Pooja Original Report Final (2) (1).docx

PROJECT REPORT ON

‘Study on the Financial position and vital role of Legal aspects in Delhi Financial Corporation’

In partial fulfillment of Degree of Master in Business Administration (2017 -2019) SUBMITTED TO Management Education and Research Institute

Submitted By: Pooja Agrawal Roll no - 04115103917

ACKNOWLEDGEMENT

It is my pleasure as well as an opportunity to thank all those people who have made a contribution in the completion of my project. There are always many who have to be thanked for their role irrespective of the number. First, I wish to express my gratitude to my project guide, Mrs. Gurpreet Kaur Chabbra, Professor, Management Education and Research Institute, New Delhi. Her immense help has made it possible for me to shape the project in its present state. I, take this opportunity, to thank Mr. S. K. Aggarwal and Mr. Harish Verma , DFC, Delhi, for providing their valuable insights and giving me the chance to work on these ever-dynamic concepts. I would like to express my gratitude for Mr. Shobhit Malik, for his extreme support and advice without which the project would not have been possible. He guided me through all the ups and downs encountered during the building up of the project, making an easy way through for me. I would also like to acknowledge that in preparing this project I have got immense help from my friends, relations and teachers.

Pooja Agrawal Roll no - 04115103917

TABLE OF CONTENTS

Chapter 1: Introduction about State Financial Corporation Chapter 2: Delhi Financial Corporation Profile 2.1 Introduction to DFC 2.2 Eligibility criteria 2.3 Scheme for DFC for various sectors. 2.4 Policy and process Followed Chapter 3: Objective 3.1 Objective of the study 3.2 Learning’s during the course of time Chapter 4: Financial Position analysis 4.1 Ratio Analysis 4.2 Analysis Chapter 5: Research on Vital role of Legal aspects in Delhi Financial Corporation 5.1 Research methodology 5.2Research design 5.3 Data Collection

5.4 Purpose of study 5.5 Objectives of study 5.6 Sample Selection Chapter 6–Presentation and Analysis of data 6.1 Introduction 6.2 Legal Division profile 6.3 Comparative analysis of DFC Loan Agreement with Public Sector Banks. 6.3.1 Process of legal Documentation 6.3.2 Loan agreement analysis of the theoretical concept relating to the practical experience gain during internship 6.3.3 Hypothecation agreements 6.3.4 Conclusion 6.4 Comparative analysis of DFC legal recovery procedure with Public Sector Banks 6.4.1 LEGAL RECOVERY PROCEDURE of DFC UNDER SFC ACT 1951 6.4.2 Legal recovery court case analysis of the theoretical concept releating to the practical experience as gain during internship

6.4.3 LEGAL RECOVERY PROCEDURE of public sector banks under Sarfaesi Act 2002 6.4.4 Conclusion 6.5 Swot Aalysis Chapter 7: Conclusion & Suggestions 7.1 Conclusion 7.2 Suggestions Appendices Bibliography Miscellaneous

Chapter 1

Introduction About State Financial Corporation

INTRODUCTION State Financial Corporations : State Financial Corporations were established in the States under the Central Act, viz.. The State Financial Corporations Act, 1951, with the basic objective of promoting and developing small scale industries in the respective states with a special focus on spreading industrial culture in the rural, semi-urban and backward areas of the States. These corporations are owned by the respective state governments jointly with IDBI and they are functioning under the administrative control of the state governments. The Chairman and Managing Directors of these corporations are senior IAS officers appointed by the state governments in consultation with IDBI. The Board of Directors of SFCs is highly professional in character and consists of senior executives of the state governments, a representative each from RBI. IDBI and SIDBI, besides other interests like Co-operatives, Life Insurance, entrepreneurs are also represented on the Board. They are employing highly professional and technical personnel to carry on the business operations such as M.B.As.., C.As., engineers, marketing experts, etc. These corporations have opened a number of regional offices in the states to cater to the requirements of the entrepreneurs . SFCs provide term loan to small and medium scale industries for creation of assets, viz., land, building and machinery. They also provide working capital term-loan to the industrial units on competitive terms. Various non fund based services like merchant banking, under-writing of public issues, project counselling, bill discounting, leasing and hire purchase are also been undertaken by them. They are operating a number of financial assistance schemes for the benefit of the entrepreneurs such as assistance for marketing activities, equipment finance, special schemes for assistance to ex-servicemen, single window scheme, etc. SFCs provide loan and interest on loan depending upon the size of the loan and its term.

In India, there are 18 State Financial Corporation’s (SFCs) currently working. These are:  Andhra Pradesh State Financial Corporation (APSFC)  Himachal Pradesh Financial Corporation (HPFC)  Madhya Pradesh Financial Corporation (MPFC)  North Eastern Development Finance Corporation (NEDFI)  Rajasthan Finance Corporation (RFC)  Tamil Nadu Industrial Investment Corporation Limited  Uttar Pradesh Financial Corporation (UPFC)  Delhi Financial Corporation (DFC)  Gujarat State Financial Corporation (GSFC)  The Economic Development Corporation of Goa (EDC)  Haryana Financial Corporation (HFC)  Jammu & Kashmir State Financial Corporation (JKSFC)  Karnataka State Financial Corporation (KSFC)  Kerala Financial Corporation (KFC)  Maharashtra State Financial Corporation (MSFC)  Odisha State Financial Corporation (OSFC)  Punjab Financial Corporation (PFC)  West Bengal Financial Corporation (WBFC)

Chapter 2

Delhi Financial Corporation Profile

2.1 Introduction of DFC Delhi Financial Corporation (DFC) was established in April 1967 under State Financial Corporation's Act 1951 on re-organization of erstwhile Punjab Financial Corporation (PFC) which was divided into four SFCs in 1967 i.e. Delhi Financial Corporation (For NCT of Delhi & UT of Chandigarh), Punjab Financial Corporation (For Punjab), Haryana Financial Corporation (For Haryana) and Himachal Pradesh Financial Corporation (For Himachal Pradesh). The main objective of the Corporation is financing of loans for establishing and running micro, small and medium scale industries service sector industries commercial/ transport sector in NCT of Delhi and UT of Chandigarh. DFC has been playing vital role in promotion and development of MSMEs and service sector. The Corporation extends financial assistance for Restaurants/ Hotels, Amusement parks & other tourism related activities, Construction of Commercial complexes/ multiplexes, Hospitals/ Nursing homes/ Clinics/ Diagnostic centers, commercial vehicles etc. as specified under SFC’s Act, 1951 or any other activity approved by SIDBI/State Govt. The Corporation can extend financial assistance up to Rs. 10.00 core for companies & co-operative societies and Rs. 4.00 core to proprietorship and partnership firm. However, the limit of assistance can be doubled with the prior approval of the Small Industrial Development Bank of India. It allows longer repayment period as compared to other financial institutions.

