HAND BOOK ON

SARFAESI DRT

&

LOK ADALAT

(Covering Latest Amendments &

Standard Operating Procedure)

Published by : Baroda Gujarat Gramin Bank, Head Office, Bharuch (2017)

(Strictly for Internal Circulation

FOREWORD

This is a Booklet on SARFAESI, DRT and LOK ADALAT process, prepared by NPA Management

Department, Head Office, Bharuch with a view to support our Branches and the officers of our Bank in line

with Bank of Baroda. The recent amendments made by Parliament to the SARFAESI and DRT Acts have

been duly incorporated in this Booklet.

This Booklet is unique in its content and covers procedural aspects of SARFAESI, DRT and Lok Adalat

processes. FAQs on SARFAESI have also been incorporated as a ready reference.

I am confident that this Booklet will be handy and helpful to all of our operational units, for expediting

their recovery initiatives.

Date: 12

th June, 2017 (B. R. Patel)

Place: Bharuch Chairman

INDEX

Contents Page No.

SARFAESI Process Flow 7

Process Under SARFAESI Act 8

FAQs on SARFAESI 23

The Recovery of Debts and Bankruptcy Act, 1993 33

LOK ADALAT 39

Standard Operating Procedure (SOP) 43

(Standard Operating Procedure)

HAND BOOK ON

SARFAESI

DRT

&

LOK ADALAT

NPA ACCOUNT

Demand Notice u/s 13(2) of 60 days

Objection if any, by the Borrower/

Guarantor

Reply to Objection by the Authorized

officer within 15 days

Possession after 60 days of Demand Notice

Symbolic

Actual/Physical

Possession Notice Publication within 7 days

If, Actual Possession not received

Application to DM/CMM u/s 14

Fixation of Reserve Price

Sale Notice (30 days)

Inviting Tender

Public Auction/ E-Auction

Private Treaty

Sale

Issuance of Sale Certificate

PROCESS UNDER SARFAESI ACT INTRODUCTION The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover its dues through enforcement of Security Interest, without the intervention of the Court/ Tribunal. Salient Features: The following are the salient features of the SARFAESI Act:

Enforce Security Interest without the intervention of Court /

Tribunal.

Full protection to the Secured Creditors, its Officers / Managers

for any action taken under the Act in GOOD FAITH.

Non-applicability of any other laws to the extent of inconsistency

with regard to any action taken by the Secured Creditor.

Priority of claims of Secured Creditor over the dues of other

creditors, including the dues of Government.

Who can initiate action under the SARFAESI Act ? The exercise of all rights by Bank as Secured Creditor under the Act has to be done through an Authorised Officer. As per the Security Interest (Enforcement) Rules, 2002, the Authorised Officer is an officer of the Bank not below the rank of a Chief Manager specified by its Board of Directors. As per our Bank’s Domestic Recovery Policy 2009, Executives in Senior Management Grade/Scale IV to Scale VI (including Branch Head of respective Scale/Grade IV, V & VI) are empowered to authorize initiation of action under SARFAESI Act, 2002 as per applicable Discretionary Lending Powers, subject to reporting to the next higher authority. Regional Heads in the rank of Assistant General Managers/ Chief Manager shall be the Competent Authority for authorizing the branches for initiation of action under SARFAESI Act, 2002 for proposals falling under the powers of Regional Heads in the rank of Assistant General Manager including the proposals falling in the power of HOGMCC-, HOCC subject to reporting to Head Office.

Before initiating SARFAESI ACTION it needs to be ensured that: The account is declared NPA as per RBI norms.

The contractual due in the account is more than Rs. 1.00 lac.

Outstanding Dues as on the date of NPA and the Contractual Dues are

calculated correctly.

Security Documents are in order, valid and enforceable.

Action to be initiated within the Limitation Period.

EXCEPTIONS: - SARFAESI Actions can not be initiated in the following instances.

Contractual dues is below Rs.1/-lakh

Security interest over Agricultural Land.

Any case in which the amount due is less than 20 % of the principal

amount and interest thereon.

Lien on goods, money or security, Pledge of movables.

Any rights of unpaid seller under sec. 47 of Sale of Goods Act.

Security interest over aircraft or ship/ vessel.

Any properties not liable for attachment or sale under section 60 of the

Code of Civil Procedure, 1908. (for eg: tools of artisans, personal

belongings like wearing apparels, jewellery, stipends, gratuities, wages of

labourers and domestic servants etc.,)

DEMAND NOTICE - UNDER SECTION 13 (2) OF SARFAESI ACT.

When the borrower commits default in the repayment of the secured debt and his account is classified as Non-Performing Asset (NPA), the Secured Creditor can issue notice to the Borrower/ Guarantor/ Mortgagor (collectively referred as Borrower as per the Act), under Section 13 (2) of the Act demanding discharge in full his liabilities within sixty days from the date of notice and in case the borrower fails, the secured creditor shall be entitled to take all or any of the measures under sub-section 13 (4) of the Act. Demand Notice is to be issued by the Secured Creditor through its Authorized Officer as per standard format on Bank’s Letter Head. Service of Notice. Demand Notice should be sent to the Borrower, each of the partners or directors or guarantor(s) to the place where the Borrower or his agent actually and voluntarily resides or carries on business or personally works for gain. In case of any change of address, notice has to be sent to the new address. In the event any person is deceased, the notice should also be sent to all the Legal Heirs of the deceased person.

Service of Notice may be by any of the modes mentioned below: a) Hand Delivery against proper acknowledgement. b) Registered post with AD. c) Courier with proof of delivery. d) Any other means of transmission of documents like fax or electronic mail service. However, (a), (b) and (c) are the preferred mode of service of the Notice. If the Borrower is a Body Corporate, the demand notice shall cause to be served at the registered office or any of the branches of such Body Corporate. Service of demand notice individually to the borrower/all guarantor(s)/ mortgagor (s) is mandatory. If the Notice could not be served on the party or if notice is returned undelivered or if it is felt that the borrower/ guarantor/ mortgagor is avoiding the service, in that event , the service has to be effected by

affixation of the demand notice on the outer door or some other conspicuous part

of the house or building in which borrower or his agent ordinarily resides or

carries on business or personally works for gain and also by

publishing the contents of the demand notice in two leading newspapers, one in

English and one in Vernacular language having sufficient circulation in that

locality.

Acknowledgement/ proof of service/paper publication should be carefully preserved in records along with the copies of the demand notice/s issued so that bank can produce the proof if the SARFAESI measures are challenged before a Court/Tribunal at a later date. A separate file shall be maintained at the branch level for each SARFAESI proceedings account wise. If on verification of Encumbrance Certificate/personal inspection, it has come out that the property has been transferred or leased subsequent to our mortgage; copy of the demand notice should also be sent to such occupant or tenant/ subsequent purchaser. The Authorised Officer is empowered to initiate the following action also under SARFAESI Act:

If the secured asset is a debt due to the borrower and not secured by a

Negotiable Instrument – by prohibiting borrower from recovering such debt or

directing the Debtor of borrower to make payment directly to Bank and not to the

Borrower.

If the secured asset is a share in a Body Corporate – by directing borrower to

transfer the share to Bank or by directing the Body Corporate not to transfer the

shares to any other person.

If the secured asset is any other movable property not in possession of the

borrower – by directing the borrower or any other person in possession to hand

over the same to the Authorised Officer or by taking possession of the documents

evidencing its title.

