Do s and Don ts. In the case of non-suit filed accounts the following aspects have to be borne in mind:

Transcription

1 A CORPORATE OFFICE LEGAL Department December 7, 2012 ACTION POINTS The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act) APPLICABILITY: Do s and Don ts Proceedings only against Security - Under the Act, Banks can take possession and sell/ transfer only the properties which were offered as security by way of mortgage, hypothecation etc., Liability should be above Rs 1.00 lakh and be classified as NPA - Provisions of the SARFAESI Act can be made use of for realization of assets classified as sub-standard, doubtful or loss asset as per the directions/ guidelines relating to Asset Classification issued by RBI i.e. it should be classified as an NPA by the Bank and the total dues to be recovered by the Bank should be above r.1.00 lakh. Application of Limitation Act - Claim should be made within the period of limitation prescribed under Limitation Act That is, when the demand notice is issued under SARFAESI Act, Limitation should be available, based on loan documents / last renewal / Acknowledgement of Debt (D-11). Generally, the period of limitation available is three years from the date of loan documents / last renewal/ last AOD for hypothecation and if it is to be based on mortgage - twelve years from date of creation of mortgage/ Last AOD. Initiation of SARFAESI action by issuance of demand notice will not save limitation for suit filing and similarly having done suit filing will not save limitation for SARFAESI action. Suit filed accounts - Even in suit filed cases (including cases pending before DRTs), if the period of limitation is available based on loan documents/ last renewal / AOD (like in the instance of non-suit filed cases), then measures under the Act can be taken. In the case of non-suit filed accounts the following aspects have to be borne in mind: 1. If security is sufficient to cover the dues fully or there is nothing other than the security, bank may issue notice and proceed under the Act. 1

2 2. if security is not sufficient and recovery by proceeding against other assets, is necessary, bank would have to proceed under the Act before filing Suit / Recovery Application sufficiently early so that proceedings under the Act could be completed before the expiry of the period of limitation and bank could file Recovery Application / Suit thereafter for the balance within the limitation period. Decreed Cases - The word Debt has been defined to mean and include the same term as in DRT Act. Going by the same money due under a decree is Debt. Therefore even civil court decreed cases, RC issued cases and Lok Adalat Awards, we may treat the money due under such decrees as Debt and the security interest has culminated in the decree and therefore SARFAESI action can be initiated within 12 years from date of Decree/RC, wherever mortgage interest is involved. Here, it has to be borne in mind that there is no distinction between a preliminary decree and a final decree for SARFAESI action and therefore even where preliminary decree is obtained, Bank may issue demand notice based on the same. Exemptions: The Act is not applicable to a) Security interest created in **Agricultural land. b) Security interest created for securing repayment of any financial asset not exceeding Rs 1.00 lakh c) Assets in which the Amount due is less than 20% of the principal amount and interest thereon d) Lien on any goods, money or security, creation of security in air crafts or vessels, conditional sale, hire purchase or lease or any other contract in which no security interest has been created. e) Rights of unpaid seller, properties not liable to attachment under Section 60 (1) of CPC (Eg. Tools of artisans, personal belongings like wearing apparel, bedding etc., of judgement debtor, stipends and gratuities allowed to pensioners of Government or of Local Authority, wages of labourers and domestic servants, all monies payable under LIC Policy of the judgement debtor etc.,) and such other items as may be exempted under respective State Amendments. f) Pledge of movables ** Herein the important aspect to be borne in mind is that if the land is not used for agricultural purposes it will not fall under the exemption. Care should be taken to ensure that the exempted categories do not come under the ambit of such identified accounts. Guarantor liability and pledge - By resorting to measures under the Act, the rights of Bank as secured creditor to proceed against the guarantors is not taken away. Similary the right to sell the pledged goods under general law also subsist. 2

3 Consortium accounts and / or Joint Finance - In the case of financing by more than one secured creditors under consortium arrangement or joint financing, bank is not entitled to exercise the powers under Sec 13 (4) of SARFAESI Act unless secured creditors representing not less than 75% in value of the amount outstanding ( the total amount due to be payable) agree/consent for such action. This consent is required only at the stage of taking possession etc (Sec 13(4) measures) and not necessarily at the stage of issuance of Demand Notice. BIFR accounts - Measures under the Act can be taken even in matters where BIFR reference is pending. After the commencement of the Act, such references pending before BIFR will abate ( i.e. it will come to an end) if the provisions of sec 13 (4) of SARFAESI Act are invoked for enforcement of security interest by secured creditors representing not less than three-fourth in value of the amount outstanding. For calculation of period of Limitation in BIFR matters, the Branches have to bear in mind that only the period during which reference was pending before BIFR will get exempted and not thereafter. For example, if the actual balance limitation period available as per the loan documents as on date of reference is three months and a reference was pending before BIFR for one year, then once the reference abates, the balance limitation period that would be available to the Bank shall be only three months from the date on which the BIFR proceedings abated - came to an end. Sanction to initiate action under the Act - Branches are required to obtain sanction from appropriate authorities to initiate action under the Act. For initiation of SARFAESI action, it is the Zonal Manager who has to give necessary clearance / permission. Suit filing sanction: After SARFAESI action is completed, if still balance amount is to be recovered through suit filing mode, then necessary permission from appropriate suit filing sanctioning authority to be taken. Likewise, even after initiation of SARFAESI action and before it could be concluded, if limitation is likely to get time barred, branch may take necessary permission from appropriate suit filing sanctioning authorities and do the needful to file suit within limitation period. Authorised Officers - The exercise of all rights by the Bank under SARFAESI Act has to be done through an "Authorised Officer right from the stage of issuance of Demand Notice and up to the stage of issuance of sale certificate in favour of the purchasers, all steps are taken by the bank through the Authorised Officer (AO) only. In terms of the Rules, the Officials not less than the rank of Chief Manager are to be the Authorised Officers (AO). The Zonal Manager will nominate the Authorised Officer for each account. In accounts where security is located in one Zone and account comes under the jurisdiction of another Zone, 3

