Notice under Section 13(4) of SARFAESI Act, 2002

Nigamji/s suggestions are already facilitated by Internet banking facilities offered by the banks where the borrower can view the loan ledger accounts at his desktop to check the correctness of every aspect agreed in terms of loan agreement.

Please suggest in how much time a/c is declared as a NPA account. The a/c is a Cash Credit a/c and no transaction is there since March 2008. The a/c was closed in Feb 2010. Can a Bank charge interest on a NPA a/c and if yes then till what time. What if the bank do not serve notice of default and also do not serve Notice u/s 13 (2) of sarfaesi act and without prior information and prior consent of the party bank realize the amount by dissolving the FD which the bank holds as security.

NPA norms are specified by Regulatory authorities (RBI) to all banks.  A cash credit becomes out of order if there are no operations in the account for a period of ninety days or the interest is not serviced for a specific quarter.  Banks are legally vested with the right to set off any liquid assets taken as collateral security to the loans extended without even giving prior notice to the borrower in question.  Though non-charging of interest to NPA account is only for prudential accounting stipulations that does not construe that the borrower need not pay interest to NPA loans.  Please be guided accordingly.

on this issue i agree with mr parthsarathy. and in ur case u have already given liquid asset as security so there is no need for the bank to proceed under section 13 (2) of sarfaesi act. ur case will not come under it. only if ur FD would be insufficient n if u mortgaged some asset in addition to the FD with the bank then only bank will proceed under sarfaesi act/

vijyant nigam

advocate

As in this case to add more.. Bank has dissolved the FD of the guaranteer and not of the borrower. The bank has filled a criminal complaint against the borrower u/s 406 of IPC. The Bank has been charging interest for 2 years on a NPA a/c. If the guidelines suggest for 90 days; The a/c should have been declared as a NPA a/c in the current financial year. It  also shows ill intention of bank and should bank be held liable for committing an offence of fraud.  Borrower has given collateral security including land, building and f/d worth Rs 40 lakh. When the loan amount was 35 lakh on a CC a/c. the FD amounts to Rs 12 lakh. when the amount is big is this not the bank responsibility to inform the borrower regarding the same.

Manasji mut be aware of the legal fact that the Guarantorsteps into the shoes of the borrower in case of default by the latter as he is jointly and severally liable

dear all borrowers

bank is bound to dispose of the objection filed by the borrower or guarantor before issuing notice under section 13 (4) of the sarfaesi act. if any bank not do so then the notice under section 13 (4) is liable to be quashed. hon'ble high court lucknow bench judgement to the said effect is quoted below:

 

eLegalix - Allahabad High Court Judgment Information System (Judgment/Order in Text Format)

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This is an UNCERTIFIED copy for information/reference. For authentic copy please refer to certified copy only. In case of any mistake, please bring it to the notice of Deputy Registrar(Copying).

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH

A.F.R.

[ Court-27]

Writ Petition No.11425 (M/B) of 2008
M/s. Malhotra Tractors Station Road, Gonda and another. ...Petitioners.
Versus
Chief Manager, State Bank of India Regional Office
Station Road, Near Krisha Palace Hotal, Faizabad and
others. ...Opp. Parties.
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Counsel for Petitioners. Sri Anwar Ashfaq.
Counsel for O.P. No.1 and 2 Sri Sudeep Seth

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Hon'ble Devi Prasad Singh, J.
Hon'ble Dr. Satish Chandra, J.
1. Heard the learned counsel for the parties.

2. On account of default of payment of dues, the respondents have proceeded for the recovery of the dues and served notice under Sub-section (2) of Section 13 of the Securitisation & Reconstruction of Financial Assets and Enforcement of the Security Interest Act, 2002 (for short the Act). The submission is that the respondents are proceeding ahead to recover the dues by service of the impugned notice on unfounded grounds.

3. Provisions contained in Sub-section (3A) of Section 13 of the Act provides that in case borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and inform the decision taken by it. For convenience, Section 13 (1) (2) (3) and (3A) of the Act are reproduced as under:

"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.
(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 view of the statutory provisions, it is always be open to the petitioner to represent his or her cause by filing an objection in response to notice issued under sub-section (2) of Section 13 of the Act. In the present case, it has been submitted on behalf of the petitioner that after receipt of notice, the petitioner has submitted representation a copy of which is Annexure No.11 to the writ petition to ventilate his grievance. The submission is that the respondents without deciding the representation, are proceeding ahead to recover the dues by taking follow up action.

5. The provisions contained in Section 13 (3A) of the Act are mandatory in nature and the Bank as well as the authority has no right to proceed in violation of the provisions contained in sub-section (3A) of Section 13 of the Act. It is open to the authorities to proceed in accordance with the provisions contained in Section 13 (4) of the Act only after the representation or objection filed by the borrower or guarantor is decided. Needless to say that while deciding the objection, it shall be incumbent upon the authorities to pass a speaking or reasoned order on the basis of material on record. Even at this stage, in case after receipt of decision taken by the bank authorities, the borrower or guarantor wants to pay dues, then it shall be incumbent upon the Bank authorities to permit the borrower or guarantor to pay the entire dues. However, while deciding the objection filed by the borrower or guarantor, it shall further be incumbent upon the Bank authorities to provide statement of account including original amount as well as the interest with regard to dues in view of the statutory provisions in view of sub-section (3A) of Section 13 of the Act. We are of the view that the respondents have no right to proceed with the recovery proceedings unless they decide the objection or representation of the borrower or guarantor keeping in view the observations made hereinabove and the provisions contained in Section 13 (3A) of the Act.
6. In view of the above, the writ petition is finally disposed of directing the respondents Bank to decide the petitioner's representations keeping in view observations made hereinabove and the mandatory provisions contained in Section 13 (3A) of the Act by passing a speaking and reasoned order within a period of two months from the date of receipt of a certified copy of this order and communicate the decision.