Objection(s) / Representation(s) to Demand Notice - Sec. 13(3A): If any objection / representation to the Demand Notice issued is received from the borrower/ guarantor/ mortgagor, it has to be ensured that:

The objection is considered by the Secured Creditor and examined as to its

acceptance or tenability.

If any modification or change in Demand Notice is felt needed, the secured

creditor through Authorised Officer has to modify the notice and serve a

Revised Notice.

If the Secured Creditor finds that the objection or representation is not

acceptable or tenable, the secured creditor through the Authorised Officer has

to communicate within 15 days of receipt of such notice to the Borrower the

reasons for non-acceptance of his objection or representation.

Bank’s reply within 15 days of receipt of objection/ representation is mandatory.

Rejection of representation or objection shall not confer any right upon the

borrower to prefer an application to DRT/ Distt. Judge (for J&K), as the case may

be.

Bar on transfer of asset on receipt of notice The borrower on receipt of the Demand Notice is barred from transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets, without prior written consent of the secured creditor. Measures after Issuance of Demand Notice – Sec. 13 (4). If the Borrower/ Guarantor/ Mortgagor fails to pay the amount mentioned in the demand notice and discharge his liability in full within the stipulated 60 days time as per the notice [60 days period to be reckoned from the date of service (i.e., date of acknowledgment) of the last issued notice], the Secured Creditor/ Bank can proceed to realize the amount by adopting or taking recourse to any one or more of the following measures:

Take possession of the secured assets of the borrower including the right to

transfer by way of lease, assignment or sale for realizing the secured asset;

Take over the management of the business of the borrower including the right to

transfer by way of lease, assignment or sale for realizing the secured asset;

Appoint any person as Manager, to manage the secured assets the possession of

which has been taken over by the secured creditor;

Require at any time by notice in writing, any person who has acquired any of the

secured assets from the borrower and from whom any money is due or may

become due to the borrower, to pay the secured creditor, so much of the money

as is sufficient to pay the secured debt.

In the case of joint financing/ consortium advances, no secured creditor shall be entitled to exercise any of the above measures unless the Secured Creditors representing not less than sixty per cent in value of the amount outstanding agree to it.

POSSESSION OF SECURED ASSETS – After 60 days: If even after 60 days of service of the demand notice/ publication of demand notice, as the case may be and the amount demanded in the Demand Notice is not paid, the Authorised Officer (AO) shall proceed to realize the amount by taking possession of secured assets. The Authorised Officer has to take possession of the secured assets by following the formalities mentioned hereunder. MOVABLE ASSETS: If possession of movable assets is to be taken, the Authorised Officer has to take possession in the presence of two independent witnesses after drawing a Panchnama in the Prescribed Format.

Panchnama has to be drawn in the presence of two independent witnesses, who

should countersign the same.

Authorised Officer has to cause an Inventory prepared, and deliver copy of such

Inventory to the Borrower or to any person entitled to receive on behalf of the

borrower.

Notice to be issued to the Borrower enclosing copy of the Inventory and

Panchnama. The Notice may be issued to the Borrower by Hand Delivery/

Registered Post/ Courier/ through electronic mode of service and the Proof of

Delivery to be preserved.

Keep the Secured Assets taken possession either in his own custody or in the

custody of any person authorised/ appointed and to take as much care of the

assets a man of ordinary prudence would do in similar circumstances in his own

case.

If the Secured Asset(s) is/ are subject to speedy or natural decay, or if the

expenses for keeping such property in custody are likely to exceed its value, the

Authorised Officer may sell it at once.

IMMOVABLE ASSETS: If possession of immovable assets is to be taken, the Authorised Officer has to take possession by:-

Delivering the Possession Notice to the Mortgagor/authorised representative–in

person or by registered post, speed post, courier, fax or through electronic mode,

Affixing the Possession Notice on the outer door or at such conspicuous place of

the secured asset,

Publishing the Possession Notice within 7 (Seven) days from the date of taking

possession, in two leading Newspapers [one in English and one in Vernacular

language] having sufficient circulation in the locality in which the property is

situated. The Notice to be published in vernacular Newspaper should be drawn in

vernacular language.

Take steps for preservation and protection of Secured Assets against

unauthorised entry, theft, pilferage or damage.

Engage Security Agency (wherever required) to safeguard the property.

Insure the assets, if necessary, till they are sold or otherwise disposed of.

Entire possession process is preferably photographed or videographed.

Before taking Physical Possession, the Authorised Officer (AO) has to conduct the physical verification of the property so as to identify the property mortgaged. Filing of Caveat: If any legal action by the Borrower/ Guarantor/ Mortgagor is anticipated against Bank’s action/ measures u/s 13(4), it is suggested that we may file Caveat Application before DRT/High Court, so as to prevent any exparte order against our Bank. As the validity period of caveat is 90 days, it has to be ensured that fresh caveat application is filed on expiry of 90 days if deemed necessary. Application to CMM/ DM - [Sec. 14 Application] Where there is resistance or objection in taking possession of secured assets, the Secured Creditor can approach/ file application to the Chief Metropolitan Magistrate (CMM) or the District Magistrate (DM) as the case may be, seeking assistance in taking physical possession of the secured assets. The application should be accompanied by an affidavit of the Authorised Officer of Bank inter alia affirming on the following: • The amount financed and total claim on the date of application; • Creation of security interest on the property/ies and its subsistence; • Default in payment and consequent classification of account as NPA; • Issuance of demand notice and its service on borrower; • Communication of reply to objection/ representation to demand notice; • Non-payment of amount inspite of notice. The CMM/DM has to pass suitable orders for taking possession of the secured assets within a period of 30 (thirty) days from the date of application/ receipt of affidavit of the Authorised Officer. If in any case no order is passed within a period of 30 days for the reasons beyond his control, the CMM/DM may, after recording reasons, pass order within such period, not exceeding 60 (sixty) days in aggregate. The CMM/DM may authorize any officer subordinate to him to take possession of the assets/ documents and forward the same to the secured creditor. The CMM/DM for ensuring compliance of the provisions of the Act can also take such steps or force as deemed necessary. VALUATION OF SECURED ASSETS AND FIXATION OF RESERVE PRICE

A. VALUATION OF MOVABLE SECURED ASSETS:

After taking possession of movable secured assets and before proceeding for auction the Authorised Officer has to:

Obtain Estimated Value of the movable Secured Assets.

Fix the Reserve Price in consultation with the Secured Creditor.

As per Recovery Policy of our Bank the Reserve Price has to be fixed by Committee comprising the Authorised Officer and One Officers of the concerned Branch.

B. VALUATION OF IMMOVABLE SECURED ASSETS.

After taking possession of immovable secured assets and before proceeding for auction the Authorised Officer has to:

Obtain Valuation from an Approved Valuer (duly authorized by the Board of Bank

and also registered under 34AB of the Wealth Tax Act, 1957)

Fix the Reserve Price in consultation with the Secured Creditor.

As per Recovery Policy of our Bank the Reserve Price has to be fixed by a Committee comprising the Authorised Officer and Two Officers of the concerned Branch based on the Realisable Value. However in respect of the secured assets having value more than 5 Crore, -2- (two) Valuation Reports from Approved Valuers to be obtained and average of the two valuations to be taken into consideration to arrive at the Reserve Price. In case variance in 2 valuations is more than 25 %, fresh valuation from 3rd Approved Valuer to be obtained and Reserve Price to be fixed accordingly. SALE OF SECURED ASSETS As per SARFAESI Act, the secured creditor is permitted to put for sale the secured assets (both movable and immovable) taken possession of, in any of the following modes:

By obtaining quotation from persons dealing in similar assets or

otherwise interested in buying such assets; or

By inviting tenders from Public; or

By holding public auction including through e-auction mode; or

By private treaty.