2.2 Eligibility criteria Delhi Financial Corporation provides financial help to its customers, who satisfy to the following eligibility norms:1. Jurisdiction Delhi or Chandigarh. 2. The location should be in any of the following areas o Industrial o Commercial Complex except for household industries which can be located in residential areas 3. The constitution of the company should be either o Individual o Partnership o Private Limited o Public Limited o Co-operative societies 4. Purpose of the loan shall be for o New Unit o Shifting o Expansion o Modernization o Diversification 5. Loan shall be granted to the following sectors: o Industrial o Transport o Services o Marketing Sectors available for corporation support

1) Manufacturing sector  All

manufacturing

activities

including

processing

and

preservation.

2) Service sector  Transport, fishing boat /trawlers, house boats marketing it parks hospital

pathological

laboratories

medical

equipments

professionals like doctors ,CA, CS,CWA, engineers.

3) Hospitality sectors  All hotels, lodges, restaurants, convention centre, seminar halls, tourist resorts, amusement park etc as the need for the sector is being increasingly felt as a promotional

support for state

industrial business growth

4) Marketing sector  All commercial complexes , construction of godowns ,input suppliers vendors ,stockiest as they provide important backwards and forward linkage

5) Entertainment sector  This is an emerging sector with good business potential

the

corporation will consider extending financial assistance for the up-gradation , modernization , renovation of existing cinema , theatre and for setting up new multiplexes as well as funding of feature films and tv serials

6)Infrastructure  Basic requirements that form the engines of economic growth, training institutions commercial estate projects etc. 7) Power sector  Power generation distribution including alternate sources of power like wind mills and solar energy as they provide pollution free additional power and also have tax saving plans. 8)Funding of micro enterprises  Funding of micro enterprises mainly to help first generation entrepreneurs who need finance to start their business enterprise 9)Others  As may be determined by business environmental needs and the board new products will be evolved as align to marketing changes demand as this is vital to both industrial and corporation growth.

2.3 Schemes of DFC for various sector Category 1: Schemes for Weaker Sections of Society a.

Schedule castes/Tri

b.

Physically challenged

c.

Self Employment for Ex-servicemen

Category 2 :Special Schemes a.

Women Entrepreneurs under MUN

b.

Qualified Professionals

c.

Composite Loans

d.

Household activities

e.

Self Employment for Ex-servicemen

Category 3 : (A) General/ Service Section a.

Manufacturing Activities

b.

Development, Construction and Maintenance of Roads.

c.

Installation of Renewable Energy Saving System

d e.

Hospital/Nursing Homes/Health care centers/Diagnostic centres Tourism Related Activities

f.

Hotels and Restaurants

g.

Hi-tech Commercial Farming/Tissue Culture/fish farming etc.

h.

Computer Centers for training & software development

i.

Rehabilitation of sick units

j.

Modernization

k.

Equipment Financing

l.

Small Road Transport Operators Schemes (SRTO)

m.

Relocation of industries

(B) Working Capital Assistance Schemes a.

Single Window Scheme (SWS)

b.

Short-term financial assistance scheme (STWC)

c.

Working Capital Term loan (WCTL)

(C) Quality upgradation Schemes a.

Scheme for Technology Dev. & Modernization of SSI units

b.

Scheme for Acquisition of ISO 9000 Series Certification

c.

Scheme for Textile Industry under Technology Upgradation

New Schemes a.

National Equity Fund

b. Capital Subsidy Scheme

2.4 Policy and process Followed The following policy and processes applicable on DFC RATE OF INTEREST 1. The Corporation has adopted fixed interest rate regime and the interest is charged on reducing balance basis. The general prime-lending rate of the Corporation w.e.f. 28.03.2011 is 13.50 % p.a. and 12.75 % p.a. is charged in the following categories

a)

Who have been rated among the top three credit ratings given by CRISIL/ ICRA/ SMERA/ CARE/ FIITCH and that the credit rating given by the agency is valid on the date of application.

b)

Who are existing borrowers of the Corporation and has standard asset during the last three years.

c)

The past clients of the Corporation whose loan remained standard during the tenure of loan.

d)

Any other deserving case as decided by the CMD.

*Note:

The interest rates may be charged from time to time as per decisions of Board & CMD / MD.

2.

Additional interest @ 2.5% p.a. is charged on the defaulted amount and for the period of default. Any change in the rate of interest at the time of first disbursement on the directives of the RBI/SIDBI will be applicable even if the loan has been sanctioned and mortgage/Hypothecation deed has been executed earlier

3. Interest is charged on EMI/ quarterly basis depending upon the scheme of financing. Further, during the moratorium period, interest is charged and recovered on monthly/ quarterly basis as per the

financing scheme 4.

The repayment of loan availed by borrower (disbursed amount and not sanctioned amount) is recoverable along with normal interest charged on daily product basis and additional interest in case of delay

EXTENT OF LOAN Rs. 10.00 Crore for companies and registered societies Rs. 4.00 Crore for proprietorship and partnership firm

Industrial Units / Service Sector Enterprises having maximum cost of project upto Rs. 12.00 Crores and where share capital & free reserves do not exceed Rs. 10.00 Crores are eligible to avail loans. PRE-PAYMENT CHARGES In the event of pre-payment / fore – closure of the loan, the borrower is liable to pay the pre-payment charges @ 2% of outstanding principal amount. PROCESSING FEE The Processing fee at uniform rate of 0.5% of the loan amount + applicable service tax in all cases w.e.f. 01.04.2011. However the borrower will have to bear all other the misc. expenses as is required to process the case further i.e. the expenses on account of valuation of properties, advocate fee on account of title search and inspection cost etc. FINANCING SCHEMES The corporation finances all manufacturing activities and service sector activities permissible under the Master Plan of Delhi/ Chandigarh and in consonance with the Industrial Policy of Delhi Government /Chandigarh

Administration. Entrepreneurs are welcome to get finance for setting up hospital, nursing homes, diagnostic centers, tourism related activities, hotels, restaurants, amusement parks, hi-tech electronics/ software industries apart from a host of service sector activities like boutiques, beauty parlors, health centers, etc.

in

line

with

the

requirements

of

metropolitan

character

of Delhi/ Chandigarh. The Corporation offers various schemes catering to needs of all categories of entrepreneurs, who may be from weaker section of society or under any special category or a general category. The details of the schemes may be seen in the table titled ‘Schemes at a glance’. LOAN APPLICATION FORMS Form A Up to Rs.50,000/Form B Above Rs. 50,000 and up to Rs.2.00 lacs. Form C Above Rs. 2. 00 lacs and up to RS 10.00 lacs Form D Above Rs. 10.00 lacs Simplified loan application forms for SRTO, Relocation Scheme, Business Loan Scheme, Household Industries, Professional Qualified Entrepreneur scheme and Equipment Financing Scheme are available separately. Application forms can be obtained from the Reception Counters or can be downloaded from the website. Guidance for filling up the same is also made available. The Corporation will charge a nominal cost of Rs20.00 for each application form

GUIDANCE For loans under General Scheme:1. Application Forms are available at DFC’s Head Office from 11.00 A.M. to 4.30 P.M. on any working day by paying nominal cost of Rs20/-. 2. Assistance

will

be

provided

to

fill

up

the

form

by

Dy.

