Undue / illegal recall notice under section 13(2) of sarfaes

Bank can initiate action under Section 13(4) by taking symbolic possession or actual physical possession if you do not repay dues within stipulated 60 days notice period.  However, you can approach DRT within 45 days from the date of bank's action under Section 13(4) whether it is symbolic/physical possession.  There are umpteen number of judgments stating that the borrower can only approach DRT under Section 17  of SARFAESI only after bank initiates action under Section 13(4) not during notice period or after notice period but before initiation of action under Section 13(4). However, as it is very clear in your case the total outstanding amount is less than 20% of the principal+interest+expenses etc serving of notice under Section 13(2) itself is illegal. Try to approach DRT in this stage itself and pray for preempt action by bank under Section 13(4) and see what happens. Good luck.

Mr. Raj,

As per what has been stated by u, the Bank is acting illegally. U should be very careful & assert u r rights. Get help from an advocate. As per my experience Adv. Manish Bohade is an able person who charges reasonable fees would be a good choice. HIs number - 9371505560.

Regards,

Dear  Mr. Chandrasekhar

Thanks for your advise.

I hade one Question because no Response to Question/ query / presentation which Borrower / guarantor (in this case my wife is sole guarantor) raise is not answered by the bank within seven days should we as a Borrower / guarantor is having option to approach RBI Banking Ombudsman? Or otherwise to approach of writ petition in mumbai HC?

            There is another angel for my case that in absence of Third Partner (Out of Three Partner One partner is non-cooperative) Rephasement/ restructuring was deny by bank six month ago? (There are three property under security One of third partner / Second of guarantor & third is of company office / valuation is approximately 2Cr.)

            In September 2010 we decided that by disposing Property of company we clear all outstanding of bank & others we will Windup Company? Given Consent Letter to bank 20 day before the actual deal bank refuse to give original paper of office property, saying third partner cancel the Consent for sale? We requested for copy of same letter? Bank refuses to give copy? (The buyer did RTGS of surplus amount then actual dues of both Loans on 27/09/2010) we went to civil court against third partner & further in HC under section 9 of arbitration act Both cases are pending? 

            Because there is no proper agreement regarding tenure Bank is not giving natural time to repay the EMI?  (Even after knowing that increase in Interest at list 17 times in last five years & additional Term lone is given, & keeping EMI constant, The no of EMI will increase)  

Raj

Mr. Manoj

Thanks for your advise.

Raj

First of all take objection - LEGAL OBJECTION TO THE NOTICE , which the lender is bound to reply withing next seven days before taking any action.

Dear JSDN.

Because no Response to Question/ query / presentation which Borrower / guarantor (in this case my wife is sole guarantor) raise is not answered by the bank within seven days should we as a Borrower / guarantor is having option to approach RBI Banking Ombudsman? Or otherwise to approach of writ petition in mumbai HC?

Total eight Question/ query / Ask to bank on 26/03/2012 & One presentation on same day and even today is 28^th day there is no Reply from their side ? what to do ? Give them reminder / warning ?

Raj

Any property of borrower or guarnteer given as guarntee. And any registered document for it.

If not oppose physical possession of any property and insist for court order.

You mentioned that you have received Recall Notice. You are expected to  receive Demand Notice u/s13(2) of SARFAESI Act,2002. On receipt of the same you shall have to immediately write to the Authorised Officer that the said Demand Notice is not Applicable on you since SARFAESI Act is not applicable in your case because of the reason stated by you. Make sure your calculation is based on the amount mentioned in their Demand Notice u/s13(2). They shall have to reply you within 7 days u/s13(3A). 

If the Bank still issues possession notice u/s 13(4), you being the agrieved party should file an application u/s17 of SARFAESI Act,2002 before the DRT mentioning that the said possession notice is bad at law u/s fo31(J) of the Act.

After going to DRT, inform the matter to the District Magistrate to ensure that the Bank can not get Possession Order u/s 14 of the Act for which notice to the borrower is not mandatory & which is issued primarily based on the Affidavit of the Bank stating  that their is no case pending before the DRT. 

You can not go to the DRT before receiving the Possession Notice u/s 13(4). 

Till possession notice is received which shall have to be published in two local dailies also within 7 days, you need not worry.

Dear Mr. K. K. Ganguly

Thanks for your advise.

Good point to understand?

We received Notice as mention under

RECALL NOTICE UNDER SECTION 13(2) OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (Dated: -19/03/2012)

And you said that “You are expected to receive Demand Notice u/s13 (2) of SARFAESI Act, 2002” As bellow

DEMAND NOTICE UNDER SECTION 13(2) OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002

What is Difference between the above two notices?

