Updated: Sunday August 25, 2013/AlAhad
Shawwal 19, 1434/Ravivara
Bhadra 03, 1935, at 06:52:40 PM
The Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (
An
Act to regulate securitisation and reconstruction of financial assets and
enforcement of security interest and for matters connected therewith or
incidental thereto.
Be
it enacted by Parliament in the Fifty-third Year of the
CHAPTER I
Preliminary
1.
Short title, extent and commencement.---
(1)
This Act may be called the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002.
(2)
It extends to the whole of
(3)
It shall be deemed to have come into force on the 21st day of June, 2002.
2.
Definitions.-
(1)
In this Act, unless the context otherwise requires,-
(a)
Appellate Tribunal means a Debts Recovery Appellate Tribunal established under
sub-section (1) of section 8 of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (51 of 1993)
(b)
asset reconstruction means acquisition by any securitisation company or
reconstruction company of any right or interest of any bank or financial
institution in any financial assistance for the purpose of realisation of such
financial assistance;
(c)
bank means,---
(i)
a banking company; or
(ii)
a corresponding new bank; or
(iii)
the State Bank of
(iv)
a subsidiary bank; or
(v)
such other bank which the Central Government may, by notification, specify for
the purposes of this Act;
(d)
banking company shall have the meaning assigned to it in clause (c) of section
5 of the Banking Regulation Act, 1949 (10 of 1949)
(e)
Board means the Securities and Exchange Board of India established under
section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992)
(f)
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 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;
(g)
Central Registry means the registry set up or cause to be set up under
sub-section (1) of section 20;
(h)
corresponding new bank shall have the meaning assigned to it in clause (da) of
section 5 of the Banking Regulation Act, 1949 (10 of 1949)
(i)
Debts Recovery Tribunal means the Tribunal established under sub-section (1) of
section 3 of the Recovery of Debts due to Banks and Financial Institutions Act,
1993 (51 of 1993)
(j)
default means non-payment of any principal debt or interest thereon or any
other amount payable by a borrower to any secured creditor consequent upon
which the account of such borrower is classified as non-performing asset in the
books of account of the secured creditor in accordance with the directions or
guidelines issued by the Reserve Bank;
(k)
financial assistance means any loan or advance granted or any debentures or
bonds subscribed or any guarantees given or letters of credit established or
any other credit facility extended by any bank or financial institution;
(l)
financial asset means debt or receivables and includes-
(i)
a claim to any debt or receivables or part thereof, whether secured or
unsecured; or
(ii)
any debt or receivables secured by, mortgage of, or charge on, immovable
property; or
(iii)
a mortgage, charge, hypothecation or pledge of movable property; or
(iv)
any right or interest in the security, whether full or part underlying such
debt or receivables; or
(v)
any beneficial interest in property, whether movable or immovable, or in such
debt, receivables, whether such interest is existing, future, accruing,
conditional or contingent; or
(vi)
any financial assistance;
(m)
financial institution means-
(i)
a public financial institution within the meaning of section 4A of the
Companies Act, 1956 (1 of 1956)
(ii)
any institution specified by the Central Government under sub-
clause (ii) of clause (h) of section 2 of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (51 of 1993)
(iii)
the International Finance Corporation established under the International
Finance Corporation (Status, Immunities and Privileges ) Act, 1958 (42 of 1958)
(iv)
any other institution or non-banking financial company as defined in clause (f)
of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934), which the
Central Government may, by notification, specify as financial institution for
the purposes of this Act;
(n)
hypothecation means a charge in or upon any movable property, existing or
future, created by a borrower in favour of a secured creditor without delivery
of possession of the movable property to such creditor, as a security for
financial assistance and includes floating charge and crystallisation of such
charge into fixed charge on movable property;
(o)
non-performing asset means an asset or account of a borrower, which has been
classified by a bank or financial institution as sub-standard, doubtful or loss
asset, in accordance with the directions or under guidelines relating to assets
classifications issued by the Reserve Bank;
(p)
notification means a notification published in the Official Gazette;
(q)
obligor means a person liable to the originator, whether under a contract or
otherwise, to pay a financial asset or to discharge any obligation in respect
of a financial asset, whether existing, future, conditional or contingent and includes
the borrower;
(r)
originator means the owner of a financial asset which is acquired by a
securitisation company or reconstruction company for the purpose of
securitisation or asset reconstruction;
(s)
prescribed means prescribed by rules made under this Act;
(t)
property means,---
(i)
immovable property;
(ii)
movable property;
(iii)
any debt or any right to receive payment of money, whether secured or
unsecured;
(iv)
receivables, whether existing or future;
(v)
intangible assets, being know-how, patent, copyright, trade mark, licence,
franchise or any other business or commercial right of similar nature;
(u)
qualified institutional buyer means a financial institution, insurance company,
bank, state financial corporation, state industrial development corporation,
trustee or any asset management company making investment on behalf of mutual
fund or provident fund or gratuity fund or pension fund or a foreign
institutional investor registered under the Securities and Exchange Board of
India Act, 1992 (15 of 1992) or regulations made thereunder, or any other body
corporate as may be specified by the Board;
(v)
reconstruction company means a company formed and registered under the
Companies Act, 1956 (1 of 1956) for the purpose of asset reconstruction;
(w)
Registrar of Companies means the Registrar defined in clause (40) of section 2
of the Companies Act, 1956 (1 of 1956)
(x)
Reserve Bank means the Reserve Bank of India constituted under section 3 of the
Reserve Bank of India Act, 1934 (2 of 1934)
(y)
scheme means a scheme inviting subscription to security receipts proposed to be
issued by a securitisation company or reconstruction company under that scheme;
(z)
securitisation means acquisition of financial assets by any securitisation
company or reconstruction company from any originator, whether by raising of
funds by such securitisation company or reconstruction company from qualified
institutional buyers by issue of security receipts representing undivided
interest in such financial assets or otherwise;
(za)
securitisation company means any company formed and registered under the
Companies Act, 1956 (1 of 1956) for the purpose of securitisation;
(zb)
security agreement means an agreement, instrument or any other document or
arrangement under which security interest is created in favour of the secured
creditor including the creation of mortgage by deposit of title deeds with the
secured creditor;
(zc)
secured asset means the property on which security interest is created;
(zd)
secured creditor means any bank or financial institution or any consortium or
group of banks or financial institutions and includes-
(i)
debenture trustee appointed by any bank or financial institution; or
(ii)
securitisation company or reconstruction company; or
(iii)
any other trustee holding securities on behalf of a bank or financial
institution;
in
whose favour security interest is created for due repayment by any borrower of
any financial assistance;
(ze)
secured debt means a debt which is secured by any security interest;
(zf)
security interest means right, title and interest of any kind whatsoever upon
property, created in favour of any secured creditor and includes any mortgage,
charge, hypothecation, assignment other than those specified in section 31;
(zg)
security receipt means a receipt or other security, issued by a securitisation
company or reconstruction company to any qualified institutional buyer pursuant
to a scheme, evidencing the purchase or acquisition by the holder thereof, of
an undivided right, title or interest in the financial asset involved in
securitisation;
(zh)
sponsor means any person holding not less than ten per cent. of the paid-up
equity capital of a securitisation company or reconstruction company;
(zi)
State Bank of India means the State Bank of India constituted under section 3
of the State Bank of India Act, 1955 (23 of 1955)
(zj)
subsidiary bank shall have the meaning assigned to it in clause (k) of section
2 of the State Bank of
(2)
Words and expressions used and not defined in this Act but defined in the
Indian Contract Act, 1872 (9 of 1872) or the Transfer of Property Act, 1882 (4
of 1882) or the Companies Act, 1956 (1 of 1956) or the Securities and Exchange
Board of India Act, 1992 (15 of 1992) shall have the same meanings respectively
assigned to them in those Acts.