The Dept. of Financial Services, Ministry of Finance has directed that all sale/ auction notices under the SARFAESI Act shall be uploaded on the Govt. website

www.tenders.gov.in for a minimum period of 30 days before date of sale/ auction.

A. SALE OF MOVABLE PROPERTY.

Authorised Officer may sell the movable property which is taken into physical possession in one or more lots, by adopting any one of the above modes. If the sale is being effected by either inviting tenders from Public or by holding public auction, the Authorised Officer has to ensure that:

Borrower is served a notice of thirty days for sale of movable assets.

Public Notice of Sale is given in two leading newspapers (one in English

and one in vernacular language), having sufficient circulation in that

locality.

There should be clear 30 days between the date of publication of notice of sale in the newspaper and actual date of sale.

The sale notice is uploaded, ensuring clear 30 days from the date of sale,

in Bank Website.

The Sale Notice should inter alia contain:

Details about Borrower & the secured creditor.

Description of movable secured assets to be sold with identification marks

or numbers,

Reserve price,

Time and manner of payment

Time & place of public auction.

Amount to be deposited as Earnest Money.

Sale must be on “as is where is and as is what is basis”.

On payment of the sale price or on such terms as may be settled between the parties, the Authorised Officer has to issue a Certificate of Sale in the prescribed form inter alia specifying:

the movable secured assets sold;

the sale price; and

The name of the purchaser.

The Certificate of Sale so issued shall be the prima facie evidence of title of the purchaser. In the event of any default in payment, the movable secured assets are liable for sale again. If the first sale fails and the sale of movable assets is required to be conducted again, the authorised officer, for conducting any subsequent sale, has to serve, affix and publish fresh notice of sale of not less than fifteen (15) days to the Borrower. If sale of movable assets is done by any other modes other than public auction, such sale shall be on such terms as may be settled between the Secured Creditor and Proposed Purchaser.

B. SALE OF THE IMMOVABLE PROPERTY:

Authorized Officer may sell the immovable property taken into possession, by adopting any of the above modes. If the sale is being effected by either inviting tenders from Public or by holding public auction, the Authorised Officer has to ensure:

Valuation of the immovable property from Bank’s Approved Valuer is

obtained.

Service of Notice of thirty days for sale of the immovable assets, to the

borrower.

Publication of Sale Notice in two leading newspapers (one in English and

one in vernacular language), having sufficient circulation in the locality in

which the property is situated.

As no sale of immovable property can take place before the expiry of thirty days from the date on which the Sale Notice is published, it has to be ensured that there is clear 30 days between the publication of the sale notice in the newspapers and actual date of sale.

Affixation of Sale Notice on a conspicuous part of the immovable property.

Uploading of the sale notice in www.tenders.gov.in and Bank Website

ensuring clear 30 days from the date of upload and date of sale.

The Sale Notice should inter alia contain: Details of Borrower/ Guarantors/ Mortgagors and Secured Creditor

Secured debt for which property is sold.

Description of immovable secured assets to be sold including details of

known encumbrances on the property.

Complete address with PIN Code of the city or area in which the secured

asset is situated.

Reserve price below which the property will not be sold,

Time & place of public auction.

Amount to be deposited as Earnest Money.

Any other thing which the Authorised Officer considers material for the

Intending Purchaser to know in order to judge the nature and value of the

property

If the Sale is successful, the Authorised Officer has to confirm the Sale in favour of the purchaser who has offered the highest sale price, subject to confirmation by the secured creditor. On every sale of property the successful purchaser has to deposit 25% of the amount of the sale price (inclusive of EMD) on the date of sale or latest by next working day. The successful purchaser has to pay the balance (75%) of Sale Price, on or before the 15th day of confirmation of sale or such extended period (not exceeding three months) as may be agreed upon in writing between the purchaser and the Secured Creditor. Upon confirmation of sale by the secured creditor and on compliance of the terms of payment by the purchaser: • The Authorised Officer has to issue a Certificate of Sale of the immovable property in favour of the purchaser in the prescribed Form. • The Sale Certificate issued should clearly mention whether the purchaser has purchased the assets, free from any encumbrances known to Bank or not. If Sale is conducted with any known encumbrances, the Authorised Officer can permit the purchaser to deposit the money necessary to discharge the encumbrances or any additional amount, contingencies, cost or expenses and if

paid, the money has to be remitted to the person entitled thereto and the surplus if any has to be paid to the purchaser within 15 days from the date of finalization of the sale. In the event of any default in payment, the immovable secured assets are liable for sale again and the amount (if any) remitted/ deposited shall be forfeited to the Secured Creditor. Subsequent Sale: If the first sale fails and the sale of immovable assets is required to be conducted again, the authorised officer, for conducting any subsequent sale, has to serve, affix and publish fresh notice of sale of not less than fifteen (-15-) days to the Borrower. Secured Creditor’s Right to Bid in Sale If the bid received is less than the reserve price fixed and any sale of an immovable property scheduled has been postponed, any officer of the Bank can bid on behalf of the Bank, if specifically authorised by Bank, for the immovable property at any subsequent sale. If at any subsequent sale the secured creditor (Bank) is declared the successful purchaser, the amount of the purchase price shall be adjusted towards the amount of the claim of the Secured Creditor for which action of the enforcement of security interest is taken by the Secured Creditor. If the Secured Creditor acquires the immovable property in such sale, the Secured Creditor has to dispose the assets acquired (if not required for its own use) within a period of seven years from the acquisition thereof, in terms of section 9 of the Banking Regulation Act, 1949. Appropriation of Sale Price The Secured Creditor upon successful sale of secured assets is entitled to apply the money received, firstly, for payment of all costs, charges and expenses properly incurred by the Secured Creditor, secondly, for discharging the dues of the secured creditor and the residual money, if any, has to be paid to the person entitled thereto in accordance with his rights and interests. When Sale scheduled should be stalled? Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease or assignment or sale of such secured assets,--

i. the secured assets shall not be transferred by way of lease, assignment or

sale by the secured creditor; and

ii. in case, any step has been taken by the secured creditor for transfer by

way of lease or assignment or sale of the assets before tendering of such

amount, no further step shall be taken by such secured creditor for transfer

by way of lease or assignment or sale of such secured assets.

Right to Recover Balance Due Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets under SARFAESI, the secured creditor may file an application to the Debts Recovery Tribunal or a competent Court, as the case may be, for recovery of the balance amount from the borrower. However please note that Suit is required to be filed, during the validity period of documents. Application Against Measures to Recover Secured Debt Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the Secured Creditor or his Authorised Officer may make an application to the Debts Recovery Tribunal within forty-five days from the date on which such measure had been taken. If DRT comes to the conclusion that any of the measures taken by Bank under SARFAESI are not in accordance with the provisions of the Act and the Rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower or other aggrieved person, it may, by order,

a) declare the recourse to any one or more measures taken by the secured

creditors as invalid; and

b) restore the possession of the secured assets or restore the management of

the business to the borrower or such other aggrieved person, who has

made an application, as the case may be; and

c) Pass any other appropriate order.