Manager(PD)/ Manager(PD) from 11.00 a.m. to 4.30 p.m. on any working day or at phone Nos. given at last page.

For loans under Small Road Transport Operators Scheme:-

1. Application Forms are available at Head Office from 11.00 A.M. to 4.30 P.M. on any working day by paying nominal cost of Rs20/2. Assistance

will

be

provided

to

fill

up

the

form

by

Dy.

Manager(TLD)/Manager.(TLD) from 11.00 a.m. to 4.30 p.m. on any working day or at. phone Nos. given at last page.

For loans under Relocation & Business Loan Schemes:1. Application Forms are available at Plot No.37-38, 1st Floor, Institutional Area, Pankha Road, D-Block, Janak Puri, New Delhi-110 058 from 11.00 A.M. to 4.00 P.M. on any working day by paying nominal cost of Rs20/-. 2. Assistance will be provided to fill up the form by Dy. Manager/Manager from 11.00 a.m. to 4.00 p.m. on any working day

3. For guidance and further details a person can contact the dealing Managers/AGM/DGM

at

Phone

Nos.

27572696/

27572699/

27571081/28525035-39 RECEIPT OF APPLICATION AND VERIFICATION a) The Corporation will dispose of an application for a loan amount up to Rs.2.00 lakhs within 15 working days and for loan amount up to Rs.5.00 lakhs within four weeks from the date of receipt provided the application is complete in all respect and is accompanied by documents as per check-list provided. Disposal of loan applications for amounts exceeding Rs.5.00 lakhs will be within a reasonable time frame. The Corporation shall ensure disbursal of loan sanction within two working days from the date of compliance with all terms and conditions governing such sanctions.

b) In case of any shortcomings, the borrower is informed about the same within next 7 working days time from the date when the application is received in the Corporation. The entrepreneur must obtain the receipt invariably at the time of submission of loan application.

c) The borrowers are duly informed that the details mentioned in their loan application will be verified and a proper assessment will be done by carrying out detailed due diligence and appraisal of the project. REJECTION OF LOAN APPLICATION In case the Corporation rejects the loan application for one or other reason, the Corporation will intimate detailed reasons for rejection to the borrower within a week’s time.

PROCESS OF SANCTION, DISBURSEMENT & RECOVERY Duly filled-up loan application forms, along with documents as per the checklist provided in application forms, are accepted by the Nodal officers in the concerned Divisions (Industrial Loan, Transport Loan and Relocation Loan Divisions) after due scrutiny. The same, after further analysis and KYC, are placed before the screening committee /ABC Classification Committee, which finally accepts the loan proposal for further financial and technical evaluation/appraisal (with applicant participation/in put). In case the loan proposal is for Rs10 lakh and above, the same is placed before the Project Evaluation Committee (PEC) before finally placing it to sanctioning authority. Sanction letters are normally issued within seven (7) days of the decision (based on receipt of minutes) of the sanctioning authority alongwith legal check list and necessary formats. The Legal Officer of the Corporation carries out scrutiny of the legal papers (collateral security) submitted by the party simultaneously at pre-sanction stage. The papers of collateral security is got searched by panel advocate of corporation. After establishment of clear marketable title, the market value of the property is also got valued by panel valuer. of the corporation. ROC search is also required in company cases. The Legal Officer finalizes the various documents for execution in the case. The loans are released after the party complies with all the conditions as per sanction letter/executed documents. The industrial loans are released in phases in proportion to the investment brought in by the promoter in the project while in case of transport loans, the loan is released after the promoter has arranged/invested entire equity. The process of sanction & disbursement of the loan is completed within the time frame as mentioned under the head “Receipt of Application & Verification”.

The process of recovery will be as per SFC Act 1951 and “No Due Certificate” alongwith documents will be returned after clearance of loan liability COMPLIANCE OF KYC NORMS, AML STANDARD In accordance with the direction of RBI/ Govt. of India, the Corporation has implemented the “Know Your Customer” (KYC) norms, “Anti Money Laundering” (AML) Standard by obtaining photocopy of address proof and identity proof details of which are given hereunder For ID Proof: i) Passport/voter I.D, Driving License + Employer’s letter + Salary Slip ii) Certified copy of PAN Card. For Address Proof: Correct permanent address will be verified from Telephone Bill, Bank Account Statement, Electricity Bill, Letter from

employer

(subject

the corporation) National

to

satisfaction

Population

of

Registration

Number/Adhar No.. In the case of company certificate of incorporation and Memorandum & Articles of Association, Resolution of the Board of Directors to open an account and identification of those to operate the account, Power of Attorney for transacting business, Copy of PAN / telephone bill are required. In the case of Partnership Firms registration certificate Form ‘A’ & ’B’ and Partnership deed alongwith other documents as above are

required.

In the case of Trusts & foundations similar documents as applicable are required. AML STANDARDS: AML standard are satisfied by obtaining the PAN No.

GRIEVANCE REDRESSAL MECHANISM Senior Officers of the Corporation regularly interact with the borrowers and representative associations of entrepreneurs to know their problems and try to re-orient

Corporations'

policies

befitting

to

the

changing

environment. Executive Director / General Manager / Dy. General Manager acts as the Nodal Officer of 'Public Grievance Cell’, which handles the grievances of the entrepreneurs by directing necessary remedial actions. All senior officers like, DGMs, AGMs and Managers hear the public grievances between 11.00 a.m. to 12.00 noon on all working days and time bound directions are issued to various officials for taking remedial measures.

Chapter 3

Objective

3.1 Objective of the study. The main objective of my internship was:  To learn more about some components of corporate accounts like ratio analysis, balance sheet, bank reconciliation statement etc.  To observe or see how any government organization works or functions.  As far as my project is concerned it was about to ‘Vital role of Legal aspects in Delhi Financial Corporation’ which was also supported by a research that was done on a basis of qualitative research.  To conduct a comparative analysis of loan agreement of DFC with PSU Banks agreements.  To conduct a comparative analysis of Legal recovery process of DFC with PSU Banks.

3.2 Learning’s during the course of time As far as what I have learnt in DFC. There were many things which were taken under into account .  This comprises analyzing of  Balance Sheet  Cash Flow Statement  Preparation of Bank Reconciliation Statement (BRS).  Ratio analysis (evaluate various aspects of a company's operating and

financial performance such as its efficiency, liquidity,

profitability and solvency.)  What most important part of learning was about the functioning of DFC like :  What is the procedure for execution of loan?  What aspects does it see while giving any loan to a customer?  What will be the Payment schedule?  What will be the prepayment charge for any loan?  For giving any loan, credit rating as prescribed by CRISIL or any other rating providing company was analyzed and on that basis loan is given.  Research was done on legal aspects in financial institution through detail study in respect of Delhi Financial Corporation.

