sarfaesi on home loan below 10 lakhs

If the repayment of the dues are defaulted for more than 90 days, banks can classify that account as NPA.

If more than 80 % of the Principal plus interest thereon, was paid by the borrower, then bank cannot invoke provisions of SARFAESI Act to that account, as per Sec.31(j) of the Act, even if such dues are in many crores.  In such cases, the only remedy to banks is filing suit (Original Application) before DRT.

Does that mean , let's interpret by using a scenario.

1) Loan Amount  for Rs 30 Lakh

2) Disbursed Amount of Rs 25 Lakh

3) Lets' say interest not paid on Rs 25 Lakh for 180 Days

4) Total interest  Rs 2 Lakh + Prinicpal Rs 25 Lakhs = 27 Lakhs.

This interest amount of Rs 2  Lakh is less than 20% percent of principal,  So Section 31(j) will not allow bank to issue notice under NPA ? Is that correct.

It is not correct. 

I will give another example.  Loan amount 80 crore; interest 20 crore; thus total 100 crore, in which borrower paid 81 crores; still defaulted 90 days repayment and account can be classsified as NPA.  Since the total dues including interest is 19 crore only, which is less than 20% of the total, then bank cannot invoke SARFAESI.  Hope it is clear.

Thanks for clarification, but I wonder what happens when the borrower defaulted with outstanding of 80+20 cr and SARFAESI proceedings started. Thereafter, during the proceedings under SARFAESI, he makes a payment of 81 c, such that now revised outstanding (plus further interest if necessary) is less than 80% of the dues at a date when SARFAESI was initiated. Will the borrower get a cover of section 31(j) or the bank would be able to argue that application of this section is to be seen on the date when proceedings were initiated and not afterwards?

I will be grateful for clarification pls.

Mr. Anil Garg,

any amount reapid after the invocation of the provisions of the act , 80:20 formula will not available to the borrower and the secured creditor bank will continue the proceddings to recover remaining dues unless the compromise proposal is reached.

Exemption under Sec 31(j) is applicable only for initiating proceeding by issue of Demand Notice u/S.13(2). If the Demand Notice was issued properly and later repaid the loan keeping balance due of Re.1, then also bank can proceed further for recovering the balance dues and cost.

RBI Circular No: DBOD.No.Leg. 6723 /09.07.005/2007-08 dt Nov 30, 2007. It states that :

 Use of forum of Lok Adalats
(xi) The Honourable Supreme Court also observed that loans, personal loans, credit
card loans and housing loans with less than Rs.10 lakh can be referred to Lok
Adalats. In this connection, banks' attention is invited to Circular
DBOD.No.Leg.BC.21/09.06.002/2004-05 dated August 3, 2004 wherein they were
advised to use the forum of Lok Adalats organized by Civil Courts for recovery of
loans. Banks are advised that they should preferably use the forum of Lok Adalats
for recovery of personal loans, credit card loans or housing loans with less than
Rs.10 lakh as suggested by the Honourable Supreme Court.

I have a case of bank issuing Sarfaesi 13(2) and 13(4) notice for dues of Principal + Interest being 9.50 Lakhs.

It is not mandatory for banks to go for Lok Adalath; hence RBI circular  is directory only.