4 the Zonal Managers of both Zones may co-ordinate and nominate a AO from the circle where the security is located. Security Enforcement Committee: To oversee the process of enforcement of securities and to ensure effective implementation in accordance with the provisions of the Act, a Security Enforcement Committee (SEC) comprising the Zonal Manager, Heads of the Departments - Recovery, Legal, Expenditure, Premises, Inspection, Administration may be constituted at Zonal Offices, with a minimum of three members. However the Authorised Officer shall not be a member of SEC. The Department Head of Legal/Recovery Cell in Zonal Office shall be the convenor for this Committee and shall ensure maintenance of all relevant records. The minutes of the meetings held, decisions taken, the norms adopted etc shall be maintained up to date and shall be submitted to the Zonal Manager on a quarterly basis. The SEC is empowered to take decision on fixation of Reserve Price, EMD, norms on Resale, confirmation of sale, issuance of sale certificate to the nominee, granting time extension, deferring SARFAESI action / sale etc. and communicate the same to the Authorised Officer. Likewise, in matters wherein the Borrower approaches for OTS/compromise etc, the same shall be considered on merits even though Bank may have issued notice under the Act. Any cost incurred in this regard shall also be taken into consideration while finalising the OTS / Compromise. Guidelines for SEC: The guidelines for the SEC in matters of fixing the Reserve price, EMD, Resale, confirmation of sale are prescribed as under: The SEC may consider the Reserve/upset price even 10 to 25% less than the valuation, taking into account the realisable price of the assets at the given point of time but shall not be less than the distress value given by the Approved Valuer or 75% of the market value whichever is higher. SEC shall fix the EMD of movable assets and immovable assets offered as securities in such a manner that it shall be 10% of the reserve price subject to a maximum of Rs.50 lacs and a minimum of Rs.10, Chairman and Managing Director/ Executive Director are empowered to fix/reduce the EMD on case to case basis depending on the exigencies on a reference from SEC. In case the sale is not successful for want of bidders and/or on default of the purchaser to deposit the purchase price in time, the property could be brought for resale after observing necessary guidelines for fixing the upset price, EMD, other procedural aspects, etc. and after obtaining permission from the appropriate authority. 4

5 If sale did not materialise owing to default of the purchaser to deposit the purchase price, then when the sale is conducted again, the reserve price does not call for any reduction. If it is a Resale for want of bidders, Reserve price to be suggested by the SEC at 80% of distress sale value or 60% of the market value whichever is higher with the permission from the appropriate authority. Any sale below the above limits may be referred to Chairperson and Managing Director/Executive Director. The sale of movables shall be effected in favour of persons who have paid the agreed sale price or the sale price in terms of public notice as the case may be. When it is an immovable property, sale shall be confirmed in favour of the purchaser who has offered the highest sale price subject to confirmation by SEC. Demand Notice stage: 1. The issuance of demand notice under Sec.13 (2) of SARFAESI Act after identification of SARFAESI eligible accounts should not be beyond a time span of 1 week, from the date of account flagged as NPA. The format of demand notice to be used is given as Annexure I and the format to be used for publication is given as Annexure II. 2. The demand notice should be addressed to the borrower / guarantor(s)/ mortgagor(s) indicating the correct address / latest address. In the event of any one of the above mentioned persons being since deceased, the notice should be addressed as under: To the estate of the deceased Shri [deceased on..(date)] represented by legal heirs viz.(1) (2) (3).. **If details of all Legal Representatives (LRs) could not be procured, steps may be taken to implead the available LRs as even a few LRs are sufficient to represent the estate and it will be binding on all other LRs. Demand Notice may be sent to the permanent address also, if any available in our Bank records. 3. In the schedule, correct description of the property / security intended to be proceeded against should be enumerated, with correct Survey No., Boundaries etc. If the description as per title deeds deposited with the Bank differs with the description on actual verification, it should be indicated correctly in the demand notice and in all other formats that though the description as per title deeds deposited with the Bank is as enumerated in the first portion of the schedule, the actual available description / extent is as enumerated in second portion of the schedule. 5

