NPA Bank Sarfaesi Notice Procedure

NPA Bank Sarfaesi Notice Procedure

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) empowers banks and other secured creditors to take possession of secured assets in the case of default by borrowers. The procedure for issuing a SARFAESI notice is as follows:

1. Classification of Account as Non-Performing Asset (NPA)

The first step is for the bank or secured creditor to classify the borrower’s account as an NPA. An NPA is an account where the borrower has not repaid the principal or interest due for a period of 90 days or more.

2. Issue of Demand Notice under Section 13(2) of the SARFAESI Act

Once the account is classified as an NPA, the bank or secured creditor must issue a demand notice to the borrower and any guarantors. The demand notice must specify the amount owed, the date by which the payment must be made, and the consequences of non-payment. The notice must be served on the borrower’s registered address and any other addresses known to the bank or secured creditor.

3. Failure to Repay Debt within 60 Days

If the borrower fails to repay the debt within 60 days of the demand notice, the bank or secured creditor may take one of the following actions:

• Take possession of the secured asset: This means that the bank or secured creditor can take physical control of the asset, such as a property or machinery.
• Lease or sell the secured asset: The bank or secured creditor can also sell or lease the secured asset to recover the outstanding debt.
• Appoint a receiver: The bank or secured creditor can appoint a receiver to manage and dispose of the secured asset.

4. Issuance of Possession Notice or Sale Notice

Before taking possession of the secured asset or selling it, the bank or secured creditor must issue a possession notice or sale notice, respectively. These notices must be published in two newspapers and on the website of the bank or secured creditor.

5. Sale of Secured Asset

If the secured asset is sold, the bank or secured creditor must follow a transparent and fair auction process. The proceeds of the sale will be used to repay the outstanding debt, with any surplus being returned to the borrower.

It is important to note that the SARFAESI Act is a stringent law that provides banks and other secured creditors with a powerful tool for recovering debts. However, it is also important for banks and secured creditors to use this power responsibly and in accordance with the law.

NPA Bank Sarfaesi Notice Procedure

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is an Indian law that empowers banks and financial institutions to recover their non-performing assets (NPAs) without the intervention of the court. The SARFAESI Act provides a mechanism for the enforcement of security interests in case of default by the borrower. Here is an overview of the SARFAESI notice procedure:

1. Identification of NPA:
   • Before initiating the SARFAESI process, the bank or financial institution must classify the loan account as a Non-Performing Asset (NPA) in accordance with the guidelines issued by the Reserve Bank of India (RBI).
2. Issue of Demand Notice:
   • The first step is to issue a demand notice to the borrower, guarantor, and any other person who has an interest in the secured assets.
   • The notice should specify the amount payable by the borrower and provide a period of 60 days for the borrower to discharge the liability.
3. Response to Demand Notice:
   • The borrower has the right to make representations against the demand notice within the stipulated 60-day period.
4. Secured Assets and Their Valuation:
   • If the borrower fails to discharge the liability within the specified period, the bank can take possession of the secured assets.
   • An authorized officer (appointed by the bank) may also require the services of an expert for the purpose of valuation of the secured assets.
5. Intimation of Possession:
   • After taking possession of the secured assets, the bank must issue an intimation to the borrower specifying the details of the assets taken over.
6. Sale of Secured Assets:
   • The bank has the right to sell or lease the secured assets to recover the outstanding dues.
   • The sale can be conducted through public auction, private treaty, or any other method as deemed fit by the bank.
7. Notice of Sale:
   • Before selling the assets, the bank must issue a notice of sale, specifying the details of the sale.
   • The notice should be published in two leading newspapers (one in a vernacular language) and also displayed on the website of the bank.
8. Recovery of Dues:
   • The proceeds from the sale of the secured assets are utilized to recover the outstanding dues of the bank, and the surplus, if any, is returned to the borrower.

It’s important to note that the SARFAESI Act provides certain rights to the borrower, and the process must be followed in accordance with the legal provisions. Additionally, borrowers have the right to appeal to the Debt Recovery Tribunal (DRT) against the actions taken by the bank under the SARFAESI Act. The specific procedures and timelines may vary, and it’s advisable to consult legal professionals for accurate and up-to-date information.

Sarfaesi Notice, Section 13(2) and 13(4) of Sarfaesi Act

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is an Indian law that allows banks and financial institutions to enforce their security interests in certain assets without the intervention of the court. Sections 13(2) and 13(4) of the SARFAESI Act are crucial provisions that outline the process of issuing notices and taking possession of secured assets.

