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FAQ on action by Bank under Securitisation Act - 2002 (SRESI)

1. Whether the Bank can enforce the secured assets under section 13 of SRESI Act even if the account of the borrower is not classified as non-performing asset ?
No. The power u/s 13 could be exercised only if the account is classified as non-performing asset as per the guidelines on asset classification prescribed by RBI.
2. When an asset is considerd 'NPA' as per RBI guidelines ?
In case the interest or instalment is overdue for a period exceeding 180 days.
3. What is the cut-off limit for issue of notice as per the provisions of the Act and the Bank's guidelines ?
Rs. 1 lac as per the Act and the Bank's extant guidelines.
4. Whether demand notice u/s 13(2) could be iussued in cases where legal action is pending before the DRT/Civil court/BIFR?
Yes. The DRT/Civil Court/BIFR as the case may be is to be informed suitably, simultaneously with the initiation of action under the securitisation Act through Bank's dealing advocate.
5. Whether demand notices already sent under the securitisation ordinance(first/second) is saved after the Act ?
Yes. The Act protects the action taken under the corresponding provisions of the Ordinance {Section 42(2)} and is also brought into force w.e.f. 21/06/2002. Henceforth the word 'Ordinance' is to be replaced with 'Act' wherever appllicable.
6. Whether the existing power structure under the delegation of financial powers for initiating legal proceedings before a civil court/DRT would be applicable for exercising rights under the Act ?
Yes. An officer of the rank of SMGS-IV (Chief Manager) and above of the branch or in the admninistrative office as decided by he branch's controller is entitled to act as an 'Authorized Officer' for issuing notice u/s 13(2) and for exercising all other connected functions/rights/actions/powers inter-alia as to taking possession of movable/immovable assets, inventory, panchnama and sale of the secured assets, etc.
7. Whether fresh notice is to be issued by the authorized officer if the notice already sent under the ordinance was by an oficer of MMGS-III or below?
Yes. In cases where an officer of MMGS-III and below issued notice, a fresh notice by an officer of SMGS-IV (not in officiating capacity) as stated above should be issued.
8. Whether demand notice under section 13(2) can be issued to both the borrower and the guarantor?
Yes. But, if the guarantor has not created any mortgage or other security interest on his assets then a copy of notice to borrower is marked to the guarantor otherwise separate notices to borrowerr and guarantor should be issued as prescribed.
9. Whether Enforcement Agencies can be engaged to take the possession of assets/properties independently or through Govt. machinery viz. Distt. Collector etc.?
Yes. Enforcement Agencies could be engaged as per Bank's norms.
10. Whether limitation is saved if legal action is to be initiated for any shortfall of debt due upon initiation of action u/s 13 of the Act ?
No. Simultaneous action is preferable if the limitation is going to expire soon and the DRT/Court/BIFR as the case may be is to be informed suitably of the action initiated u/s 13 of the Act.
11. Is it obligatory for obtaining consent/concurrence of other lenders having common security interest ?
Yes. The secured creditors having common security interest shall have to agree to add up to 75% or more by value of their share in the secured assets for initiation of action u/s 13 of the Act.
12. Who will act as the Lead Bank/FI for actions under SRESI where there is no consortium arrangement ?
The secured creditor (term lender or WC lender) with the largest exposure will act as the designatred secured creditor (DSC) in non-consortium cases.
13. If the demand notices sent to the borrower/guarantor are returned unserved/undelivered what is the next step to be taken by Bank ?
Authorised Officer may arrange to get the Notices affixed on the outer door or some oher conspicuous part of the house/building where the borrower is residing or carrying on the business or working for gain and should also publish them in two leading newspapers (one in vernacuilar language) having sufficient circulation in that locality.
14. If the demand notices sent to the borrower/guarantor are returned with the endorsement 'refused' will it amount to service ?
Yes. Refusing to receive the notice when tendered is considered good service in low. The envelope containing the endorsement of refusal has to be preserved.
15. Whether consent should be given even in cases where independent action under the Act is barred by Limitation ?
Yes. Consent should be given in all cases even if our independent action under the Act is barred by Limitation (i.e. more than 3 years have elapsed from the date of last revival letter/debt knowledgement in case of movables and more than 12 years have elapsed from the date on which the amounts were due and payable in case of mortgages.)