I am sorry to differ with K. Ganguly, with due regards to him, on the point "You can not go to the DRT before receiving the Possession Notice u/s 13(4)".  It is not necessary for bank to apply for the assistance of CMM to take property into physical possession under section 14, first it can make an attempt on its own through Authorized Officer and only when that attempt fails, he shall plead with CMM to lend his assistance using his powers under Section 14 of the Act.  Secondly, it is not necessary that bank serves possession notice under Section 13 (4), it can directly take physical possession of property after Demand Notice period is over.  Having taken physical possession, it can serve possession notice (without using word Symbolic) to the borrower with in 7 days from the date of taking physical possession and also get it published in two leading newspapers out of which one must be vernacular language.

What this means to you is, the bank can take Physical possession of property using its Authorized Officer and his team after notice period of 60 days.  Coming to your query of whether it is recall notice or demand notice, one cannot say unless one sees the contents of the notice.  As per SARFAESI Act, it shall be called demand notice only but due to lack of experience in serving notice banks often make mistakes like this. 

About not getting response Mr.Ganguly had rightly said, if you had made any representation to bank after service of Demand Notice, then it is obligatory on the part of bank to reply to that representation within 7 days after receipt of your representation under Section 13 (3A).  If the bank does not reply then it made a procedural error and hence the proceedings will be stalled by the DRT when you file Securitization Application with it under Section 17.  However the bank can again start the process of serving Demand notice etc after that order by DRT.  Which means what you have gained is time nothing else. 

However, due to procedural irregularities if you have suffered any damages to your property or loss in business (like when a factory is taken into possession by bank and locked, it cannot work anymore which means no production, no sales and losses) because of the bank taking possession of property without following Section 31 as mentioned by you, then you can claim damages and the DRT can award damages and costs of litigation etc. for it. 

1) Recall notice is a notice by which the secured creditor recalls all the dues for the loan/financial accomodation it has extended becasue the borrower has defaulted in paying the EMIs for a long time for which the loan account has become NPA.

2) Demand Notice is the notice as mentioned u/s 13(2) of SARFAESI Act,2002. The amount due is demanded to be paid within 60 days. This is the begining of the recovery process as per SARFAESI Act,2002.

3) Section 13(4) of the SARFAESI Act, 2002, inter alia,  states "In case the borrower fails to discharge his liability in full within the period specified in section 13(2) the secured creditor may take recourse to one or more of the following measures to recover the secured debt, namely---

(a) take possession of the Secured Asset of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset."

Please buy a book related to SARFAESI Act,2002. You will find everything in this regard.

For taking even symbolic possession, the Bank has to issue possession notice u/s 13(4) & publish in dailies within 7 days.  M/s HDFC Ltd. issues both recall notice and pre-possession notice before issuing Demand Notice and Possession Notice.

No Court will entertain on matters related to realisation of secured asset as per SARFAESI Act other than DRT & you can go to DRT only after being agrieved by action taken by the Bank u/s13(4) of SARFAESI Act,2002, not before that. It is mentioned in Sec.17 of trhe Act.

In one case we had mistakenly filed an application before DRT after receiving notice u/s13(2) & prepossession notice (inadvertently treating it as possession notice u/s13(4) of the Act) issued by a Bank for a property of our Client at Siliguri in the year 2010. After so many years of battle the DRT at Kolkata has given verdict in the year March'2012 that it is not maintenable being prematured.

After issuing possession notice u/s13(4), if the secured creditor fails to get pieceful  vaccant possession of the secured asset, they can apply to DM or CMM u/s14 of the Act for getting the possession with the help of Police. In this case also now a days, DMs in West Benfgal send  notice to the borrowers (which they need not do as per the Act) to be in the safe side.  

Thanks to Mr. Chandrasekhar & Mr. K.K. Ganguly for yours valuable advice. 

As Mr. K.K. Ganguly suggested I brought the book related to SARFAESI Act,2002. And studded it , after going through it is clear that we don’t have left any way by virtue of it we can challenge illegality of notice u/s13(2) of SARFAESI Act, and we have to wait  till bank issue possession notice u/s 13(4) of SARFAESI Act or take any action like symbolic possession ?  There is no alternate remedy to challenge notice u/s13 (2) in u/s 31 of SARFAESI Act?

As per suggestion I personally check all account entries? The amount is cross tally & they are matching, in T/L account The Interest +Penal Interest +Principal Amount.

Dos we should add penal Interest for above calculation? All other charges like service tax / legal charges / cheque book charges / etc.are not added.

