Whether presence of Authorised Officer is mandatory at each stage of execution of the demand notice

 A doubt often arises in the mind or some authorize as to whether presence of Authorised Officer is mandatory at each stage of execution of the demand notice. Demand Notice is executed after expiry of 60 days in casae of non- compliance of the demand.

Rule 2(a) and (b) of Security Interest (Enforcement) Rules 2002 define  the words "Authorised Officer" and "demand notice". 

(a) "Authorised Officer" means an officer not less than a chief manager of a public sector bank or equivalent, as specified by the Board of Directors or Board of Trustees of the secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, as the case may be, to exercise the rights of a secured creditor under the 3[Act];

(b) demand notice means the notice in writing issued by a secured creditor or Authorised Officer, as the case may be,to any borrower pursuant to sub-section (2) of section 13 of the 4[Act];

As can be seen from the above definitions, it is obvious that, an officer who is appointed as Chief Manager (SMIV) shall be treated as Authorised Officer to execute the demand notice. Authorised Officer is clothed with statutory power by the S.I.(E) Rules to execute demand notice for realisation of the secured asset(s) in case the secured creditor is public sector bank or equivalent as specified by the Board of Directors. Needless to mention all the public sector banks are working under control of its Board of Directors.  In case of others, the Board of Directors or Board of Trustees  or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor shall specify the statutory officer (Authorised Officer) to execute the demand notice. When an officer under the S.I.(E) Rules is delegated the power to act as Authorised Officer, he cannot delegate this power to any one including the Court Commissionerr appointed unser Sec.14 of SARFAESI Act 2002.

The main point which I would like to discuss in this Article is as to whether presence of Authorised Officer is required for execution of demand notice ?

The power to execute demand notice cannot be invocked by any other officer below the rank of Chief Manager in public sector bank or a delegatee of such power by the Board of Trustees  or authority exercising powers of superintendence, direction and control of the business or affairs of a secured creditor.

Requirement of presence of Authorised Officer is summerised hereunder point by point:

A: Rule 3(1) of S.I.(E) Rules provides the manner in which a demand notice should be served. By delivering or transmitting at 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 by Speed Post or by courier or by any other means of transmission of documents like fax message or electronic mail service.

Provided that where Authorised Officer has reasons to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service can not 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 two leading newspapers, one in vernacular language, having sufficient circulation in that locality. 

Deliverey means personal deliverey of demand notice by Authorised Officer only and it cannot be delivered by any person below the rank of Chief Manager who is delegated with power as Authorised Officer or by a delegatee in case other than the public sector bank (as specified by Board of Trustees  or authority exercising powers of superintendence) as afore stated.  

The sentences indicated bold letters in the proviso to the Sub Rule-1 of Rule 3 makes it very clear that, Authorised Officer has to form his opinion before taking the next step i.e. affixing a copy of the demand notice and publication of contents of the demand notice in the newspapers as afore stated in the proviso. However Authorised Officer can take help of labour or his subordinates for affixture and arranging for publication or for newspapers. Authorised Officer should preserve his opinion as well as the news papers and the panchanamas recorded at the time of  making personal delivery and at the time of affixture of a copy of the demand notice.

B: After issue of demand notice, if the borrower makes any representation or raises any objection to the notice, the Authorised Officer shall consider such representation or objection and examine whether the same is acceptable or tenable. If on examining the representation made or objection raised by the borrower, the secured creditor is satisfied that there is a need to make any changes or modifications in the demand notice, he shall modify the notice accordingly and serve a revised notice or pass such other suitable orders as deemed necessary, within seven days from the date of receipt of the representation or objection. If on examining the representation made or objection raised, the Authorized Officer 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.

C: If the amount mentioned in the demand notice is not paid within the time specified therein, Authorised Officer shall proceed to realise the amount by taking possession of secured asset(s). In case where possession of the secured assets to be taken in possession of the borrower, Authorised Officer shall take possession of such movable property in the presence of two witnesses after Panchnama drawn and signed by the witnesses as nearly as possible in Appendix I to these rules. After taking possession under sub-rule (1) above, Authorised Officer shall make or cause to be made an inventory of the property as nearly as possible in the form given in Appendix II to these rules and deliver or cause to be delivered, a copy of such inventory to the borrower or to any person entitled to receive on behalf of borrower.