16. If the requiisite consent of other secured creditors is not forthcoming or is refused what is the recourse available to the Bank ?
Ordinarily the requisite consent should not be refused or withheld by any Bank/FI but if for any reason it is so refused by any of the secured creditor then the other lenders will not be entitled to take action under section 13(4) of the Act for want of 75% or more of share amongst the secured creditors. In such case, suit has to be filed in DRT/Court.
17. Whether 60 days has to be reknoned from the date of notice or the date of receipt of notice by the borrower/guarantor ?
The time period of 60 days should be reckoned from the date of receipt of notice and not from the date of notice.
18. If the amout mentioned in the demand notice is not paid within the time specified, what measures can the Authorised officer take to realise the amout ?
The authorizedd officer may adopt one or more of the following measures as specified in sub-section(4) of section 13 of the Act.

  • Take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured assets.
  • 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 assets.
  • Appoint any person to manage the secured assets the possession of which has been taken over by the secured creditor.
  • 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 debt.

19. If Bank's debt secured through documents has been barred by Law of Limitation, can our interest in the mortgaged properties through mortgage deed/confirmatory letter is enforceable ? In such cases, what recourse is available against other movable assets ?
A mortgage debt is enforceable within 12 years and the proceeds of mortgaged assets if they are in excess could be appropriated towards time barred debt of other limits.
20. If an agricultural land mortgaged to Bank has been brought under industrial use, can Bank's interest be enforced ?
Certificate from revenue officials is necessary if there has been change of land use from agricultural land to industrial use. Otherwise, Section 31 bars enforcement of security of agricultural land.
21. Can Enforcement Agencies take the possession of assets/properties independently or through Govt. machinery viz. DM/Collector etc ?
Yes. The Enforcement agencies can seize/take possession of movable/immovable assets independently or with the help of DM/Collector and effect sale thereof on the basis of he terms of engagement (Section 14).
22. Asset Reconstruction Co. (ARC) being brought into existence has been prohibited from managing the affairs of the company. How can secured creditor take over management of the Company ?
Management of business of borrower can be taken over as per Section 13(4). The manner and effect of such take over has been provided under Section 15 wherfeby after issue of public notice the persons holding office as directors etc. shall be deemed to have vacated their offices as such.
23. What is definition of hypothecation ? Whether hypothecation means security under Bank's lien also ?
The definition of hypothecation is given ujnder Section 2(n), which means security under Bank's lien also.
24. Could pledge of movable assets cover constructive pledge also?
Pledged security is outside the scope of the Act (Section 31) and has to be enforced separately in terms of Section 172/176 of the Contract Act.
25. When borrower contests action taken under SRESI before the DRT, what recourse is available to bank, after any adverse decision of DRT ?
Appeal can be filed before DRAT (section 18).
26. Is the Bank supposed to dispose perishable goods immediately after seizure under SRESI? What are the legal implications ?
Yes. But, even for perishable goods the Bank has to arrange for sale thereof after determining the market value by obtaining quotations etc. in the presence of two respectable witnesses or a notary public.
27. If document has become barred by limitation but E.P. has been filed. Whether Bank can move under SRESI within limitation period of E.P.?
In mortgaged securities, Bank can take recourse under SRESI within 12 years being the limitation prescribed for execution of mortgage decree and in other cases, 3 years from the date of judgement.
28. In Factory Type/Mandi Type advances forming constructive pledge, why these types of charges are not covered under the SRESI Act ?
Enforcement is to be done through DRT. Please refer to definition of security interest under section 2(zf) of the Act read with section 31 of Act.
29. In some states for creating charge on Agricultural Land permission of the Govt. is required. In such cases, why action is not permissible under this Act.
If the nature of security is an agricultural land, action is not permissible, under the Act as it also falls within the State subject.
30. What is the role/function of Central Registering Authority ?
Chapter-IV deals with the role and functions of the Central Registering Authority inter-alia for the purpose of registration of transaction of securitisation and reconstruction of financial assets and creation of security interest under this Act.
31. Can the borrower/guarantor challenge the Bank's action of issuance of demand notice u/s 13(2) ?
No. Only after 60 days of receipt of notice, if the borrower is aggrieved by any of the measures/actions taken by the Bank u/s 13(4) in that case he may challenge such action in appeal before DRT.