We have not taken objection in writing regarding u/s 31(j) to the bank , we have discus with branch manager verbally & they refuse giving some different version of  u/s 31(j) ? Should we raise this point in writing ?

Over and above the question still remain same if they don’t issue the notice u/s 13(4) & Try to take Possession by virtue of alternate given in u/s 13(4) of SARFAESI Act? How we come to know the mind of Bank & their authority?

What if they don’t take any further action without decelerations? (consider that bank will not taking back /cancel the  notice u/s13(2) of SARFAESI Act in writing?) And allow us to pay EMI? I am asking this for cushion.

Who will pay for psychological damages /Losses /humiliation? Is this the way of harassment? Or the typical way of pressuring tactics? And if it is, dos it is legal? Do they have Legal right or licenses given by virtue of SARFAESI Act?          

Total eight questions/ query / Ask to bank on 26/03/2012 & one presentation on same day and even today is 30^th day there is no Reply from their side? What to do? Approach RBI Banking Ombudsman?

There should be some remedies u/s 31 (j)

Regars,

Raj

You have stated that the Bank has issued recall notice only. I am repeating that the Bank has  to issue Demand Notice u/s 13(2) of SARFAESI ACT,2002 giving you 60 days time to you to repay the entire amount demanded in the said Demand Notice. The amount claimed by the Bank will be mentioned in the Demand Notice from where you can find out whether 20% only is left to be paid or not. After receiving the said Demand Notice u/s 13(2) of SARFAESI ACT,2002, if you find that your outstanding is less than 20% then you should immediately write to the said Bank duly mentioing the same for which the Bank has to reply you within 7 days thereof u/s13((3A) of the Act.

When the Bank has not yet issued Demand Notice u/s13(2),how can you challenge its illegality now?

After 60 days of issuing the said  Demand Notice, if you fail to pay the Demanded Amount, then the Bank can issue Possession Notice u/s 13(4) of the Act & take symbolic or actual possession which ever is possible by them. Do not give them possession of the property at any cost.

After that the Bank can file application u/s14 of the Act before the DM or CJM for police help to take possession of the Secured Asset.

You become eligible to file application before DRT u/s 17(1) of the Act  after receiving Possession Notice u/s13(4) of the Act, not before that.

Don't write any letter to Bank which may go against you later on.

I think it is Demand Notes but instead of  word Demand they Use Word Recall?

They given all details as you mention and following paragraph.

A)

RECALL NOTICE UNDER SECTION 13(2) OF THE SECURITIZATION AND RECONSTRUCTION

OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002

TO BE ISSUED TO BORROWER(S) / PARTNER(S) / DIRECTOR (S)

Dear Sir/Madam                                                                                                                                                                   Re: Account

Details & names deleted to avoid further obligations                                                                                                          

------------------------------------------------------------------------------------------------------------------------------------ 

The above account has been running unsatisfactory for quite sometime and you are, therefore, in default as you

have failed to take steps to regularize /adjust your account in respect of such debt as stated herein above. In view

of the said default, your account has been classified as a non-performing asset by the Bank. In the

circumstances, the Bank has decided to recall the advance granted to you in terms of Section 13(2) of The

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. You are,

therefore, now required to discharge in full the bank's liabilities with upto date interest as per the details

mentioned above within a period of 60 days from the date of the notice failing which the bank shall take

necessary action for enforcement of the secured assets to realize its dues. The details of the secured assets

intended to be enforced by the bank in event of non-payment of the full liabilities as stated herein below are

stated here under :-

Details of Securities :-

1. &  2. & 3.

Yours Faithfully

AUTHORIZED OFFICER

B)

RECALL NOTICE UNDER SECTION 13(2) OF THE SECURITIZATION AND RECONSTRUCTION

OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002

TO BE ISSUED TO GUARANTOR

Dear Sir/Madam                                                                                                                                                                  

Re: Account

Details & names deleted  to avoid further obligations                                                                                                         

------------------------------------------------------------------------------------------------------------------------------------

The above account has been classified non-performing assets and no steps to regularize/adjust the said account

have been taken by the subject party despite assurances .. In the circumstances, the Bank has decided to recall the

advance granted to you in terms of Section 13(2) of The Securitization and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 and request the pay the same with upto date interest within a

period of 60 days from the date of the notice failing which the bank shall without prejudice to its other rights

against you or other borrowers, proceed against you or sell the pledged / hypothecated / mortgaged assets

without first taking any action against the subject borrower(s) specified under section 13(4) of the said Act. The

details of such assets in respect of which the action is proposed in case of non compliance of this notice are mentioned here under :-

Details of Securities :-

1. &  2. & 3.

Yours Faithfully

AUTHORIZED OFFICER