Appeal to Appellate Tribunal (DRAT) Any person (including Bank) aggrieved by any order made by the Debts Recovery Tribunal, in respect of SARFAESI measures, may prefer an appeal to the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal. For entertaining an appeal from the borrower, he has to deposit with DRAT, fifty per cent (50%) (Which can be reduced to not less than twenty-five per cent by the Appellate Tribunal) of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less.

Filing of Application and Appeal in the State of J & K In respect of a borrower residing in the State of Jammu and Kashmir, the application has to be made to the Court of District Judge having jurisdiction in that State over the borrower which shall pass an order on such application. Any borrower residing in the State of Jammu and Kashmir and aggrieved by any order made by the Court of District Judge may prefer an appeal, to the High Court having jurisdiction over such Court, within thirty days from the date of receipt of the order of the Court of District Judge. For entertaining an appeal filed by the borrower, he has to deposit with the Jammu and Kashmir High Court fifty per cent (50%) (which can be reduced to not less than twenty-five per cent by the High Court) of the amount of debt due from him, as claimed by the secured creditors or determined by the Court of District Judge, whichever is less. Right to Receive Compensation and Costs The Borrower or such other person who has filed application or appeal against the measures of secured creditor is entitled to the payment of such compensation and costs as determined by such Tribunal or Court of District Judge or Appellate Tribunal or High Court if:

it is held that the possession of secured assets by the Bank is not in

accordance with the Act and Rules;

If the secured creditor is directed to return such secured assets to the

concerned borrowers or any other aggrieved person.

REGISTRATION OF SECURITY INTEREST WITH CENTRAL REGISTRY. As per Section 23 of the Act, the particulars of every transaction of securitisation, asset reconstruction or creation of security interest has to be filed with the Central Registry. Similarly, whenever there is a change in terms and conditions or the extent or operation of any security interest, such modification has also to be registered with the Central Registry. No secured creditor is entitled to exercise the rights of enforcement of securities unless the security interest created in its favour has been registered with the Central Registry.

FAQs on SARFAESI

Question 1 When SARFAESI action can be initiated?

Answer Where the borrower makes default in repayment of secured debt or any installment thereof and his account is classified as NPA and the dues are more than Rs. 1lac, the secured creditor can initiate SARFAESI action.

Question 2 What is the procedure for initiating SARFAESI action?

Answer SARFAESI action can be initiated by issuing a Notice (Demand Notice) in writing to the borrower and Guarantor (if any) to discharge in full his liabilities to the secured creditor within 60 days from the date of notice.

Question 3 What are the various modes for Service of Demand Notice {13(2) Notice}?

Answer: The Demand Notice can be served in the following modes: (a) Hand delivery against proper acknowledgement. (b) Registered Post with AD (c) Courier or Speed Post with proof of delivery. (d) Other means of transmission like fax or electronic mail service. However, as per our guidelines, the preferred modes of service are Registered Post with acknowledgement due and Speed Post with Proof of delivery.

Question 4 What steps are to be taken if the Demand Notice sent is returned undelivered?

Answer:

If the notice could not be served on the party or if the notice is returned undelivered, or if it is felt that the borrower/ guarantor/ mortgagor is avoiding the service, then in that event, the demand notice shall be affixed on the outer door or some other conspicuous part of the house/ building in which the borrower or his agent ordinarily resides or carries on his business or personally works for gain. Secondly, the contents of the notice has to be published in two leading newspapers, one in English and one in vernacular language having sufficient circulation in that locality. While publishing the notice in vernacular newspaper, the notice has to be translated in the said language.

Question 5 What is the time limit, within which the representation/ objection of the Borrower/ Guarantor to the demand notice under section 13(2), is to be replied?

Answer: The Authorized Officer (A.O.) should reply to the representation/objection of the Borrower/ Guarantor within 15 days from the date of receipt of such representation/ objection.

Question 6 Whether reason for non-acceptance of representation/ objection of the Borrower with respect to the Demand Notice is to be communicated to the Borrower?

Answer: Yes. If on examining the representation/ objection, the Authorised Officer comes to the conclusion that such

representation/ objection is not acceptable or tenable, the Authorised Officer has to communicate within 15 days of receipt of the representation/ objection, the reasons for non-acceptance of his representation/ objection

Question 7 What should be done by the Secured Creditor/AO if the representation/ objection are found acceptable?

Answer: If the Secured Creditor/ Authorized Officer feels that any modification or change is required in the Demand Notice, the Authorized Officer should modify the Demand Notice and send revised Demand Notice within 15 days to the borrower/guarantor/mortgagor from the date of receipt of such representation/objection.

Question 8 Whether borrower can transfer secured assets after receipt of Demand Notice?

Answer: No. Borrower cannot transfer secured assets without prior written consent of the Mortgagee. In the event, the borrower transfers the secured asset without the permission of Bank, any such transfer will not affect Bank’s rights against the assets and bank can proceed against such secured assets. The Bank can also initiate criminal proceedings against the borrower as per sec. 29 of the SARFAESI Act

Question 9 As per Section 13 (3A) of SARFAESI Act, representation made by the Borrower after being served with Demand Notice has to be replied by the Bank within 15 days. Is it mandatory that representation made by the Borrower at any stage of the proceedings needs to be replied by the Bank?

Answer: It is always advisable to reply to the representation of the Borrower/ Guarantor received at any stage of the proceedings.

Question 10 What is the difference between symbolic possession and physical possession?

Answer:

The SARFAESI Act does not expressly distinguish between symbolic and physical possession of secured assets. The possession of the immoveable secured assets by way of affixing possession notice coupled with its publication is termed as symbolic possession, wherein Bank does not have the actual physical control over the secured assets. However in the case of Physical Possession, the actual control over the secured assets is taken over and will be available with the Bank.

Question 11 When symbolic possession may be taken?

Answer: When Authorized Officer/ secured creditor is unable to take actual/ physical possession due to objections/obstructions. In that event symbolic possession of the immovable property is taken and simultaneously application may be moved with DM/ CMM seeking assistance for taking actual /physical possession of the property.

Question 12 Whether we can issue combined Possession cum Sale Notice?

Answer: No. Possession Notice and Sale Notice should be given separately

Question 13 If after taking possession of secured assets, secured creditor/ A.O. anticipates the borrower may move to the DRT/Court for any relief against the Bank, what steps should be taken to protect Bank’s interest?

Answer: If the Secured Creditor/ Authorized Officer takes symbolic or actual possession of the secured assets and he anticipates the borrower may move to the DRT for any relief against the Bank, he may lodge a CAVEAT Petition with the DRT/High Court, in consultation with our Advocate on panel.

Question 14 What will be the effect of CAVEAT?

Answer: No application or appeal will be decided by the Court/ DRT, without listening/ hearing the person who has lodged the CAVEAT

Question 15

Answer:

What is the validity period of Caveat and for how much time CAVEAT will remain in force? 90 days. Before expiry of 90 days fresh caveat petition will have to be filed for getting the right of hearing extended.

Question 16 Whether order/assistance of the CMM/DM U/s 14 of SARFAESI Act is mandatory in taking possession of the secured assets in all cases?

Answer Order/assistance of the CMM/DM U/s 14 of SARFAESI Act is not mandatory in taking possession of the secured assets. However assistance of the CMM/DM may be sought in those cases where there are objections/ obstructions in taking physical possession.

Question 17 What is the timeline within which the District Magistrate has to pass order on the application filed by the secured creditor for possession of the secured assets?

