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6.1. SUPREME COURT’S DECISION IN THE CASE OF MARDIA CHEMICALS LTD.
The Supreme Court pronounced its judgement in the case M/s Mardia Chemical Ltd. Vs Union of India and others, etc. etc. on 08.04.2004.
The Supreme Court has - (i) upheld the validity of the SARFAESI Act, - (ii) struck off the provisions of Section 17(2) of the Act and - (iii) directed that any reply made / objections raised by the borrower in response to the notice given under Section 13(2) of the Act should be considered and the consideration should be a meaningful one with due application of mind and the objection should not be rejected ritually. The reasons for not accepting the objections or points raised in reply, however brief they may be, must be communicated to the borrower. The reasons so communicated shall only be for the purposes of the information / knowledge of the borrower without giving rise to any right to approach the DRT under Section 17 of the Act, at that stage.
The existing guidelines for dealing with borrower’s reply to the bank’s demand notice are contained in Chapter IV of the Bank’s Manual on Enforcement of Security Interest. These provide that the Authorised Officer can issue rejoinder, if the same is warranted by the allegations made by the borrower in his reply to the bank’s demand notice , after verifying the facts of the matter vis-à-vis the allegations, rebutting such allegations. The rejoinder, if need be, may be got vetted by the Law Officer/ Manager (Law) at RO/ZO.
Keeping in view the observations made by the Supreme Court, the borrower’s reply, if any, to the bank’s notice must be considered. The reasons for not accepting the objections or points raised, however brief they may be, must be communicated to the borrower.
In the circumstances, the following course of action shall be adopted in dealing with the objections raised by a borrower in response to the Bank’s demand notice under SARFAESI Act:
For issuing demand notice under Section 13(2) of the Act, action shall be taken as per procedure detailed in the Bank’s Manual on Enforcement of Security Interest.
If borrower sends reply / objections to the notice sent by the bank, the same shall be considered. The reasons for not accepting the objections or points raised shall be communicated by the Authorised Officer. It shall be ensured that such communication has been received by the borrower.
The reply shall be made out after full consideration of facts and shall be got vetted from Law Officer / Manager (Law) at RO / ZO.
Where the reply of the borrower brings out complex issues, the matter may be brought before the Committee of Officers, and line of action and reply can be sorted out / decided. The Committees of Officers have been constituted at various levels in terms of Resolution No. 68 dated 28.10.2002 of the Board of Directors of the bank. Their constitution and functions were advised vide PAD Circular 10/2002 dated 17.10.2002.
Only Authorised Officers shall send / communicate the reasons for not accepting the objections, if any raised by the borrower or send any other communication to the borrower with regard to notice sent under section 13(2) of the Act or the reply received from the borrower to such notice.
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If no reply / objections are received, or if the reply / objections received have been considered and reasons for not accepting the objections or points raised have been communicated, further steps under Section 13(4) of the Act shall be taken as per guidelines given in the Bank’s Manual on Enforcement of Security interest.
If, after any measures under Section 13(4) of the Act have been / are taken, the borrower files, under Section 17 of the Act, an appeal before DRT against the measures taken under section 13(4), the matter shall be contested appropriately. If any application for stay of further proceedings by the Bank under Section 13(4) is moved, the same shall be opposed effectively having regard to the facts and circumstances. For this purpose, the counsel engaged shall be briefed thoroughly for arguing effectively in the matter. If, for any reason a stay order is likely to be passed by DRT, effective arguments shall be made so as to enable DRT to pass a conditional order.
In cases where notices under Section 13(2) have already been served and if the borrower has sent any reply / objections, then irrespective of whether any measures under Section 13(4) have been taken / are to be taken, the reply / objections sent shall be considered and reasons for not accepting the objections or points raised shall be communicated in all cases as per procedure given above.
There is no time – limit fixed for sending rejoinder to reply / objections to notice. It is in Bank’s interest to send the rejoinder / reasons for not accepting the objections / points raised in borrower’ reply expeditiously. Only after communication of such rejoinder, further action shall be taken.
If reply received from the borrower does not spell out any objections or does not raise any points, instead it reads such as ‘Thank you for the notice’, ‘I acknowledge the receipt of the notice’ or ‘I am making efforts to repay the dues’ etc., such reply requires no rejoinder. If the reply as received provides an opportunity to call the borrower for a discussion, this may be done to find out the available alternatives.
