SARFAESI ACT, 2002
( salient features of The Securitisation and Reconstruction of Financial Assets
Enforcement of Security Interest Act, 2002 )
* The Act extends to the whole of India and came into force from 21/06/2002.
* Action under SARFAESI Act and DRT Act,1993 (The Recovery of Debts Due to Banks And Financial Institutions Act, 1993 ) can move concurrently.
* Provisions under the Act shall not apply to -- (i) any security interest created in agricultural land, (h) any security interest for securing repayment of any financial asset not exceeding one lakh rupees, (j) any case in which the amount due is less than twenty percent of the principal amount and interest thereon, (f) any rights of unpaid seller under Section 47 of the Sale of Goods Act,1930,(c) creation of any security in any aircraft as defined in clause (1) of Section 2 of the Aircraft Act,1934, (d) creation of security interest in any vessel as defined in clause (55) of Section 3 of the Merchant Shipping Act, 1958. These exceptions and a few more are detailed out in Section 31 of SARFAESI ACT.
* Limitation (section 36)-- No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of Section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act,1963 (36 of 1963)
*Civil Court not to have any jurisdiction (section 34 )-- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debt Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act,1993 (51 of 1993)
*Borrower -- includes borrower, guarantor, mortgagor as per 2(f) of the 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 a 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;
Pre-conditions for serving 13(2) Notice-- (a) The loan account must be secured which means the Bank must be a secured creditor. (b) There must be default in repayment. (c) the debt is classified as NPA.
The Notice to be served in writing to the borrower, guarantors, mortgagors to discharge their liabilities in full within 60 days of the date of notice failing which the secured creditor shall exercise his rights under section 13(4).
Section 13 (2) --Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing 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 sub-section(4).
Representation by Borrower, guarantors, mortgagors-- under section 13(3)(A) representation can be made or objection can be raised within notice period. If the same is unacceptable, the secured creditor should communicate within 15 days ( amended from earlier 1 week ) of receipt of such representation. However, the same shall not be a ground to prefer an application before DRT.
Section 13 (3) -- The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
[(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within 15 days ( earlier was one week) of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower.
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under section 17(A)]
Section 13 (4) -- (symbolic possession/actual possession of the assets) --In case the borrower fails to discharge his liability within the period specified in sub-section (2), 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 including the right to transfer by way of lease, assignment or sale for realising the secured asset.;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset.;
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt;
Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt.
(c) appoint any person (hereafter 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.
Section 13 (9) -- In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section(4) unless exercise of such rights is agreed upon by the secured creditors representing not less than [sixty per cent ] in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors.
Provided that in case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956).
Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956(1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act:
For the purpose of this Sub-Section,:--
"Record Date" means the date agreed upon by the secured creditors representing not less than [sixty per cent ] in value of the amount outstanding on such date.
"amount outstanding " shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor.
Right to appeal --under section 17- within 45 days of 13(4) notice
Section 17(1)--Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this chapter, [may make an application along with such fee, as may be prescribed] to the Debts Recovery Tribunal having jurisdiction in the matter within forty five days from the date on which such measures had been taken;
Appeal to Apellate Tribunal - Section 18-- within 30 days of receipt of DRT order
Section 18 (1)-- Any person aggrieved, by any order made by the Debts Recovery Tribunal [ under section 17,may prefer an appeal along with such fee, as may be prescribed] to an Appellate Tribunal within 30 days from the date of receipt of the order of Debts Recovery Tribunal.
[Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower ]
[Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty percent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less;
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five percent of debt referred to in the second proviso.
Section 31--Provisions of this Act not to apply in certain cases- The provision of this Act shall not apply to--
(h) any security interest for securing repayment of any financial asset not exceeding one lakh rupees.
(i) any security interest created in agricultural land;
(j) any case in which the amount due is less than twenty per cent of the principal amount and interest thereon.
Section 36- Limitation- No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963(36 of 1963).
The Security Interest ( Enforcement ) Rules, 2002
Section 5 - Valuation of movable secured assets - After taking possession under sub-rule (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 be sold in realisation of the dues of the secured creditor.
Section 6 - Sale of movable secured assets - (1) the authorised oficer may sell the movable secured assets taken possession under subrule (1) of Rule 4 in one or more lots by adopting any of the following methods to maximum sale price for the assets, to be so sold--
(a) obtaining quotation from parties dealing in the secured assets or otherwise interested in buying such assets; or
(b) inviting tenders from the public; or
(c) holding public auction; or
(d) by private treaty
(2) The authorised officer shall serve the borrower a notice of thirty days for sale of the movable secured assets, under sub-rule (1);
Provided that if the sale of such secured assets is being effected by either inviting tenders or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers , one in vernacular language, having sufficient circulation in that locality by setting out the terms of sale, which may include--
(a) details about the borrower and the secured creditor;
(b) description of movable secured assets to be sold with identification marks or numbers, if any, on them;
(c) reserve price, if any, and the time and manner of payment
(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 authorized officer considers it material for a purchaser to know in order to judge the nature and value of movable secured assets.
(3) 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.
Section 8 - Sale of immovable secured assets - (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.
(2)[ The possession notice as referred to in sub-rule (1) shall also be published as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers ], one in vernacular language having sufficient circulation in that locality, by the authorized officer.
(3) In the event of possession of immovable property is actually taken by the authorised officer,such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property.
(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.
(5) Before effecting sale of the immovable property referred to in sub-rule (1) of Rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods--
(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or
(b) by inviting tenders from the public;
(c) by holding public auctions; or
(d) by private treaty
(6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5)
Provided that 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 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;
(b) the secured debt for recovery of which the property may 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.
(7) 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.
(8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
Section 9. Time of sale, Issue of sale certificate and delivery of possession, etc-- (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to sub-rule (6) or notice of sale has been served to the borrower.
(2) The sale shall be confirmed in favour of the 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.
Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9.
Provided further that if the authorized 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.
(3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent of the amount of the sale price, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again.
(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised 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.
(5) In default of payment within the period mentioned in sub-rule(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.
(6) 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(5) to these rules.
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