6 If there are any agricultural lands, which are beyond doubt used for cultivation of food crops etc. the same shall not be included. On the other hand, if it is barren land and / or the land is classified as an agricultural land as per revenue records but used for other purposes including cultivation of commercial crops viz. cardamom, tea, coffee, turmeric, rubber etc., it may be included in the schedule. If there are several securities of which one such security falls under the ambit of agricultural land being doubtful in its usage and which is yet to be ascertained, two demand notice may be issued, wherein the schedule of one demand notice covers the securities which are clear and the other demand notice covers such security to serve as a risk mitigating factor. When such a strategic move is adopted, it is advisable to mention in the demand notice that This is in furtherance to and in addition to earlier demand notice dated.. Wherever possible, a certificate may be taken from Revenue Authorities about the usage of the land. ** There are certain decisions of Madras High Court, Kerala High Court which have held that lands which are used for cultivation of commercial crops are also agricultural lands. However, there is no finality in the issue until the Apex Court, which is seized of the matter renders its decision. 4. Service of demand notice shall not be waited for / attempted indeterminately. If no acknowledgement is received within 15 days of sending it by registered post and / or attempting personal service within this time period or where covers are returned unserved, Bank should not waste further time and should resort to affixation of demand notice at the place where the borrower / guarantor / mortgagor resides or works for gain and also for publication of demand notice in two newspapers one in English and one in Vernacular language, having sufficient circulation in the locality (in the vernacular format too). In fact where Bank is sure that the borrower / guarantor / mortgagor are going to avoid service, Bank can even in the first attempt to go for affixation and publication of demand notice. However, after one week period is over since issuance of demand notice by post, the branch may make an attempt to get a certificate / letter from the Post Master confirming that notice has been delivered at the said address. If such a letter / Certificate could be procured, it could be treated as a valid service. 5. After service of demand notice and after mandatory period of 60 days from date of service (i.e. date of acknowledgement), if no repayment is made within the waiting period, possession to be taken within time span of 3 days. (if there are more than one notice(s) sent, the waiting period of 60 days would be reckoned from the last issued notice). 6

7 6. The demand notice ought to indicate the correct amount due and the date as on when such amount is due, as latest as possible, at-least the amount due up to the end of the previous month, prior to issuance of demand notice. 7. The demand notice shall be marked to the tenants and / or subsequent purchasers (after EM in our favour) etc., if it could be ascertained on verification of EC / personal inspection of the property. When copy is so marked, it should be indicated as under: Copy to Shri. (the tenant / the occupant of the property) Copy to Shri. (the subsequent purchaser as reflected from the EC dated.) The above are only indicative and not exhaustive 8. The copy of the demand notice may be marked to the Sub-Registrar Office (SRO) in view of specific provision Sec.13(13) under SARFAESI Act which states that no alienation / encumbrance can be created after issuance of demand notice. 9. There cannot be any alienation after issuance of demand notice. However, if there has been any alienation so done, though it is void, Bank shall immediately intimate the purchaser that the property is subject to mortgage and about the SARFAESI action taken by issuance of demand notice and highlighting that the sale / alienation is void. Supplementary Notices under SARFAESI Act: If the secured asset is a debt (due to the borrower) and not secured by a Negotiable Instrument, notices shall be sent to (1) the borrower prohibiting him from recovering such debt and (2) prohibiting the debtor of the borrower from making payment to the borrower, and directing him to make payment to the Bank.; If the secured asset is a share in a body Corporate, notice shall be sent to (i) the borrower directing him to transfer the share to the Bank and (ii) the Body Corporate restraining the Body Corporate from transferring such shares to any other person. Copy of such notice is also to be sent to Registrar/Share transfers Agent of such Body Corporate. If the secured asset is any other movable property not in possession of the borrower (except those deposited in court etc), notice shall be sent to the borrower or any person in possession, to handover the same to the Authorised officer and Authorised officer shall take custody in case of their failure to hand over. The method of taking possession and preservation etc of such movables is the same as applicable generally (enumerated hereunder). 7

