Publication of statutory notices in two leading newspapers : Security Interest (Enforcement) Rules

Based on Andhyarujina Committee Report 2000, Parliament enacted the SARFAESI Act 2002, in line with Sec.29 of State Financial Corporations Act 1951 avoiding the adjudication process (which is proved to be time consuming process) of claims  for recovery of the bad debts. Demand notice is executed after expiry of the statutory period of 60 days of its service, without intervention of any court or tribunal. The power of scrutiny of the action of the secured creditor taken under the Act (i.e. approval or disapproval of the action) is conferred to DRT.

In view of the hardship and bitter experience faced by banks in the past, in service of notices, Security Interest (Enforcement) Rules 2002 have provided for publication of the notices in two leading newspapers (one in vernacular language) having sufficient circulation in the locality, for demand notice vide sub-Rule(1) of Rule of 3; vide sub-Rule(2) of Rule 8 for possession notice for  immovable secured assets; vide proviso to sub-Rule (2) of Rule 6 for sale notice for sale of  movable secured assets; vide proviso to sub-Rule (6) of Rule 8 for sale notice for sale of immovable secured assets.

The relevant provisions relating to publication of the notices in two leading news papers are extracted and reproduced herein below for a glance:

IN CASE WHEN SERVICE OF DEMAND NOTICE AVOIDED OR CANNOT BE SERVED FOR ANY REASON

Proviso to sub-Rule(1) of Rule of 3 ofS.I.(E) Rules):

“Provided that where authorised officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shallbe 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 or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, (one in vernacular language), having sufficient circulation in that locality”.

IN CASE WHERE POSSESSION OF IMMOVABLE SECURED ASSETS ARE TAKEN

Rule 8(2) of S.I.(E) Rules 2002

“The possession notice as referred to in sub-rule (1) shall also be published in two leading newspaper, one in vernacular language having sufficient circulation in that locality, by the authorised officer”.

IN CASE OF SALE OF MOVABLE SECURED ASSETS TAKEN POSSESSION

Proviso to sub-Rule (2)of Rule 6

“Provided that, if the sale of such secured assets is being, effected by either inviting lenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality ……………………………”.

IN CASE OF SALE OF IMMOVABLE SECURED ASSETS TAKEN POSSESSION

Proviso to sub-Rule (6) of Rule 8 of S.I.(E) Rules 2002

“Provided that, if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one invernacular language having sufficient circulation in the locality ……………………………………………”.

The S.I.(E) Rules 2002 pertaining to publication of the statutory notices, lay down two essential qualifications i.e. i).two leading newspapers (one in vernacular language); ii).having sufficient circulation in the locality.

The newspaper to be preferred by secured creditor must be leading newspaper with sufficient circulation in the locality. The S.I.(E) Rules 2002 also emphasize that one among the two leading newspapers shall be in vernacular language. The Rules nowhere say that the other newspaper must be in English. The secured creditor can prefer both the leading newspapers in vernacular language instead of one in English newspaper. There is no bar as such. If there are several secured assets located in several states then the second newspaper may be in vernacular language of that particular state or in English. Actually paper publications are meant for information of public and not for borrower as he is being served with personal notice separately.

Newspapers in India are measured on two parameters. Leadership of a newspaper. Leadership is based on readership. According to survey reports, English papers do not fare well when compared to the readership of the regional language newspapers. This is because the people in any state are first educated in their mother tongue as per their state in which they live. They prefer to read localized newspapers. Increase in the literacy rate also is cause in the rise of circulation of the regional newspapers. Research reveals that the regional papers have huge potential market. The Indian language papers have taken over the English press as per the latest NRS survey of newspapers. The reason being the growing literacy rate. Increase in the literacy rate has direct positive effect on the rise of circulation of the regional papers. The people are first educated in their mother tongue as per their state in which they live. Hence they are educated in their state language and the first thing a literate person does is read papers and gain knowledge and hence higher the literacy rate in a state the sales of the dominating regional paper in that state rises.

The Registrar of Newspapers for India (RNI) receives circulation data from the publications in the prescribed annual returns which is filed by the publishers on periodical basis.  The said circulation data is used by various Government departments, for example by DAVP for allotment of government advertisements and by RNI for allotment of quota for purchase/import of newsprint etc.  These returns/reports are to be certified by auditors / chartered accountants of publisher. Latest position (as on 31.03.2012) of audited data of circulation of newspapers can be obtained from Registrar of News Papers India (RNI).

Some secured creditors publish the contents of sale notice in English in a newspaper of vernacular language. High Court of Orissa in  Swastic Agency & Ors. Vs. State Bank of India & Ors.: AIR 2009 Orissa 147 observed that the illiterate mass do not read the contents of the notice in English as they do not understand English. Even though they are financially potential their chance to participate in the public tender or bid would be deprived for this reason. The High Court ruled that such publication would not serve any purpose and is fatal to the sale (AIR 1992 SC 131 & AIR 1996 SC 3360 are followed).

Banks are spending huge amounts towards paper publication while enforcing security interest in each NPA account for sale by inviting tenders or holding bids. The paper publication charges are burden to both the bank and the borrowers. Instead of publication in two news papers, publication in one news paper in vernacular language be preferred and another notice in English may be put on the web site of the bank / financial institution to serve the literate public. Information Technology Act 2000 was passed nearly 12 years back and it is not difficult for a literate person to locate ‘web site’ of any organization. Therefore it is advisable that suitable amendments to the relevant provisions of the S.I. (E) Rules 2002 covering demand notice, possession notice and sale notice be made reading as under:

1. Proviso to sub-Rule (1) of Rule 3: (DEMAND NOTICE)

“Provided that where authorised officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, 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 or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in one leading newspaper in vernacular language and another notice in English in website of the secured creditor.

2. (Sub-Rule.2 OF Rule.8): POSSESSION NOTICE FOR IMMOVABLE SECURED ASSETS

“The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in one leading newspaper in vernacular language having sufficient circulation in that locality, and put one notice in English in website of the secured creditor.

3. (Sub-Rule (2) of Rule 6): SALE NOTICE FOR MOVABLE SECURED ASSETS

“Provided that if the sale of such secured assets is being, effected by either inviting lenders from the public or by holding public auction, the secured creditor shall cause a public notice in one leading newspaper in vernacular language, having sufficient circulation in that locality and put the sale notice in English in website of the secured creditor by setting out the terms of sale, which may include,………………………………”

4. (Sub-Rule (6) of Rule 8): SALE NOTICE FOR IMMOVABLE SECURED ASSETS

Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in one leading newspaper in vernacular language having sufficient circulation in the locality and place the sale notice in English in website of the secured creditor by setting out the terms of sale, which may include,………………………………”