BANK SEIZURES
SHAKTHIVEL
(Querist) 10 June 2011
This query is : Resolved
Whether bank seize all the machineries in a factory while their charges is limited only against which loan has been granted.
Whether the factory can bring in stay order to preempt any such moves from the bank, especially in the context of having made several lakhs of rupees towards advance /pre payments.
Guest
(Expert) 10 June 2011
It depends upon the types of charges.
If the charges is floating one then it can be float on the company assets but if the charge is fixed one then in case if the failure of the company(not paying interest to bank)then bank can seize that property.
A fixed charge is a mortgage on a specific fixed-asset (such as a parcel of land) to secure the repayment of a loan. In this arrangement the asset is signed over to the creditor and the borrower would need the lender's permission to sell it. The lender also registers a charge against the asset which remains in force until the loan is repaid.
A floating charge is mortgage on an asset that changes in quantity or value from time to time (such as an inventory), to secure the repayment of a loan. In this arrangement, no charge is registered against the asset and the owner of the asset can deal in it as usual. If a default occurs, or the borrower goes into liquidation, the floating asset 'freezes' into its then current state 'crystallizing' the floating charge into a fixed charge and making the lender a priority creditor.
Guest
(Expert) 10 June 2011
Granting a security over assets can be preferential and may be overturned by a trustee in bankruptcy or liquidator. Charges that secure advances at the time of the charge are usually not preferential, but a new security that provides money to pay old debts may be void.
M V Gupta
(Expert) 11 June 2011
Under the Securitisation Act, a bank can seize the assets mortgaged to it as security for the loans granted to the borrower and sell them by public auction to realise its dues. This power the bank can exerise without approaching Court. As banks obtain detailed documents at the time of granting loans, obtining any interim order from a court to preempt the banks action would be very diificult, unless malafides are alleged and are ex facie visible.
malipeddi jaggarao
(Expert) 13 June 2011
Charge over machinery is hypothecation (floating) charge and the Banks do cover all machinery in their hypothecation document which would have been signed by you at the time of obtaining loan even for purchase of specific machinery. Hence Bank gets every right to seize the asset. The Securitnization Act gives such power for enforcement of charged security and the relevant provisions in the act are:
"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 subsection (4).
RAJU O.F.,
(Expert) 14 June 2011
Banks do not fill up the schedule of machineries, at the time of execution of instrument of hypothecation of machineries. You must keep the copy of invoice of the machineries purchased out of the bank loan. Also keep the copy of loan application in which the particulars of machineries to be hypothecated are mentioned. Even though RBI had directed banks to give copies of all documents executed by the borrowers, no bank is adhering this direction. Bank is authorised to take possession and sell only the machineries hypothecated to them. But usually they attach all the machineries in the visinity and try to sell unless a stay Order from Court is obtained.
