Transcript RECOVERY OF NPAs NON

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
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)
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
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
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
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
SOCIETIES
• ONLY A REGISTERED SOCIETY ATTAINS A
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•
SEPARATE IDENTITY AND CAN BE SUED
60 DAYS’ NOTICE u/s 126 OF THE
COOPERATIVE 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
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
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
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
STAMP DUTY
• LEGAL REQUIREMENT
• INDIAN STAMP ACT 1899 REQUIRES THAT
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•
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
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
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, CHAINcomplete
SEARCH REPORT
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
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
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
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
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
REGISTRATION OF CHARGE
(IN CASE OF COMPANIES)
• FORMS
FORM 8 REGISTRATION/MODIFICATION
OF CHARGE
FORM 13 REGISTER OF CHARGES
FORM 17 SATISFACTION OF CHARGE
FORM 18 CHANGE OF SITUATION OF
OFFICE
FORM 32 APPOINTMENT/CHANGE OF
DIRECTORS
IMPORTANT SECTIONS OF
COMPANIES ACT
• SEC 124 CHARGE TO INCLUDE MORTGAGE
• SEC 125 CHARGE VOID IF NOT REGISTERED
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(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
IMPORTANT SECTIONS OF
COMPANIES ACT
• SEC 138 – 140 SATISFACTION OF
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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
REMEMBER
• SURETY HAS THE RIGHT TO BENEFIT OF SECURITY SEC
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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
LIMITATION ACT 1963
• DEBT BECOMES TIME BARRED 3 YEARS FROM THE DATE
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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
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
RECOVERY OF NPAs
LEGAL OPTIONS
• LAW SUITS
• RECOVERY THROUGH DRTs
• RECOVERY CERTIFICATES
• SUMMARY SUITS
• ACTION UNDER PUBLIC DEBT
RECOVERY ACT (WHERE
APPLICABLE)
LAW SUITS
• CHECK WHETHER DOCUMENTS ARE IN ORDER AND
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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
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
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.
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.
DEBT RECOVERY TRIBUNALS
(THE RECOVERY OF DEBT DUE TO BANKS AND
FINANCIAL INSTITUTIONS ACT 1993)
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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
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
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
THE SECURITISATION
AND
RECONSTRUCTION OF FINANCIAL ASSETS
AND
ENFORCEMENT OF SECURITY INTEREST
ACT, 2002
STATE BANK ACADEMY, GURGAON
SRESI ACT, 2002
(Promulgated on 24.06.2002; re-promulgated on
21.08.2002)
• THE ACT PERMITS BANKS AND FIs TO TRANSFER THEIR
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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.
SECURITISATION ACT …contd.
• SEC 3 : REGISTRATION OF SCs/RCs
• SEC 5 : MODE OF ACQUISITION OF LOAN ASSETS AND
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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
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
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.
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
ANY SECURITY INTEREST IN AGRL LAND
ANY CASE IN WHICH AMOUNT DUE < 20 % OF
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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
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
• WHERE SECURITY AVAILABLE IS INADEQUATE TO
•
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•
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
PROCESS
• LEAD/ DESIGNATED SECURED CREDITOR OR DSC
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(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
• 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
 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
• 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
• PANCHNAMA AND INVENTORY TO BE PREPARED
• IN CASE OF IMMOVABLE PROPERTY, ISSUE/ PUBLISH
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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 )
PROCEDURE FOR SALE
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•
(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
APPOINTMENT OF ENFORCEMENT AGENTS
• AUTHORISED OFFICERS MAY ENLIST SERVICES OF EAs, IF
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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.
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.