Chapter 4

Financial Position Analysis

4.1 RATIO ANALYSIS VARIOUS RATIOS : RATIO

FORMULA

1)GROSS (GROSS

PROFIT÷NET =0.22

RATIO=

SALES)*100

(NET

=0.22

(81,13,290÷19,08,22,239)*100 (2,79,50,379÷19,25,84,018)*

PROFIT PROFIT÷NET =0.042 RATIO

2016

(4,26,47,742÷19,08,22,239)*100 (4,29,52,880÷19,25,84,01

PROFIT

2)NET

2017

=0.146

SALES)*100

=

3)RETURN (NET

(19,08,22,239÷1,46,45,04,027) (19,25,84,018÷1,50,9

TO

INCOME÷TOTAL = 0.130

TOTAL

ASSETS)

= 0.127

ASSET =

4)RETURN

(NET

(19,08,22,239÷1,11,74,30,278 (19,25,84,018÷1,50,

TO

INCOME÷TOTAL )= 0.170

CAPITAL

CAPITAL)

EMPLOYED

5)RETURN EQUITY

TO (NET

(19,08,22,239÷ (19,25,84,018÷74,20,50,348

INCOME÷EQUITY 75,07,63,638)

= 0.26

SHAREHOLDERS SHARES)

6) CURRENT (CURRENT RATIO

= 0.254

(55,34,33,295÷18,43,26,020 (35,24,65,361

ASSETS

)= 3.002

÷19,75,85,500

÷CURRENT

)=1.78

LIABILITES)

7)

QUICK ((CURRENT ASSETS

RATIO

(55,34,73,295

÷ 35,24,65,361

÷

– 18,43,26,020)

= 19,75,85,500

=

INVENTORIES)÷

3.002

1.78

CURRENT LIABILITES)

8) DEBT ((*STD+**LTD + 42,66,66,640÷75,07,63,638 46,99,99,980÷75,20,50,348 EQUITY AFTER

FIXED = 0.57

RATIO

PAYMENT)

=

SHAREHOLDERS

= 0.624

÷

EQUITY ) *STD = SHORT TERM DEBT; ** LTD = LONG TERM DEBT

4.2 Analysis  Return to total assets is nearly same as compared to 2016 which means corporation profitability relative to its total assets hasn’t changed. the assets are being use efficiently same in both the years  Return to equity share holders is also same in both the years  If current ratio is seen this year company have been able to pay more long term and short term debts compared to previous year.  Net profit has been increased compared to previous year.

Chapter 5

RESEARCH ON Vital role of Legal aspects in Delhi Financial Corporation

5.1 RESEARCH METHODOLOGY Research Methodology is a scientific and systematic way to solve research problems. A researcher has to design his methodology i.e. in addition to the knowledge of methods/techniques; he has to apply the methodology as well. The methodology may differ from problem to problem. Thus the scope of research methodology is wider than research methods. In a way, research methodology deals with the research methods and takes into consideration the logic behind the methods. 5.2 RESEARCH DESIGN This research is a descriptive research. The major purpose of a descriptive research is the description of the state of affairs as it exists at present. 5.3 DATA COLLECTION For the purpose of this study, a secondary data (quanlitative data) has been used. The secondary sources of data include:  Discussions with the manager legal of the DFC.  Doing the loan Documentation  Observation in court. 

Loan agreement of DFC and Public Sector Bank



Legal recovery provisions of SFC act 1951 and SARFAESI act 2002

5.4 PURPOSE OF THE STUDY The study was conducted for the following purposes:  To find out the role of legal division of DFC during sanctioning of the loan till the recovery of amount.  Comparative analysis of the Loan Documents and Legal recovery process From Public Sector Banks.

5.5 OBJECTIVES OF THE STUDY The report was prepared keeping in mind the following objectives:  To know what legal division performs while taking the loan.  To know what is the vital role of legal department for sanctioning and recovery of loan with respect to DFC. 

To understand the working through doing the loan documentations at the time of disbursement and attend the cases in court for recovery of Loan.



To understand the difference in the working of legal division of DFC and Public sector bank.

5.6 SAMPLE SELECTION: The sample size was chosen to be Transport division Loan agreement. The sample was chosen from the records where DFC finds that the particular case is all about with this two documentation process. Also obtain the copy of loan documents of DFC and two Public Sector Bank. As there also two legal recovery cases for analysis and selective provisions of SFC Act 1951 and Sarfaesi Act 2002.

Chapter 6

Presentation And Analysis Of Data

6.1. INTRODUCTION Every

business

requires

funds

to

achieve

their

corporate

goals

Requirement may vary on the basis of size. A business could be of small, medium and big size depending on the capital invested and the scale on which business operate.

The State Financial Corporation is doing good Job in

providing the financial assistance to Micro, Small & Medium Enterprises also to commercial vehicles.

To secure their finance assistance they required to

minimize legal risk: “Legal risk for a business may be defined as falling to: operate within the law, be aware of its legal obligations, honour contractual commitments, agree remedies for compensation with a supplier in the event of default, show evidence that it has operated within the law, or recognize and effectively manage legal threats.” Logic of the Legal Risk Management "The essence of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.” Bernstein, Peter L., 1996, Against the Gods: The Remarkable Story of Risk In the legal risk management, predictions of jurists which are based on analyzes and legally grounded regarding the weak points are based upon, and the company’s field of work is tried to be kept in the safe area with the works done in this sense. The logic of legal risk management is not different from the underlying logic of managing any risk. Legal Department has a major role in any State Financial Corporation/ financial Institution not only when represents the Corporation against all the legal authorities and regulators, but also as a supporting department in all Corporation activities when legal staff members are:

-

Reviewing any agreement conducted, before it is being finally signed by

the management even with borrower, clients and other authorities - Reviewing all contracts to assure that same are matched with local laws, including the staff contracts as well. - Vetting of loan document and ensure that they are according to the policy/ sanction letter. -

Legal Representative of the Corporation: Corporation have to file suits and

cases against borrowers, fraudsters etc. Legal department have to represent the bank in the court of law in these kinds of cases. -Legal Counsel of the Bank: Whenever any legal opinion is required regarding any procedural lapse or operational flaw in the banks, the management turns to law officers to provide the same.

6.2. Legal division profile 3.1 About Delhi Financial Corporation Legal department Legal Division Role Legal Recovery Division undertakes following activities: 1) Initiating Legal actions under various provisions of SFCs Act 1951 for recovery of dues of the

corporation and action under Cr. PC/IPC, etc.

