSAND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 STATE BANK ACADEMY, GURGAON

  35. SRESI ACT, 2002 (Promulgated on 24.06.2002; re-promulgated on 21.08.2002) • THE ACT PERMITS BANKS AND FIs TO TRANSFER THEIR NPAs TO SECURITISATION AND ASSET RECONSTRUCTION COMPANIES (REGISTERED UNDER INDIAN COMPANIES ACT) • RBI WILL BE THE REGULATOR FOR THE ASSET RECONSTRUCTION COMPANIES AS WELL • ASSET RECONSTRUCTION & SECURITISATION COMPANIES WILL ACQUIRE THE FINANCIAL ASSETS OF BANKS/FIs BY ISSUING BONDS/ DEBENTURES/SECURITIES.

  36. SECURITISATION ACT …contd. • SEC 3 : REGISTRATION OF SCs/RCs • SEC 5 : MODE OF ACQUISITION OF LOAN ASSETS AND THE UNDERLYING SECURITY BY THE SCs/RCs • SEC 6 : MANNER IN WHICH NOTICE MAY BE GIVEN BY BANKS/FIs TO BORROWERS REFGARDING TRANSFER OF LOANS TO SCs/RCs • SEC 7: ISSUE OF SECURITIES TO RAISE RESOURCES FOR PURCHASE OF LOAN ASSETSFROM BANKS/FIs • SEC 8 : EXEMPTING SECURITY RECEIPTS FROM REGISTRATION REQUIREMENTS • SEC 9,15 : POWERS OF SCs/RCs TO TAKE OVER THE BORROWER’S BUSINESS AND INITIATE MEASURES FOR REALISATION OF LOANS

  37. SECURITISATION ACT …contd. • SEC 12 : POWERS OF RBI TO REGULATE THE BUSINESS OF THE SCs/RCs • SEC 13 : ENFORCEMENT OF SECURITY INTEREST BY THE SECURED CREDITOR WITHOUT THE INTERVENTION OF A COURT OR TRIBUNAL BY GIVING 60 DAYS’ NOTICE. THE SECURED CREDITOR CAN • TAKE POSSESSION/MANAGEMENT OF THE SECURED ASSET FOR TRANSFER BY SALE OR LEASE OR ASSIGNMENT FOR REALISATION OF DUES FROM THE SECURED ASSET • APPOINT ANY PERSON TO MANAGE THE SECURED ASSET SO TAKEN

  38. SECURITISATION ACT …contd. • REQUIRE ANY PERSON WHO HAS ACQUIRED ANY OF THE SECURED ASSETS AND OWES MONEY TO THE BORROWER TO PAY THE SECURED CREDITOR TOWARDS CLEARING OF THE DEBT (AND ALL COSTS) • PREVENT TRANSFER BY SALE, LEASE OR OTHERWISE ANY ASSET BY THE BORROWER AFTER RECEIPT OF NOTICE • SEC 14 : DISTRICT MAGISTRATE/CMM TO PROVIDE POLICE PROTECTION TO BANKS/FIs FOR TAKING POSSESSION OF ASSETS • SEC 17,18 : DRTs/DRATs TO ENTERTAIN APPEALS AGAINST ACTION TAKEN BY BANKS/FIs UNDER THE ACT (ANY PERSON MAY PREFER APPEAL TO THE DRT WITHIN 45 DAYS AND TO THE DRAT WITHIN 30 DAYS) • SEC 20 TO 26 : CENTRAL REGISTRY TO BE SET UP FOR REGISTRATION OF TRANSACTIONS OF SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS.