Thus, the Authorised Officer shall take stock of the matters dealt with under SARFAESI Act, and do the needful on the following action points:
A) Matters where notice under Section 13(2) has been given and measures under Section 13(4) are yet to be taken.
It be checked up whether the borrower has sent any reply / objections to the notice sent by the bank. If reply / objection is received, it be checked up whether the same has been considered and reasons for not accepting the objections or points raised have been communicated to the borrower.
If no reply is received, the bank may further proceed to take measures under section 13(4) of the Act.
If before taking any measures under section 13(4), reply / objections are received, the same be considered as per procedure given above and the response to the reply be given.
If, upon taking measures under Section 13(4) of the Act, the borrower files appeal before DRT under section 17 of the Act, the matter be contested appropriately. If any application for stay of the further proceedings by the bank under Section 13(4) is made, the same be opposed, having
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6.2. ENFORCEMENT OF SECURITY INTEREST AND RECOVERY OF
DEBTS LAWS (AMENDMENT) ORDINANCE 2004 PROMULGATED BY
THE PRESIDENT OF INDIA ON 11.11.
The SARFAESI Act is amended by the above Ordinance. The provisions of the Ordinance have come into effect on 11.11.04 except the provisions relating to right to file application to DRT (against measures under Sec.13(4)) and right to file appeal to DRAT against the order of DRT, which are deemed to have come into force retrospectively w.e.f. 21.6.02.
The amendments that are relevant for Enforcement of Security Interest are highlighted in the guidelines, with specific instructions in respect of particular aspects which call for time bound action are given in the Annexure.
It is pertinent to mention that a perusal of the Ordinance (copy enclosed), will reveal that several important amendments have been carried out to facilitate functioning of Securitisation Company/Reconstruction Co. with ease. Hence, sale of NPAs to the Securitisation Company/Reconstruction Co. will pick up. NPAs which can be sold to Securitisation Company/Reconstruction Co. be identified and requisite action be taken in this regard.
Branches/Authorised officers are to take note of the guidelines for compliance.
Sd/-
GENERAL MANAGER (LAW)
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ANNEXURE
IMPORTANT AMENDMENTS MADE IN THE ORDINANCE DATED 11.11.
(As relevant to Enforcement of Security Interest)
S.No Amendments Guidelines
- Definition of ‘debt’ as is under RDB Act will apply
Loan transactions are covered under the definition of ‘debt’.
- The term ‘Non Performing Asset’ is redefined
The SARFAESI Act applies to Banks and FIs. Certain Institutions like Housing Finance Institutions are included in the definition of ‘Financial Institutions’ by notification. For such institutions, the Regulator is different Body. As per the definition, the classification of NPA shall be as per guidelines for asset classifications issued by the respective regulators.
For banks like Punjab National Bank, RBI is the regulator. Asset classification guidelines as issued by RBI will apply.
- Consideration of representation or objections made by borrower and communication of non acceptance of representation or objection to borrower within one week of receipt of representation or objection.
1. Time bound action is called for
a) Go through the representation or objection or the borrower carefully. The term ‘Borrower’ includes guarantor and mortgagor who has created security interest.
b) Prepare para wise comments and decide whether the representation or objection is acceptable or non acceptable
c) If non acceptable, prepare a draft reply, get it vetted from counsel/Law Officer/ Manager(Law) at Regional Office/Zonal Office or if need be from Law Division Head Office. If reference is sent to Law Division a resume of the matter, copy of notice issued, para-wise comments , draft reply if any, be also sent. Quick communication methods like fax and E- Mail be adopted. Matter be followed up so that time frame is kept up. Law Officer/ Manager (Law)/ Law Division will extend quick support in the matter.
d) There may be representation or objection from strangers other than borrower.
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- DRT shall consider whether the measure taken under Sec.13(4) are in accordance with the provisions of the Securitisation Act and the Rules thereunder and if DRT finds it nor proper, it can order for restoration of the management of the secured assets to the borrower or can declare that the measures taken are invalid. The Ordinance stipulates a time period of 60 days for DRT to take a decision in the matter. However, DRT may further extend the time after recording reasons in writing but the period so extended shall not exceed 4 months from the date of making the application.