2) Filing Application u/s 32(G) of AFCs Act 1951, before Competent Authority and pursuing till Recovery Certificate is issued to Collector(Recovery). 3) To receive summons from courts and to assign cases as per roster maintained in the department. 4) Maintaining panel of lawyers and its review periodically. 5) Filing criminal complaints u/s 406 R/W sec. 420 IPC and section 138 of Negotiable Instrument Act and attending the courts. 6) To Co-ordinate with advocates and other divisions of the corporation. 7) Providing opinion on various legal issues referred to it.

Legal Action Order of competent Authority are obtained by the recovery division for taking action under various section of SFCs Act for recovery of the dues of corporation and file is then transferred to legal recovery division. a) The powers have been delegated by the board vide resolution dated 11.11.83 to AM(L), M(L), Sr. Manager, DGM, to do following matters on behalf of the corporation irrespective of the loan amount.

“ to recall the loan and to file suit, application, appeal, writ, revision in the appropriate court or authority against the industrial concern and/or its partners, directors, guarantors execution of decree cases and to enter into compromise and obtain compromise decree through court and to defend any proceedings filed against the corporation, to sign and verify plaints application , affidavit and for this purpose to take such consequential action as may be considered necessary and to engage counsel, incur expenses by way of counsel fees, T.A. and such other cost as may be necessary in this connection and to initiate criminal proceedings as may be required.” The board further authorised above named officers. “To discharge, execute and present the documents before the Registrar/ sub- Registrar, Delhi and Chandigarh to give back the

transfer

right in respect of the property earliar mortgaged with the corporation.” b) On receipt of file, the divisions obtains extracts of order of Competent authority along with relevant information and return the file to the division concerned and open new case file and enter the same in register of cases maintained by it c) The division assign the case to the advocate from out of the panel as per the roster and obtain orders for assigning the cases from Competent Authority. d) To obtain para wise comments on the petition filed in court from the division concerned and provide the same to advocate for the drafting reply/ written statement ensure that the same is timely filed in the court. e) To put up fee bills of advocate as per fee schedule approved by the board.

f) To draft application u/s 32(G) of SFCs Act 1951, and to file it before Competent Authority(as per annexure A-1) g) To appear before competent authority, pursue applications u/s 32(G) till recovery certificate issued. h) To issue copy of recovery certificate to Collector (recovery) and accounts recovery division for taking further action. i) To circulate monthly statement of all the pending courts cases. j) To give evidence the courts and produce original documents in the courts as per requirements/pleadings. k) As soon as the decision(interim or final), the decision shall be communicated to the division concerned and order for filing appeal/ review will be obtained as deemed fit and proper in the facts and circumstances of the cases. l) To discuss all the cases with panel lawyers and review the progress of all the cases pending in various courts.

6.3 Comparative analysis of DFC Loan Agreement with Public Sector Banks

6.3.1 Process of Legal Documentation 1. After an application submitted by the borrower for financial assistance is found to be eligible and fit for processing by the Screening Committee (ABC committee), the legal division will open a parallel file and will do the necessary spade work for legal documentation to avoid the delay during the post- sanction stage. The concerned legal officer should persue the appraisal note and the sanction letter and depending on the conditions imposed and in view of the constitution of the applicant concern, will issue a checklist of documents required to be submitted/compiled by the applicant concern. The checklist performa is enclosed as Annexure-A.

2. Mortgage of immovable property by deposit of title deeds including chain documents: The legal officer shall ask for all the original chain/ connected documents pertaining to the property. Where the mortgagor expresses inability to produce any link or the chain, mortgagor will have to give reasoned explanation for not possessing the same and the same will be required to be supported by FIR, public notice, etc. The legal officer after satisfying with the documents submitted by the mortgagor will obtain certified copies of the missing linked documents like mutation certificate, house tax receipt etc., as per merit of the case and take approval of the divisional head of the legal division. All cases falling under missing/link chain category shall require the specific approval of

Managing Director before acceptance of the document for mortgage. The corporation shall execute simple mortgage for such category of cases, on payment of proper stamp duty.

3. Search for charge in Registrar of Companies(ROC) The legal officer shall issue search instructions to panel CA or solicitor firm appointed by the corporation for verification of charge on company’s assets by carrying out search/ inspection of files and records in the office of the Register of Companies. This is applicable for company cases only.

4. Search by panel lawyers: The legal officer , officer obtaining documents from borrowers as per the checklist will send the copy of title deeds to panel lawyer/solicitor firm for conducting search in the records of Sub Registrar/Revenue department/ other authority for verification of non- encumbrance status and issuance of said certificate.

5. Publication of Notice: The public notice for creation of mortgage of free hold immovable property shall invariably be published in display column of leading English newspapers. In case, the property is purchased from government agency on lease-hold basis, no public notice is then required. In rare deserving cases where party is not in a position to bear advertisement expenses and the loan amount is not commensurate with the expenses, the publication may be allowed in other newspaper where the charges are comparatively less but with the prior approval of the competent authority.

6. Simple Mortgage/ Equitable Mortgage: The corporation shall execute simple mortgage where the land (purchased from government agencies) building and plants and machinery etc, are financed by the corporation. Where only plant and machinery is financed by the corporation against collateral security of immovable property the corporation will execute equitable mortgage strictly on SIDBI pattern and obtain term loan agreement hypothecation deed, bond of guarantee, declaration-cum-undertaking and entry in consonance with office order dated 6 th june 1995 (Annexure- c) after the entire documents of property are submitted by the loanee as per requirement of the checklist.

7. Creation of further charge on immovable property: Further charge on immovable property would be accepted after getting all the formalities completed as applicable to the creation fresh charge i.e., search of title deeds, issuance of public notice , physical verification of property, certificate from income tax department u/s 281 of I.T. act etc. The previous report obtained in respect of such formalities shall not be relied upon for creation of further charge.

8. Drafting of documents: The legal officer will draft the documents of mortgage deed, bond of guarantee and other documents which are standard formats as per check list and put up the same along with title documents etc to the higher authorities for vetting. The legal officer should point out all discrepancies in the documents, if any, observed at this stage.

9. Obtaining execution order: After vetting of the documents by the authorised legal officer, the legal officer shall put up a final observation note as per Annexure ‘D’ bringing out the deficiencies, if any in the compliance of terms and conditions and/or relaxation needed, if any, before soliciting order of the competent authority. The competent authority will pass orders for execution of documents as per the delegation of powers as contained in Annexure ‘b’.

10. Execution of document: The legal officer, after seeking orders of competent authority for execution, shall get documents executed from borrowers/guarantors or mortgagor in his/her presence and record the certificate to this effect on the office note in the relevant file.