  39. SECURITISATION ACT …contd. • SEC 31 : PROVISIONS OF ACT NOT TO APPLY IN THE FOLLOWING CASES: • LIEN ON ANY GOODS, MONEY OR SECURITY • PLEDGE OF MOVABLES • CREATION OF SECURITY INTEREST IN ANY AIRCRAFT OR IN ANY VESSEL • ANY CONDITIONAL SALE, HIRE-PURCHASE OR LEASE OR ANY OTHER CONTRACT IN WHICH NO SECURITY INTEREST HAS BEEN CREATED • RIGHTS OF UNPAID SELLER • PROPERTIES NOT LIABLE TO ATTACHMENT OR SALE UNDER CPC • ANY SECURITY INTEREST FOR SECURING REPAYMENT OF ANY FINANCIAL ASSET NOT EXCEEDING ONE LAKH RUPEES

  40. ANY SECURITY INTEREST IN AGRL LAND • ANY CASE IN WHICH AMOUNT DUE < 20 % OF PRINCIPAL AMOUNT AND INTEREST THEREON • SEC 32 : PROTECTION OF ACTION TAKEN IN GOOD FAITH • SEC 34 : CIVIL COURT NOT TO HAVE JURISDICTION • SEC 35 : PROVISIONS OF ACT TO OVERRIDE OTHER LAWS. HOWEVER, APPLICATION OF OTHER LAWS NOT BARRED CLAIM WITHIN THE PERIOD OF LIMITATION

  41. OPERATIVE GUIDELINES • NOTICES ARE TO BE ISSUED IF • TOTAL AMOUNT OUTSTANDING (LEDGER BALANCE) IS Rs. 1 LAC AND ABOVE • BANK IS THE SOLE SECURED LENDER OR HAS MINIMUM 75 % SHARE OR SECURED CREDITORS HAVING MINIMUM 75 % SHARE (INCLUDING SECOND CHARGE HOLDERS) GIVE THEIR CONSENT • BORROWERS EXEMPTED • PSUs - CENTRAL / STATE • NPAs WHERE REHABILITATION / OTS IS APPROVED OR IS UNDER PROCESS AND 25 % OF OFFER AMOUNT IS RECEIVED • CASES REFERRED TO CDR CELL

  42. WHERE SECURITY AVAILABLE IS INADEQUATE TO COVER COSTS • DRT / COURT OR BIFR TO BE ADVISED OF ACTION TAKEN U/S 13(2) OR 13(4) OF THE ACT, AS THE CASE MAY BE • RECEIVER, IF ALREADY APPOINTED, TO BE ADVISED AND COURT / BENCH REQUESTED TO KEEP THE CASE IN ABEYANCE • IN THE CASE OF NON- BIFR / SUIT-NOT-FILED CASES, SIMULTANEOUS SUIT TO BE FILED IN DRT / COURT TO KEEP FUTURE RECOURSE OPEN FOR REALISATION OF BALANCE AMOUNT

  43. PROCESS • LEAD/ DESIGNATED SECURED CREDITOR OR DSC (HAVING MAXIMUM OUTSTANDINGS) TO OBTAIN WRITTEN CONSENT OF ALL OTHER SECURED LENDERS (OR THOSE HAVING MIN.75% SHARE) • SECURED CREDITOR STATUS TO BE DETERMINED ON THE BASIS OF ASSET ON WHICH SECURITY INTEREST IS PROPOSED TO BE ENFORCED • IRAC CLASSIFICATION OF DSC TO BE THE DECIDING FACTOR • CONSENT TO BE CONVEYED ONLY ON WRITTEN REQUEST FROM DSC • AUTHORITY STRUCTURE – OSMGS IV

  44. NOTICE TO BE ISSUED BY ALL SECURED CREDITORS • DSC TO BEAR ALL EXPENSES OF SECURITY VALUATION / MAINTENANCE / INSURANCE / ENFORCEMENT AND SHARE WITH ALL FIRST/ PARI PASSU CHARGE HOLDERS IN RATIO OF OUTSTANDINGS AND WITH SECOND CHARGE HOLDERS IN RATIO OF RECOVERY OF OVERDUES. • DSC TO CO-ORDINATE LEGAL DEFENCE IF ACTION IS CONTESTED BY BORROWER

  45. FURTHER COURSE OF ACTION • FULL RECOVERY – ACTION TO BE SUSPENDED • PARTIAL RECOVERY – DECISION OF AUTHORITY CALLING UP THE ADVANCE – SUBJECT TO FRESH REVIVAL / BALANCE CONFIRMATION (WITHIN LAW OF LIMITATION) • COMPROMISE OFFERS TO BE PROCESSED AS PER PROCEDURE • CONTEST NOTICE FROM BORROWER TO BE DEALT WITH IN CONSULTATION WITH LAW DEPARTMENT • IN CASE OF NO RESPONSE FROM BORROWERS, TAKE POSSESSION OF SECURED ASSETS AFTER 60 DAYS

