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Debt Recovery provisions under the SARFAESI Act
  • By: admin
  • Date: 12 Feb 2020
  • Recovery
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SARFAESI Act

As observed, the tribunals were overburdened with thousand's of pending cases, with respect to that the 'Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (SARFAESI Act) was introduced by the government. This Act allows banks and other financial houses to deal with the collateral security attached with the NPA to recover the outstanding debt without the intervention of a court or a tribunal.

The lenders would approach the DRT's to recover their bad debts that are not recovered even after dealing with collateral security. Consequently, the borrowers would also approach the DRT's to challenge the actions of the lenders under the SARFAESI Act and hence choking the tribunals.

 

Principal objects of the Act:

• Fast track mode of the debt recovery process that introduced a time limit of 30 days to the district magistrate for the completion of the process.

• Regulation of Asset Reconstruction Companies (ARC) that purchase NPA's from the banks at a discount, allowing banks to recover a partial amount.

• Earlier RBI could only determine the policy and issue directions to ARC, and now, under the Act, the RBI can audit and inspect ARC's entirely.

• When the secured creditor acquires a majority stake in the company by converting debt into shares, even after paying the outstanding dues of the borrowers the secured creditors shall not be liable to restore the business to the debtor. This shall stand as a warning to the borrowers and deter them from defaulting due to the fear of losing the business.

• Under the Act, there shall be a Central database of the property rights and registry that shall prevent the secured creditors from taking possession of collateral security unless registered with the Central registry. These secured creditors shall have priority over all other claims, including claims of the government.

• In an attempt to avoid frivolous appeals, one has to deposit 50% of the debt amount before the appeal. However, this amount can be brought down to 25%, but under no circumstances, it can be waived off entirely.

• The Act also deals with enhancing the infrastructure of the DRT's and the procedural requirements to ensure no delays in dealing and disposing of the matters. These steps include increasing of retirement age of the chairpersons of DRT and DRAT, electronic form filing etc.

• Stamp duty has been waived off for transfer or assignment of assets in favour of ARC to reduce transaction costs.

 

What is NPA?

When a bank gives loan to a person and fails to make regular payments despite receiving notices from the bank, the bank will declare that loan as a Non-Performing Asset (NPA).

 

What do you mean by DRT?

In 1993, Debt Recovery Tribunals (DRT's) were established in India to facilitate the debt recovery process and deal with NPA matters involving banks and other financial houses. The government recently doubled the monetary limit to rupees twenty lakh; hence, DRT's can take cases from banks for disputed loans above Rs 20 Lakhs.

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Procedure In Debt Recovery Tribunal Proceedings

By: admin Recovery 19 Apr 2019

The step-wise procedure to be followed in DRT Proceedings in all available NPA accounts are as follows: 

Demand notice by RPAD (Registered Post with Acknowledgement Due) should immediately be served to call upon the borrower or guarantor to repay the dues within a reasonable time from the date of receipt of the Notice before issuance of the same under Section 13(2) of the SARFAESI Act, 2002.

On receipt of such demand notice when the borrower and guarantor fail to make repayment of his/their dues within the time as specified in the notice, Bank should take steps for filing Original Application (OA) in DRT for recovery of dues. 

It is necessary that the Bank should file an application along with the relevant documents in book form and required fees with the Registry of DRT within whose jurisdiction:
a) the applicant Bank functions, 
b) the defendants or any of the defendants where there are more than one, actually or voluntarily reside, or carries on business, or personally works for gain, or 
c) the cause of action, partly or wholly, arises, and if any discrepancy is found, he shall grant a specific time to the applicant Bank to rectify the same.

- On such rectification, the Registrar shall register the OA and give a serial number.

- On registration of the OA, the summons shall be served on the defendants by the Registrar. 

- The defendant s is/are required to file the Written Statements within a maximum period of 30 days from the receipt date of summons unless an extension is allowed. Else, the OA shall be heard ex-parte.

- Evidence-on-Affidavit, along with the original documents, is to be filed by the Applicant Bank.

- Defendants has/have to file Evidence on Counter-Affidavits along with the papers relied upon by him/them. 

- Arguments on behalf of the applicant bank shall be filed.

- An Argument on behalf of the defendant shall be filed.

- Detailed information as to the balance outstanding, cost and expenses, etc., incurred by the Bank in the account are to be submitted by the applicant Bank.

- The Judgement is passed, and the DRT issues the Recovery Certificate.
 
- Particulars of the Certificate Debtor (CD), i.e., Present Addresses, etc., to be submitted by the bank for the issuance of Demand Notices by the Recovery Officer.

- Demand Notices to be issued by the Recovery Officer directing the CDs to make payment in terms of Recovery Certificate. 

- On failure of the CDs to make payment in terms of the demand notice, the property details (both secured and unsecured) of the CDs to be submitted by the bank for attachment.

- Order of attachment of the properties of the CDs is to be passed by the Recovery Officer. 

- Order for sale of the properties of the CDs is to be passed by the Recovery Officer. Recovery Officer may appoint a Receiver for conducting the sale, taking into consideration the nature of the assets.

- Where any property is managed to be sold, the Recovery Officer shall cause a proclamation of the intended sale for public auction as per 2nd & 3rd Schedules to the I.T. Act, 1961 and the Rules made thereunder.

- After adjusting the sale proceeds if there is any shortfall, the application may be filed by the bank praying for arrest and civil imprisonment of the CDs.
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