32. In case of appeal whether borrower/guarantor has to pre-deposit any amount of debt due.
Yes. He has to deposit at least 75% of the debt due at the time of appeal. However, the DRT has the discretion to reduce or waive the amount of pre-deposit for reasons to be recorded in writing.
33. Whether the enforcement agency (EA), if any, appointed for taking possession, maintenance and eventual sale can act himself or has to seek necessary instruction on each occasion ?
The Enforcement Agency has to act in accordance with the terms of his engagement, which must be clear as to the various duties to be performed by E.A. The borrower/guarantor is also to be informed about enlisting the services of particular E.A.
34. Whether borrower/guarantor could be evicted for delivering vacant possession of the immovable property sold to the buyer.
The sale of possessed assets by Bank's authorized officer is deemed to have been done on behalf of the owner. The terms of sale proclamation should be clear as to existing encumbrances.
35. Can the tenants be asked to vacant the property occupied by him/them?
No. The property will have to be sold subject to any existing encumbrances, unless these are agreed to be discharged and is proposed to be sold free of encumbrances as specified in the Sale Proclamation Notice.
36. Whether workmen's dues will have pari passu charge over the proceeds of the secured assets if enforced under this act ?
Yes. The workmen's dues will have pari-passu charge with that of the secured creditors in terms of Section 529-A of the Companies Act.
37. Whether the sale certificate for immovable property attracts stamp duty and registration with the Sub-Registrar concerned.
38. Is the borrower/guarantor debarred from selling, transferring the secured assets after receipt of notice issued u/s 13(2) ?
In terms of section 13(13) the borrower/guarantor shall not tranfer by way of sale, lease or otherwise (other than in ordinary course of his business) any of his secured assets without the prior written consent of the secured creditor.
39. In the absence of Authorised Officer appointed for an acount whether another Authorised Officer can be appointed or allowed to initiate action under the Act ?
For any exigencies, if the appointed Authorised Officer is not able to complete the job, the concerned controller of the Bank can recommend for replacement of such Authorised Officer and the new Authorised Officer will be served the letter of appointment. However, no two or more Authorised Officers can act concurrently on a single A/c.
40. What is the period to be given normally for intention to take possession?
Generally seven days time should be given and time and date of intended possession should be stated in the notice. If any particular case warrants more time to be given, permission to give such additional time may be given by the concernd General Manager of the Bank.
41. Whether notice(intention to take possession sho uld be given for both movable and immovable properties. If so, in cases where separate notices are required to be issued.
The said notice is envisaged for both movable and immovable properties.If immovable property and the movables thereon both are secured to us and the same will be taken possession of simultaneously, only one notice covering both movables and immovables need to be served. In other cases, two notices are required to be issued(e.g. where movables are decided to be taken possession of subsequently).
42. Before the actual sale of the immovable properties whether Bank/branch should obtain encumbrance certificate from registrar of assurances from the date of creation of mortgage.
It is necessary to obtain and keep on record these encumbrance certificate as any buyer would be keen to get a clear title. T herefore, the encumbrance certificate work must comm ence alongwith the issuance of notice. Should any alienations be found in such encumbrance certificate, the same require to be individually dealt with on merits of the case in consultation with the controller of the Bank.
43. For the 60 days demnand notice, if the borrower/guarantor serves a reply with allegations/contentions, whether the same is to be replied before initiating any further action?
The reply sholld be evaluated properly. If the contents of the reply are not likely to vitiate the further actions, there is no need to send a separate reply. In the notice to take possession a sentence may be added to the effect "instead of repaying the demand made in our notice chose to send a reply with untrue allegations and untenable contentions." By way of abundant precaution, it is always advisable to reply relevant/very partinent points of reply received fromn the NPA borrower or his Advocate, immedikately. However further actions under the Act/must continue in the normal course.
44. Whether demand notice is to be re-issued if the borrower commits default after paying some money/instalments.
The borrower is expected to pay the demand in full on receipt of the notice within 60 days. If the borrower pays in piece meal, the same can be accepted but with a clear notification to the borrower that the same is received without prejudice to the rioghts of the rights of the Bank under the demand notice issued. In such an event, there is no need to re-issue the notice.

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