11. Signing of entry and filing of form- 8&13 with ROC. After execution of documents, entry will be signed by the Managers/Sr. Manager of legal division and pasted in the register maintained. In cases of companies, after execution of documents, form 8& 13 are to be filed with registrar of companies within 30 days of execution of documents along with 3(three) sets of mortgage deed/hypothecation deed. In case certificate u/s 281 of Income Tax Act is not submitted by borrower, the corporation may release 75% of loan at this stage subject to obtaining of an affidavit. However before

release of the last 25% loan, the said certificate will be required to be submitted by the borrower.

12. General: The corporation will maintain roster to entrust the search work. After completing the process of documentation, the concerned file should be sent to the disbursement section for further processing. If there is any further formality required to be completed before/during disbursement stages, it should be normally brought out in the note before transferring the file.

Criteria

For

Legal

Documentation

borrower/guarantor alongwith

to

be

submitted

by

the

instructions

 In case of Sole-Proprietor - Affidavit of Sole-Proprietor, as per performa on Rs.10/- Non Judicial Stamp Paper.( As per annexure A-1)  In case of Partnership Firm - Form- A,B and C of the registrar of firms and copy of partnership deed.  In case of Private Limited Company - Two certified copies of Articles & Memorandum of Association of the company.

- Two certified copies of the Board Resolution of the Company accepting in the terms and conditions of sanction & (as per performa) authorising the person to sign/ execute the loan documents and put the common seal of the company(Annexure A2) - Report from Chartered Accountant after inspection of file and records of the company in the office of Registrar of Company(to be conducted by Panel Chartered Accountant of the Corporation). Verified signatures and photographs of proprietor partner/Directors, as the case may be duly attested by Gazatted Officer on the Term loan Agreement.  In case Plant & Machinery installed/ to be installed in rented premises - Affidavit of landlord. (as per performa) Annexure A-3. - Rent receipt. - Rent/ Lease agreement alongwith site plan(As per performa) Annexure A4.  In case of Own Premises. - Photocopy of title document in support of proof of the ownership.  In case of Hypothecation of Existing Plant And Machinery of the concern. - Permission u/s 281 (i) & (ii) of Income Tax Act to be obtained from Income Tax Department.  In case of 3rd Party Guarantors - Affidavit of salaried guarantors (as per performa)

- Non- Alienation Affidavit of guarantor (as per performa). Guarantee being accepted on net-worth basis Annexure A-6. - Verified signature of guarantors. However, in case of Govt. servants, the signatures may be verified from their identity cards. - Photographs of borrowers of guarantors duly attested by Gazetted officers to be affixed on the bond of Guarantee & Term Landing Agreement. - Rs. 50/- Non Judicial stamp paper for bond of guarantee. - Rs. 100/- Non Judicial stamp paper for Mortgage Deed.  In case of Acceptance of FDRs/KVPs/NSCs or any other tangible security. - Original FDRs/KVPs/NSCs duly discharged by the holder. - Lien/Pledge to be marked on FDRs/KVPs/NSCs in favour of the corporation from the concerned Authorities on the instructions issued by the corporation. - In case, FDR is in the name of Delhi Financial Corporation, lien/pledge is not required. - In case of LIC policy, assignment in favour of corporation is to be recorded and certificate of surrender value to be obtained.  In case of Collateral Security oh Immovable property - Original title papers with all the original chain documents to the satisfaction of the corporation. - Copy of electricity bill, house tax bill or mutation certificate. - Search of title in the office of Sub-registrar or revenue records from panel advocate. - Valuation of the property to be conducted from panel valuer.

- Public notice to be issued in the Display column of Hindustan Times/Times of India. - Permission u/s 281 (i) & (ii) if Income Tax act of owner/mortgagor. - In case of Lease hold property, permission to mortgage to be obtained from the concerned Authorities beside lease deed in original In case of Free hold property, permission u/s 8 of Delhi Land Restriction on Transfer act,1971 to be obtained. In case of company, Form 8&13 to be filed with ROC after registration of mortgage deed within 30 days of Registration. Entry in cases of equitable Mortgage as per SIDBI pattern. IN CASE THE PRIME SECURITY INVOLVING LAND & BUILDING IS TO BE

MORTGAGE ON THE BASIS OF TRIPARITE AGREMENT

OF EXCHANGE OF LETTER WITH DDA/DSIDC OR ANY OTHER LAND MANAGEMENT AGENCY. Simple registered mortgage is to be get done. Advice to Borrower. - The hypothecation deed/Mortgage is to be typed on a non-judicial Stamp Paper Rs.100/- purchased in the name of

borrower.

Further, if the borrower is the company, then the common seal is to be affixed in accordance with the relative provisions in the articles of Association of the Company and the Board resolution passed in thet regard. - The Loan Agreement will have to be typed on a non- judicial Stamp paper of Rs.10/- purchased in the name of the borrower.

- The Board Of Guarantee is to be typed on a non-judicial Stamp paper of Rs. 50/- purchased in the name of Guarantors. This document will have to be executed in the office of the DFC. - In case of mortgage of property, after the corporation is satisfied that the immovable property offered can be accepted as security, the necessary Declaration and Undertaking is to be typed on nonjudicial Stamp paper of Rs. 50/- to be purchased in the name of the mortgagor/s to be notarised after execution. - In case of Private Limited Company, after execution of loan documents, forms 8 and 13 to be filed with the Registrar of Company and receipt in original, issue by the ROC is to be submitted in the corporation. - Tripartite Agreement, if any on Non Judicial stamp Paper of Rs. 50/- Affidavit on Non Judicial Stamp Paper of Rs. 10/-

Loan Documents duly executed before disbursing the loan amount in the following account

6.3.2 Loan agreement analysis of the theoretical concept releating to the practical experience gain during internship Case 1: M/S Anant Prasad Shukla

1.

Date of sanction

27/june/2018

2.

Amount of sanction

150000/-

3.

Amount

of 150000/-

Disbursement 4.

Period of repayment

5

years

including

4

months

moratorium 5

Rate of Interest

12% and additional interest 2%

6

Name of borrower

Anant Prasad Shukla

7.

Security/hypothecation FDR by Central Bank worth Rs. 31000/Hypothecation of Auto- rickshaw

8

List

of

executed

documents

 Hypothecation cum – Term Loan agreement on Rs.50/Non Judicial stamp paper.  Memorandum and undertaking  Form 26- Intimation of loss or destruction.  Form 29- Notice of transfer of ownership of a motor vehicle.  Form

30-

Application

for

intimation and transferor of ownership of a motor vehicle

 Form 35- Notice of termination of

an

agreement

of

their

purchase/ lease/ hypothecation. 9

Additional documents

 Electricity Bill for address proof.  Adhar card for identity proof  Driving licence  Pan card  Details of neighbour through identity proof like Adhar Card.

Case 2: M/s Bimla 1.

Date of sanction

06/july/2018

2.

Amount of sanction

150000/-

3.

Amount of Disbursement

150000/-

4.