CHAPTER IIRegulation of securitisation and
reconstruction of financial assets of banks and financial institutions
3. Registration of securitisation companies
or reconstruction compnaies.-
(1)
No securitisation company or reconstruction company shall commence or carry on
the business of securitisation or asset reconstruction without-
(a)
obtaining a certificate of registration granted under this section; and
(b)
having the owned fund of not less than two crore rupees or such other amount
not exceeding fifteen per cent. of total financial assets acquired or to be
acquired by the securitisation company or reconstruction company, as the
Reserve Bank may, by notification, specify:
Provided
that the Reserve Bank may, by notification, specify different amounts of owned
fund for different class or classes of securitisation companies or
reconstruction companies:
Provided
further that a securitisation company or reconstruction company, existing on
the commencement of this Act, shall make an application for registration to the
Reserve Bank before the expiry of six months from such commencement and
notwithstanding anything contained in this sub-section may continue to carry on
the business of securitisation or asset reconstruction until a certificate of
registration is granted to it or, as the case may be, rejection of application
for registration is communicated to it.
(2)
Every securitisation company or reconstruction company shall make an
application for registration to the Reserve Bank in such form and manner as it
may specify.
(3)
The Reserve Bank may, for the purpose of considering the application for
registration of a securitisation company or reconstruction company to commence
or carry on the business of securitisation or asset reconstruction, as the case
may be, require to be satisfied, by an inspection of records or books of such
securitisation company or reconstruction company, or otherwise, that the
following conditions are fulfilled, namely:-
(a)
that the securitisation company or reconstruction company has not incurred
losses in any of the three preceding financial years;
(b)
that such securitisation company or reconstruction company has made adequate
arrangements for realisation of the financial assets acquired for the purpose
of securitisation or asset reconstruction and shall be able to pay periodical
returns and redeem on respective due dates on the investments made in the
company by the qualified institutional buyers or other persons;
(c)
that the directors of securitisation company or reconstruction company have
adequate professional experience in matters related to finance, securitisation
and reconstruction;
(d)
that the board of directors of such securitisation company or reconstruction company
does not consist of more than half of its total number of directors who are
either nominees of any sponsor or associated in any manner with the sponsor or
any of its subsidiaries;
(e)
that any of its directors has not been convicted of any offence involving moral
turpitude;
(f)
that a sponsor, is not a holding company of the securitisation company or
reconstruction company, as the case may be, or, does not otherwise hold any
controlling interest in such securitisation company or reconstruction company;
(g)
that securitisation company or reconstruction company has complied with or is
in a position to comply with prudential norms specified by the Reserve Bank.
(4)
The Reserve Bank may, after being satisfied that the conditions specified in
sub-section (3) are fulfilled, grant a certificate of registration to the
securitisation company or the reconstruction company to commence or carry on
business of securitisation or asset reconstruction, subject to such conditions,
which it may consider, fit to impose.
(5)
The Reserve Bank may reject the application made under sub-section (2) if it is
satisfied that the conditions specified in sub-section (3) are not fulfilled:
Provided
that before rejecting the application, the applicant shall be given a
reasonable opportunity of being heard.
(6)
Every securitisation company or reconstruction company, shall obtain prior
approval of the Reserve Bank for any substantial change in its management or
change of location of its registered office or change in its name:
Provided
that the decision of the Reserve Bank, whether the change in management of a
securitisation company or a reconstruction company is a substantial change in
its management or not, shall be final.
Explanation.-For
the purposes of this section, the expression substantial change in management
means the change in the management by way of transfer of shares or amalgamation
or transfer of the business of the company.
4.
Cancellation of certificate of registration.---
(1)
The Reserve Bank may cancel a certificate of registration granted to a
securitisation company or a reconstruction company, if such company-
(a)
ceases to carry on the business of securitisation or asset reconstruction; or
(b)
ceases to receive or hold any investment from a qualified institutional buyer;
or
(c)
has failed to comply with any conditions subject to which the certificate of
registration has been granted to it; or
(d)
at any time fails to fulfil any of the conditions referred to in clauses (a) to
(g) of sub-section (3) of section 3; or
(e)
fails to-
(i)
comply with any direction issued by the Reserve Bank under the provisions of
this Act; or
(ii)
maintain accounts in accordance with the requirements of any law or any
direction or order issued by the Reserve Bank under the provisions of this Act;
or
(iii)
submit or offer for inspection its books of account or other relevant documents
when so demanded by the Reserve Bank; or
(iv)
obtain prior approval of the Reserve Bank required under sub-section (6) of
section 3:---
Provided
that before cancelling a certificate of registration on the ground that the
securitisation company or reconstruction company has failed to comply with the
provisions of clause (c) or has failed to fulfil any of the conditions referred
to in clause (d) or sub-clause (iv) of clause (e), the Reserve Bank, unless it
is of the opinion that the delay in cancelling the certificate of registration
granted under sub-section (4) of section 3 shall be prejudicial to the public
interest or the interests of the investors or the securitisation company or the
reconstruction company, shall give an opportunity to such company on such terms
as the Reserve Bank may specify for taking necessary steps to comply with such
provisions or fulfillment of such conditions.
(2)
A securitisation company or reconstruction company aggrieved by the order of
rejection of application for registration or cancellation of certificate of
registration may prefer an appeal, within a period of thirty days from the date
on which such order of rejection or cancellation is communicated to it, to the
Central Government:
Provided
that before rejecting an appeal such company shall be given a reasonable
opportunity of being heard.
(3)
A securitisation company or reconstruction company, which is holding
investments of qualified institutional buyers and whose application for grant
of certificate of registration has been rejected or certificate of registration
has been cancelled shall, notwithstanding such rejection or cancellation, be
deemed to be a securitisation company or reconstruction company until it repays
the entire investments held by it (together with interest, if any) within such
period as the Reserve Bank may direct.
5.
Acquisition of rights or interest in financial assets.-
(1)
Notwithstanding anything contained in any agreement or any other law for the
time being in force, any securitisation company or reconstruction company may
acquire financial assets of any bank or financial institution,-
(a)
by issuing a debenture or bond or any other security in the nature of debenture,
for consideration agreed upon between such company and the bank or financial
institution, incorporating therein such terms and conditions as may be agreed
upon between them; or
(b)
by entering into an agreement with such bank or financial institution for the
transfer of such financial assets to such company on such terms and conditions
as may be agreed upon between them.
(2)
If the bank or financial institution is a lender in relation to any financial
assets acquired under sub-section (1) by the securitisation company or the
reconstruction company, such securitisation company or reconstruction company
shall, on such acquisition, be deemed to be the lender and all the rights of
such bank or financial institution shall vest in such company in relation to
such financial assets.
(3)
Unless otherwise expressly provided by this Act, all contracts, deeds, bonds,
agreements, powers-of-attorney, grants of legal representation, permissions,
approvals, consents or no-objections under any law or otherwise and other
instruments of whatever nature which relate to the said financial asset and
which are subsisting or having effect immediately before the acquisition of
financial asset under sub-section (1) and to which the concerned bank or
financial institution is a party or which are in favour of such bank or
financial institution shall, after the acquisition of the financial assets, be
of as full force and effect against or in favour of the securitisation company
or reconstruction company, as the case may be, and may be enforced or acted
upon as fully and effectually as if, in the place of the said bank or financial
institution, securitisation company or reconstruction company, as the case may
be, had been a party thereto or as if they had been issued in favour of securitisation
company or reconstruction company, as the case may be.
(4)
If, on the date of acquisition of financial asset under sub-section (1), any
suit, appeal or other proceeding of whatever nature relating to the said
financial asset is pending by or against the bank or financial institution,
save as provided in the third proviso to sub-section (1) of section 15 of the
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same
shall not abate, or be discontinued or be, in any way, prejudicially affected
by reason of the acquisition of financial asset by the securitisation company
or reconstruction company, as the case may be, but the suit, appeal or other
proceeding may be continued, prosecuted and enforced by or against the securitisation
company or reconstruction company, as the case may be.
6.
Notice to obligor and discharge of obligation of such obligor.---
(1)
The bank or financial institution may, if it considers appropriate, give a
notice of acquisition of financial assets by any securitisation company or
reconstruction company, to the concerned obligor and any other concerned person
and to the concerned registering authority (including Registrar of Companies)
in whose jurisdiction the mortgage, charge, hypothecation, assignment or other
interest created on the financial assets had been registered.