8 If the secured assets are movables other than those mentioned above the Authorised Officer shall take possession of the same by taking possession of documents evidencing title to the same. These supplementary notices may be sent simultaneously along with the Demand Notice. Sec.13 (3A) provisions and its implications: 10. If there are any objection / representation received from the borrower / guarantor / mortgagor, for the demand notice, the same has to be looked into and a suitable reply be given within seven days of receipt of the same, with reasons also indicating that the objections / representation is rejected and only after sending a reply, Bank can proceed with the next step of taking possession. This is a mandatory provision and cannot be dispensed with. Upgradation of account: 11. Once demand notice is issued and SARFAESI action is set to roll, if any payment is received as a consequence of which the account is upgraded in the books of the Bank as per applicable guidelines, Bank cannot fall back upon the earlier issued demand notice in the event of the account becoming an NPA again at a subsequent point of time. It has to issue fresh demand notice to take forward the recovery mechanism through SARFAESI. Section 13(4) measures: 12. If the borrower / guarantor / mortgagor, fail to discharge the liability within 60 days time as stipulated in the notice, under Section 13 (4) of the Act, Bank can take recourse to one or more of the following measures to recover the secured debt. Take possession of the secured assets including the right to transfer by way of lease, assignment or sale for realizing the secured assets. Take over the management of the business of the borrower (substantial part of business of the borrower should be held as security for the debt), including the right to transfer by way of lease, assignment or sale for realizing the secured asset. Appoint any person (as Manager) to manage the secured asset (possession of which was taken over) Require any person in writing who acquired secured asset and from whom money is due or may become due to the borrower / guarantor to pay the Bank so much of the money as is sufficient to pay the secured debt. Taking Possession: 13. After 60 days from service of demand notice and / or publication of demand notice as the case may be and after reply to objections / representations if 8

9 any, within 7 days, AO should proceed to take possession of securities without delay. This should be ideally within three days after the above are taken care of. 14. Before proceeding to take possession, the AO shall conduct the physical verification of the property, to ascertain the correctness of the description, extent and the nature of the property such that the process of taking possession is made simpler and effective. 15. The possession of immovable securities can be symbolic or physical. Whether AO resorts to symbolic or physical possession, the following steps are mandatory. Service of possession notice be it in person or through post etc. Affixation of possession notice at the premises which is intended to be taken possession of. Publication of possession notice in two newspapers English and Vernacular language, having sufficient circulation in the locality (in vernacular format too). This publication should necessarily be effected within seven days of taking possession else, the whole process would be rendered nugatory and would have to be repeated. The Possession Notice should indicate the correct amount due (upto the end of atleast previous month) and the date as on when such amount is due. Likewise, the schedule of the Possession Notices should indicate the correct description of the property which has been taken possession of extent, Survey No. Boundaries etc. The format which is affixed should describe only that particular property in the schedule and not the remaining securities. However, the format which is used for publication and service can cover all securities taken possession of in a comprehensive manner. The entire process of taking possession will have to be photographed and videographed, preferably with timer. 16. When physical possession of the securities (immovable properties) are resorted to, besides the above steps, AO will have to take detailed inventory of items inside the premises and thereafter put its lock and seal. The copy of the possession notice to be made use of is given as Annexure III. 17. The AO, by himself has got powers under SARFAESI Act to take physical possession. Wherever, the AO anticipates resistance / Law and Order 9

10 problem etc., he is at liberty to approach Chief Metropolitan Magistrate (CMM) or the Dist. Magistrate (DM) with appropriate application seeking assistance in taking possession / control, as the case may be. The draft format of the application / request to be made to CMM / DM is given as Annexure IV and V. However, these formats may undergo a change depending on the local practice, which may be ensured with local advocates. Though the Act only specifies CMM / DM, in many places, based on local practice, the Chief Judicial Magistrate (CJM) is also empowered to hear such applications. There are decisions of High Courts upholding the same also. 18. Whenever any such applications / request is made before CMM/DM, there shall be no delay in obtaining the orders as there are judgments that CMM shall pass order within a timeframe not exceeding two months. 19. While taking possession of movables, detailed inventory, panchnama should necessarily be drawn. There is no scope for any symbolic possession of movables like stocks, Plant and Machineries, Equipments etc. The format of inventory and panchnama to be drawn is given as Annexure VI & VII respectively. 20. Wherever physical possession is to be taken bank shall have sufficient witnesses and try to take local police help. If there is possibility of any law and order problem, bank can take orders of CMM / DM as enumerated above. 21. Whenever Bank takes possession of the premises (immovable properties) and there are items non-hypothecated to the Bank, AO should take detailed inventory of these items and also draw a panchnama using the same formats which are applicable for hypothecated items, but without mentioning the legal provisions. Thereafter, the AO should affix a notice outside the premises which would be indicating that the mortgagor would have to approach the AO and make arrangements to remove these items within a specified time span, failing which Bank would be constrained to abandon the same. A draft of abandonment notice which could be made use of with appropriate changes on case specific basis is given as Annexure VIII. The shifting of non hypothecated items shall be only after issuing appropriate notice for abandonment. 22. Whenever the immovable properties (securities) are occupied by the tenants whether prior to our mortgage or after our mortgage and wherever Bank resorts to taking symbolic possession, besides adopting the above procedures, the AO may issue a notice as per the draft enclosed herewith as Annexure IX calling upon them to remit whatever amount which they would be remitting to the mortgagor, under Sec.13(4)(d) of SARFAESI Act, which would give a valid discharge to them also. However, care should be taken not to give any indication that they are recognized as tenants under our Bank. 10

