Enforcement Procedure.docx

ENFORCEMENT PROCEDURE: Serial Relevant No. Sections and Rules 1 Sec 13(2), 13(3) read with Rule 2(b) &3

Procedure Sending of Demand 13(2)- Where any borrower, Notice for enforcement who is under a liability to of Security Interest. a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as nonperforming 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) 13(3) - 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 nonpayment of secured debts by the borrower. 2(b)- demand notice means the notice in writing issued by a secured creditor or authorized officer, as the case may be, to any borrower

pursuant to sub-section (2) of section 13 of the Act. 3. Demand Notice.(1) The service of demand notice as referred to in subsection (2) of section 13 of the [Act] shall be made by delivering 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 authorized 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 authorized 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.

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Section 13(3A)

In case any reply/representations are received, the Bank to suitably adjudicate upon and decide.

13 (3A)- 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 one week of receipt of such representation or objection the reasons for nonacceptance of the representation or objection to the borrower: PROVIDED that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A. 3

Sec 13(4)

(a)Issue Notice for taking possession of Secured Asset u/s 13(4) of Act . (b)Take symbolic possession of the Secured Assets

13 (4)- In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-(a) 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; (b) 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: PROVIDED that the right to transfer by way of lease assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) 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. 4

Sec 14(1)

File an application before 14.

Chief

Metropolitan

the Chief Metropolitan Magistrate or District Magistrate for taking actual possession of the property

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Sec 14(2)

Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset: (1) Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him-(a) take possession of such asset and documents relating thereto; and (b) forward such assets and documents to the secured creditor.

Comply with the order of 14(2)- For the purpose of the Chief Metropolitan securing compliance with Magistrate or District the provisions of sub-section

Magistrate

(1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.

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Rule 8(1)

After taking the possession a notice in terms of Appendix IV will be sent to the Borrower, which will also be affixed on the Property.

8. Sale of immovable secured assets.(1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.

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Rule 8(2)

The said notice will also be published in two leading newspapers one in vernacular language within 7 days.

8(2) [The possession notice as referred to in sub-rule ( 1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspaper] one in vernacular language having sufficient circulation in that locality, by the authorised officer.

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Rule 8(1)

Name of Bank/FI to be 8. Sale of immovable secured displayed on the assets.Property. (1) Where the secured asset

is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. 9

Rule 8(4)

Insurance cover to be 8 (4) The authorised officer arranged shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed off.

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Rule 8(4)

Security Guards to be 8(4) The authorized officer deployed at the site of the shall take steps for Property. preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed off.

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Rule 8(5)

Valuation of property by 8 (5) Before effecting sale an approved valuer of the immovable property before effecting the sale referred to in sub-rule (1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any

part of such immovable secured asset by any of the following methods:(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treat 12

Rule 8(6)

Serve on the Borrower a 8(6) the authorized officer notice of 30 days for sale. shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the

property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may stipulated by the secured creditor; (f) any other thing which the authorized officer considers it material for a purchaser to know in order to judge the nature and value of the property. 13

Rule 8(5)

Obtaining Quotations/Inviting tenders/Holding Public Auctions/ Signing Private Agreement for sale of the property.

8(5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or

(d) by private treaty. 14

Proviso to Rule 8(6)

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Rule 8(7)

If sale is by way of inviting tenders from public or holding of public auction, a public notice to be published in two leading news papers one in vernacular language, having sufficient circulation, setting out the terms of the sale.

Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may stipulated by the secured creditor; (f) any other thing which the authorized officer considers it material for a purchaser to know in order to judge the nature and value of the property.

Notice and Publications 8(7) Every notice of sale shall to be affixed on be affixed on a conspicuous

conspicuous part of the part of the immovable property and put on the property and may, if the website of the Bank. authorized officer deems it fit, put on the website of the secured creditor on the Internet. 16

Rule 8(8)

Sale other than public auction/tender to be on terms settled between the parties in writing.

8(8) - Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.

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Rule 9(2)

Sale to be confirmed in 9(2) - The sale shall be favor of highest bidder confirmed in favor of the purchaser who has offered the highest sale price in hi s bid or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor.

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Proviso to Rule 9(2)

No sale to be confirmed on less than reserve process. However sale at less than Reserve price can be made with the consent of Borrower

Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9 : Provided further that if the authorized officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.

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Rule 9(3) and (4)

25% of the sale price to be deposited forthwith and balance within 15 days

9(3) - On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five percent. of the amount of the sale price, to the authorized officer conducting the sale and in default of such deposit, the property shall forthwith be sold again. 9(4) - The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.

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Rule 9(5)

If balance is not deposited the deposit would be forfeited and the property be resold.

9(5)-In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.

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Rule 9(6)

If the terms of payment have been complied with, the Bank/FI shall issue a certificate of sale in favor of the purchaser

9(6)- On confirmation of sale by the secured creditor and if the terms of payment have been complied with , the authorized officer exercising the power of sale shall issue a certificate of sale of the immovable property in

favor of the purchaser in the Form given in Appendix V to these rules. 22

Sec 13(10) Read In case the dues of the with Rule 11 Bank/FI are not fully met with the sale proceeds of the property, Bank/FI may file an application before Debt Recovery Tribunal or Court having jurisdiction, for recovering the balance amount.

13(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. 11. Procedure for Recovery of shortfall of secured debt.(1) An application for recovery of balance amount by any secured creditor pursuant to sub-section (10) of section 13of the [Act] shall be presented to the Debts Recovery Tribunal in the form annexed as Appendix VI to these rules by the authorised officer or his agent or by a duly authorised legal practitioner, to the Registrar of the Bench within whose jurisdiction his case falls or shall be sent by registered post addressed to the Registrar of Debts Recovery Tribunal. (2) The provisions of the Debts Recovery Tribunal (Procedure) Rules, 1993

made under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993), shall mutatis mutandis apply to any application filed by under sub-rule (1). (3) An application under sub-rule (1) shall be accompanied with fee as provided in rule 7 of the Debts Recovery Tribunal (Procedure) Rules, 1993.