If the application is not disposed of by DRT within 4 months, any party to the application can file an application before DRAT and DRAT shall make an order for expeditious disposal of the application by DRT
Bank shall endeavor to file reply to applications, documents and evidence on time to enable DRT to complete the proceedings on time. There shall not be any default on the part of the Bank. If DRT errs in allowing application, filing of appeal be considered and if filing of appeal is decided, the same be filed within limitation.
- RDB Act is not applicable to J&K. So, there is non provision of remedy for matters as related to J&K. As per the Ordinance, such applications can now be made to the Court of Distt. Judge having jurisdiction over the borrower. Appeal also lies to High Court.
In J&K matters, several writ petitions have been filed on this score that there is no remedial action provided. As amendment made by the Ordinance removes the lacunae and provides the remedial measures, writ petitions become infructuous. Necessary applications be moved for dismissal of those writ petitions. Copy of Ordinance be filed before the High Court. Further action as per SARFAESI Act be taken (after obtaining the dismissal of writ petition, if writ petition has been filed).
- Against the Order of DRT/Distt.Judge, the party aggrieved can file appeal before DRAT/High Court (for J&K) on payment of prescribed fees and this shall also deemed to have come into force from 21.6.02.
The Ordinance also provides that no appeal shall be entertained unless the borrower has deposited with the appellate tribunal 50% of the amount of debt due from him as claimed by the Secured Creditor or determined by DRT whichever is
As no appeal shall be entertained unless the borrower deposits 50% of the amount due or a minimum of 25% as may be decided by DRAT, position be checked up. If the provisions are not complied with , application for direction be moved before DRAT.
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less. It is also provided that for the reasons to be recorded in writing, the appellate tribunal may reduce the amount but not less than 25% of the debt as claimed by the Secured Creditor or determined by DRT//Distt.Judge. 10 Section 31 of Securitisation Act had excluded certain properties for the purpose of enforcement of security interest. Any property not liable to attachment or sale under Sec.60 (1) of CPC was one of these items. In terms of Sec.60(1) CPC, one residential property of an agriculturist is excluded from attachment.
States like Punjab Haryana, Chandigarh and Delhi has added that one residential property belonging to and in occupation of a judgement debtor shall not be liable for attachment or sale, unless the property is specifically charged.
In the Ordinance an amendment has been made to Section 31, in terms of which only in those states where one residential property in the possession of the borrower even if it is charged shall not be proceeded under Securitisation Act.
So measures under Securitisation Act be not taken in respect of one residential property in occupation of the borrower only in the states of Punjab Haryana , Chandigarh and Delhi.
Though action under Securitisation Act may not be possible in respect of such property, the mortgage so created can be enforced before DRT/Court as the case may be. In such cases, the legal recourse to DRT/Court be followed up.
- The Ordinance has inserted a proviso in Section 19 of RDB Act for seeking permission from DRT by the bank or FIs to withdraw its application, whether made before or after the Ordinance, for the purpose of taking action under Securitisation Act .If an application is filed by the Bank before DRT, DRT shall dispose of the application within 30 days. DRT can also refuse to grant permission and in that case, it has to record the reasons therefor.
The Ordinance has amended RDB Act to provide for withdrawal of application filed/pending before DRTs for the purpose of taking action under the Securitisation Act. After taking action under Securitisation Act, if amount is still recoverable, bank has to file recovery suit/application before Civil Court/DRT, as the case may be.
Instead of withdrawing the already filed suits/applications it would be in the interest of the bank to simultaneously proceed under Securitisation Act.
In respect of suit to be filed accounts, if the limitation permits Bank can first proceed under Securitisation Act and thereafter file the application/suit before the DRT/Civil Court for the balance amount.
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6.3. SALIENT FEATURE OF SECURITISATION ACT AND RELATED JUDGEMENTS
The increase in Non Performing Assets (NPAs) of the bank is a matter of concern. Recovery through Courts/DRTs is a time consuming affair. The
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is a significant step in providing a remedy without the intervention of the Court, by enforcing security interest and thus helps in improving the prospects of recovery and thereby reduction of NPA level in the Bank.
Detailed guidelines regarding procedural aspects, formats and the conditions under which the steps under SARFAESI Act can be taken etc. have already been provided in the Securitisation Manual.