Period of repayment

5 years including 4 months moratorium

5

Rate of Interest

12% and additional interest 2%

6

Name of borrower

Mrs. Bimla

Name of guarantor

Mrs. Bimla w/o Shri. Motilal owner of property- Janta flats, Flat no.383, first floor, pocket h-3, sec.16, rohini

7.

Security/hypothecation

Third

party

guarantee

Mrs.

Bimla on net worth basis who is owner of Janta flats.383, First floor,

pocket

h-3,

sec

16,

rohini.. 8

List

of

executed

documents

 Hypothecation

cum

–

Term Loan agreement on Rs.50/-

Non

Judicial

stamp paper.  Memorandum

and

undertaking  Form 26- Intimation of loss or destruction.  Form

29-

Notice

of

transfer of ownership of a motor vehicle.  Form 30- Application for intimation and transferor of ownership of a motor vehicle  Form

35-

Notice

of

termination agreement

of of

purchase/

an their lease/

hypothecation.  Bond of Guarantee, Sole proprietorship. 9

Additional documents

 Electricity

Bill

for

address proof.  Adhar card for identity proof  Driving licence  Pan card  Details through

of

neighbour

identity

proof

like Adhar Card.

Interpretation : Both the loans are auto loan, The most important agreement in this is Hypothecation agreement because auto is a movable asset so in case of M/s Anant Prasad Shukla we took FDR as guarantee and in case of M/s Bimla we took house property as credit worthiness.

6.3.3 Hypothecation Agreement. Hypothecation means offering an asset as a collateral security to the lender whereby the ownership lies with a lender and the possession is enjoyed by the borrower. In a case of default by the borrower, the lender can exercise his ownership rights to seize the asset.

It is done in a case of movable assets, for creating the charge against collateral for the loan given. Under hypothecation, the possession of the security remains with the borrower itself. Hence, if the borrower defaults on payments, the lender would have to first take possession of the security (asset under hypothecation) and then sell the asset to recover dues. EXAMPLE OF HYPOTHECATION In the case of vehicle loans, the vehicle remains with the borrower but the same is hypothecated to the bank/ financer. If there is any default by the borrower, the bank takes possession of the vehicle after giving notice and then sells the same. The loan account is credited with the sales proceeds of the asset to recover the dues towards the principal amount and interest amount. Any balance left thereafter shall be given back to the borrower. Apart from vehicles, hypothecation can be done for stocks and bills receivables. DOCUMENTATION This activity usually requires an agreement to be made and is known as the hypothecation deed. The hypothecation deed is an agreement which contains standard features and rules; which usually cover the following points: Definitions, Insurance [to ensure good condition of the asset], Inspection rules , rights and remedies of

each party [in case of any default], security details marked for hypothecation, sale realizations, insurance proceeds, liability of each party, jurisdiction prevailing, marking of the assets etc. This deed protects the rights of both the parties to the contract.

6.3.4 CONCLUSION A hypothecation is a route by which borrower can raise funds by providing security (movable) as collateral and still get to use it since the possession remains with the borrower. This source of loan is given by the bank/ financer at a rate lower than the unsecured loan as it provides the sense of security to the lender. After gone through the existing Hypothecation-Cum –Term Loan Agreement of the Corporation and Agreements for vehicle loan of the PSU Banks and compared with each other we have observed that . 1) The existing Hypothecation-Cum –Term Loan Agreement of the Corporation is meant for Individual/Proprietorship firm but the documents of the PSU banks are meant for Companies as well as for individual/Firm. Therefore it is suggestive to change accordingly, so that it can be utilized for all kind of borrowers. 2) The existing Hypothecation-Cum –Term Loan Agreement of the Corporation is having combined effect of Term Loan Agreement and Hypothecation Agreement but the PSU bank used to take both agreements separately. It is therefore advisable to take separate agreement for Term Loan and Hypothecation Agreements, so that the contents of the agreement elaborated properly and also will be easier to enforce.

3)

The contents of the existing Hypothecation-Cum –Term Loan Agreement of the Corporation are scattered which are required to be in different heads to locate easily and also to understand easily Such as

Jurisdiction and Powers under the SFC Act(State

Financial Corporation Act) etc. 4) The existing Hypothecation-Cum –Term Loan Agreement of the Corporation has no proper schedule in the agreement therefore proper schedule be incorporated with details of the terms and conditions of the sanction letter.

5) The Sub clause xii of the Clause xxvii of the existing Hypothecation-Cum –Term Loan Agreement of the Corporation talks about the release of 10% of the loan amount when the borrower shows the hypothecation to the corporation on the registration Certificate but there is no specific mentioning of the release of 90% of the loan amount in the agreement, therefore this area is also to be addressed in the agreement. .

6.4 Comparative analysis of DFC Legal recovery procedure with Public Sector Banks 6.4.1 LEGAL RECOVERY PROCEDURE UNDER SFC ACT 1951 The Act was enacted to provide for the establishment of State Financial Corporations. Several provisions were enacted with a view to see that the dues of the Corporation are realized expeditiously. Section 29 of the Act provides for the rights of financial corporation to realize its dues in case of default. We may take notice of Sub-section (1) of Section 29 of the Act which reads as under: Section 29: Rights of Financial Corporation in case of default 1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any installment thereof [ or in meeting its obligations in relation to any guarantee given by the corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation shall have the [ right to take over the management or possession or both of the industrial concerns] as well as [right to transfer by way of lease or sale] and realised the property pledged, mortgaged, hypothecated or assigned to the financial corporation. 2) Any transfer of property made by the Financial Corporation, in exercise of its power under sub section (1), shall vest in the transferee all rights in or to the property transferred [ as if the transferred] had been made by the owner of the property. 3) The financial corporation have the same rights and powers with respect to goods manufactured or produced wholly or partly

from goods forming part of the security held by it as it had with respect to the original goods. 4) [ Where any action has been taken against an industrial concern] under the provision of sub section (1), all costs, [charges and expenses which in the opinion of the Financial Corporation have been properly incurred] by it [as incidental thereto] by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charged and expenses and, secondly, to discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto] 5) [ Under the financial corporation ahs taken any action against an industrial concern] under the provision of sub section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the [the concern]. Section 30 of the Act inter alia provides for power to call for repayment before the agreed period. Section 31 provides for special provisions for enforcement of claims by Financial Corporation. It reads as under: Section 30: Power to call for repayment before agreed period Notwithstanding anything in any agreement to the contrary, the Financial Corporation may, by notice in writing, require any industrial concern to which it has granted any loan or advance to discharge forthwith in full its liabilities to the Financial Corporationa) If it appears to the board that false or misleading information in any material particular was given by the

industrial concern in its application for the loan or advance; or b) If the industrial concern has failed to comply with the terms of its contract with the financial corporation in the manner of the loan or advance; or c) If there is a reasonable apprehension that the industrial concern is unable to pay its debts or that proceedings for liquidation may be commenced in respect thereof; or d) If the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance is not insured and kept insured by the industrial concern to the satisfaction of the Financial Corporation or depreciates in value to such an extent that, in the opinion of the board, further security to the satisfaction of board should be given and such security is not given; or e) If, without the permission of the board, any machinery, plant, or other equipment, whether forming part of the security or otherwise, is removed from the premises of the industrial concern without being replaced; or f) If for any reason it is necessary to protect the interests of the Financial corporation.