(2)
Where a notice of acquisition of financial asset under sub-section (1) is given
by a bank or financial institution, the obligor, on receipt of such notice,
shall make payment to the concerned securitisation company or reconstruction
company, as the case may be, and payment made to such company in discharge of
any of the obligations in relation to the financial asset specified in the
notice shall be a full discharge to the obligor making the payment from all
liability in respect of such payment.
(3)
Where no notice of acquisition of financial asset under sub-section (1) is
given by any bank or financial institution, any money or other properties
subsequently received by the bank or financial institution, shall constitute
monies or properties held in trust for the benefit of and on behalf of the
securitisation company or reconstruction company, as the case may be, and such
bank or financial institution shall hold such payment or property which shall
forthwith be made over or delivered to such securitisation company or
reconstruction company, as the case may be, or its agent duly authorised in
this behalf.
7.
Issue of security by raising of receipts or funds by securitisation company or
reconstruction company.---
(1)
Without prejudice to the provisions contained in the Companies Act, 1956 (1 of
1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the
Securities and Exchange Board of India Act, 1992 (15 of 1992), any securitisation
company or reconstruction company, may, after acquisition of any financial
asset under sub-section (1) of section 5, offer security receipts to qualified
institutional buyers (other than by offer to public) for subscription in
accordance with the provisions of those Acts.
(2)
A securitisation company or reconstruction company may raise funds from the
qualified institutional buyers by formulating schemes for acquiring financial
assets and shall keep and maintain separate and distinct accounts in respect of
each such scheme for every financial asset acquired out of investments made by
a qualified institutional buyer and ensure that realisations of such financial
asset is held and applied towards redemption of investments and payment of
returns assured on such investments under the relevant scheme.
(3)
In the event of non-realisation under sub-section (2) of financial assets, the
qualified institutional buyers of a securitisation company or reconstruction
company, holding security receipts of not less than seventy-five per cent. of
the total value of the security receipts issued by such company, shall be
entitled to call a meeting of all the qualified institutional buyers and every
resolution passed in such meeting shall be binding on the company.
(4)
The qualified institutional buyers shall, at a meeting called under sub-section
(3), follow the same procedure, as nearly as possible as is followed at
meetings of the board of directors of the securitisation company or
reconstruction company, as the case may be.
8.
Exemption from registration of security receipt.-Notwithstanding anything
contained in sub-section (1) of section 17 of the Registration Act, 1908 (16 of
1908),-
(a)
any security receipt issued by the securitisation company or reconstruction company,
as the case may be, under sub-section (1) of section 7, and not creating,
declaring, assigning, limiting or extinguishing any right, title or interest,
to or in immovable property except in so far as it entitles the holder of the
security receipt to an undivided interest afforded by a registered instrument;
or
(b)
any transfer of security receipts,
shall
not require compulsory registration.
9.
Measures for assets reconstruction.---
Without
prejudice to the provisions contained in any other law for the time being in
force, a securitisation company or reconstruction company may, for the purposes
of asset reconstruction, having regard to the guidelines framed by the Reserve
Bank in this behalf, provide for any one or more of the following measures,
namely:-
(a)
the proper management of the business of the borrower, by change in, or take
over of, the management of the business of the borrower;
(b)
the sale or lease of a part or whole of the business of the borrower;
(c)
rescheduling of payment of debts payable by the borrower;
(d)
enforcement of security interest in accordance with the provisions of this Act;
(e)
settlement of dues payable by the borrower;
(f)
taking possession of secured assets in accordance with the provisions of this
Act.
10.
Other functions of securitisation company or reconstruction company.----
(1)
Any securitisation company or reconstruction company registered under section 3
may,---
(a)
act as an agent for any bank or financial institution for the purpose of
recovering their dues from the borrower on payment of such fees or charges as
may be mutually agreed upon between the parties;
(b)
act as a manager referred to in clause (c) of sub-section (4) of section 13 on
such fee as may be mutually agreed upon between the parties;
(c)
act as receiver if appointed by any court or tribunal:---
Provided
that no securitisation company or reconstruction company shall act as a manager
if acting as such gives rise to any pecuniary liability.
(2)
Save as otherwise provided in sub-section (1), no securitisation company or
reconstruction company which has been granted a certificate of registration
under sub-section (4) of section 3, shall commence or carry on, without prior
approval of the Reserve Bank, any business other than that of securitisation or
asset reconstruction:
Provided
that a securitisation company or reconstruction company which is carrying on,
on or before the commencement of this Act, any business other than the business
of securitisation or asset reconstruction or business referred to in
sub-section (1), shall cease to carry on any such business within one year from
the date of commencement of this Act.
Explanation-For
the purposes of this section, securitisation company or reconstruction company
does not include its subsidiary.
11.
Resolution of disputes.---
Where
any dispute relating to securitisation or reconstruction or non-payment of any
amount due including interest arises amongst any of the parties, namely, the
bank or financial institution or securitisation company or reconstruction
company or qualified institutional buyer, such dispute shall be settled by
conciliation or arbitration as provided in the Arbitration and Conciliation
Act, 1996 (26 of 1996), as if the parties to the dispute have consented in
writing for determination of such dispute by conciliation or arbitration and
the provisions of that Act shall apply accordingly.
12.
Power of Reserve Bank to determine policy and issue directions.-
(1)
If the Reserve Bank is satisfied that in the public interest or to regulate
financial system of the country to its advantage or to prevent the affairs of
any securitisation company or reconstruction company from being conducted in a
manner detrimental to the interest of investors or in any manner prejudicial to
the interest of such securitisation company or reconstruction companay, it is
necessary or expedient so to do, it may determine the policy and give
directions to all or any securitisation company or reconstruction company in
matters relating to income recognition, accounting standards, making provisions
for bad and doubtful debts, capital adequacy based on risk weights for assets
and also relating to deployment of funds by the securitisation company or
reconstruction company, as the case may be, and such company shall be bound to
follow the policy so determined and the directions so issued.
(2)
Without prejudice to the generality of the power vested under sub-section (1),
the Reserve Bank may give directions to any securitisation company or
reconstruction company generally or to a class of securitisation companies or
reconstruction companies or to any securitisation company or reconstruction
company in particular as to-
(a)
the type of financial asset of a bank or financial institution which can be
acquired and procedure for acquisition of such assets and valuation thereof;
(b)
the aggregate value of financial assets which may be acquired by any
securitisation company or reconstruction company.
CHAPTER IIIEnforcement of security
interest
13. Enforcement of security interest.-
(1)
Notwithstanding anything contained in section 69 or section 69A of the Transfer
of Property Act, 1882 (4 of 1882), any security interest created in favour of
any secured creditor may be enforced, without the intervention of the court or
tribunal, by such creditor in accordance with the provisions of this Act.
(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
instalment 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).
(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.
(4)
In case the borrower fails to discharge his liability in full 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 secured assets of the borrower including the
right to transfer by way of lease, assignment or sale and realise the secured
asset;
(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.
(5)
Any payment made by any person referred to in clause (d) of sub-section (4) to
the secured creditor shall give such person a valid discharge as if he has made
payment to the borrower.
(6)
Any transfer of secured asset after taking possession thereof or take over of
management under sub-section (4), by the secured creditor or by the manager on
behalf of the secured creditor shall vest in the transferee all rights in, or
in relation to, the secured asset transferred as if the transfer had been made
by the owner of such secured asset.
(7)
Where any action has been taken against a borrower under the provisions of
sub-section (4), all costs, charges and expenses which, in the opinion of the
secured creditor, have been properly incurred by him or any expenses incidental
thereto, shall be recoverable from the borrower and the money which is received
by the secured creditor shall, in the absence of any contract to the contrary,
be held by him in trust, to be applied, firstly, in payment of such costs,
charges and expenses and secondly, in discharge of the dues of the secured
creditor and the residue of the money so received shall be paid to the person
entitled thereto in accordance with his rights and interests.
(8)
If the dues of the secured creditor together with all costs, charges and
expenses incurred by him are tendered to the secured creditor at any time
before the date fixed for sale or transfer, the secured asset shall not be sold
or transferred by the secured creditor, and no further step shall be taken by
him for transfer or sale of that secured asset.