SALE OF ASSETS TO SECURITISATION CO./
RECONSTRUCTION CO. (SC/RC)
STANDARD ASSETS
• ONLY ACCOUNTS UNDER CONSORTIUM/
MULTIPLE BANKING
• AT LEAST 75 % OF ASSETS BY VALUE SHOULD
HAVE BEEN CLASSIFIED AS NPAs IN THE BOOKS
OF OTHER BANKS/ FIs
• AT LEAST 75 % OF BANKS/ FIs BY VALUE WHO
ARE IN THE CONSORTIUM/MULTIPLE BANKING
ARRANGEMENT AGREE TO THE SALE OF THE
ASSET TO SC/RC
SALE OF ASSETS TO SECURITISATION CO./
RECONSTRUCTION CO. (SC/RC)
THE FOLLOWING ASSETS WILL NOT BE OFFERED FOR
SALE TO SC/RC:
• NPAs WHERE OTS/ REHABILITATION IS APPROVED AND
•
•
REPAYMENT IS BEING MADE AS PER APPROVED PLAN BUT
WHERE TERMS OF OTS ARE NOT BEING COMPLIED WITH,
ASSETS MAY BE OFFERED FOR SALE WITH THE APPROVAL
OF MD & GE (NBG)
ASSETS WHERE OTS IS UNDER PROCESS (AND WHERE
25 % OF THE OFFER AMOUNT HAS BEEN DEPOSITED
BY THE BORROWER/ GUARANTOR)
ACCOUNTS REFERRED TO CDR BY OUR BANK OR OTHER
BANKS/FIs WHERE RESTRUCTURING PRPOSALS ARE
UNDER CONSIDERATION OF THE CDR EMPOWERED GROUP
IDENTIFICATION & VALUATION OF ASSETS
• SECURITISATION & RECONSTRUCTION CELL (SRC) SET
•
•
•
UP IN NBG UNDER CGM-CREDIT MGT TO INITIATE THE
PROCESS AND SUBSEQUENTLY COORDINATE
IDENTIFICATION OF ASSETS FOR POSSIBLE SALE TO
SC/RC.
AFTER THE ASSETS ARE IDENTIFIED, SRC WOULD SEND AN
INDICATIVE LIST OF ASSETS AVAILABLE FOR SALE TO THE
IDENTIFIED SCs/ RCs.
CIRCLES/CAG WILL SIMULTANEOUSLY UNDERTAKE A
FRESH VALUATION OF ASSETS BY A SUITABLE AGENCY
FROM THE PANEL OF ENFORCEMENT AGENTS/ VALUERS
(APPROVED BY THE ECCB) AND SEND REPORT TO SRC.
COMMON APPROACH MAY BE ADOPTED IN COORDINATION
WITH OTHER FIs/ BANKS OR WITH SC/RC TO SAVE COSTS
OR TO CUT DELAYS PROVIDED THE ENFORCEMENT AGENT/
VALUER IS FROM OUR APPROVED PANEL.
IDENTIFICATION & VALUATION OF ASSETS
• GM (NPA MGT) OR GM (COMM) TO COORDINATE
•
THE WORK AT THE CIRCLE LEVEL FOR BOTH THE
RNW AND CNW ACCOUNTS. IN CAG, BRANCH
HEAD WILL DISCHARGE THIS RESPONSIBILITY.
PRICE OFFERED BY THE SC/RC TO BE EVALUATED
ON THE FOLLOWING BASIS: WHETHER THE UNIT IS IN OPERATION OR CLOSED
 REALISABLE VALUE OF ASSETS
 WORTH OF THE GUARANTORS
 OTHER OPTIONS (RECOVERY THRU’ OTHER MEANS,
KEEPING IN VIEW THE REALISABLE AMOUNT AS WELL
AS TIME LIKELY TO BE TAKEN IN RECOVERY)
DECISION MAKING PROCESS
• CIRCLES/ CAG AND SRC WILL WEIGH ALL FEASIBLE
•
OPTIONS AGAINST THE OFFER MADE BY THE SC/RC
ON THE PRESCRIBED (STRUCTURED) FORMAT WHICH
PROVIDES FOR FOUR RECOVERY OPTIONS, NAMELY,
SEIZURE UNDER THE ACT, RECOURSE TO LEGAL REMEDY
(DRT OR OTHER COURTS0, OFFER FROM A SC/RC, AND
OTS/COMPROMISE.
PRICE NEGOTIATION WITH THE SC/RC WILL BE DONE BY
A TEAM COMPRISING
 GM (NPA MGT) OR GM (COMM) OF THE CIRCLE
 DGM (SRC)
 CONCERNED DGM (BRANCH/MODULE/CAG) OR
NOMINEE OF THE CGM(CAG CENTRAL)
AFTER PRICE NEGOTIATION, PROPOSAL TO BE PUT UP BY
CIRCLE/CAG TO CCC-I/COCC/ECCB AS PER DELEGATION
OF FINANCIAL POWERS FOR COMPROMISE SETTLEMENT.
DECISION MAKING PROCESS
• IN CASE NEGOTIATION FAILS BECAUSE OF THE
•
OFFER PRICE BEING UNACCEPTABLE TO BANK,
REPORT TO BE SENT TO MD & GE BEFORE
REJECTING THE SC/RC OFFER.