11 23. Whenever Bank / AO proceeds to take possession, the approved valuer shall accompany the team mandatorily as only then, the valuation report can be taken at the earliest point of time which would facilitate fixation of Reserve Price by the SEC. The Bank has already a system of empanelling valuers / Engineers for the purpose of valuing various types of assets. Our Board has approved these valuers in our panel as on to function as Approved valuers for the purpose of valuation. Preservation and safety measures: As per the Rule 8(3) for taking possession, preservation, security arrangements, scouting for bidders, conducting auction, etc. the AO can appoint any persons / agencies. (seizure agencies, security agencies, auctioneers etc) For this purpose, if there are any Specialised Agencies in the approved panel of our Bank their assistance may be taken. On the other hand, where no such empanelled persons / agencies are available with our Bank, the services of agencies empanelled by any other Banks/Financial Institutions or the Government approved agencies may be utilised. In case there are no such agencies too, then the Zonal Manager shall seek the guidance of Corporate Office Recovery/Legal department to engage any such agencies. The Zonal Manager shall advise the Authorised Officer as regards engaging the specialised agency. The fee/charges of the outside agencies would vary depending on the nature of securities, market, location, risk factor etc. Hence the fee payable shall be decided prior to entrustment of the work to the agencies. Filing of caveat : 24. After taking possession and / or any of the Sec.13(4) measures enumerated under the Act, immediately / same day or at the latest by next day, Bank should file caveat before DRT and High Courts wherever its is accepted, which would be in force for a period of 90 days only. The purpose of caveat is to ensure that no exparte orders are passed by DRT in any Securitisation appeal. Care should be taken to ensure that fresh caveats are filed after the validity period of 90 days to keep it live. Fixation of Reserve Price: 25. The valuer should accompany the team while taking possession and should give the report within 24 hours. Thereafter, proposal from branch through AO to ZO should be done within two days and Security Enforcement Committee (SEC) shall fix the Reserve Price within 48 hours. 11

12 Sale Notice: 26. The sale notice should be issued/affixed/published within two days of fixation of Reserve Price. It shall also be ported simultaneously in bank web-site and tenders.gov.in. There should be no time lag in this process. The notice of intended sale is nothing but elaborate format of sale notice used for publication with more terms and conditions. The sale notice format which should be sent by Regd. Post / personal service is given as Annexure X and the sale notice format to be used for publication is given as Annexure XI. 27. The sale notice for publication purposes and tender document formats shall be as per Corporate office format which has covered onerous clauses given as Annexure XI & XII. The terms and conditions of e-auction as enumerated in the applicable Circulars should form part of the Tender documents and should also be ported in the website(s) The Tender documents may be fixed with a price of r.200 r. 500 depending on the volume and proper account be maintained for the number of tender forms sold. 28. The sale notices should also indicate the correct amount due (atleast upto the end of the previous month). Herein also, the correct description of the securities the available extent, correct Survey No., boundaries etc. should be incorporated in the sale notice to be issued / affixed / published. 29. Affixation of sale notice should be on the premises which is intended to be brought for sale and the schedule in the affixation format should describe only that particular security. However, the format which is used for service / publication could be a comprehensive format covering all securities which are being brought for sale. 30. The publication of sale notices shall also be in two newspapers one in English and one in vernacular language having sufficient circulation in the locality (vernacular format too). 31. As per recent guidelines, the type of sale has been advised to be only Tender cum Auction process and therefore, appropriate clauses in this regard should be ensured to be incorporated in the sale notices and tender documents. 32. The sale notices and tender formats shall also be ported in Bank web-site and Government web-site tenders.gov.in. Besides, now Government of India is popularizing the e-auction process and detailed guidelines in this regard along with names of service-providers have been provided vide Circular NoADV.86 dated and Circular No.ADV.94 dated However care should be taken to ensue that the publication of sale notices in the newspapers and the porting of the same in web-site happen simultaneously without any time lag what so ever such that the 30 day norm for date of sale is satisfied uniformly, without any ambiguity. 12

13 33. There should be a specific date given for inspection of properties/securities and inspection of available documents with the AO. On the said date, besides the copies of other documents, the up to date EC shall be taken and shall be made available for perusal to the tenderers and a specific acknowledgement be taken to the said effect. This will give protection as sale is on as is where is and as is what is basis. 34. There is no waiting period to come out with a sale notice, after taking possession. In fact, on approval / fixation of Reserve Price by SEC, the sale notice will have to be issued immediately. 35. But the date of sale shall be clear 30 days after the issuance / affixation / publication of sale notice i.e. service of sale notice. Care should be taken to ensure that the date of sale specified is clear 30 days after the publication of sale notice comes out in the newspapers/web-sites. Branch should ensure that there is no lapse whatsoever in this regard which would otherwise vitiate the sale itself. It is advisable to give an additional time frame of nearly 4 to 5 days such that there is no confusion / ambiguity in this regard. 36. When movable assets taken possession of are subject to speedy and natural decay or the expenses for the safekeeping is likely to exceed its value, the same could be sold / disposed of at once. A mention of this right may be made in the Demand notice itself. Sale process: 37. Normally, the tenders can be received only upto the date and time specified in the sale notices and not thereafter. The sealed tenders should be accompanied with EMD taken in DD / BPO / RTGS / NEFT / Account Transfer and / or any other acceptable mode of money transfer without time lag, failing which the tender becomes disqualified. 38. It is advisable to give time for withdrawal of tender upto that date / time stipulated for opening of tender as otherwise in case of certain contingencies, the tenderers insist for withdrawal and the same is not allowed, it may defeat the sale and / or give rise for proliferation of disputes. 39. The sale procedure shall be minuted and signed by participants. It is also suggested that depending on the subject / account, the AO may consider having the sale process also photographed and videographed with timer. The cost effectiveness vis-à-vis the total dues and probable sale price may be the weighing factors, to be taken in to consideration to decide whether both photograph and videograph or either would suffice. 40. If there is any interim order passed and served on the AO, just before sale, the contents of it shall be perused carefully and acted upon. At times, it is only sale confirmation that is stayed and not entire sale. In such a scenario, the 13