  46. OR, TAKE OVER MANAGEMENT OF SECURED ASSET (NOT FOR THE TIME BEING) • OR, APPOINT AN ENFORCEMENT AGENCY TO MANAGE THE SECURED ASSET • SEND NOTICE TO THE DEBTORS OF THE DEFAULTER BORROWER DEMANDING DIRECT PAYMENT OF DUES TO THE BANK • PROCEDURE FOR SEIZURE OF PROPERTY • IDENTIFY ASSETS AS PER BRANCH RECORD • BORROWER TO BE GIVEN 30 DAYS’ NOTICE • TAKE POSSESSION OF MOVABLE ASSETS WITH THE HELP OF DISTRICT MAGISTRATE OR CMM IN THE PRESENCE OF TWO WITNESSES

  47. PANCHNAMA AND INVENTORY TO BE PREPARED • IN CASE OF IMMOVABLE PROPERTY, ISSUE/ PUBLISH POSSESSION NOTICE • PROPERTY TO BE KEPT UNDER PROPER CARE / MAINTENANCE OR SOLD IF LIKELY TO DECAY • NOTICE TO BE SENT TO DEBTORS TO DEPOSIT PROCEEDS WITH BANKS AND PROHIBITING DISPOSAL OF PROCEEDS / INTEREST IN ANY MANNER • RESERVE PRICE TO BE FIXED ON THE BASIS OF VALUATION BY VALUER (APPROVED BY ECCB) • VALUATION TO BE CLEARED BY THE SRESI VALUATION COMMITTEE ( GM, Dy. G.M.(CB), Cir. CO )

  48. PROCEDURE FOR SALE(AFTER VALUATION, FIX A RESERVE PRICE BELOW WHICH SALE WILL NOT BE EFFECTED) • BY OBTAINING QUOTATION - MINIMUM 3 INTERESTED PARTIES • BY INVITING PUBLIC TENDERS -NOTICE TO BE PUBLISHED IN TWO NEWSPAPERS WITH ONE OF THEM HAVING WIDE LOCAL CIRCULATION • BY PUBLIC AUCTION • BY PRIVATE TREATY

  49. APPOINTMENT OF ENFORCEMENT AGENTS • AUTHORISED OFFICERS MAY ENLIST SERVICES OF EAs, IF WARRANTED, FOR:- • TAKING POSSESSION OF MOVABLE AND IMMOVABLE PROPERTIES • PREPARING THE PANCHANAMA/INVENTORY • MAKING SUITABLE ARRANGEMENTS FOR STORAGE, MAINTENANCE, SECURITY, LOCKING-UP AND INSURANCE • SENDING NOTICES TO DEBTORS OF BORROWERS • ARRANGING FOR VALUATION AND SALE OF ASSETS AS WELL AS COLLECTING SALE PROCEEDS, ISSUING SALE CERTIFICATE AND COMPLETING OTHER NECESSARY FORMALITIES.

  50. SALE OF ASSETS TO SECURITISATION CO./ RECONSTRUCTION CO. (SC/RC) ELIGIBILITY CRITERIA NPAs (INCLUDING BONDS/DEBENTURES) IN LIVE LEDGER/PB/RD ACCOUNTS OR AUCA • WHERE WE ARE SOLE LENDERS, ACCOUNTS WITH LEDGER OUTSTANDINGS OF Rs. 5 Crs. & OVER. EXCEPTIONS MAY BE PERMITTED BY THE MD & GE (NBG) IF RECOMMENDED BY CIRCLE CGM • IN CASE OF CONSORTIUM OR SYNDICATED LOANS/ MULTIPLE BANKING ARRANGEMENT, IF 75 % OF CREDITORS (BY VALUE) SEEK/ AGREE FOR THE SALE.

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