Scope of sarfaesi under cgtmse scheme

Dear Shishir, 

U r right. The Banker cannot take recourse to measures under Sarfaesi Act for recovery. But other avenues are available to him through which he can proceed against personal property of the Borrower. 

Thanks Manoj for your opinion. By other avenues I presume you refer to civil suits which bankers are not very much keen to go into and instead would prefer for a OTS in favor of my client.

Is my reasoning fine?

1. Civil Suit if the outstanding is for less than Rs.10 lakhs.The Bank willfile Original Application (O.A.) before the DRT under Section 19 of Recovery of Debts Due to Banks and financialInstitutions Act, if the outstanding is for more than Rs.10 Lakhs, 2. Ths O.A. is for attachment of all the properties of the Borrower &/or Guarantor, 3. After filing the said O.A. the Bank may pray for a direction for attachment of property(ies) of any of the above before judgement with the direction upon the police to assist the Authorised Officer/Receiver in takingmaking such attachment, 4. This order from DRT is easy to get and on receipt of the said order, the Bank may go with police to attach the ordered property, 5. Better to negotiate with the Bank and propose OTS.

Thank you Mr. Ganguly for a detailed response.

Another query - this one is a bit abstract & hypothetical - How much should the client aim for OTS in the said case if the outstanding amount is around 40 lacs and the client's aim is to go for maximum relief as he will be retiring and will sustain on remaining assets.  (Sorry for a bit ambiguous question but I want to use members' expertise to get an idea of starting point and reasonable level of negotiation)

As per RBI guidelines, PSU Banks can not aettle for any amount less than the ledger balance. Hence, do not propose for anything less than the ledger balance which can not be accepted by the Bank. Moreover, you shall have to settle the amount within 3 months from the date of the proposal and shall have to pay 10% of your proposed amount alongwith your OTS proposal.  

Rightly opined by Learned friend Mr. K.K. Ganguly.  Nothing to add.

Bank cannot initiate SARFAESI proceedings against unsecured properties of borrowers. They can sell the stock hypothecated with them. However they can file suit or O in DRT and can get the personal properties of the borrowers (including guarantors) attached through court/DRT.

As rightly opined by experts and lawyers, the bankers may not be able to proceed for recovery through Sarfesi act, but through civil court in the suit for recovery, attachment before judgment of the properties lying in the name of the borrower, his guarantors can be made. alternately OA before DRT can be filed.For OTS, the bankers may not come down to an agreement below ledger balance, hence as suggested, you may start negotiations on the basis of ledger balance basis itself.   This may indicate a healthy negotiation.  You may advise your client accordingly.