Route:-https://pnbnet.in/itc/Manuals/sarfesai/sarfesaimanual.pdf
(click Ctrl + Enter)
A SARFAESI ACT PROVISIONS NOT APPLICABLE IN CERTAIN CASES:
In terms of Section 31 of the SARFAESI Act, the provisions of the
Act are not applicable in the case of:
a) Lien/Pledge;
b) Security interest created for securing repayment of financial asset not exceeding Rs.1 lac;
c) Any security interest created in agriculture land;
d) Any case in which the amount due is less than 20% of the principal amount and interest thereon.
B. HOW TO PROCEED:
The powers conferred on the secured creditor can be exercised in respect of accounts which are classified as Non Performing Asset as per the norms/guidelines prescribed by RBI.
On behalf of the secured creditor bank, action can be taken by „Authorized Officers‟ (as per Board sanction, Officers in Scale IV and above are eligible to take action as „Authorized Officer‟).
When an account becomes NPA, after recall of advance, Authorised
Officer can issue notice to the borrower/guarantor/mortgagor (all referred to as borrower in the Act), who has created interest in secured assets, under section 13(2) of the SARFAESI Act demanding him to discharge in full his liabilities within 60 days from the date of notice.
C. HOW TO ENSURE SERVICE OF NOTICE:
As per SARFAESI Act the service of demand notice shall be made by delivering or transmitting at
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the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by Speed Post or by Courier or by any other means of transmission of documents like fax message or electronic mail service.
In case borrower is avoiding service of the notice, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower ordinarily resides or carries on business and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality.
On issue of such a notice, if the borrower/guarantor raises objections by way of representation under section 13 (3A), bank has to give explanation/suitable reply within 15 days from the date of receipt of the objections/representation.
The Act makes it very clear that the rejection of the representation by the secured creditor shall not confer any right upon the borrower to prefer an application to DRT/Distt. Judge (for J&K), as the case may be. Borrower/guarantor can approach DRT /Court only at the stage when any action has been taken by the Bank U/s 13(4) of the Act.
It is possible that the borrower/guarantor, after issuance of notice
U/s 13(2) of the Act may approach DRT/Court and try to obtain stay of action. Such attempts, if any, of the borrower need to be contested effectively. It be argued that effective remedy as provided under SARFAESI Act is available as provided in the Act itself and such an application shall not be entertained at this stage. If stay is granted, application for vacation of stay be moved. If adverse order is passed, appeal to DRAT be preferred, after taking administrative decision.
If there is an apprehension that the borrower/guarantor may approach DRT/DRAT/High Court by filing SA/appeal against an action under SARFAESI Act, bank can file caveat before the
Tribunal/Court and a notice to this effect is to be sent to the person concerned. Caveat so filed will be valid for 90 days.
If the borrower does not make the payment in full within 60 days,
Bank is entitled to take action, as detailed herein below, under section 13(4) of the SARFAESI Act. However, in case of joint financing , secured creditors can exercise such right only if the secured creditor/s representing not less than 60% in value of the amount outstanding give consent for such action.
D. WHAT ALL ACTIONS ARE PERMITTED (Sec. 13(4) :
Can Take possession of the secured assets.
Can Take over management of the business of the borrower. Where the management of whole, of the business or part of the business is severable, the secured creditor is entitled to take over such business of the borrower which is relatable to the security or the debt.
Can Appoint any person to manage the secured assets the possession of which has been taken over by the secured creditor.
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should be notified with regard to the fact that the possession of the secured moveable assets be handed over to the Authorised Officer. In suitable cases, where evidence is available with regard to illegal removal of secured moveable assets, action under Section 29 of the
Act can be taken with the permission of the competent authority. ACTION AFTER TAKING SYMBOLIC POSSESSION OF IMMOVEABLE PROPERTIES
After taking symbolic possession, the Authorised Officer of the bank can approach District Magistrate for taking physical possession and, in the meanwhile, the process of valuation of the assets should be completed so that the sale process is completed expeditiously.
Bank can sell the immoveable assets on “as is where is basis”. In the auction/tender notice the general public be informed that the sale is on “as is where is basis”. However, to fetch better price for the secured assets, efforts should be made to obtain physical possession of the immoveable properties before effecting sale.