Answer: As per the new Amendment to the Act made in 2016, The District Magistrate (D.M.) or the Chief Metropolitan Magistrate (C.M.M.) shall pass a suitable order for the purpose of taking possession of the secured assets within a period of 30 days from the date of application. If in any case no order is passed within a period of 30 days for the reasons beyond his control, the DM/ CMM may, after recording reasons, pass order within such period, not exceeding 60 days in aggregate.

Question 18 What is the procedure for taking assistance of DM/ CMM to take possession of the property/secured assets?

Answer: As per section 14 of SARFAESI act, an application along with the affidavit of the Authorised Officer has to be filed before DM/CMM for taking their assistance to take possession of secured assets.

Question 19 Whether Bank can file Securitisation Application u/s. 17 of SARFAESI Act in case another secured creditor has initiated

SARFAESI action on the same property mortgaged to the Bank?

Answer: Yes. Branch should immediately file application u/s. 17 of SARFAESI Act before DRT, in consultation with Regional Office.

Question 20 Whether any occupants/ tenant/ lessee has any rights / claims against the action initiated by the secured creditor?

Answer: A person claiming any tenancy rights/ leasehold rights may make an application before DRT under section 17 (1) of the SARFAESI Act within 45 days from the date on which any measures under section 13 (4) have been taken by the secured creditor

Question 21 Who is the authority to decide upon the rights/ claims of the occupants/tenants/lessee upon any secured assets and how ?

Answer: The DRT is the only competent authority to decide on an application filed by the occupants/ tenants/ lessee. On receipt of such an application, DRT will examine and decide whether the tenancy or lease: (a) has expired or stood determined; or (b) is contrary to section 65A of the Transfer of Property Act, or (c) is contrary to terms of mortgage, or (d) is created after the issuance of notice of default and demand by the Bank under section 13 (2) (Demand Notice).

Question 22 What are the formalities / procedure to be complied/ followed by the Authorized Officer while taking physical possession?

Answer: While taking possession the Authorized Officer: 1. Will serve the Possession Notice to the mortgagor / authorized representative in person and take acknowledgement. 2. In case of refusal to accept the notice, prepare Panchnama to that effect. 3. Affix the Possession Notice on the outer door or other such conspicuous place of the secured assets. 4. Publish the possession notice within 7 days from the date of taking possession, in two leading newspapers (one in English and another in vernacular language) at the place where the property is situated. For example – if the borrower resides in Bombay, and the property is located in Surat, the paper publication has to be done in Surat. 5. If any movable asset not charged to the Bank is available in the premises, authorized officer has to take proper inventory and deliver copy of the inventory to the borrower. Entire possession process may be photographed or video graphed.

Question 23 Whether photography or videography of possession process is required?

Answer: Though it is not mandatory, it would be ideal if the entire possession process is photographed or videographed, as it will

be an evidence that all process were done as per law and would enable bank to defend its action if it is challenged before a court of law at a later date.

Question 24 Is it mandatory to publish / give notice of sale before the sale of secured assets?

Answer: Yes. As per Rule 6(2) and Rule 8(6) of the Security Interest (Enforcement) Rules, the Authorised Officer is required to serve a notice of thirty days for sale of the movable and immovable secured assets respectively to the Borrower. If the sale of the secured assets is effected by either inviting tenders from public or by holding public auction, the notice of sale of the secured assets has to be published in two leading newspapers having sufficient circulation in the locality. Further as per Rule 9(1) no sale of immovable property has to take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers.

Question 25 What is the procedure to be followed for any subsequent sale of secured assets when the sale fails at the first instance?

Answer: If the sale fails at the first instance, for any subsequent sale, the authorized officer shall serve, affix and publish notice of sale not less than 15 days to the borrower. Please note that for the first auction/ sale, notice of 30 days for sale is mandatory.

Question 26 Whether the borrower/ mortgagor can redeem the secured assets?

Answer: Yes. The borrower/ guarantor/ mortgagor can redeem the property mortgaged, if the amount of the dues of the secured creditor, together with the costs, charges and expenses incurred is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty.

Question 27 Once the sale of property is confirmed in favour of the purchaser, what is the time period available for the purchaser for payment of the sale price?

Answer: On confirmation of sale of immovable property, the purchaser, shall immediately, i.e. on the same day or not later than the next working day, deposit twenty five percent of the sale price (inclusive of earnest money deposited). The balance amount of the sale price shall be paid by the purchaser to the authorized officer on or before the 15th day of the confirmation of sale or within a period not exceeding 3 months, if agreed upon in writing between the secured creditor and purchaser

Question 28 Whether Bank can bid for the secured assets put for sale?

Answer: Yes. Where no bid has been received higher than the reserve price in the first auction any officer of the Bank, if so authorized by the Bank, may bid for the immovable property on behalf of the Bank, at any subsequent sale.

Question 29 If the purchaser fails to deposit the full sale price, whether the amount already deposited has to be given back to the purchaser?

Answer No. In case of default of payment of sale price within the above period (ref. Sl. No.27) the amount deposited shall be forfeited to the secured creditor and the property shall be sold again.

Question 30 In what manner/ sequence the sale amount has to be appropriated?

Answer: As per section 13(7), the money which is received by the secured creditor shall be applied firstly, in payment of the costs, charges and expenses incurred by the Bank in the sale of such property and secondly, in discharge of the total contractual dues. The residue amount, (if any), shall be paid to the person entitled thereto.

Question 31 Whether consent of the borrower is required in case of Sale through Private Treaty or inviting quotations?

Answer: As per the recent amendment to the Security Interest (Enforcement) Rules, consent of the borrower is not required in case of Sale through Private Treaty or inviting quotations. The Terms and Conditions for such sale have to be decided in writing between the Secured Creditor and the proposed Purchaser.

Question 32 Whether registration of Security Interest under Central Registry is compulsory?

Answer: Yes. Registration of Security Interest under Central Registry is compulsory.

Question 33 What is the timeline for registration of Security Interest under Central Registry?

Answer: Presently any registration of security interest has to be filed within 30 days from the date of creation of security. As per the recent amendment to the SARFAESI Act, the 30 days time period for registration of security interest has been dispensed with. Further as per the amendment priority will be given to Secured Creditor who has registered its charge over any subsequent interest created. However the above said amendments are yet to come in force. Therefore it is advisable to register the charge with Central Registry immediately after the security interest is created over the secured asset.

Question 34 Whether any person including Government authorities can register their charge with Central registry?

Answer: As per the recent amendment to the SARFAESI Act (though yet to come into force), any creditor including the secured creditor having security interest, authorities under Central/State Government/Local authority issuing attachment order in connection with tax/other dues, person holding order of attachment of property from any court or other authority

empowered to issue attachment order, such person may file particulars of such transactions/ attachment orders with Central Registry in such form and manner on payment of such fee as may be prescribed.

Question 35 What shall be the effect of registration under Central Registry?

Answer: As per the recent amendment to the SARFAESI Act, (though yet to come into force) any registration of security interest by the secured creditor or other creditor or filing of attachment order with Central Registry shall be deemed to constitute a public notice from the date and time of filing of particulars of such transaction with the Central Registry.

Question 36 If the security interest/ charges created in bank’s favour is not registered with the Central Registry, what will be the effect of such non-registration?

Answer: As per SARFAESI Act, the onus of filing particulars of transaction of creation/modification/ satisfaction of charges created in its favour is with the Bank. As per the recent amendment to the SARFAESI Act (though yet to come into force), if Bank fails to register the creation/ modification or if the security interest created in its favour by the borrower has not been registered with Central Registry, Bank will not be entitled to exercise any right of enforcement of securities under the Act.