D: Authorised Officer shall keep the property taken possession in his own custody or inthe custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as owner of ordinary prudence would, under the similar circumstances, take of such property. If such property is subject to speedy or natural decay, or the expense of keeping such property in custody is likely to exceed its value, Authorised Officer may sell it at once.

E: Authorised Officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. 

F: In case of other movable property [except those covered by Rule 5(a) to (c)], by calling upon the borrowers and the person in possession to hand over the same to Authorised Officer and Authorised Officer shall take custody of such movable secured assets by taking possession of the documents evidencing title to such secured assets. 

G: Movable secured assets other than those covered in this rule shall be taken possession of by Authorised Officer by taking possession of the documents evidencing title to such secured assets.

H: After taking possession under sub-rule (1) of rule 4 and in any case before sale, the Authorised Officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to he sold in realisation of the dues of the secured creditor. For fixation of the reserve price, involvement of secured creditor is contemplated. Thus it is evident from the above legal position that, Authorised Officer's presence is must for execution of the demand notice.

Secured creditor's involvement is not contemplated here. Except in the above mentioned situations, we do not find involvement of secured creditor.

I: The Authorised Officer may sell the moveable secured assets taken possession under sub-rule (1) of rule 4 in one or more lots by obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or inviting tenders from the public; or holding public auction; or by private treaty. The Authorised Officer shall serve to the borrower a notice of thirty days for sale of the movable secured assets; provided that if the sale of such secured assets 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 in vernacular language, having sufficient circulation in that locality by setting out the terms of sale. Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing. Where movable secured asset(s) is / are sold, sale price of each lot shall be paid as per the terms of the public notice or on the terms as may be settled between the parties, as the case may be, and in the event of default of payment, the movable secured assets shall be liable to be offered for sale again. On payment of sale price, the Authorised Officer shall issue a certificate of sale. Here it may be noticed that, involvement of the secured creditior is not contemplated in taking further action (i.e. execution of demand notice).

J: In case the secured asset is an immovable property, the Authorised Officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. 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 two leading newspapers one in vernacular language having sufficient circulation in that locality, by the Authorised Officer. In the event possession of immovable property is actually taken by the Authorised Officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. Authorised Officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed off. Before effecting sale 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 whole or any part of such immovable secured asset by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or by inviting tenders from the public; by holding public auction; or by private treaty.

The Authorised Officer shall serve to the borrower a notice of thirty days for sale of the 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 two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale.

Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorisedofficer deems it fit, put on the website of the secured creditor on the Internet. Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing. The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the Authorised Officer and shall be subject to confirmation by the secured creditor:

Provided further that if the Authorised Officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the Authorised Officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules. Where the immovable property sold is subject to any encumbrances, Authorised Officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. Authorised Officer has limited involvement so far as confirmation of sale is concerned. On confirmation of sale by the secured creditor and if the terms of payment have been complied with, Authorised Officer shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to the S.I.(E) Rules. Where the immovable property sold is subject to any encumbrances, the Authorised Officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost,expenses and interest as may be determined by him.

If after meeting the cost of removing encumbrances and contingencies there is any surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen days, from date of finalisation of the sale. On such deposit of money for discharge of the encumbrances, Authorised Officer shall issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make, the payment accordingly.  Authorised Officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified above.

The above sentences high lighted in bold letters would make it clear that, powers of Authorised Officer cannot be delegated to any other person.  The principle "delegata potestas non potest delegari" squarely apply to the provisions of the SARFAESI Act and the S.I.(E) Rules. Thus, by summerising the above points, it is obvious that, presence of Authorised Officere is mandatory at each stage of the action in executing the demand notice.