In case of any difficulty in taking possession, section 14 of the SARFAESI Act enables the bank to seek the assistance of Chief Metropolitan Magistrate/ District Magistrate (CMM/DM). For the purpose, application will have to be moved. After amendment in Sec. 14 of SARFAESI Act, such an application to be moved before CMM/DM has to be in the manner and form in accordance with the proviso to Sec. 14 (1), giving all the particulars/ information as specified therein. The application by the secured creditor shall be accompanied by an affidavit duly affirmed by the Authorised Officer of the secured creditor. On such an application, the CMM/DM is expected to take possession of the secured asset and hand over the vacant possession to the secured creditor bank.
Instances have come to our notice where borrowers are agitating the matter before CMM/DM insisting for opportunity of hearing and some times CMM/DM acts like a court and issue notices to the borrowers. It has been clarified by various High Courts that no enquiry is contemplated to be made by CMM/DM under Section 14 of the Act and he has to obtain possession and hand over the same to the secured creditor. The matter needs to be taken up with CMM/DM appropriately. Case law on the point is given in the Annexure.
PHYSICAL POSSESSION OF THE IMMOVEABLE PROPERTY
After taking physical possession of the immoveable assets, the custody of moveable assets available in the premises also becomes the responsibility of the bank. In case moveable assets are available in the premises, the procedure, as given below with regard to taking possession of the moveable assets, be followed.
It is not mandatory for the secured creditor to approach the District Magistrate under section 14 of the Act to take physical possession of immoveable property. The Authorised Officer himself can take physical possession of the immoveable property. Distt. Magistrate is to be approached only if his assistance is required for taking possession on account of resistance from the mortgagor.
POSSESSION OF MOVEABLE PROPERTY
Rule 4 of Security Interest (Enforcement Rules) 2002 provides that where possession of the secured assets to be taken are moveable property like stocks, plant & machinery, vehicles etc. in possession of the borrower, the Authorised Officer shall take possession of such moveable property in the presence of two witnesses after a
Panchnama is drawn and signed by the witnesses.
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After taking possession of the moveable assets, the Authorised Officer is required to take custody of the moveable assets and has to take steps for protection and preservation of those assets.
G. COMMITTEE FOR ENFORCEMENT OF SECURITY INTEREST AT CIRCLE OFFICE (COCESI)
As the „Authorised Officer‟ may need guidance/support in various matters for taking measures under the Act e.g. to decide the Reserve Price of the assets; to decide the mode of sale of assets etc.
„Committee of Officers‟ at Circle offices are constituted to extend guidance and support to the „Authorised Officers‟ for taking measures under the SARFAESI Act. Recovery Division has issued detailed guidelines vide circular no. SAMD/25/2010 dt. 13.7.2010.
H. MODE OF SALE:
For the purpose of sale, the following modes are permitted:
By obtaining quotation from persons dealing in the similar assets;
By inviting tenders from public;
By holding public auction; and
By private treaty.
These modes are common in the case of both movable and immovable assets. (Rule 6 (1) and 8 (5) respectively of SARFAESI Rules.)
After taking possession, either symbolic or physical, bank can proceed towards sale of the moveable/immovable security, as the case may be.
Before affecting sale of the immovable property, the Authorised
Officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the secured assets at circle office level.
As per The Security Interest Rules 2002, before effecting any sale
(for both movable and immovable assets), the authorised officer shall serve upon the owner of the asset concerned a notice of 30 days. The notice is to be mandatorily served upon the person concerned (Ref. Rule 6(2) and 8(6).
For E-AUCTIONS under SARFAESI Act, on the advice of Deptt. of
Financial Services, Ministry of Finance, Recovery Division, HO has issued detailed guidelines vide circular no. 36/2012 dt. 7.12.2012.
For sale of immovable secured assets through private treaty, Recovery Division, HO on the instructions of Ministry of Finance,
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SARFAESI Act, any person (including borrower) may make an application to the DRT within 45 days from the date on which such action had been taken.
- DRT shall consider whether the measures taken under Sec.13 (4) are in accordance with the provisions of the SARFAESI Act. If DRT finds that the measures have not been taken as per the provisions of the Act and Rules and require restoration of the management or restoration of possession of secured assets as the case may be, to the borrower it can by order declare the measures taken as invalid and order restoration accordingly. The
Act stipulates a time period of 60 days for deciding the application filed before DRT U/s 17(1). However, DRT may further extend the time after recording reasons in writing but the period so extended shall not exceed 4 months from the date of the application.