Question 37 Whether the secured creditor has priority over the Government dues?

Answer: As per the recent amendment to the SARFAESI Act (though yet to come into force), after registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.

Question 38 Is there any restriction for initiating SARFAESI action u/sec 13(4) in case of joint lending or consortium finance or finance by more than one secured creditor?

Answer: Though individual secured creditor can issue demand notice for recovery of its dues, for initiation of any action under Section 13 (4) against the secured assets the consent of 60% of the secured creditor in value of the amount outstanding is required.

Question 39 Can the secured creditor also take action under SARFAESI Act against a company under liquidation?

Answer: Yes. If Bank intends to stand outside the liquidation proceedings and wishes to enforce its security, Bank can initiate action against its secured assets.

Question 40 Can SARFAESI Action be initiated after the expiry of limitation period?

Answer: No. SARFAESI Action has to be initiated within the period of limitation available under the Limitation Act, 1963.

Question 41 Whether Civil Courts have jurisdiction over the matters covered under SARFAESI Act?

Answer: Civil courts have no jurisdiction over the matters covered under SARFAESI Act. Only DRT has the jurisdiction.

Question 42 Whether officer of Secured Creditor/Bank can be prosecuted for any action under SARFAESI Act?

Answer: No officer of Secured Creditor/Bank can be prosecuted for any action initiated under the SARFAESI Act, if anything done or omitted to be done is in good faith.

THE RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993.

Under, The Recovery of Debts and Bankruptcy Act, 1993 (previously known as “The Recovery of Debts Due to Banks and Financial Institutions Act, 1993), Tribunals are constituted for expeditious adjudication and recovery of debts due

to banks and financial institutions, insolvency resolution and bankruptcy of individuals and partnership firms. Accordingly, cases wherein the claim of/debt due to Bank is Rs.10 lakhs and above, Suit/Application is to be filed before the Debt Recovery Tribunals under the Act. PREPARATIONS BEFORE FILING RECOVERY APPLICATION (OA) IN DRT

Before filing suit, it needs to be ensured that the Loan Documents are valid

and enforceable.

Availability and realizable value of securities should be ascertained.

Net worth of borrower/guarantor should be taken into consideration.

Search Branch files and form 135, for getting the details of uncharged

movable/ immovable assets standing in the name of borrowers/

guarantors, so that the same can be attached through Court.

Ascertain the addresses of the Borrowers and Guarantors for hassle free

service of Summons.

Recovery Suit/Original Application (OA) is generally filed where Borrower

actually and voluntarily resides or works for gain or where cause of action

wholly or partly has arisen.

Recovery Suit/OA can also be filed where the branch or any other office of

the Bank is maintaining an account in which the debt claimed is

outstanding.

Serving recall notice on Borrowers/Guarantors and preserving

acknowledgement properly.

Verify security documents including mortgage and the defects, if any, are

to be rectified.

Obtain suit filing permission at least six months in advance before expiry of

documents, as per guidelines of the bank, to avoid last minute rush/hurry.

STEPS TO BE TAKEN WHILE FILING DRT SUIT

Appropriate the credit balance in any current, savings account & FDRs of

the Borrower/s or Guarantor/s, prior to filing the suit.

Reasonable notice to be given to the borrower before filing the suit.

Sell pledged goods after giving due notice.

Explore possibilities to take possession of the hypothecated goods/assets,

and sell the same after giving due notice.

Surrender the LIC policies assigned to Bank and appropriate the proceeds

so received in the account.

The proceeds of securities such as, NSC, Mutual Fund, shares, debentures

etc. should be appropriated/ adjusted against the loan.

Ensure that documents / securities are enforceable against borrowers /

guarantors.

Discuss all the issues with the dealing Advocate before filing of the suit.

PROCESS FOR FINALISATION OF ORIGINAL APPLICATION (OA)

Before entrusting the case to an Advocate, ascertain his abilities and

experience in handling such cases.

If the amount involved is substantial, engage a Senior/Experienced

Advocate on panel.

Proper verification of address of the defendants for timely service of

summons.

Ensure that all relevant details viz. names and addresses of Borrowers/

Guarantors, activities, age, details of credit facilities, limit outstanding, rate

of interest, details of securities charged etc., are properly mentioned

therein.

Interim and final reliefs sought are properly spelt in OA/plaint.

FOLLOWING ARE THE COMMON INTERIM RELIEFS NORMALLY SOUGHT.

a) Declaring on oath all the assets in the name of defendants.

b) Appointment of Commissioner for taking inventory of all hypothecated

assets.

c) Appointment of Court Receiver to take possession of the hypothecated

assets.

d) Injunction restraining defendants from selling, alienating uncharged

properties.

e) Garnishee Orders against the Debtors of the borrower to deposit the

amount to the DRT.

f) Attachment before Judgment (ABJ) against personal Properties.

g) Direction to defendants to surrender their Passport to DRT and to restrain

them from leaving the country.

h) Direction to defendants to submit annual returns submitted to the Income

Tax / Wealth Tax authorities.

As per the Recovery Policy, If the plaint /Original Application involving

Rs.50 lacs and above be got vetted by the Law Officer of Bank, on the

legal aspects.

However, facts and figures mentioned in the draft plaint and affidavits

have to be thoroughly verified at branch level.

LIST OF DOCUMENTS TO BE SUBMITTED TO ADVOCATE/COURT

Letter of sanction, review with / without enhancement.

Acceptance of Bank’s sanction terms by Borrower/Guarantors.

Entire set of security documents including all mortgage documents

executed by Borrower/Guarantors.

Letter of confirmation and attendance memo obtained at the time of

creation of equitable mortgage

Letter of acknowledgement of debt/balance confirmation.

Letters/copies of relevant correspondence with Borrower/Guarantor

wherein the debt is acknowledged.

Extract of statement of account certified as per the provisions of Banker’s

Book Evidence Act.

The uncharged asset particulars of the defendants has to be provided to

the advocate to file application to restrain the defendants from alienating

the properties.

Power of Attorney/ Letter of Authority in favour of the Officer who will sign

the plaint.

A copy of the notice recalling advance and its acknowledgement.

The rate of interest in the account is to be properly applied. It is to be calculated on basis of supportive documents to convince the court if disputed by the borrower. Whenever the original security documents and title deeds are submitted to the Advocate, please note to obtain a clear acknowledgment from the said Advocate. STEPS TO BE TAKEN AFTER FILING OF DRT SUIT

On receipt of the Original Application, the DRT issues summons to the

defendants.

It is to be ensured that the Summons are issued in the correct address of

the parties.

In case Summons cannot be served in normal way, it can be served by

way of substituted service, ie., paper publication.

Immediately after filing of OA, press for orders on interim reliefs claimed.

DRT grants interim relief such as injunction restraining Borrower /

Guarantor from transferring/ alienating charged properties, attachment of

uncharged assets, and appointment of Receiver/Commissioner, etc.,

Defendants to file written statement within a period of thirty days from

date of service of Summons.

As per recent Amendment-2016 in case written statement is not filed

within 30 days, Presiding Officer, in exceptional cases and in special

circumstances extend the period not exceeding fifteen days.

In case the defendant fails to file reply as specified, the DRT may proceed

forthwith to pass Order on the application.

After service of Summons and completion of pleadings, proceedings

commence with evidence by way of affidavit by the Bank and the

defendants.

No cross examination of witnesses is allowed without specific permission of

DRT.