(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 right is
agreed upon by the secured creditors representing not less than three-fourth 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 the 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 to
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:---
Provided
also that the liquidator referred to in the second proviso shall intimate the
secured creditors the workmen’s dues in accordance with the provisions of
section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen’s
dues cannot be ascertained, the liquidator shall intimate the estimated amount
of workmen’s dues under that section to the secured creditor and in such case
the secured creditor may retain the sale proceeds of the secured assets after
depositing the amount of such estimated dues with the liquidator:---
Provided
also that in case the secured creditor deposits the estimated amount of
workmen’s dues, such creditor shall be liable to pay the balance of the
workmen’s dues or entitled to receive the excess amount, if any, deposited by
the secured creditor with the liquidator:---
Provided
also that the secured creditor shall furnish an undertaking to the liquidator
to pay the balance of the workmen’s dues, if any.
Explanation.-For
the purposes of this sub-section,---
(a)
record date means the date agreed upon by the secured creditors representing
not less than three-fourth in value of the amount outstanding on such date;
(b)
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.
(10)
Where dues of the secured creditor are not fully satisfied with the sale
proceeds of the secured assets, the secured creditor may file an application in
the form and manner as may be prescribed to the Debts Recovery Tribunal having
jurisdiction or a competent court, as the case may be, for recovery of the
balance amount from the borrower.
(11)
Without prejudice to the rights conferred on the secured creditor under or by
this section the secured creditor shall be entitled to proceed against the
guarantors or sell the pledged assets without first taking any of the measures
specified in clauses (a) to (d) of sub-section (4) in relation to the secured
assets under this Act.
(12)
The rights of a secured creditor under this Act may be exercised by one or more
of his officers authorised in this behalf in such manner as may be prescribed.
(13)
No borrower shall, after receipt of notice referred to in sub-section (2),
transfer by way of sale, lease or otherwise (other than in the ordinary course
of his business) any of his secured assets referred to in the notice, without
prior written consent of the secured creditor.
14.
Chief Metropolitan Magistrate or District Magistrate to assist secured creditor
in taking possession of secured asset.---
(1)
Where the possession of any secured asset is required to be taken by the
secured creditor or if any of the secured asset is required to be sold or
transferred by the secured creditor under the provisions of this Act, the
secured creditor may, for the purpose of taking possession or control of any
such secured asset, request, in writing, the Chief Metropolitan Magistrate or
the District Magistrate within whose jurisdiction any such secured asset or
other documents relating thereto may be situated or found, to take possession
thereof, and the Chief Metropolitan Magistrate or, as the case may be, the
District Magistrate shall, on such request being made to him,---
(a)
take possession of such asset and documents relating thereto; and
(b)
forward such asset and documents to the secured creditor.
(2)
For the purpose of securing compliance with the provisions of sub-section (1),
the Chief Metropolitan Magistrate or the District Magistrate may take or cause
to be taken such steps and use, or cause to be used, such force, as may, in his
opinion, be necessary.
(3)
No act of the Chief Metropolitan Magistrate or the District Magistrate done in
pursuance of this section shall be called in question in any court or before
any authority.
15.
Manner and effect of takeover of management.---
(1)
When the management of business of a borrower is taken over by a secured
creditor, the secured creditor may, by publishing a notice in a newspaper
published in English language and in a newspaper published in an Indian
language in circulation in the place where the principal office of the borrower
is situated, appoint as many persons as it thinks fit-
(a)
in a case in which the borrower is a company as defined in the Companies Act,
1956 (1 of 1956), to be the directors of that borrower in accordance with the
provisions of that Act; or
(b)
in any other case, to be the administrator of the business of the borrower.
(2)
On publication of a notice under sub-section (1),-
(a)
in any case where the borrower is a company as defined in the Companies Act,
1956 (1 of 1956), all persons holding office as directors of the company and in
any other case, all persons holding any office having power of superintendence,
direction and control of the business of the borrower immediately before the
publication of the notice under sub-section (1), shall be deemed to have
vacated their offices as such;
(b)
any contract of management between the borrower and any director or manager
thereof holding office as such immediately before publication of the notice
under sub-section (1), shall be deemed to be terminated;
(c)
the directors or the administrators appointed under this section shall take
such steps as may be necessary to take into their custody or under their
control all the property, effects and actionable claims to which the business
of the borrower is, or appears to be, entitled and all the property and effects
of the business of the borrower shall be deemed to be in the custody of the
directors or administrators, as the case may be, as from the date of the
publication of the notice;
(d)
the directors appointed under this section shall, for all purposes, be the
directors of the company of the borrower and such directors or as the case may
be, the administrators appointed under this section, shall alone be entitled to
exercise all the powers of the directors or as the case may be, of the persons
exercising powers of superintendence, direction and control, of the business of
the borrower whether such powers are derived from the memorandum or articles of
association of the company of the borrower or from any other source whatsoever.
(3)
Where the management of the business of a borrower, being a company as defined
in the Companies Act, 1956 (1 of 1956), is taken over by the secured creditor,
then, notwithstanding anything contained in the said Act or in the memorandum
or articles of association of such borrower,-
(a)
it shall not be lawful for the shareholders of such company or any other person
to nominate or appoint any person to be a director of the company;
(b)
no resolution passed at any meeting of the shareholders of such company shall
be given effect to unless approved by the secured creditor;
(c)
no proceeding for the winding up of such company or for the appointment of a
receiver in respect thereof shall lie in any court, except with the consent of
the secured creditor.
(4)
Where the management of the business of a borrower had been taken over by the
secured creditor, the secured creditor shall, on realisation of his debt in
full, restore the management of the business of the borrower to him.
16.
No compensation to directors for loss of office.-
(1)
Notwithstanding anything to the contrary contained in any contract or in any
other law for the time being in force, no managing director or any other
director or a manager or any person in charge of management of the business of
the borrower shall be entitled to any compensation for the loss of office or
for the premature termination under this Act of any contract of management
entered into by him with the borrower.
(2)
Nothing contained in sub-section (1) shall affect the right of any such
managing director or any other director or manager of any such person in charge
of management to recover from the business of the borrower, moneys recoverable
otherwise than by way of such compensation.
17.
Right to appeal.-
(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
authorised officer under this Chapter, may prefer an appeal to the Debts
Recovery Tribunal having jurisdiction in the matter within forty-five days from
the date on which such measure had been taken.
(2)
Where an appeal is preferred by a borrower, such appeal shall not be
entertained by the Debts Recovery Tribunal unless the borrower has deposited
with the Debts Recovery Tribunal seventy-five per cent. of the amount claimed
in the notice referred to in sub-section (2) of section 13:
Provided
that the Debts Recovery Tribunal may, for reasons to be recorded in writing,
waive or reduce the amount to be deposited under this section.
(3)
Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as
far as may be, dispose of the appeal in accordance with the provisions of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of
1993) and rules made thereunder.
18.
Appeal to Appellate Tribunal.-
(1)
Any person aggrieved, by any order made by the Debts Recovery Tribunal under
section 17, may prefer an appeal to an Appellate Tribunal within thirty days
from the date of receipt of the order of Debts Recovery Tribunal.
(2)
Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as
may be, dispose of the appeal in accordance with the provisions of the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and
rules made thereunder.
19.
Right of borrower to receive compensation and costs in certain cases.-
If
the Debts Recovery Tribunal or the Appellate Tribunal, as the case may be, on
an appeal filed under section 17 or section 18, holds the possession of secured
assets by the secured creditor as wrongful and directs the secured creditor to
return such secured assets to the concerned borrower, such borrower shall be
entitled to payment of such compensation and costs as may be determined by such
Tribunal or Appellate Tribunal.
CHAPTER IVCentral Registry
20. Central Registry.-
(1)
The Central Government may, by notification, set up or cause to be set up from
such date as it may specify in such notification, a registry to be known as the
Central Registry with its own seal for the purposes of registration of
transaction of securitisation and reconstruction of financial assets and
creation of security interest under this Act.