Bank should file reply to applications, documents and evidence in time to enable DRT to complete the proceedings in time. There should not be any delay on the part of the Bank. If DRT errs in allowing application, filing of appeal before DRAT be considered and if appeal is to be filed, the same be filed within limitation of 30 days.
If the application is not disposed of by DRT within 4 months, any party to the application can file an application before DRAT and DRAT shall make an order for expeditious disposal of the application by DRT
RDB Act is not applicable to J&K but SARFAESI Act is applicable. There is no provision or remedy in RDB Act for action taken under the SARFAESI Act, as related to J&K. As per the
SARFAESI Act, such applications can be made to the Court of Distt. Judge having jurisdiction over the borrower. Appeal also lies to High Court against order of Distt. Judge.
- As per section 18 of the Act, against the Order of DRT/Distt.
Judge, the party aggrieved can file appeal before DRAT/High
Court (for J&K) on payment of prescribed fees within 30 days from the receipt of order passed by DRT/Distt. Court.
The Act also provides that no appeal before DRAT/ High Court shall be entertained unless the borrower has deposited with the appellate tribunal/court 50% of the amount of debt due from him as claimed by the Secured Creditor or determined by DRT whichever is less. It is also provided that for the reasons to be recorded in writing, the appellate tribunal/court may reduce the amount but not less than 25% of the debt as claimed by the Secured Creditor or determined by DRT/Distt. Judge.
As no appeal has to be entertained unless the borrower deposits 50% of the amount due or a minimum of 25% as may be decided by DRAT/High Court, position in this regard be checked up. If the provisions are not complied with , application for direction be moved before DRAT/High Court.
J. STATUS OF AGRICULTURE LAND:
Under Section 31(i) of the SARFAESI Act, it has been provided that the provisions of the Act shall not apply
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to any security interest created in agricultural land.
However, instances have come to our notice where IPs charged to the Bank by way of mortgage are shown as agricultural land in the revenue records but the same is not being used for agriculture purposes.
In this regard, attention is invited to the decision of the Hon‟ble
High Court of Andhra Pradesh, in the case of Gajula Exim (P) Ltd. Vs. Authorized Officer, Andhra Bank, Main Branch and two Others
(AIR 2008 AP 184), wherein it has been held that -
„The present characteristics and not the potentialities of a land are the proper criterion (to decide whether the land is agricultural or not). If a land is ordinarily used for purposes of agriculture or for purposes subservient to or allied to agriculture it would be agricultural land. If it is not so used, it would not be agricultural land. The question, how a land is ordinarily used, would be one of fact depending on the evidence in each case‟.
The Hon‟ble Court, after going through the entire material in the case took the view that the land on which the factory is situated cannot be treated as an agricultural land. Therefore, it is not exempted under the Act.
It may also be added that the aforesaid view of the Hon‟ble Court was challenged before the Hon‟ble Supreme Court by way of SLP
(Civil) No.17714/2008 but the same was dismissed by the Supreme Court vide its order dated 04.08. with the observations that
“We do not find any ground to interfere with the impugned order”.
In view of the above legal position, it is advised that whenever the
Bank‟s action under the SARFAESI Act is challenged in a similar situation, the aforesaid legal position can be of assistance to the Bank to contest the same.
K. REGISTRATION OF SECURITY INTEREST WITH CENTRAL REGISTRY
Central Registry has been established by the Central Government and in terms of section 20 of the SARFAESI Act, bank has to ensure filing of charge in respect of all equitable mortgages created in its favour.
The same has to be filed within 30 days from the date of creation of security and on payment of fees prescribed therein.
Filing of charge with Central Registry is in addition to the registration of charge with ROC etc. Every modification/ satisfaction of charge also will have to be got registered with the
Central Registry.
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ANNEXURE
IMPORTANT CASE LAW ON VARIOUS ASPECTS OF SARFAESI ACT:
1. Under Sec. 14 of the Act, CMM/DM is not required to give notice either to the borrower or to the third party.
M/s. Trade well & Another V/s Indian Bank & others decided on 02.04.07 (MANU/MH/0195/2007) :-
(i) The bank/financial institution shall, before making an application under section 14 of the SARFAESI Act, verify and confirm that notice under section 13 (2) of the SARFAESI Act is given and that the secured asset falls within the jurisdiction of CMM/DM before whom application under section 14 is made. The bank/financial institution shall also consider before approaching CMM/DM as to whether section 31 of the SARFAESI Act excludes the application of sections 13 and 14 thereof to the case on hand i.e. account and secured asset is not under the exempted category.
