BOTM Notes PGDM VI A , B and IB By: Dr.

Neelam Tandon SARFAESI Act 2002

Amidst rising non-performing loans, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) was the most potent tool in the hands of banks for recovering bad loans. The Sarfaesi Act empowers banks and financial institutions to recover their non-performing assets without the intervention of courts. The Act provides three alternative methods for recovery of non-performing assets securitisation, asset reconstruction and enforcement of security without the intervention of courts.

The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act. As per RBI Guidelines Non-performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment (right of transfer). Security Interest by way of Lien, pledge, hire purchase and lease not liable for attachment under sec.60 of CPC, are not covered under this Act The Act empowers the Bank:

To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge their dues in full within 60 days from the date of the notice.

To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank.

To ask any debtor of the borrower to pay any sum due or becoming due to the borrower.

Any Security Interest created over Agricultural Land cannot be proceeded with.

If on receipt of demand notice, the borrower makes any representation or raises any objection, Authorised Officer shall consider such representation or objection carefully and if he comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate the reasons for non acceptance WITHIN ONE WEEK of receipt of such representation or objection. A borrower / guarantor aggrieved by the action of the Bank can file an appeal with Debt Recovery Tribunal and then with DRAT (Debts Recovery Appellate Tribunal), but not with any civil court. The borrower / guarantor has to deposit 50% of the dues before an appeal with DRAT. If the borrower fails to comply with the notice, the Bank may take recourse to one or more of the following measures:

Take possession of the security Sale or lease or assign the right over the security Manage the same or appoint any person to manage the same

According to the RBIs Report on Trend and Progress of Banking in India, 2012-13, banks have recovered Rs 18,500 crore through the Sarfaesi route. Also, in terms of efficiency, the Act has proved to be more effective than the debt recovery tribunals (DRTs) or mediation by Lok Adalats. Under the Sarfaesi Act, notice is served and two-month time is given to the borrower to discharge his liabilities, but Debt Recovery Tribunals (despite clear instructions from the Supreme Court that they cannot give stay orders on Sarfaesi) are still giving stay orders. And not one (order) has been justified. Eventually, the stay order is lifted but in the process one to one-and-a-half years is lost, without any benefit to anybody.Also, the rising levels of stress across the banking system was reflected in the fact that the number of cases under all the three mechanisms saw a massive increase of 66 per cent to 10.45 lakh cases.

Model Form for filing appeals in DRAT (as given in Annexure to SARFAESI Act, 1993) Application under sub-section (6) of Section 17 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
For use in Appellate Tribunals Office: Date of Filing . Date of receipt by post .. Or Registration number . Signature . Registrar IN THE DEBTS RECOVERY APPELLATE TRIBUNAL, (Name of the Place) BETWEEN: A.B.---- APPLICANT C.D. AND OTHERS---- DEFENDANT(S) Delete whichever is not applicable. Details of application: 1. Particulars of the appellant:(i) Name of the applicant. (ii) Address of registered office. (iii) Address for service of all notices. 2. Particulars of the defendant:(i) Name of the defendant (ii) Office address of the defendant (iii) Address for service of all notices 3. Jurisdiction of the Appellate Tribunal. - The Applicant declares that the subject matter of this application falls within the jurisdiction of the Appellate Tribunal.

4.

Facts of the case :The facts of the case are given below:-

The applicant submits that the applicant/defendant had filed an application under sub-section (1) of Section 17 of the SARFAESI Act, 2002 before the Hon'ble Debt Recovery Tribunal (Place) on (date) which was registered as ___________ and is still pending. The aforesaid application ought to have been disposed of on or before _____________. 5. Relief(s) sought:- In view of the facts mentioned in paragraph 5 above, the applicant prays for the following relief(s) (Direct the Hon'ble Debt Recovery Tribunal (Place) to dispose of the said application No._____ at the earliest and/or pass any other suitable order in the interest of justice and equity. 6. Matter not pending with any other Court, etc., - The applicant further declares that the matter regarding which this application has been made is not pending before any Court of law or any other authority or any bench of the Tribunal. 7. Details of index. An index in duplicate containing the details of the documents to be relied upon is enclosed. 8. List of enclosures:-

Verification
I..son/daughter/wife of (Name in full and block letters) Shri. the applicant hereby solemnly verify that the contents of paras 1 to 7 are true to my personal knowledge and belief and that I have not suppressed any material facts. Signature of the applicant Place: Date: To The Registrar, ..