(2)
The head office of the Central Registry shall be at such place as the Central
Government may specify and for the purpose of facilitating registration of
transactions referred to in sub-section (1), there may be established at such
other places as the Central Government may think fit, branch offices of the
Central Registry.
(3)
The Central Government may, by notification, define the territorial limits
within which an office of the Central Registry may exercise its functions.
(4)
The provisions of this Act pertaining to the Central Registry shall be in
addition to and not in derogation of any of the provisions contained in the
Registration Act, 1908 (16 of 1908), the Companies Act, 1956 (1 of 1956), the
Merchant Shipping Act, 1958 (44 of 1958), the Patents Act, 1970 (39 of 1970),
the Motor Vehicles Act, 1988 (59 of 1988) and the Designs Act, 2000 (16 of
2000) or any other law requiring registration of charges and shall not affect
the priority of charges or validity thereof under those Acts or laws.
21.
Central Registrar.-
(1)
The Central Government may, by notification, appoint a person for the purpose
of registration of transactions relating to securitisation, reconstruction of
financial assets and security interest created over properties, to be known as
the Central Registrar.
(2)
The Central Government may appoint such other officers with such designations
as it thinks fit for the purpose of discharging under the superintendence and
direction of the Central Registrar, such functions of the Central Registrar
under this Act as he may, from time to time, authorise them to discharge.
22.
Register of securitisation, reconstruction and security interest transactions.-
(1)
For the purposes of this Act, a record called the Central Register shall be
kept at the head office of the Central Registry for entering the particulars of
the transactions relating to-
(a)
securitisation of financial assets;
(b)
reconstruction of financial assets; and
(c)
creation of security interest.
(2)
Notwithstanding anything contained in sub-section (1), it shall be lawful for
the Central Registrar to keep the records wholly or partly in computer,
floppies, diskettes or in any other electronic form subject to such safeguards
as may be prescribed.
(3)
Where such register is maintained wholly or partly in computer, floppies,
diskettes or in any other electronic form, under sub-section (2), any reference
in this Act to entry in the Central Register shall be construed as a reference
to any entry as maintained in computer or in any other electronic form.
(4)
The register shall be kept under the control and management of the Central
Registrar.
23.
Filing of transactions of securitisation, reconstruction and creation of
security interest.-
The
particulars of every transaction of securitisation, asset reconstruction or
creation of security interest shall be filed, with the Central Registrar in the
manner and on payment of such fee as may be prescribed, within thirty days
after the date of such transaction or creation of security, by the
securitisation company or reconstruction company or the secured creditor, as
the case may be:
Provided
that the Central Registrar may allow the filing of the particulars of such
transaction or creation of security interest within thirty days next following
the expiry of the said period of thirty days on payment of such additional fee
not exceeding ten times the amount of such fee.
24.
Modification of security interest registered under this Act.-
Whenever
the terms or conditions, or the extent or operation, of any security interest
registered under this Chapter, are, or is, modified, it shall be the duty of
the securitisation company or the reconstruction company or the secured
creditor, as the case may be, to send to the Central Registrar, the particulars
of such modification, and the provisions of this Chapter as to registration of
a security interest shall apply to such modification of such security interest.
25.
Securitisation company or reconstruction company or secured creditors to report
satisfaction of security interest.-
(1)
The securitisation company or reconstruction company or the secured creditor as
the case may be, shall give intimation to the Central Registrar of the payment or
satisfaction in full, of any security interest relating to the securitisation
company or the reconstruction company or the secured creditor and requiring
registration under this Chapter, within thirty days from the date of such
payment or satisfaction.
(2)
The Central Registrar shall, on receipt of such intimation, cause a notice to
be sent to the securitisation company or reconstruction company or the secured
creditor calling upon it to show cause within a time not exceeding fourteen
days specified in such notice, as to why payment or satisfaction should not be
recorded as intimated to the Central Registrar.
(3)
If no cause is shown, the Central Registrar shall order that a memorandum of
satisfaction shall be entered in the Central Register.
(4)
If cause is shown, the Central Registrar shall record a note to that effect in
the Central Register, and shall inform the borrower that he has done so.
26.
Right to inspect particulars of securitisation, reconstruction and security
interest transactions.-
(1)
The particulars of securitisation or reconstruction or security interest
entered in the Central register of such transactions kept under section 22
shall be open during the business hours for inspection by any person on payment
of such fee as may be prescribed.
(2)
The Central Register referred to in sub-section (1) maintained in electronic
form, shall also be open during the business hours for the inspection by any
person through electronic media on payment of such fee as may be prescribed.
CHAPTER VOffences and penalties
27. Penalties.-
If
a default is made-
(a)
in filing under section 23, the particulars of every transaction of any
securitisation or asset reconstruction or security interest created by a
securitisation company or reconstruction company or secured creditor; or
(b)
in sending under section 24, the particulars of the modification referred to in
that section; or
(c)
in giving intimation under section 25,
every
company and every officer of the company or the secured creditor and every
officer of the secured creditor who is in default shall be punishable with fine
which may extend to five thousand rupees for every day during which the default
continues.
28.
Penalties for non-compliance of direction of Reserve Bank.-
If
any securitisation company or reconstruction company fails to comply with any
direction issued by the Reserve Bank under section 12, such company and every
officer of the company who is in default, shall be punishable with fine which
may extend to five lakh rupees and in the case of a continuing offence, with an
additional fine which may extend to ten thousand rupees for every day during
which the default continues.
29.
Offences.-
If
any person contravenes or attempts to contravene or abets the contravention of
the provisions of this Act or of any rules made thereunder, he shall be
punishable with imprisonment for a term which may extend to one year, or with
fine, or with both.
30.
Cognizance of offence.-
No
court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of
the First Class shall try any offence punishable under this Act.
CHAPTER VIMiscellaneous
31. Provisions of this Act not to apply in certain cases.-
The
provisions of this Act shall not apply to-
(a)
a lien on any goods, money or security given by or under the Indian Contract
Act, 1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other
law for the time being in force;
(b)
a pledge of movables within the meaning of section 172 of the Indian Contract
Act, 1872 (9 of 1872)
(c)
creation of any security in any aircraft as defined in clause (1) of section 2
of the Aircraft Act, 1934 (24 of 1934)
(d)
creation of security interest in any vessel as defined in clause (55) of
section 3 of the Merchant Shipping Act, 1958 (44 of 1958)
(e)
any conditional sale, hire-purchase or lease or any other contract in which no
security interest has been created;
(f)
any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930 (3
of 1930)
(g)
any properties not liable to attachment or sale under the first proviso to
sub-section (1) of section 60 of the Code of Civil Procedure, 1908 (5 of 1908)
(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.
32.
Protection of action taken in good faith.-
No
suit, prosecution or other legal proceedings shall lie against any secured
creditor or any of his officers or manager exercising any of the rights of the
secured creditor or borrower for anything done or omitted to be done in good
faith under this Act.
33.
Offences by companies.-
(1)
Where an offence under this Act has been committed by a company, every person
who at the time the offence was committed was in charge of, and was responsible
to, the company, for the conduct of the business of the company, as well as the
company, shall be deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly:
Provided
that nothing contained in this sub-section shall render any such person liable
to any punishment provided in this Act, if he proves that the offence was
committed without his knowledge or that he had exercised all due diligence to
prevent the commission of such offence.
(2)
Notwithstanding anything contained in sub-section (1), where an offence under
this Act has been committed by a company and it is proved that the offence has
been committed with the consent or connivance of, or is attributable to any
neglect on the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer shall also be
deemed to be guilty of the offence and shall be liable to be proceeded against
and punished accordingly.
Explanation.-For
the purposes of this section,-
(a)
company means any body corporate and includes a firm or other association of
individuals; and
(b)
director, in relation to a firm, means a partner in the firm.
34.
Civil court not to have jurisdiction.-
No
civil court shall have jurisdiction to entertain any suit or proceeding in
respect of any matter which a Debts 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).
35.
The provisions of this Act to override other laws.-
The
provisions of this Act shall have effect, notwithstanding anything inconsistent
therewith contained in any other law for the time being in force or any
instrument having effect by virtue of any such law.
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).
37.