(ii) CMM/DM acting under section 14 of the SARFAESI Act is not required to give notice either to the borrower or to the 3rd^ party.
(iii) He has to only verify from the bank or financial institution whether notice under section 13(2) of the SARFAESI Act is given or not and whether the secured assets fall within his jurisdiction. There is no adjudication of any kind at that stage.
(iv) It is only if the above conditions are not fulfilled that the
CMM/DM can refuse to pass an order under section 14 of the SARFAESI Act by recording that the above conditions are not fulfilled. If these two conditions are fulfilled, he cannot refuse to pass an order under section 14.
(v) Remedy provided under section 17 of the SARFAESI Act is available to the borrower as well as third party.
(vi) In view of the fact that efficacious alternative remedy is available to the borrower as well as to the third party, ordinarily writ petition under Articles 226 and 227 of the Constitution of India should not be entertained.
(vii) In exceptional cases of gravest injustice, a writ petition could be entertained by this court.
(viii) Great care and caution must be exercised while entertaining a writ petition because in a given case it may result in frustrating the object of the SARFAESI Act.
(ix) Even if writ petition is entertained, as far as possible, the parties should be relegated to the remedy provided under section 17 of the SARFAESI Act before the DRT by passing an interim order which will protect the secured assets. Adjudication and final order should be left to DRT as far as possible.
In the case of Saraswat Cooperative Bank limited vs. The State of Maharashtra and Anr (Bom) decided by High Court of Bombay WP no. 4344 of 2011 (MANU/MH/0957/2011), The court has followed the above decision.
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2. Tenants are not to be physically dispossessed at the time of issuing notice u/s 13 (2) and the physical possession can be taken by the bank by following the procedure laid down in the Act
Business India Builders & Developers Ltd. V/s Union Bank of India decided on 19.2.07 reported in AIR 2007 Kerala 114:
"The word encumbrance enumerated in Rule 9 (9) can not be given a restricted meaning. "encumbrance" means a liability which burdens the property, for example, lease, mortgage, easement, restricted, covenant, rent charge etc. Encumbrance which can be carved out of ownership, generally are securities, leases, servitudes, trusts etc. It is generally a burden or charge upon the property. Lease is an encumbrance over the property. The borrower is bound by the terms and conditions stipulated in a declaration executed by him in favour of bank undertaking that he would not lease out the property. Contrary to the said stipulation the tenant was put in possession and therefore by virtue of Securitisation Act there is no necessity of the bank to resort to the provisions of Rent Control Act for evicting the tenant. Securitisation Act has got overriding effect over the Kerala Buildings (Lease and Rent Control) Act and parties are governed by the Securitisation Act and not by the Rent Control Act. The Authorized Officer is to deliver the property to the purchaser free from encumbrances in terms of Rule 9 (9).
Occupants are not to be physically dispossessed at the time of issuing notice u/s 13. Physical possession can be taken by the bank by following the procedure laid down in S. 14 or after the sale is confirmed."
3. There is no violation of any right or legal provision by the bank in publishing the photographs of the borrower and surety for default in repayment of the loan amount.
In the case titled Mr. K.J. Doraisamy Vs. The Assistant General Manager, State Bank of India, decided by Madras High Court on 22.11.
while discussing the provisions regarding Right to Privacy - Article 21 of the Constitution - Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act held -
Petitioner committed default in payment of installment of loan borrowed from bank - Bank issued a notice under Section 13(2) of the Act - Subsequently, Bank also issued notice, threatening to recover loan by enforcing security and bringing it to sale by publishing details of properties as well as photographs of the borrower in Newspapers - Hence, present petition was filed for seeking Writ of Mandamus for directing bank to forbear from publishing photographs in any Newspapers or Magazines -
Petitioner contended same as violative of Article 21.
Court held that individual right to privacy is not absolute and also under certain circumstances, duty to maintain secrecy superseded by larger public interest as well as by the Banks own interest. Accordingly, there was no violation of any right or legal provision by the Bank in publishing the photographs of the borrower and surety for default in repayment of the loan amount.