Evidence on affidavit of parties is followed by arguments ending up with

issuance of Recovery Certificate.

The Presiding Officer shall issue a Recovery Certificate (RC) along with

Final Order for payment of debt with specified interest to the Recovery

Officer, of DRT.

In case of non-compliance of any order, the Presiding Officer may order to

detain the defendant who is in default in Civil Prison for a term not

exceeding three months as per Amendment-2016.

Wherever suits are compromised, such compromises should be recorded

with DRT (CONSENT TERMS) with default clause.

An application for refund of court fee may be moved in consultation with

the dealing advocate.

Appeal can be filed by aggrieved party in DRAT against the order of DRT

within 30 days as per Amendment-2016.

Where an appeal is preferred by any person, such appeal shall not be

entertained by the DRAT unless fifty (50%) percent of the amount of

debt as determined by DRT is deposited as per Amendment-2016.

DRAT may reduce the amount not less than twenty-five (25%) percent

of the amount of such debt so due as per amendment-2016. DRAT cannot

waive the deposit completely.

RECOVERY CERTIFICATE [RC] & ITS EXECUTION

Examine Recovery Certificate (RC) to ensure that the same is issued in

terms of prayers made in O.A.

Follow-up with Recovery Officer (RO) for timely issuance and service of

Demand Notice.

The details of charged and uncharged properties of the judgment debtors

to be provided to the Recovery Officer, for attachment.

Details of the assets can be ascertained from various sources such as

Income-Tax / Wealth Tax Returns/ Form 135/ Reports of Detective

Agencies (if any), etc.

If particulars of assets of the Judgment Debtors (defendants) are not

available, application may be moved before Recovery Officer directing

Judgment Debtors to declare assets on affidavit.

Adjournment before Recovery Officer should be vehemently opposed.

Services of private Detective Agencies may be availed to locate uncharged

assets.

When the defendant is willfully avoiding payment despite having sufficient

means, application may be filed before Recovery Officer for his arrest and

detention.

Where an appeal is preferred against the order of the Recovery Officer

before Presiding Officer of DRT, such appeal shall not be entertained

unless fifty (50%) percent of debt due as determined by Tribunal is

deposited.

The rights of secured creditors to realize secured debts by sale of

assets over which security interest is created shall have priority

over all other debts and dues of Central Government, State

Government and local Authority.

Even after filing appeal before DRAT against the judgment of DRT, our

recovery proceedings will continue, unless it is stayed.

IMPORTANT POINTS TO BE NOTED

Ensure presence of Advocate on each day of hearing.

Ensure that the case is not adjourned unreasonably for long period.

Timely compliance of all orders of DRT.

Review progress of the case with dealing advocates on monthly basis.

Provide the information sought by the dealing Advocate in a time bound

manner, so as to avoid unnecessary adjournments at the behest of Bank.

Keep contact with Borrower and Guarantors during currency of litigation, to

explore possibility of compromise or out of court settlements, on merit.

LOK ADALAT

Lok Adalat is a statutory /Legal Authority constituted under the Legal

Services Authorities Act, 1987 to encourage settlement of disputes in a

conciliatory manner and arrive at amicable settlement.

Under the provisions of the Act, States have constituted Legal Services

Authorities at High Court, District and Taluka level.

Respective Courts are organizing Lok Adalat within the area of its

jurisdiction.

It is the fastest and cheapest mode of settlement of disputes.

Bank should take maximum advantage of Lok Adalat for compromise

settlements.

Bank can go for a Special Lok Adalat where the number of cases to be

referred to Adalat is fairly large.

ADVANTAGES IN UTILIZING THE FORUM OF LOK ADALATS :-

No Court Fee/Advocate Fee is involved for referring the matter to Lok

Adalat.

The Suits pending in the Court as well as pre-litigation matters can be

settled in Lok Adalat.

If no settlement is arrived at in the pending suit filed cases referred to Lok

Adalat, the parties can continue with the court proceedings.

Every award (Final Order) of the Lok Adalat shall be deemed to be a

decree of Civil Court and is binding on the parties.

Bank can approach Civil Court for execution of Lok Adalat Order if party

fails to comply with the terms of settlement.

No appeal lies against the Award/Decisions given by Lok Adalat as the

matters are settled through mutual consent.

In a suit filed account settled under Adalat, Bank can claim refund of court

fess as provided under the Court Fees Act.

PROCEDURE FOR ORGANIZING LOK ADALATS

The State/ District/ Taluka Level Legal Services Committees/ authorities

constituted under the Act as the case may be have to be contacted for

organizing Lok Adalat.

The assistance of Lead Bank Manager may be taken if necessary for

organizing Lok-Adalat.

The ceiling amount for coverage under Lok Adalat is Rs. 20.00 lacs.

The branches should scan their records and identify the eligible accounts/

borrowers for referring to Lok Adalat.

A list of such accounts/ borrowers should be prepared and kept ready.

While finalizing such list, the willingness of the borrowers/ guarantors, their

net worth, nature and value of the securities available in the account are to

be considered.

DRTs are also conducting Lok Adalats of cases under their purview, where

the above ceiling amount is not applicable. Prior sanction of the Competent

Authority shall be obtained before giving consent at DRT Lok Adalat.

PROCESS:

Before approaching the concerned Judicial Authorities for Lok Adalats, it is

advisable to identify and finalize the venue/area taking into consideration

the location of the branches, to maximize participation of the borrowers.

Two or three branches can jointly also arrange Lok Adalat, within the

District/ Taluka Centre etc.

After getting approval from concerned Judicial Authorities, Notice to be

prepared and got signed by the Hon’ble Court.

Notice shall be served preferably through Court representative and the

borrowers should also be contacted personally by the branches, for

maximum participation/result.

Endeavour is to be made for maximum participation of

borrowers/guarantors in Lok Adalat.

Regions/Branches may hold Pre-Adalat discussions with the borrowers to

ensure that borrowers attend the Adalat and amicable settlement is also

arrived at, well in advance.

The Regions/ Branches have to arrive at amount acceptable from the

borrowers, by following the detailed guidelines as to sacrifice/ compromise

settlements contained in Bank’s Recovery Policy.

Please ensure that only those officials delegated with adequate powers of

compromise/sacrifice, attend the Lok Adalat, so that instant decisions can

be taken.

It should be ensured that the default clause is incorporated in Consent

Terms stating that in the event of default either in full or in part or

nonadherence to the terms of the Award (Order), the entire contractual

amount as claimed with all interests and costs thereon would become

payable forthwith, less the amount already received in pursuance of the

Award so made.

Further, it is imperative that after the amicable settlement is arrived at with

the borrower, the branches should ensure to obtain Recovery Certificates/

Decrees wherever applicable.

Such accounts are to be monitored very closely to ensure full recovery of

compromised amount, as per the consent terms filed before the Lok

Adalat.

Where an Award has been made by the Lok Adalat in the pending suit filed

cases, the Bank must apply for refund of the court fees, wherever

applicable.

Lok Adalat Awards are valid for execution like a normal decree. In case of

non-compliance of the award by the party, branches have to ensure that

the award is executed through the Court of Law, by filing execution

petition.

SETTLEMENT FORMULA AS PER BANK’S RECOVERY POLICY:

1. As far as possible the branch shall endeavor to recover at least the

outstanding amount as on the date of NPA/ suit filed whichever is higher.

2. While settling, the compromise amount may be arrived at considering the

Net Present Realizable value of security, worth of the borrowers/

guarantors and their repaying capacity etc. However, endeavor should be

to recover a minimum of the following :-

DB A/cs: Min 75% of the gross outstanding amount as on the date of NPA.