Application of other laws not barred.-
The
provisions of this Act or the rules made thereunder shall be in addition to,
and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange
Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (51 of 1993) or any other law for the time
being in force.
38.
Power of Central Government to make rules.-
(1)
The Central Government may, by notification and in the Electronic Gazette as
defined in clause (s) of section 2 of the Information Technology Act, 2000 (21
of 2000), make rules for carrying out the provisions of this Act.
(2)
In particular, and without prejudice to the generality of the foregoing power,
such rules may provide for all or any of the following matters, namely:-
(a)
the form and manner in which an application may be filed under sub-section (10)
of section 13;
(b)
the manner in which the rights of a secured creditor may be exercised by one or
more of his officers under sub-section (12) of section 13;
(c)
the safeguards subject to which the records may be kept under sub-section (2)
of section 22;
(d)
the manner in which the particulars of every transaction of securitisation
shall be filed under section 23 and fee for filing such transaction;
(e)
the fee for inspecting the particulars of transactions kept under section 22
and entered in the Central Register under sub-section (1) of section 26;
(f)
the fees for inspecting the Central Register maintained in electronic form
under sub-section (2) of section 26;
(g)
any other matter which is required to be, or may be, prescribed, in respect of
which provision is to be, or may be, made by rules.
(3)
Every rule made under this Act shall be laid, as soon as may be after it is
made, before each House of Parliament, while it is in session, for a total
period of thirty days which may be comprised in one session or in two or more
successive sessions, and if, before the expiry of the session immediately
following the session or the successive sessions aforesaid, both Houses agree
in making any modification in the rule or both Houses agree that the rule
should not be made, the rule shall thereafter have effect only in such modified
form or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of
anything previously done under that rule.
39.
Certain provisions of this Act to apply after Central Registry is set-up or
cause to be set-up.-
The
provisions of sub-sections (2), (3) and (4) of section 20 and sections 21, 22,
23, 24, 25, 26 and 27 shall apply after the Central Registry is set up or cause
to be set up under sub-section (1) of section 20.
40.
Power to remove difficulties.-
(1)
If any difficulty arises in giving effect to the provisions of this Act, the
Central Government may, by order published in the Official Gazette, make such
provisions not inconsistent with the provisions of this Act as may appear to be
necessary for removing the difficulty:
Provided
that no order shall be made under this section after the expiry of a period of
two years from the commencement of this Act.
(2)
Every order made under this section shall be laid, as soon as may be after it
is made, before each House of Parliament.
41.
Amendments of certain enactments.-
The
enactments specified in the Schedule shall be amended in the manner specified
therein.
42.
Repeal and saving.-
(1)
The Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Ordinance, 2002 (2 of 2002) is hereby repealed.
(2)
Notwithstanding such repeal, anything done or any action taken under the said
Ordinance shall be deemed to have been done or taken under the corresponding
provisions of this Act.
THE
SCHEDULE
(See
section 41)
Year
Act No. Short title Amendment
1956
42 The Securities
Contracts
(Regulation)
Act,
1956.
In section 4A, in sub-section (1), after clause (vi), insert the following:-
(vii)
the securitisation company or reconstruc-tion company which has obtained a
certificate of registration under sub-section (4) of section 3 of the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Ordinance, 2002.
1986
1 The Sick Industrial
Companies
(Special
Provisions)
Act,
1985.
In section 2, in clause (h), after sub-clause (ib), insert the following:-
(ic)
security receipt as defined in clause (zg) of section 2 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002.
1956
1 The Companies Act, 1956.
In
section 15, in sub-section (1), after the proviso, insert the following:-
Provided
further that no reference shall be made to the Board for Industrial and
Financial Reconstruction after the commencement of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002, where financial assets have been acquired by any securitisation company
or reconstruction company under sub-section (1) of section 5 of that Act:
Provided
also that on or after the commencement of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002, where a
reference is pending before the Board for Industrial and Financial
Reconstruction, such reference shall abate if the secured creditors,
representing not less than three-fourth in value of the amount outstanding
against financial assistance disbursed to the borrower of such secured
creditors, have taken any measures to recover their secured debt under
sub-section (4) of section 13 of that Act.
------------
SARFAESI
Act, 2002, Section 13(2) 13(4) ----------- Bank Loan Recovery, Bank Engaging
enforcement agency and claiming amount paid to such agency---------------------
held------------------------- Unjustified and untenable.
IN
THE HIGH COURT OF PUNJAB AND HARAYANA AT
Date
of Decision: 20.10.2011
(i)
Civil Writ Petition No. 11662 of 2010
Mohinder
Pal Singh and another …..Petitioners
Versus
State
Bank of
Present:
Shri Anand Chhibbar, Shri Ranjit Chawla and Shri I.P. Singh, Advocates, for the
petitioners.
Shri
S.C. Pathela, Advocate, for the respondents.
(ii)
Civil Writ Petition No. 299 of 2011
Rajeev
Gulati and another …..Petitioners
Versus
State
Bank of
Present:
Shri Karan Bhardwaj, Advocate, for the petitioners.
Shri
S.C. Pathela, Advocate, for the respondent.
CORAM:
HON’BLE MR. JUSTICE HEMANT GUPTA
HON’BLE
MR. JUSTICE G.S. SANDHAWALIA
1.
Whether Reporters of local papers may be allowed to see the judgment?
2.
To be referred to the Reporters or not?
3.
Whether the judgment should be reported in the Digest?
HEMANT
GUPTA, J.
This
order shall dispose of Civil Writ Petition No. 11662 of 2010 and Civil Writ
Petition No. 299 of 2011, challenging the action of the Bank in taking
possession of the secured assets, even though the amount of the financial
assistance stands substantially paid. Civil Writ Petition No. 11662 of
2010
For
the facility of reference, the facts are taken from Civil Writ Petition No.
11662 of 2010. The petitioner herein availed loan of Rs.10 lacs on 23.8.2006
and mortgaged the property, a piece of land, as collateral security. The
petitioner defaulted in payment of the loan which led to the issuance of a
notice under Section 13(2) of the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (for short `the
Act’). A copy of the said notice, produced by the respondent-Bank in Court,
shows the outstanding amount as Rs.12,15,630/- as on 15.5.2008 along with
further interest and incidental expenses. The Bank vide letter dated 12.9.2008
sought the assistance of an Enforcement Agency, namely, M/s Vrinda Corporate Services
Ltd., to take possession of the immovable and movable property as an agent of
the Bank.
Subsequently,
a notice for taking possession under Section 13(4) of the Act was issued on
4.2.2009 by the Authorized Officer of the Bank.
Such
notice was published in the newspaper “The Hindustan Times” on 9.2.2009. The
petitioner failed to make payment of the amount, which led to the issuance of
another notice dated 27.5.2009 under Section 13(4) of the Act. Such notice
under Section 13(4) of the Act, was published in the newspaper `The Tribune’
(English Edition) and vernacular newspaper `Punjabi Tribune’ dated 13.6.2009
proposing the date of auction as 17.7.2009. The amount mentioned in the sale
notice was Rs.12,15,630/- along with interest. The petitioner deposited a sum
of Rs.2.00 lacs on 13.7.2009 and sought six months’ time to deposit the balance
amount.
Another
public notice was published in the newspapers `The Tribune’ (English Edition)
and vernacular newspaper `Punjabi Tribune’ dated 5.6.2010 proposing the date of
sale as 7.7.2010. The petitioner deposited the balance amount in parts with
last deposit of Rs.2,17,444/- on 25.6.2010. As per the petitioner, with the
said (Civil Writ Petition No. 11662 of 2010 deposit, there was only one rupee
in the debit account, as per the statement of account Annexure P.4 appended
with the writ petition.
In
view of the statement of account (Annexure P.4), it is argued that the entire
amount, as mentioned in the notice under Sections 13(2) and 13(4) of the Act,
stands paid, therefore, for the non deposit of the interest amount, the
property cannot be sold.