1. Section 13(2): Default by Borrower
   • Notice to Borrower: When a borrower defaults in repayment of a secured loan, the secured creditor (usually a bank or financial institution) has the right to issue a notice to the borrower under Section 13(2) of the SARFAESI Act. This notice serves as an intimation to the borrower about the default and provides an opportunity to rectify the same.
   • Content of Notice: The notice issued under Section 13(2) typically includes details of the amount due, the nature of the default, and a demand for repayment within a specified time frame, which is usually 60 days.
   • Right to Remedy Default: The borrower has the right to make representations against the notice and also to rectify the default by paying the outstanding amount within the stipulated time.
2. Section 13(4): Possession of Secured Assets
   • If No Payment is Made: If the borrower fails to make the payment within the specified time mentioned in the Section 13(2) notice, the secured creditor can take possession of the secured assets.
   • Second Notice: Before taking possession, the secured creditor is required to issue a second notice to the borrower under Section 13(4) of the SARFAESI Act, providing details of the secured assets intended to be taken possession of and fixing a date for taking possession.
   • Right to Appeal: The borrower has the right to make representations against the possession notice, and if the borrower’s representation is rejected, they can appeal to the Debt Recovery Tribunal (DRT).
   • Possession of Assets: After the specified time in the possession notice has elapsed, the secured creditor can take possession of the secured assets without the intervention of the court.

These provisions of the SARFAESI Act empower the secured creditors to take swift action in cases of default, allowing them to recover their dues without the need for lengthy court proceedings. It’s important to note that the act provides a framework to balance the rights of the creditors and the borrowers.

Sarfaesi Notice, Section 13(2) and 13(4) of Sarfaesi Act

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) provides a speedy and effective mechanism for banks and other financial institutions to recover their dues from defaulting borrowers. Sections 13(2) and 13(4) of the SARFAESI Act are particularly crucial in this process.

Section 13(2) Notice

Section 13(2) empowers a secured creditor (such as a bank) to issue a demand notice to a borrower who has defaulted in repaying a secured loan. The notice requires the borrower to repay the outstanding dues within 60 days from the date of the notice. If the borrower fails to comply with the notice, the secured creditor is entitled to take possession of the secured assets, which may include the borrower’s property or other collateral.

Key aspects of Section 13(2) notice:

• It must be in writing and addressed to the borrower.
• It must clearly specify the amount due and the deadline for repayment.
• It must inform the borrower of the consequences of non-compliance, including the possibility of possession being taken of the secured assets.

Section 13(4) Possession

Section 13(4) empowers a secured creditor to take possession of the secured assets of a borrower who has failed to repay the outstanding dues within the 60-day period specified in the Section 13(2) notice. The secured creditor can take possession either by physical means or by appointing an agent to manage the assets.

Key aspects of Section 13(4) possession:

• The secured creditor must give prior notice to the borrower before taking possession of the secured assets.
• The secured creditor can sell or lease the secured assets to recover the outstanding dues.
• The secured creditor must account for any surplus realized from the sale or lease of the secured assets.

Implications of Section 13(2) and 13(4) Notices

Sections 13(2) and 13(4) of the SARFAESI Act provide secured creditors with a powerful tool for recovering their dues from defaulting borrowers. However, it is important to note that these powers must be exercised in a fair and reasonable manner. The borrower has certain rights under the SARFAESI Act, including the right to challenge the actions of the secured creditor in the Debts Recovery Tribunal (DRT).

If you are a borrower who has received a Section 13(2) notice, it is important to seek legal advice immediately. You may have options to negotiate a repayment plan or challenge the notice if it is not valid.

Sarfaesi Notice, Section 13(2) and 13(4) of Sarfaesi Act

13(2) and 13(4) of SARFAESI Act The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Section 13(2) in The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(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).

Section 13(4) in The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(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; 2[(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: 2[(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset\:” Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;]
(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.

Section 13 in The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

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. 1[(3A) If, on receipt of the notice under sub‑section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non‑acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.]
    (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; 2[(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: 2[(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset\:” Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;]
    (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 creditors 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.

• Sarfaesi Notice Section 13(2) and 13(4) of Sarfaesi Act
• Sarfaesi Notice Section 13(4) of Sarfaesi Act
• Sarfaesi Notice Section 13(2) of Sarfaesi Act
• Sarfaesi Notice, Section 13(2) and 13(4) of Sarfaesi Act
• NPA Bank Sarfaesi Notice Procedure