INSTITUTE OF MANAGMENT STUDIES, DAVV, INDORE

FINANCE AND ADMINISTRATION – SEMESTER IV

CREDIT MANAGEMENT AND RETAIL BANKING

DOCUMENTATION

 The purpose of taking documents are to fix the terms and conditions between the bankers and
the borrowers, to identify the borrowers, to identify the securities, to count the period of
limitation, to resort to legal remedies in case of need.
 Provisions of different acts like Indian contract act, limitation act, stamp act etc. are to
considered
 Contracts are agreements enforceable by law.
 All contracts are agreements, but all agreements are not contracts.

Different types of documents

 Forms:
 Forms are not in the nature of promises or agreements.
 They are obtained to specify clearly the intention of the borrower.
 They usually clarify various terms and conditions in simple understandable forms.
 Demand promissory note:
 Where no specification for a fixed period for the repayment of loan is given.
 DP Notes are negotiable instrument as per section 4 of Negotiable Instruments Act
 Stamp duty on DP notes is uniform all over India. Stamping to be done as per stamp act
 Unstamped or under stamped DP note is not valid and deficiency cannot rectified by penalty –
section 35 of Indian stamp act.
 Agreements:
 In conformity with Indian contract act
 Terms and conditions like amount, repayment, rate of intt. Banks’ Rights in case of default etc
 Rate of stamps as per stamp act. It varies from state to state
 Banker use different types of agreements like Pledge, Hypothecation, Assignment, Guarantee,
Mortgage etc. They are required to be stamped as per law.

Documentation procedure
 Selection of correct set of documents
 Depending upon nature of facility and type of person

Filling up the documents

 Bankers generally use preprinted format with blanks. It is necessary to fill all the blanks with
same ink, same handwriting by same person in single sitting to obviate suspicion of filling
subsequently.
 No cuttings, alterations after filling without consent.
 Execution of documents
 Means signing of documents. Signature should tally with specimen with bank.
 Capacity of person in which he is signing
 To be signed in presence of bank official

Other Legal formalities

 In case of companies to be presented to registrar of companies within 30 days from the date of
execution of documents
 In case of creation of registered mortgages, mortgage deed to be presented to registrar of
assurances within 4 months

Keeping documents alive

 Limitation act prescribes period of limitation for different types of documents
 DP note – 3 years
 Revalidated by acknowledgment, revival, part payment
 Section 3 of limitation act – a suit cannot be filed for recovery on strength of time barred
document.

Renewal of documents
 On renewal with change in terms and conditions fresh set of documents to be taken. On
review, obtain consent on standard formats

Revival of time barred debts

 Recourse may be subsection 3 of section 25 of contract act – acknowledge a time barred debt
 Safe keeping and preservation of documents

 Stamping
 Indian Stamp Act, 1899 contains provisions regarding instruments chargeable with duty, mode
of using stamps, time of stamping etc.
 Documents should be cancelled – section 12 of stamp act – so that the same cannot be used
again
 Section 17 of the act, all instruments chargeable with duty and executed by any person in India
shall be stamped before or at the time of execution.
 Section 18: all instruments, other than a bill of exchange and promissory note, executed out of
India may be stamped within three months after it has been first received in India.
 Section 35: any person shall not admit an instrument, not duly stamped in evidence for any
purpose.

LAW OF LIMITATION

 Limitation act is important for banks as they are required to recover the money lent to
borrower, through legal action under DRT, SARFAESI etc. within the permissible prescribed
period of limitation.
 Period of limitation is always in relation to documents.
  Section 3 of Limitation act says that any suit not instituted within period of limitation will be
dismissed.
 For computing the period of limitation, if the document expires on the day the court is closed,
suit preferred on the day when court reopens is permitted.
 The time during which the defendant has been absent from India shall be excluded.

Period of limitation
 For money payable towards money lent ( when the bank makes a loan) – 3 years
 For money lent under agreement that is payable on demand – 3 years
 On a promissory note or bond payable by installments (term loan) – 3 years from the expiration
of first term of payment as to the part then payable and for other parts, the expiration of
respective term of payment.
 To enforce payment of money secured by a mortgage – 12 years
 Any suit for which no period of limitation is provided – 30 years

Acts giving rise to fresh period of limitation

 Where before the expiration of prescribed period:
- an acknowledgement of liability given by the borrower (balance confirmation, revival letter
or by other means) a fresh period of limitation shall be computed from the time when such
acknowledgment was so signed.
- When payment on account of a debt or of interest is made before expiration of prescribed
period by person liable to pay the debt, a fresh period of limitation shall be computed from
the time when such payment was made (part payment)
- By renewal of documents
- By filing a civil suit with court, DRT or filing a RRC in case where suit is not desired.

Prepared by:
Arvind Paranjape, M.Sc. CAIIB
paranjape.arvind@yahoo.com
9425067026