Is your Loan likely to be NPA?

Non-performing assets are viewed seriously by the Banks.

Once an account becomes NPA, it is very difficult to revive and to save the business. The Banks start recalling the loans. Recalling of Loan means the Bank serves a Legal Notice upon the borrower due to defaults (violation of loan agreement) on his part. The Bank calls upon the borrower that it has recalled the loan, now instead of repaying the installments, the borrower is required to return complete loan with interest within the specified period, not to think of the more financial assistance from the Bank.

NPA may spoil your CIBIL Score.

CIBIL stands for “Credit Information Bureau (India) Limited”. It is a Credit Information Company that collects the data of credit history of people from the Banks and Financial Institutions. Based on the Credit history it provides credit rating scores to individuals and corporate. Before sanction of loan the Banks always look at this data and the loan application is rejected where credit score in CIBIL is low. Needless to say, the classification of one’s account as NPA impacts the CIBIL.

Has the Bank served you a Demand Notice under section 13(2) of the SARFAESI Act?

It is really very serious, if after recall of loan you have received the Demand Notice under section 13(2) of the SARFAESI Act. The compliance of section 13(2) is the pre-requisite for a secured creditor (Bank or FI) to get possession of the secured or mortgaged assets. The section 13(2) gives 60 days statutory period to the borrower(s) and mortgagors to repay the whole loan, which is already recalled by service of a Recall Notice upon declaration of a loan account as NPA.

The mortgagors are either borrowers or guarantors. But the SARFAESI Act treats both of them as borrower. This is because the liability of the borrower and guarantor under the Loan Agreement is stated to be of co-extensive. If they fail to repay the loan within 60 days or they fail to provide some resolution proposal acceptable to the Bank during this period, the Bank may, after lapse of this statutory period, at any time, proceed to take physical possession of the mortgage properties under section 13(4) of the SARFAESI Act. For this the Bank need not get any permission from the Court.

In fact the powers of Civil Court are barred under Sarfaesi Act. However, if, the Bank has received any representation or objections from the borrowers, mortgagors or any other interested parties under section 13(3-A) of the Sarfaesi Act, it has to decide the same within 15 days. Without deciding the same the Bank cannot proceed to take possession of the mortgaged assets.

The SARFAESI Act is administered by an Officer of the Bank, known as Authorized Officer, who is at-least of the rank of Chief Manager or an Officer Scale IV. The private Banks and NBFCs are also covered under the Sarfaesi Act.

Have you received a Notice of Possession under section 13(4) of the Sarfaesi Act?

The Bank may upon completion of 60 days and after deciding the objections received under section 13(3-A) take the symbolic or physical possession of the mortgaged properties.

Though not statutorily required, but, the Bank often prefers first to take the Symbolic Possession u/s 13(4) of Sarfaesi Act and usually it gives another 30 days period to the borrowers to repay the loan or to reach at some resolution in the NPA Loan Account, after which it proceeds for the Physical Possession of the mortgaged property.

If the Loan is not repaid then the Bank takes the Physical possession. But, before taking physical possession, for the safety of its staff and officers the Bank files an application under section 14 of the Sarfaesi Act in the Office of District Magistrate (DM) or in the Office of Chief Metropolitan Magistrate (CMM) to seek police assistance for taking physical possession of the properties mortgaged with it. Besides, the Bank also appoints an enforcement agency for assistance in possession.

Appeal under SARFAESI Act lies in DRT (Debt Recovery Tribunal)

The jurisdiction of Civil Court is barred under section 34 of the SARFAESI Act, 2002. The Hon’ble Supreme Court in
M/s Shree Anandhkumar Mills v. M/s Indian Overseas Bank & ors. (order dated: 03-05-2018) while uphelding the decision in Jagdish Singh vs. Heera Lal pronounced that Civil Suit is not maintainable in cases, where Proceedings u/SARFAESI Act have been Initiated. In case of Jagdish Singh the Hon’ble Supreme Court has earlier held that a suit for partition was not maintainable where proceedings under the SARFAESI Act had been initiated. It was also held that the remedy of any person aggrieved by the initiation of proceedings under the SARFAESI Act lies under Section 17 of SARFAESI Act which provides for an efficacious and adequate remedy to a party aggrieved.

In the cases, where proceedings under SARFAESI Act have been initiated the DRT (Debt Recovery Tribunal) is competent to hear the grievances that concerns the subject property. The DRT for Punjab, Haryana,
Specialized Advocates for DRT / Lawyers for DRT.

What is DRT or Debt Recovery Tribunal?

NPA Doctor