14 contents of the interim order should be extracted, typed out for information and circulated among the bidders and signature be taken that they have read and understood the same. This should be made transparent to the bidders before opening the bids and if any of the bidders desire to withdraw from the sale process, the same should be facilitated on obtention of specific request letter from them and minuted too. 41. Once the bids are opened and interse bidding is held (which is in the discretion of the AO), a letter of acceptance will have to be given to the highest bidder, calling upon the bidders to remit the balance 15% (less of the EMD 10%) immediately failing which the bid will be accepted / conferred on the second successful bidder. The draft format of the acceptance letter which could be made use of on case specific basis, is given as Annexure XIII. The balance 15% of the highest / successful bid amount should also be remitted by way of DD / BPO / RTGS / NEFT / Account Transfer and / or any other acceptable mode of money transfer without time lag. 42. Sale price shall necessarily be above reserve price and not just a marginal increase. If the sale price is less than the Reserve Price, consent of the borrower is required. Even if there is only single bidder, if the bid amount is more than reserve price and satisfies all other terms and conditions of tender / bid, it can be accepted. 43. No cheque / Cash for EMD / 25% of bid price should be accepted. 44. The bid and EMD amount of the second successful bidder may be retained by the AO and the EMD of remaining bidders can be returned after 30 days, as stipulated in the sale notice / tender document. On case specific basis, depending on the amount of EMD, to facilitate active participation at the instance of the bidders, SEC may direct / modify this stipulation that EMD may be returned after a period of 7 days. 45. In case the successful bidder fails to remit the balance 15%, immediately, the EMD amount remitted (10%) will stand to be forfeited. In case of default of payment of 25% immediately after sale, the purchaser shall stand to forfeit the EMD and the property shall forthwith be sold again. That is, the second highest offer can be immediately accepted. 46. It is advisable to hold the auction process in the forenoon, such that the bidders do not take the excuse that they could not produce the DD / proof of payment of balance 15%, once the sale acceptance letter is given. 14

15 Before the date fixed for sale, if the borrower / guarantor / mortgagor pays the amount due to the Bank and also the expenses incurred by the Bank, Bank shall not proceed further. The mode of sale, the various formats and aspects detailed above from Point No. 25 to 46 covers the general mode of sale as well as the e-auction mode. Until the system of e-auction is stabilised, the above aspects of regular auction mode will continue to apply and thereafter once the e-auction mode gains momentum, the formats should be used making applicable deletions indicated therein. Sale Confirmation and further steps: 47. On acceptance of the successful bid and remittance of the 25% on same date, the confirmation of sale should be taken through SEC at Zonal Office. This shall not be delayed beyond 3 days, in as much as there is no stay / interim orders. 48. Once sale confirmation is given by SEC, the AO shall communicate the same immediately and call upon the successful bidder to remit the balance amount of 75% within 15 days of issuance of the sale confirmation letter to the successful bidder. The draft format of sale confirmation to be communicated by the AO to the successful tenderer / bidder is given as Annexure XIV. 49. The balance amount of 75% shall also be received only in DD / BPO / RTGS / NEFT / Account Transfer and / or any other acceptable mode of money transfer without time lag. 50. If payment of balance 75% could not be made within 15 days, extension of time for payment of balance 75% should be sought in writing by the bidder within the lapse of 15 days period and on careful consideration, it can be given by Bank, communicated through the AO in writing. Even this discretion should be sparingly exercised for genuine reasons, recorded in writing, after taking permission / clearance from SEC. 51. If the successful bidder do not remit the balance 75% within 15 days or extended time in writing, he would stand to forfeit the 25% remitted on the date of sale. If balance sale price is not paid within the 15 th day of confirmation of sale or extended time agreed in writing between the Bank and the successful bidder, the amount already deposited will be forfeited and property shall be resold. This is an instance of Resale. 52. The extension of time in these matters should be taken only through SEC. 53. Likewise, deferment of sale etc. can only be done on a decision to be taken by SEC and not otherwise. 15