This
Court on 6.7.2010 permitted the Banks to receive bids, but it was ordered that
it will not finalise the auction of the property. The respondent-Bank initially
filed written statement on 25.9.2011 raising a plea that the jurisdiction of
the
(a)
Accrued interest upto 21.9.2011 amounting to Rs.2,85,808/-
(b)
Charges of enforcement agency Rs.1,28,600/-
(c)
Charges of publication of notices dated 13.6.2011 Rs.24,192/-
(d)
Charges of publication of notices dated 5.6.2010 Rs.18432/-
(e)
Legal fee Rs.20,400/-
Total
outstanding dues Rs.4,77,432/-
The
writ petition was taken up for hearing on 29.9.2011 on the aforesaid date along
with CWP No. 299 of 2011, which is also being decided by the present order. In
the aforesaid case also, the Bank has engaged recovery/enforcement agency and
is said to have paid a sum of Rs.1,28,608/- even before issuance of the notice
under Section 13(2) of the Act, to such agency. The Chief General Manager of
the Bank was called to explain the conduct of the officers of the Bank in
claiming the amount paid to the enforcement agency, even before notice under
Section 13(2) of the Act, was issued. Shri S.K. Sehgal, Chief General Manager
of the State Bank of
The
counsel for the Bank thereafter, sought time to furnish additional affidavit to
explain the claim of the charges paid to the enforcement agencies.
In
CWP No. 11662 of 2010, an additional affidavit has been filed to the effect
that the recovery case of the borrower was handed over to the
recovery/enforcement agent on 12.9.2008 and possession of the secured assets
i.e. plot measuring 403 square was taken on 4.2.2009 and a notice under Section
13(4) of the Act, was served on 4.2.2009. The notice was published in the
newspapers on 9.2.2009. Since the borrower did not make payment of the
outstanding dues, notice of sale was issued on 27.5.2009. After the deposit in
part by the borrower, it is explained that the balance in the account of the
borrower as on 5.6.2010 was Rs.2,17,445/- and that the borrower was also liable
to pay the accrued interest and actual expenses incurred by the Bank in
effecting the recovery. The borrower deposited an amount of Rs.2,17,444/- on
25.6.2010, but did not pay the accrued interest amounting to Rs.2,48,461/- as
on 25.6.2010 and also an amount of Rs.1,71,224/- towards the expenses incurred
by the Bank in effecting recovery. The details of the payments are as
under:-
(i)
Publication of notices paid to M/s Raghuvanshi Advertising on 21.7.2009
Rs.24192/-
(ii)
Paid to M/s Vrinda Corporate Services Limited, the Enforcement Agent on
17.8.2009 Rs.40,000/-
(iii)
Publication of notices paid to M/s Design Matters Advertising on 2.7.2010
Rs.18,432/-
(iv)
Paid to M/s Vrinda Corporate Services Limited, the Enforcement Agent on
10.7.2010 Rs.44,300/-
(v)
Paid to M/s Vrinda Corporate Services Ltd. Rs.44,300/- (Civil Writ Petition No.
11662 of 2010 Thus, it is pointed out that an amount of 4,19,685/- is still due
and payable to the petitioner.
Shri
Pathela, has also filed documents such as the circulars dated November 3, 2006
and April 24, 2011 issued by Reserve Bank of India as well as the copies of the
bills, submitted by the enforcement agency, M/s Vrinda Corporate Services Ltd.
Vide circular dated 3.11.2006, the Reserve Bank of India has issued “Guidelines
on Managing Risks and Code of Conduct in Outsourcing of Financial Services by
Banks”.
Reliance
was also placed upon circular dated 16.11.2002 issued by the office of the
Chief General Manager of the Bank. The said circular deals with the procedure
after issuance of notice under the Act. Clause (g) deals with taking possession
of the immovable property, which reads as under:-
“6.
Procedure after issue of notice
xxx
xxx
D.
The guidelines that follow mainly cover the procedure for taking possession/
sale of secured assets and appointment of Enforcement Agencies to assist the
branches.
(a)
xx
(g)
Taking possession of immovable property
i)
Where the secured asset is an immovable property, the authorized officer may
take, or cause to be taken (Civil Writ Petition No. 11662 of 2010 possession by
delivering a Possession Notice to the borrower as per format given in Annexure
6.
ii)
The notice should also be affixed on the outer door or at such conspicuous
place of the property.
iii)
The possession notice should also be published in two leading newspapers, one
in vernacular language, having sufficient circulation in that locality.
iv)
The property should be kept in the custody of the Authorized Officer or in the
custody of any person appointed/authorized by him, who shall take due care as a
man of ordinary prudence would, under the similar circumstances, take of such
property.
v)
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.”
xx
xx xx
(o)
Appointment of Enforcement Agencies (EAs)
It
has been decided that, where warranted, Authorised Officers may enlist the
services of Enforcement Agencies (EAs) for assisting them in enforcing security
rights under the Ordinance (i.e. taking possession of the assets, maintenance
and eventual sale). The Agencies so enlisted will be an Agent of the Authorised
Officer. The salient features of the arrangement will be as under.”
In
the circular dated 10.3.2005 issued by the Bank, attached as Annexure R-2 with
CWP 299 of 2005, the remuneration structure for the enforcement agents is as
under:---
For
recoveries above Rs.20 lacs and upto Rs.50 lacs Rs.2 lacs plus 2.5% of the
amount recovered in excess of Rs.20 lacs.
For
recoveries above Rs.50 lacs upto Rs.5 crores Rs.2.75 lacs plus 1.5% of the amount
recovered in excess of Rs.50 lacs.
For
recoveries above Rs.5 crores Rs.9.50 lacs plus 1% of the amount recovered in
excess of Rs.5 crores.
It
is pointed out that after such circular, the remuneration payable to the
enforcement agency has been revised vide Circular Letter No.
CirCFO/Adv/358/2006-07 dated 23.2.2007.
The
relevant extracts are as under:-
(Civil
Writ Petition No. 11662 of 2010
Sr.
No. Item Remuneration
Payable
a)
For recoveries upto Rs.1 lac @ 20%
of the amount recovered
b)
For recoveries above Rs.1 lac and upto Rs.20 lacs Rs.20,000/- plus 10% of the
amount recoveries in excess of Rs.1 lacs.
c)
For recoveries above Rs.20 lacs and upto Rs.50 lacs Rs.2 lacs plus 2.5% of the
amount recoveries in excess of Rs.20 lacs.
d)
For recoveries above Rs.50 lacs and upto Rs.5 crores Rs.2.75 lac plus 1.5% of
the amount recoveries in excess of Rs.50 lacs.
e)
For recoveries above Rs.5 crores Rs.9.50 lacs plus 1% of the amount
recovered in excess of Rs.5 crores.
Vide
circular dated 5.5.2010, Annexure R-4 with CWP 299 of 2011, the remuneration
structure for the enforcement agencies has further been revised, which reads as
under:-
“Proposed
Fee Structure Situation A B C
a)
For recoveries upto Rs.10.00 lacs 4% of the amount recovered maximum
Rs.40,000/- (Minimum Rs.12,000/-) Rs.10,000/- Rs.5000/-
b)
For recoveries above Rs.10.00 lacs and upto Rs.50.00 lacs Rs.40,000/- plus 2.5%
of the amount recovered in excess of Rs.10.00 lacs Rs.15,000/- Rs.5000/-
c)
For recoveries above Rs.50.00 lacs and upto Rs.1.00 crore Rs.1,40,000/- plus
2.00% of the amount recovered in excess of Rs.50.00 lacs Rs.20,000/-
Rs.10,000/-
d)
For recoveries above Rs.1.00 crore and upto Rs.5.00 crores Rs.2,40,000/- plus
1.25% of the amount recovered in excess of Rs.1.00 crore Rs.25,000/- Rs.15,000/-
e)
For recoveries above Rs.5.00 crores and upto Rs.10 croes Rs.7,40,000/- plus
0.75% of the amount recovered in excess of Rs.5.00 crores Rs.30,000/-
Rs.20,000/- (Civil Writ Petition No. 11662 of 2010
f)
For recoveries above Rs.10 crores Rs.11,15,000/- plus 0.50% of the amount
recovered in excess of Rs.10.00 crores Rs.30,000/- Rs.20,000/-
Situation
A: In case physical possession has been taken and recovery is made whether
before or after auction.
