Legal action for recovery before filing claims with ecgc
Meha Harish
(Querist) 23 April 2014
This query is : Resolved
Bank had whole turnover ECGC cover on Pre shipment Packing Credit and Post shipment FBD advances. Exporter also had ECGC policy covering his buyers for default in export payments. One buyer defaulted for 50% payment. Exporter filed claim with ECGC through the bank under his policy with instructions to pay claim amount to bank since the bills were discounted.
Next week bank classified the accounts as NPA and one week thereafter issued Sarfaesi act 13(2) demand notice and 80 days thereafter issued 13(4) notice for possession of secured flats.
After NPA and Sarfaesi act notices, the exporter regularly kept on paying the interest and principal dues and requested revival of accounts. However, the bank adjusted all payments towards principal and interest was not adjusted.
1. RBI directives state that 'The credit facilities backed by guarantee of the Central Government though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked.'
'Credit protection given by the following entities will be recognised:
Sovereigns, sovereign entities (including BIS, IMF, European Central Bank and European Community as well as those MDBs referred to in paragraph 5.5, ECGC and CGTSI), banks and primary dealers with a lower risk weight than the counterparty;'
Can the bank classify account as NPA till ECGC claims are settled or declined. Our claim was paid in full after one year by ECGC - to the bank.
2. RBI circular states 'In respect of post-shipment credit extended by the banks covering export of goods to countries for which the ECGC’s cover is available, EXIM Bank has introduced a guarantee-cum-refinance programme whereby, in the event of default, EXIM Bank will pay the guaranteed amount to the bank within a period of 30 days from the day the bank invokes the guarantee after the exporter has filed claim with ECGC.
ii. Accordingly, to the extent payment has been received from the EXIM Bank, the advance may not be treated as a nonperforming asset for asset classification and provisioning purposes.
Can the account remain classified as NPA after claims are received from ECGC???
3. After issuing Sarfaesi act 13(2) and 13(4) notice, bank filed claims with ECGC on both - pre and post shipment advances. ECGC paid both the bank's claim at a reckless speed of 10 days.
4. Bank sold the mortgaged flat under Sarfaesi act and adjusted the proceeds to wipe out the outstanding in Cash Credit & Mach Term Loan accounts. It lodged OA with DRT for recovery of outstanding in Packing Credit a/c for which ECGC claim was received and parked in Suspense a/c at branch.
5. Concerning ECGC's cover to banks, there various circulars in public domain which state:
ECGC gives cover to bank's for reducing their NPA's.
Claim shall be paid in case of protracted default by exporter
legal action for recovery after claims are paid
rehabilitation measures can be taken by bank for viable / potentially viable units after claims are paid with permission from ECGC.
ECGC's claim paid NPA accounts cannot be sold to ARC's.
In view of these,
a. was the bank legally correct in classifying the accounts as NPA before filing claims with ECGC.
b. Was the bank legally correct when it issued Sarfaesi act 13(2) & 13(4) notices before filing claims with ECGC.
c. Was the bank legally correct in maintaining the accounts as NPA after ECGC paid the banks claim - even though it had issued Sarfaesi act demand & possession notices.
d. Was the bank legally correct in pursuing recoevry action under sarfaesi act after ECGC paid claims for Pre & post shipment cover to Bank.
e. If ECGC claim paid accounts cannot be sold to ARC's, can the bank take legal action under Sarfaesi act at all.
f. Can the bank recover the ECGC claim paid amounts from Personal guarantors and continuous security given by directors by filing OA at DRT.
Please guide. Thanking all in advance.
Advocate Sastry
(Expert) 25 April 2014
Dear Harish,
From the facts mentioned, you state that bank classified the accounts as NPA only because non payment of one export bill....
For classifying the account as NPA there are RBI guidelines that instalments and/or interest not serviced for two quarters.. Unless you give full details of your account we can not guide you from this platform... Regards.. Sastry
Meha Harish
(Querist) 01 May 2014
Yes, only because one payment default of 50% discounted invoice value, bank classified all accounts of the SSI manufacturing & exporting Pvt Ltd. company as NPA. Defaulting buyer was covered under ECGC guarantee and claim with ECGC was filed under our policy thru the bank - with instructions to pay claim amount to bank - before accounts were classified as NPA. ECGC settled this claim after one year.
Bank invoked Sarfaesi act and issued 13(2) demand notice within 2 weeks of NPA and 13(4) possession notice with 70 days thereafter.
There were no Interest / EMI dues in Mach Term Loan, CC, Packing Credit or any other accounts.
Rakesh Jain
(Expert) 08 May 2014
It seems you have got confusing with two covers being issued by ECGC, that need to be dealt with separately i.e. one meant for the exporter to cover default of the its buyer and another meant for the financing bank to cover default of its exporter client in repayment of credit facilities.
There is no provision to lodge claim through bank by the exporter under the policy obtained in his name from ECGC in case of default by the buyer and for making payment of claim direct to bank.
Payment of claim, if any settled in favour of the exporter holding policy, shall be paid direct to the bank who has handled export documents and has certified the claim form as to that the payment has not been received from the foreign buyer and foreign exchange rate as was prevailing on the date of shipment that was covered by the exporter under the policy.
There is totally a separate cover available to the bank where the exporter does not have any locus standii and also that he shall not dervie any benefit in any way in case of any claim filed by bank on account of loss suffered due to non repayment of bank's dues by the exporter, get settled by ECGC in favour of the bank.
You have been raising the query time and again as could be noticed from this website but in vain and getting yourself confused every time rather than discussing the issue with the person conversant with the covers provided by ECGC.
Anyhow replies for the queries raised (seraitim)above by you are as under:
(a) to (d) and (f) - YES
(e)Bank can very well sell the NPAs to ARCs with the approval of ECGC.
It is needless to mention here that the answering person is well conversant of the ECGC covers and has been adjudged expert in dealing with the covers given to Bank and claims there under filed by the banks.
For any further clarification and clarity on the matter it is advised to have personal discussion with all the related documents by getting an appointment at mutually convenient time on Mobile No. 8130009681 or by mail at email id jainrk1953@gmail.com