16 Whenever, SEC takes a conscientious decision to give time extension for remittance of balance amount of sale proceeds, it is advisable to collect delayed payment interest at applicable Bank rate. Wherever SEC is the authority to take decision, there cannot be any dilution and / or shortcut route adopted. The AOs have no powers to suspend or defer the operation of SARFAESI action right from demand notice till sale unless there is a restraint order served on them. It is only SEC which is empowered in such matters. In case the sale is not successful for want of bidders and / or on default of the purchaser to deposit the sale price in time, the property could be brought for resale after observing necessary guidelines for fixing the Reserve price, EMD, other procedural aspects etc., Wherever SEC has been given discretion / powers to give time extension, deferment of sale, collecting of delayed payment interest etc., the same may be exercised and thereafter confirmation may be sought from Corporate Office, Recovery / Legal Dept. within a time span of one week. It may be taken note of that the discretion / powers are now percolated to SEC to avoid time lag. Receipt of complete sale price and further steps: 54. Once complete sale proceeds are remitted, then sale certificate can be issued and thereafter the sale proceeds can be appropriated. 55. Before the complete purchase price is remitted, at no point of time, the 10% EMD or the 25% amount which is received after the acceptance letter is given, can be appropriated to the loan account. It is only after the purchase price is received and sale certificate is issued that it would be proper to appropriate the same to loan account. Even in instances where 10% is forfeited or the 25% is forfeited, the forfeited amount shall only be taken to Income and not to Loan account. 56. The AO shall apply the money so received by him in the manner mentioned in Sec 13 (7) of the Act i.e. first towards the costs, charges and expenses incurred, thereafter towards amount due under the loan transactions and the balance or surplus if any, shall be paid to the person entitled. 57. While appropriating, care should be taken to ensure that first the cost and expenses incurred towards SARFAESI action, fee of enforcement agents etc. are recovered and thereafter only appropriation is done towards total dues, that too first towards book balance and then only towards MOI/ Interest. 16

17 Concept of nomination: 58. The SARFAESI Act and the Rules neither facilitate nor prohibit nomination in SARFAESI sale. Predominantly the practice of nomination, at any stage of sale, should be discouraged. Even assuming that nomination can be facilitated on case specific basis, the following safeguards will have to be necessarily adopted. Sale confirmation should be given only to the successful tenderer / bidder and the Sale price should come in entirety to be received from the successful tenderer/ bidder only. Even if the successful tenderer / bidder seeks execution of sale certificate in the name of any nominee, it shall be only after remittance of complete sale price by the successful tenderer / bidder and not otherwise. At the cost of repetition it is stressed that even if sale certificate is proposed to be issued in the name of the nominee, it shall be only on a specific request cum undertaking from the successful bidder / proposed nominee and that too only after complete remittance by the successful tenderer / bidder as stated above. Care should be taken to adhere to the recent formats of sale notice and tender documents made available along with this booklet. 59. Further it is only the SEC that can permit issuance of sale certificate in the name of the nominee on case specific basis that too only after confirming that all the above safeguards have been meticulously adopted/ followed. The format of undertaking cum request to be taken from the successful tenderer / bidder and the proposed nominee is placed as Annexure XV. 60. The sale certificate shall be issued within 2 days of receipt of entire sale proceeds and shall be registered by the purchaser bearing the stamp duty / registration charges. This clause is already contained in tender document. Sale Certificate: 61. Movables: On completion of sale, a certificate of sale may be issued as per Appendix III to the Rules specifying the property sold, price paid, name of the purchaser etc., which will be prima facie evidence of title for the purchaser (Annexure XVI) 62. Immovables: On confirmation of sale by the Bank and compliance of terms of sale, a sale certificate to be issued in favour of the purchaser which shall mention whether the sale is free from encumbrance or not (Annexure XVII) 17

18 In all, the entire process of holding SARFAESI sale / concluding SARFAESI sale should be completed within a maximum time span of days from the date of issuance of demand notice, in as much as there being no interim orders from any Court / DRT. Meticulous care should be taken to adhere to all guidelines stipulated in this booklet and it should be ensured that the formats provided with this booklet are adhered to without deviations. In case any particular clause is sought to be deleted / modified for any reasons whatsoever, it would be advisable to take legal opinion before doing so. Law of priority of statutory dues vis-à-vis dues of Secured Creditor: Many a time, after Bank exercises its rights under SARFAESI and brings the securities for sale, the sales tax authorities, IT authorities etc. issues notice of attachment and call upon us to pay the sale proceeds claiming priority and first charge over the assets/securities. In this regard, we wish to state that Sales Tax dues and its concept of priority vis-à-vis the dues of Secured Creditor varies from State to State, depending on the local Sales Tax enactment. EPF dues, which is under Central enactment gains priority over the dues of Secured Creditor. Income Tax dues on the other hand, is not conferred first charge over that of the Secured Creditor. In toto, we wish to state that the Law of priority of statutory dues vis-à-vis the dues of Secured Creditor is still subjective based on various provisions of Law as well as legal decisions given by Courts. Therefore, whenever any notices are issued in this regard by statutory authorities, the Branch and the AO should collect complete particulars of the dues payable by the borrower / guarantor / mortgagor to the statutory authorities and take legal opinion on the issue of priority without any time lag. Role of AO: The Authorised Officer (AO) should in co-ordination with the Branch should ensure the following and do the necessary spade work within the 60 day waiting period: i. The details of the account viz., the securities taken, securities available, the copy of the notice issued / to be issued, subsequent developments if any, response of the borrower and all other details giving the profile of the account to be collected by AO. ii. AO shall scrutinize the notice issued, title deeds, EM documents, Up to date EC and other relevant documents for correctness of exact particulars/specifications of assets mortgaged / charged. AO shall check up and ensure from the Branch records that there is no stay orders passed by the High Court or other judiciary bodies restraining the bank from taking possession. 18