PWO/ Loss A/cs: Min 50% of the gross outstanding amount as on the date

of NPA.

However, in genuine cases where no security is available or realizable

value of security is much less than the outstanding contractual dues,

borrowers/ guarantors worth is negligible, cost of suit is high, suit is being

dragged for long duration without any decision etc., the bank may accept

lesser amounts on merit authorized by competent authority having such

delegated powers of waiver / sacrifice.

As far as possible it shall be the endeavor to recover the entire

compromise amount in bullet payment within a period of -90- days. In

suitable cases the period of payment may be considered unto one year or

beyond but not exceeding three years with payment of interest @ Base

rate plus 4% and in no case below 10% simple.

SANCTIONING AUTHORITY The competent authority under whose discretionary powers the proposal falls shall take decision on the compromise settlement as per Discretionary powers delegated to different authorities for write off/ waiver as mentioned in the Recovery Policy. Please note the above guidelines are not exhaustive. For detailed information, please refer to Bank's Recovery Policy Guidelines/respective Acts/Rules.

STANDARD OPERATING PROCEDURE (SOP) FOR ENFORCEMENT ACTIONS IN NPA ACCOUNTS ALONG WITH TIMELINE

To make the recovery process more effective, it has been decided to adopt the following Standard Operating Procedure (SOP) in NPA Accounts, for strict implementation. Once the account is declared NPA the branches should initiate the following actions towards enforcement of Securities and Recovery, within the time limit specified below:

A) UNDER SARFAESI ACT:

i. Issuance of SARFAESI Notice to borrowers and guarantors within 3 days

and the proof of delivery / acknowledgement card should be kept along

with the office copies of the notice/s.

ii. In case any of the notice is returned undelivered or non-receipt of

acknowledgement, the Notice has to be served by substituted service, ie.,

by way of affixture of the Notice on the conspicuous part of the property

and paper publication of the Notice in -2- Newspapers (-1- English and -1-

Vernacular), as per SARFAESI Rules, within 3 days from the date of

return of the original notice or on getting intimation from postal authorities

that the Notice has not been delivered.

iii. If any objection in writing is received from the parties to the SARFAESI

notice, the same has to be replied within 15 days as per SARFAESI Act.

iv. During the 60 days’ notice period:

a) The Branch shall verify the title deeds and other documents / deed of

mortgage and ensure that the Mortgage is valid. Get fresh valuation of

property done if valuation is more than 1 year old.

b) The Branch shall visit the Mortgage Assets, so as to identify the same. A

record in this regard must be kept with branch file by the officer concerned

and counter signed by the Branch Head.

c) Engage the Recovery Agencies if deemed necessary.

v. Initiate Section 13(4) actions for possession of assets (within 3 days of

completion of 60 days notice period).

vi. File Caveat before the concerned DRT [also with the High Court in high

value accounts above Rs 1(One) Crore] within 7 days of initiating action

under 13 (4) for possession.

vii. In case party refuses / obstructs in taking physical possession , the DM /

CMM application to be filed, within next 7 days from the date of refusal /

obstruction.

viii. Get Reserve Price fixed.

ix. After getting physical possession, within 7 days, sale notice (30 days

notice) should be published as per SARFAESI Act / Rules.

x. Publicity for sale: Banners / Posters / Bit Notices in newspapers /

contacting property brokers / dealers- (during 30 days notice period)

xi. In case the first sale / auction is failed, publicity for sale has to be

increased and the next auction to be fixed by issuing 15 days sale

notice. (As per SARFAESI Act).

xii. If the Auction is successful, on payment of the purchase price as per the

terms of sale/ Act/Rules and confirmation of Sale, Certificate of Sale/ Sale

Certificate, as the case may be, has to be issued to the successful

purchaser.

xiii. In case auction is failed branch should search for bidders and put the

property again for auction.

B) DRT SUIT:

i. Branches may file DRT / Civil suit simultaneously with the SARFAESI

proceedings. This should be invariably done in all cases where value of

security is less than outstanding dues.

ii. In the DRT Applications (OA) the following Interim Applications to be filed,

mandatorily wherever feasible :

a) Declaring on oath all the assets in the name of defendants.

b) Appointment of Commissioner for taking inventory of all hypothecated

assets.

c) Appointment of Court Receiver to take possession of the hypothecated

assets.

d) Injunction restraining defendants from selling, alienating uncharged

properties.

e) Garnishee Orders against the Debtors of the borrower to deposit the

amount to the DRT.

f) Attachment before Judgment (ABJ) against personal Properties.

g) Direction to defendants to surrender their Passport to DRT and to restrain

them from leaving the country.

h) Direction to defendants to submit annual returns submitted to the Income

Tax / Wealth Tax authorities.

iii. The Nodal Officer for DRT/ Branch Official should attend all the important

hearings of the case/s and ensure timely compliance of any directions

given by DRT.

iv. Branches to remind the advocate before 3 days of hearing and draw the

strategy in consultation with dealing advocate and get the developments

on the date of hearing.

C) IDENTIFYING AND ATTACHING OTHER ASSETS:

i. Form 135 has to be perused in all accounts within 10 days of NPA, for

identifying the uncharged assets.

ii. In all high value accounts above Rs. 1(one) crore, if sufficient security is

not available, branches may avail the services of Detective Agencies

(within 30 days of NPA) in consultation with Regional Office.

D) WILFUL DEFAULTER DECLARATION AND PUBLICATION OF PHOTOGRAPHS: In all accounts above Rs 25 lakhs, immediately ( within 30 days) after the account turns into NPA, the branches should examine / get examined whether there is any instances of Wilful Default (as per Bank’s / RBI guidelines) in the account. In case it is observed that there is Wilful Default, the proposal for declaring wilful default may be submitted to the Regional Office, within 15 days. When borrower, director, guarantors are declared Wilful Defaulter by the Bank, a

Registered letter to be sent to them and acknowledgement should be kept on record. Wherever borrower, directors, guarantors are declared Wilful Defaulter the photographs to be published in 2 Newspapers.

D) CRIMINAL ACTION AGAINST WILFUL DEFAULTERS:

Once the borrower / guarantor is declared as Wilful Defaulter by the Bank, branches and the Regional Legal Officer should immediately (within 15 days) discuss with one of the senior advocates of our Bank, whether we can initiate criminal action against such parties and proceed accordingly as per the advice of the advocate.

E) CRIMINAL ACTION AGAINST WILFUL DEFAULTERS:

Once the borrower / guarantor is declared as Wilful Defaulter by the Bank, branches and the Regional Legal Officer should immediately (within 15 days)discuss with one of the senior advocates of our Bank, whether we can initiate criminal action against such parties and proceed accordingly as per the advice of the advocate F) INSOLVENCY ACTIONS AGAINST BORROWERS AND CORPORATE GUARANTORS: In all high value accounts, above Rs 1 Crore branches may in consultation with Regional Office, explore the options for initiating insolvency actions against borrowers and guarantors especially against Corporate Guarantors. (A considered decision is required in this regard, as once insolvency action is initiated there is Moratorium for 180 /270 days, during when no SARFAESI / DRT action can be initiated / continued against such party.) Please note that the time lines specified hereinabove are for strict implementation. For any deviation for these time lines, an authority has to be obtained from the concerned Regional Head, who will in turn send a monthly report to Head Office, regarding the deviation approved with the reasons thereof.