Situation
B: In case recovery is made before possession but after obtaining DM permission
and visit made by Enforcement Agents (EAs).
Situation
C: In case recovery/settlement is made before possession and before DC
permission but before case entrusted to EAs.”
It
is, thus, contended by Shri Pathela that the procedure for enforcement agents
is in accordance with the circulars issued by the Reserve Bank of
Learned
counsel for the petitioner has controverted the said contention and relied upon
circular dated 24.4.2008 issued by the RBI, after the judgment of the Apex
Court in Manager, ICICI Bank Ltd. v. Parkash Kaur, AIR 2007 SC 1349, wherein
the following is the condition:-
“Taking
possession of property mortgaged/hypothecated to banks.
(xii)
In a recent case which came up before the Honourable Supreme Court, the
Honourable Supreme Court observed that we are governed by rule of law in the
country and the recovery of loans or seizure of vehicles could be done only
through legal means. In this connection it may be mentioned that the
Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI Act) and the Security Interest
(Enforcement) Rules, 2002, framed thereunder have laid down well defined
procedures not only for enforcing security interest but also for auctioning the
movable and immovable property after enforcing the security interest. It is,
therefore, desirable that banks rely only on legal remedies available under the
relevant statutes while enforcing security interest without intervention of the
Courts.”
On
the basis of such facts, learned counsel for the petitioner has argued that
enforcement agents may be permissible for (Civil Writ Petition No. 11662
of 2010 Bank to be engaged, but such enforcement agents are not contemplated
under the Act, much less before the stage of taking of actual physical
possession. It is argued that in all other actions for the recovery of the dues
by the Banks, the Bank has to seek intervention of either the Court or the
Tribunal but an action under the Act is permissible to be taken by the Bank
through its authorized officers, therefore, the Bank cannot take assistance of
an enforcement agency while taking action under the Act.
It
is contended that the actions under the Act are contemplated by an Authorized
Officer, as defined under Rule 2(a) of the Security Interest (Enforcement)
Rules, 2002 (for short `the Rules’) to mean an Officer not less than a Chief
Manager of a Public Sector Bank. In the present case, the notices under Sections
13(2) and 13(4) of the Act, have been issued by such authorized officer. The
process of sale of assets is to be initiated after such deemed possession, by
way of publication in the newspaper. The process of sale of immovable secured
assets is regulated by Rule 8 of the Rules. The deemed possession is to be
taken by the Authorized Officer by delivering a possession notice on the
outdoor or at such conspicuous place of the property or in the newspaper.
Before the property is put to sale, a 30 days notice is required to be served
under Sub Rule 6 of Rule 8 of the Rules. It is argued that since the property
mortgaged in favour of the Bank was an open plot, therefore, the act of taking
possession does not require any preparation of inventory or any other expenses
to secure the same. The Bank has claimed the dues to the enforcement agents
even before notice under Section 13(4) was served upon the petitioner and
published in the newspapers. It is contended that the claim of the enforcement
agents is the fixed amount on the amount recovered and not for any services
provided, which is apparent from the bill raised and produced by Counsel for
the Bank. The (Civil Writ Petition No. 11662 of 2010 enforcement agents have
raised the bills, with the following particulars:-
In
the case of Sh. Mohinder Pal Singh Bill dated Particulars Amount (Rs.)
10.8.2009 Charges for enforcement as per Bank’s rates (on the recovery of First
Rs.3,00,000/-) 40000.00 08.7.2010 Charges for enforcement as per Bank’s rates
(on the recovery of Rs.11,86,000/-) Less amount received Net Amount
128600.00 40000.00 88600.00 18.3.2011 Charges for enforcement (pending amount)
44,300.00 Thus, on the basis of circular dated 23.2.2007 and the aforesaid
bills, it is argued by the learned counsel for the Petitioner that the amount
paid to the enforcement agent is a reward to the enforcement agencies and not
reimbursement of the expenses and thus, such amount, cannot be charged from the
petitioner. It was explained by the counsel for the Bank that the recovery case
of the petitioner was entrusted to enforcement agency on 12.11.2008 i.e., after
issuance of notice under Section 13(2) of the Act on 15.5.2008, though the
notices under Section 13(4) of the Act were issued on 4.2.2009 and 27.5.2009.
Therefore, such charges have been rightly claimed from the petitioner as
reasonable expenses to realize the security permissible under Section 13(7) of
the Act as such amount has been claimed after notices under Section 13(4) were
issued and published.
We
have heard learned counsel for the parties at some length and find that the
action of the Bank in engaging enforcement agency and claiming amount paid to
such agency as unjustified and untenable.
Though
the Reserve Bank of India, as per the circular dated 3.11.2006 has permitted
outsourcing of certain financial (Civil Writ Petition No. 11662 of 2010
services, but some safeguards are to be kept in view while giving effect to the
agreement engaging such enforcing agencies. Such agreement restricts the rights
of the commercial bank in engaging enforcement agents for effecting recoveries
under the Act as per clause (xii) of the Circular dated April 24, 2008. The
process of recovery through the process of the
(Civil
Writ Petition No. 11662 of 2010 Even otherwise, from the circular issued by the
Bank and the bills submitted by the Enforcement Agencies, it transpires that
the charges are claimed in relation to the amount recovered. Thus, the amount
paid to the Enforcement Agencies is a reward for the services. The amount of
reward cannot be passed on to anyone else. Such amount has to be paid to the
Enforcement Agencies out of the assets realized or by the Bank out of funds at
its disposal. Section 13 (7) of the Act, authorizes the secured creditors to
claim charges, costs and expenses, which are actually incurred. The actual
expenses incurred have no co-relation with the amount recovered or recoverable.
Therefore, the claim of fixed charges in view of the amount recovered is beyond
legislative sanction and not admissible.
Apart
from the said fact, the Bank has claimed legal fee. The notices under Sections
13(2) and 13(4) of the Act are the notices on the performa circulated on
16.11.2002. The Authorised Officer of the Bank does not require any legal
opinion in issuing such notices.
There
is no justification to claim such legal charges from the borrower, which is not
related to any professional services rendered by an Advocate to the Bank. There
was no occasion for any legal advice in issuing notice under Sections 13(2) or
13(4)of the Act.
Learned
counsel for the petitioner has further agued that the Bank has claimed interest
on the amount of expenses including the charges of enforcement agencies, legal
fee and advertisement expenses, which is not permissible in view of the
judgment of this Court in Paramjit Singh v. UCO Bank Ghudani Kalan and another,
2007(4) PLR 747, wherein, similar expenses claimed by the Bank has been
disallowed as not permissible in law. In view of the said fact, we are of the
opinion that the Bank cannot claim interest on the expenses.
(Civil
Writ Petition No. 11662 of 2010
In
CWP 299 of 2011, it is averred in the written statement that Rs. 64528/- is the
due amount as on 22.8.2011 in the loan accounts of the petitioner whereas
another sum of Rs.2,28,516 is payable on account of recovery agents fee,
publication in newspapers and legal fee etc even after the petitioner has
deposited a sum of Rs.5,00,000/- in terms of the interim order passed by this
court to restore possession of the house on deposit of the said amount. The
amount of deposit shows that the meager amount is due from the borrower towards
interest, whereas, the major amount is towards the expenses allegedly incurred.
Consequently,
we dispose of the present writ petitions with direction to the respondent-Bank
to recalculate amount payable by the borrower(s) by deleting the
charges/expenses of the Enforcement Agencies, legal fee and the interest on the
amount of expenses. The Bank shall communicate within two weeks the due amount
as on 6.7.2010 i.e. when the petitioner in CWP 11662 of 2010 made the last
payment; and as on 31.5.2011 in CWP 299 of 2011, the date of last payment. The
petitioners are granted one month thereafter to deposit the said amount so
communicated. The deposit of the amount by petitioners shall give complete
discharge of the dues of the Bank and the title deeds etc. shall be returned to
the borrower within next two weeks.
(HEMANT
GUPTA)
JUDGE
October
20, 2011 (G.S. SANDHAWALIA)
ds
JUDGE
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