19 iii. iv. AO shall ascertain the exact whereabouts of the property and necessarily carry out physical inspection of the securities, ear mark the correct extent / boundaries and do other preliminary steps / verification for taking possession at least a few days in advance to avoid last minute confusion and unnecessary time delay. If the Secured asset intended to be taken possession of is a unit engaged in specialized services then AO should take the assistance of experts in that field who will identify the items correctly at the time of taking inventory of the movables v. AO shall fix the probable date of taking possession and shall proceed to take possession (taking possession shall necessarily be after the 60 days period mentioned in the Demand Notice is over after serving of demand notice) vi. vii. viii. ix. When the probable date of taking possession is fixed, arrangements for taking photos, video shall be made and the AO has to ensure that all necessary tools in this regard viz., sufficient number of chains, locks and keys, boards depicting possession, paint & brush, cloth banners and other tools of the kind are kept ready at least a day before the actual date fixed for taking possession to avoid unnecessary delay. Proper accounts for expenses incurred in this regard shall be maintained. Possession of the movable secured assets has to be taken by drawing a Panchnama in the presence of the two witnesses and making an inventory. A copy of inventory shall be delivered to the borrower. Possession of the immovable property has to be taken by delivering a possession notice to the borrower. The possession notice may be affixed at conspicuous places of the property and published in two leading newspapers, one in vernacular language and one in English. Therefore the possession Notice also has to be translated in the respective vernacular language and kept ready. While taking possession of mortgaged immovable assets, AO may come across movables which are charged and not charged to the Bank within the Premises. In such cases inventory and Panchnama as per Rules have to be prepared for hypothecated items and separate inventory be prepared for items not charged/hypothecated to the Bank and an appropriate notice be issued for the non hypothecated items indicating abandonment. x. On the other hand, if the items found inside the mortgaged Premises are only those items not charged/hypothecated to the Bank, a separate inventory of such movables not charged to the Bank should also be prepared and notice be issued to the owner/mortgagor calling upon them to arrange for removal of such items at the earliest. It should be made clear in the said notice that Bank shall not take any insurance coverage and shall not be held responsible for any loss/pilferage of such items if the 19

20 owner does not make his own arrangements; else Bank will be constrained to abandon the same. xi. xii. xiii. xiv. Likewise when the property is in possession of tenants, Bank can only take symbolic possession. In such cases, AO shall issue a notice under Section 13(4) (d) and call upon the tenants to remit the further rentals payable by them to the mortgagor to the bank, which would get a valid discharge. The AO has to keep entire records of expenses / costs incurred, copies of all notices, correspondences, bills etc., for each of the accounts separately. Bank has to safeguard / preserve the property / securities after taking possession. Any of the specialized agencies who can be engaged for this purpose may be kept in readiness for taking care of assets, Watch and ward purpose with the permission of Zonal Office after negotiating the terms. In this connection AO may if necessary, take the help of Security Department for engaging the services of approved agencies. AO should ensure that the assets taken possession of are adequately insured. The AO may decide upon the type of insurance depending on the nature of Risks to be covered etc., - like Fire, theft, burglary etc., All the costs thereto have to be appropriated from the sale proceeds ultimately. Therefore proper records and accounts to be maintained for all the expenses account-wise. After possession is over, the AO has to ensure the following: Get latest EC & Valuation after taking possession. Consult the Security Enforcement Committee (SEC) constituted in respective Zones for fixation of Reserve price, Earnest Money Deposit etc. and get the Reserve Price fixed through the SEC. Decide the mode of sale through the SEC. Thereafter Issue the Notice of Intended Sale / publish the sale notice Adhere to the formats and guidelines scrupulously. Conduct the sale in a transparent manner as per guidelines Obtain the sale confirmation only through SEC and thereafter communicate the same to the successful bidder. Adhere to time frame at each and every stage Adhere to the stipulated guidelines in all stages of SARFAESI The Zonal Office shall maintain separate files for each account containing all particulars of the accounts, copies of Notices issued, action taken, orders passed, cost incurred and all other relevant particulars. The details shall be maintained and updated as per the enclosed format Annexure XVIII. 20