7. Till the disposal of the representation and the communication of the decision taken by the Bank authorities on the petitioner's representation, further recovery proceedings shall remain suspended.

8. With the above above observations, the writ petition is finally disposed of.
December 18, 2008)
Rajneesh)
W.P. No.11425 (M/B) of 2008

 

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What if before issuing notice under Section 13(4) the Bank has approached CMM for taking forceful possession. Is Application under Section 17(1) maintainable? Although Application to CMM lies under Section 14, the Bank is entitled to make such application exercising its rights under Sectipon 13(4). Cannot it be said that Bank has taken further steps under Section 13(4) by making application before CMM?
Whether third party has to wait until he is physically dispossessed, although he has nothing to do with 13(2)   notice, reply and communication of decision on reply. The judgement of Hon'ble Supreme Court with due respect has created more ambiguity on this aspect.

Dear Co-members, kindly enlighten me.

Even if the bank did not issue Possession Notice u/S13(4) of the Act; but invoked Sec 14 for physical possession through CMM, then an Appeal/Application u/S17(1) can be preferred before DRT.  DRT can order re-possession after deciding the Application/Appeal.

dear vijayant ji

unless the bank took action u/s 13 (4) of the act you are not permitted to file any appeal before the DRT. As far as the actions of bank amount to defimatory is concern, the bank has right to publish the notice under the act. It is advisable to file objection / application seeking 40 to 45 days time to close the account which could be treat as representation under 13 (3A ) of the act also.

thanks

KINDLY NOTE THAT

1.BANK HAS NOT ISSUED  NOTICE UNDER SECURITISATION ACT.

2AS PER PROCEDURE THE BANK WILL ISSUE NOTICE  AND DEMAND THE PAYMENT OF ARREARS OF LOAN WITHIN SIXTY DAYS.

3AS THE BORROWER IS READY TO SETTLE THE ACCOUNT WITHIN FORTY FIVE DAYS THEN HE SHOULD NOTE THAT UNLESS ENTIRE PAYMENT IS READY WITH HIM HE SHOULD NOT GIVE ANY WRITEN COMMITMENT TO THE BANK .AS IT WILL BE BINDING ON HIM TO REPAY THE SAID AMOUNT IN SAID PERIOD AND IT WILL ADVERSELY AFFECT ANY FURTHER APPEAL TO THE DRT.SO BE CAREFUL AND ACCEPT THE NOTICE AS PER PROCEDURE AND THEN REPAY THE AMOUNT WITHIN LIMITATION PERIOD OF SIXTY DAYS.GOOD LUCK.

If Demand notice u/S 13(2) of the SARFAESI Act was issued by bank, you have to issue objection letter/ representation within 60 days fro  the date of sale.  Bank has to answer to the objections, within 7 days.  If Possession Notice u/S 13(4) was issued, prefer Appeal/Application before DRT of jurisdiction and seek Order of stay immediately and pray for quashing the proceedings on sufficient gounds.

Sri Vijyant is perfectly right.

What rate of interest the bank pays to general public whose money they are using.

Well said. In such a situation, everything needs revision

Dear members

Can any one give me a proper method to challenge the following problem?

Sec.13(2) notice issued in Nov. 2004, wherein no mention about "calling for objections" as contemplated under Sec.13(3A). Without any mention, Sec.13(4) notice issued in June, 2005. No action taken after that.

Suddently, warrant was issued by CJM, to take physical possession under Sec.14 in 2011 and in the affidavit, it is stated by the Bank that Sec,13(2) issued in 2009-notice returned unserved as unclaimed and Sec.13(4) issued in 2010-notice returned as unclaimed. Paper publication made and hence application under Sec.14.

Is it permissible for the Bank to issue second time notice under Sec.13(2) and 13(4). Is it not fatal.

what is the remedy. whether to approach High Court or DRT. In one case, DRT dismissed the appeal stating that only after taking physical possession under SEc.14, DRT appeal is maintainable and not before excution of the warrant.

A suitable reply with reference to  any decision (reported) will help.

sarfaesi act is different from negotiable instruments act in which notice to the borrower/debtor can only be send only once and that too within a stipulated period of thirty days. bank can send demand notice under section13(2) as many times as they feel good to send the same. bank has to only take care in sending the notice under section 13(4) which can only be send after expiry of 60 days from the date of notice under section 13(2). mentioning of "calling for objection" in 13(2)notice is not mandatory for bank. it is clearly provided in the act itself that the objection to the 13(2) notice should be given in 45days. However, objection to 13(2) was not given so what, it is advisable to prefer appeal before the drt against the action taken by the bank under section 13(4). any good lawyer would definitely find the flaws of the bank.