MODULE-3 Flashcards
Section 2(f)-Borrower
“borrower” means any person who, or a pooled investment vehicle as defined in clause (da) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) which, has
been granted financial assistance by any bank or financial institution or
who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and
includes a person who, or a pooled investment vehicle which, becomes borrower of a asset reconstruction company consequent upon acquisition by it of any rights or
interest of any bank or financial institution in relation to such financial assistance or
who has raised funds through issue of debt securities;
Sectio 2(zd)-Secured Creditor
(i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (1);
(ii) debenture trustee appointed by any bank or financial institution; or
(iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or
(iv) debenture trustee registered with the Board and appointed for secured debt securities; or
(v) any other trustee holding securities on behalf of a bank or
financial institution,
in whose favour security interest is created by any borrower for
due repayment of any financial assistance.
Section 2(zf)-Security Interest
“security interest” means right, title or interest of any kind, other than those specified in Section 31, upon property created in favour of any secured creditor and includes
(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or
(ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset
Section 13(1)
Section 13(1) of the SARFAESI Act allows secured creditors to enforce security interests without court intervention, in accordance with the Act’s provisions, irrespective of the Transfer of Property Act, 1882.
Section 13(2)
Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset
then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4)
The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of
secured debts by the borrower.
Section 13(3-A)
If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured
creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days] of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower
Section 13(4)
i. Can take possession of Assets.
ii. Can takeover management (which is relatable to Secured Debt).
iii. Can appoint Manager to manage the business of Secured Assets.
iv. At any time, the secured creditor can ask in writing anyone who has bought assets from the borrower and owes them money to pay the creditor enough to cover the borrower’s debt.
Section 13(5)
Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.
Section 13(6)
Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset
transferred as if the transfer had been made by the owner of such secured asset.
Waterfall Mechanism
Section 13(7)
Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied,
firstly, in payment of such costs, charges and expenses and
secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.
Section 13(8)
Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him 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, assignment or sale of the 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 under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.]
Section 10(10)
Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.
Section 13(11)
Without prejudice to the rights conferred on the secured
creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relating to the secured assets under this Act.
Rule 2(a) of SARFAESI Rules- Authorized Officer
“authorised officer” means an officer not less than a chief manager of a public sector
bank or equivalent, as specified by the Board of Directors or Board of Trustees of the secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, as the case may be, to exercise the
rights of a secured creditor under the Act;
Rule 3 of SARFAESI Rules- Demand Notice
1) The service of demand notice as referred to in sub-section (2) of section 13 of the Act shall be made by delivering including hand delivery or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by Speed Post or by courier or by any other means of transmission of
documents like fax message or electronic mail service:
Provided that where authorised officer has reason to believe that the borrower or his agent is
avoiding the service of the notice or that for any other reason, the service can not be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the 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 vernacular language, having sufficient circulation in that locality.
(2) Where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1).
(3) Any other notice in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in this rule.
(4) Where there are more than one borrower, the demand notice shall be served on each borrower.
(5) The demand notice may invite attention of the borrower to provisions of sub-section (8) of section 13 of the Act, in respect of time available to the borrower, to redeem the secured assets.]
Rule 3A of SARFAESI Rules-Reply to Representation of the borrower
(a) After issue of demand notice under sub-section (2) of section 13, if the borrower makes any representation or raises any objection to the notice, the Authorised Officer shall consider such representation or objection and examine whether the same is acceptable or tenable.
(b) If on examining the representation made or objection raised by the borrower, the secured
creditor is satisfied that there is a need to make any changes or modifications in the demand notice, he shall modify the notice accordingly and serve a revised notice or pass such other suitable orders as deemed necessary, within fifteen days from the date of receipt of the representation or
objection.
(c) If on examining the representation made or objection raised, the Authorized Officer comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection, the reasons for non-acceptance of the representation or objection, to the borrower.]
Section 31 SARFAESI-Provisions of this Act not to apply in certain cases.
(a) a lien on any goods, money or security given by or under the
Indian Contract Act, 1872 (9 of 1872) or the Sale of Goods Act,
1930 (3 of 1930) or any other law for the time being in force;
(b) a pledge of movables within the meaning of Section 172 of
the Indian Contract Act, 1872 (9 of 1872);
(c) creation of any security in any aircraft as defined in clause (1)
of Section 2 of the Aircraft Act, 1934 (24 of 1934);
(d) creation of security interest in any vessel as defined in clause
(55) of Section 3 of the Merchant Shipping Act, 1958 (44 of
1958);
(f) any rights of unpaid seller under Section 47 of the Sale of
Goods Act, 1930 (3 of 1930);
(g) any properties not liable to attachment (excluding the
properties specifically charged with the debt recoverable under
this Act)] or sale under the first proviso to sub-section (1) of
Section 60 of the Code of Civil Procedure, 1908 (5 of 1908);
(h) any security interest for securing repayment of any financial asset not exceeding one lakh rupees;
(i) any security interest created in agricultural land;
(j) any case in which the amount due is less than twenty per cent
of the principal amount and interest thereon.
Section 15 : Manner and Effect of Takeover of Management
The secured creditor may by publishing in English Newspaper and vernacular newspaper appoint as many person as it think fits.
(i) Director or (ii) Administrator of Borrower
Companies – Director, Administrator – Any other Case
It shall not be lawful by the shareholder to nominate any Director or to pass any
resolution without the approval of secured creditor.
(1) Nominate or appoint any person to be Director.
(2) No resolution to be passed at the meeting.
(3) No proceeding for winding up
Section 14-Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.
The purport of section 14 is to enable the DM/CMM to obtain possession of the secured asset and document after verifying that the formalities to be complied with are met. Section 13 provides for the right of the creditor to take possession of the secured asset in case of default, while section 14 provides for the DM/CMM to assist the creditors in taking over possession upon refusal by the borrower to hand it over.
Such possession is to be obtained within the stipulated time under the Act. It could be taken by the DM/CMM or through any officer subordinate, including the advocate commissioner who is considered to be an officer of the court. Section 14 does not oblige the DM/CMM to go personally and take possession of the secured assets and documents relating thereto.
Section 17- Application against measures to recover secured debts
(1) 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 under this chapter, may make an
application along with such fee, as may be prescribed, to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measure had been taken.
Section 17(4) of the SARFAESI Act states that if the Debt Recovery Tribunal (DRT) finds that the actions taken by a secured creditor under section 13(4) are in accordance with the Act and rules, the secured creditor can proceed with the measures specified in section 13(4) to recover the debt.
Section 17(4-A) of SARFAESI would make it clear that if any person claims any tenancy or leasehold rights in respect of the secured asset, the DRT will have the jurisdiction to examine the claims of tenancy or leasehold rights and pass appropriate orders.
Section 18- Appeal to Appellate Tribunal
Any person aggrieved, by any
order made by the Debts Recovery Tribunal under Section 17, may prefer an appeal along with such fee, as may be prescribed] to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal:
Provided further that no appeal shall be entertained unless the
borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the DRT whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso.
Section 18C ; Right to Lodge a Caveat
The person lodging the caveat (the “caveator”) must serve notice of the caveat by registered post with acknowledgment due on the applicant (the person initiating the application or appeal).
If a caveat has been lodged, the applicant is required to provide copies of their application and supporting documents to the caveator at their expense.
The provision ensures that no ex parte orders (orders passed without hearing all parties) are issued, protecting the rights of secured creditors and other stakeholders in securitisation and reconstruction proceedings.
The caveat remains valid for 90 days from the date it is lodged unless the application referred to in subsection (1) is filed within this period.