IF OTHER BANKS/FIs HOLDING 75% OR MORE
OF THE ASSET BY VALUE DECIDE TO ACCEPT THE
VALUE OFFERED BY THE SC/RC, BANK WILL ALSO
HAVE TO ACCEPT THE OFFER AS PER RBI
GUIDELINES.
TERMS & CONDITIONS
 NO LIABILITY SHOULD DEVOLVE ON THE BANK AFTER THE
SALE OF ASSETS TO SC/RC
 BANK WILL NOT ASSUME ANY RISK AFTER THE SALE.
 SALE CONSIDERATION OF FINANCIAL ASSETS SOLD TO
SC/RC BY THE BANK (BONDS, DEBENTURES OR SECURITY
RECEIPTS) TO BE CLASSIFIED AS INVESTMENTS.
 NO NEGOTIATION/TRANSFER AT A CONTINGENT PRICE
BUT IN ALL CASES, AGREEMENT WITH THE SC/RC SHOULD
PROVIDE FOR SHARING OF SURPLUS REALISATION IN
AGREED PROPORTION
 SCs/RCs WILL NOT TAKE OVER THOSE FINANCIAL ASSETS
WHICH CANNOT BE REVIVED BUT MAY ACT AS RECOVERY
AGENT FOR A FEE.
SECURITISATION & ASSET RECONSTRUCTION
COMPANIES : ISSUES FOR CONSIDERATION
• PROFESSIONAL APPROACH - SPECIALISED SKILLS
• EXPEDIENT REDUCTION IN NPAs
• MORE APPROPRIATE WHERE WE ARE WC LENDERS AND
•
•
•
•
•
•
HAVE NO SIGNIFICANT FIXED ASSETS/COLLATERAL
SECURITY
RECYCLING OF BLOCKED FUNDS
OUTSOURCING RISKS
TRANSPARENCY AND ACCOUNTABILITY ISSUES
INTER-CREDITOR ISSUES : ALLOCATION OF DETERMINED
VALUE AMONG LENDERS
VALUATION : UPFRONT LOSSES; STATUTORY/ EMPLOYEE
DUES; INTERESTS OF OTHER STAKE-HOLDERS
STAMP DUTY ON ASSIGNMENT OF LOANS
SCs & RCs : ISSUES FOR CONSIDERATION
• BALANCE-SHEET MANAGEMENT : IMMEDIATELY CLEANSES
•
•
•
•
•
•
•
BALANCE SHEET; IMPROVEMENT IN CAPITAL ADEQUACY
RATIO
EASE OF DECISION MAKING vs. RISK IN TRANSFER OF
DECISION MAKING POWER
LOSS OF OPPORTUNITY FOR A NEGOTIATED SETTLEMENT
RBI HAS TO ISSUE GUIDELINES FOR CHANGE/TAKE-OVER
OF MANAGEMENT
LOW CAPITAL BASE OF SCs/RCs : ABSENCE OF MARKET/
INVESTORS FOR SECURITISED NPAs
LIQUIDITY ISSUES - REALISABILITY OF DUES IN
HARDCORE/ DIFFICULT CASES
INCOMPLETE/FLAWED/ INCONSISTENT DOCUMENTATION.
VIOLATION OF PRINCIPLE OF TRUE SALE?
SCs & RCs : ISSUES FOR CONSIDERATION
• MARKETABILITY/ REDEMPTION OF BONDS, DEBENTURES
•
•
OR SECURITY RECEIPTS RECEIVED IN CONSIDERATION
FROM SCs/RCs AND NORMS FOR THEIR CLASSIFICATION IN
THE BANKS’ BALANCE SHEETS IN THE CASE OF DEFAULT BY
SCS/RCS
ABSENCE OF FORECLOSURE/BANKRUPTCY LAWS; LEGAL
OPTIONS AVAILABLE TO DEFAULTER-BORROWERS TO
STALL ACTION UNDER THE SRESI ACT (RELIEF
UNDERTAKING ACTS, LABOUR LAWS ETC.)
TIME FACTOR - LAW vs. PRACTICABILITY OF RECOVERY
MECHANISM; MORE TIME (2-5 YEARS) NEEDED FOR
RECOVERY THROUGH LELAL PROCESS; NPA RESOLUTION
THROUGH DISCOUNTED PAY-OFF, LOAN RESTRUCTURING
OR SALE OF COLLATERAL.
THANK YOU
&
HAVE A NICE DAY
STATE BANK LEARNING CENTRE,
RANCHI