Section 31: Special provision for enforcement of claims by Financial Corporation. 1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof [or in meeting its obligations in relation to any guarantee given by the corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 30 and industrial concern fails to make such repayment, [then, without prejudice to the provision of section 29 of this act and of section 69 of The Transfer of Property Act, 1882(4 of 1882)] any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the district judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely:(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance; or [(aa) for enforcing the liability of any surety; or] (b) for transferring the management of the industrial concern to the

Financial Corporation; or

(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises

of the industrial concern without the permission of the Board, where such removal is apprehended. 2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed. Section 32G: Recovery of amount due Financial Corporation as an arrear of land revenue Where any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorized by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it, and if the State Government or such authority, as that government may specify in this behalf, is satisfied, after following such procedure as may be prescribed, that any amount is so due, it may issue a certificate for that amount to the Collector, and the Collector shall proceed to recover that amount in the same manner as an arrear of land revenue.]

6.4.2 Legal recovery case analysis of the theoretical concept releating to the practical experience gain during internship

Court cases followed : Case 1: NBG industries (Mohan Kohli) 1.

Date of sanction

24.01.1997

2.

Amount of sanction

70.75 lacs

3.

Amount of Disbursement 62.04 lacs

4.

Period of repayment

1.11.1997 to 1.2.2004 The Corporation

rescheduled

the instalment and payment of loan

was

to

start

w.e.f.

01.05.1998 5

Rate of Interest

19% & Addl. Intt. 4% p.a.

6

Committed default since

Very beginning

7

Date of recall/Section 29

The possession of the unit was taken on 26.04.2000 under Sec 29 of SFC’s Act later was restored

but

due

to

non

payment finally the Corporation took the possession of the unit on 03.04.2002.

Mr.

Mohan

Kohli

applied

for

loan

to

Delhi

Financial

Corporation.(“DFC/Petitioner”)for manufacturing adhesive tapes and injection molding components. Mortgage deed was signed between DFC and Mr. Mohan Kohli and DFC had granted a loan of Rs. 70,75,000/- to NBG Industries ( Mr. Mohan Kohli) DFC sent notice to to clear default amount of Rs. 5,70,411.95 failing which action would be initiated under section 29 of The State Financial Corporations Act, 1951(“SFC Act”) Second notice u/s 29 of SFC Act for clearing default of Rs. 73,66,484.60 by 25.11.1999 was issued by DFC.Third show cause notice u/s 29 of SFC Act was issued by DFC for clearing entire arrear of Rs. 8,47,687 by 31.12.1999 failing which unit would be sealed on 03.01.2000. Mr. Kholi wrote a letter to DFC promising payment of Rs. 40,000 and postdated cheques for Rs. 2 lakhs payable in February 2000 and Rs. 2.50 lakhs payable in March, 2000.But he had failed to fulfilled assurance given vide letter dated 03.01.2000. DFC took possession of the unit of Respondent No. 2 u/s 29 of SFC Act. Shri Kholi wrote for desealing of his unit and rescheduling his loan amount. DFC stated that possession would be restored on assurance by Respondent No. 2 that he will make down payment of Rs. 2 lakhs immediately and further payment of Rs. 1 lakh per month from October 2000 till rehabilitation package of the sick unit is determined by HARDICON.The possession was restored as per clauses vide letter dated 30.08.2000. But he again failed to fulfill the commitment. DFC again sent a notice u/s 29 of SFC to Shri Kholi Subsequently, DFC took possession of Respondent No. 2’s unit once again since he failed to deposit the arrears in default or cooperate with HARDICON for conducting study related to rehabilitation of Respondent No. 2’s unit.

DFC want realization of immovable properties, plant and machinery. Some of the mortgaged machineries was found missing and hence, DFC filed criminal complaint bearing FIR No. 608/03 u/s 406 of IPC before Police Station at CP which is pending before the Court of Ld. MM( Public notice was issued in national newspapers to hold auction of the properties by DFC through government auctioneer M/s Naidar Mal Jaikishan. DFC accepted the highest tender and transferred possession to Ganesh Footwears (P) Ltd for a total sum of Rs. 48.25 lakhs.Transfer order was issued in favour of M/s Ganesh Footwears (P) Ltd. Shri Kholi filed WP No. 8416/2004 before the Hon’ble High Court of Delhi seeking a stay on sale of NBG Industries unit. Hon’ble High Court of Delhi dismissed WP No. 8416/2004 by stating that the relief claimed by Respondent No. 2 has become infructuous. Ld. MM in Patiala Court in FIR No. 608/03 u/s 406 of IPC declared respondent No. 2 as ‘proclaimed offender’. Shri Kholi filed a complaint against DFC before the Grievance Cell of Govt. of NCT of Delhi which was referred to Anti Corruption Branch (Directorate of Vigilance), Govt. of NCT of Delhi and also before the Central Vigilance Commission. Shri Kholi filed Crl Misc. No. 2612/2006 seeking quasing of FIR No. 608/2003 and stay of proceedings.Shri Kholi filed WP No. 9155/2006 u/s 29 of SFC Act in the Hon’ble High Court of Delhi seeking setting aside of sale and restoration of his units. Police filed charge sheet in FIR No. 608/2003 and the Ld. MM in Patiala Court took cognizance of the offence. Shri Kholi filed a complaint u/s 21 of the Consumer Protection Act 1986 before Ld. NCDRC bearing CC No. 19/2007 claiming damages for bad sale of his unit by DFC u/s 29 of SFC Act.Shri Kholi filed his rejoinder in WP No. 9155/2006 claiming that DFC had sold

machineries which had not been hypothecated to it. PW Witnesses appeared before Ld. MM in Patiala Court in FIR No. 608/03 but only few could be examined.Shri Kholi applied for bail in FIR No. 608/03 which was allowed. Hon’ble High Court of Delhi dismissed WP No. 9155/2006 filed by Shri Kholi while upholding that the decision by DFC to sell the units was not taken in a hasty or rash manner. Further, Shri Kholi had failed to show the decision of selling the units LPA No. 16/2010 was filed by Respondent No. 2 against judgement passed by the Hon’ble High Court of Delhi in W.P. No. 9155/2006. Shri Kholi filed W.P. No. 6659/2013 impugning the Recovery Certificate issued u/s 32(G) of SFC Act and the same is pending. DFC was received notices u/s 91 Cr PC from I.O. again demanding documents for further investigation in CC No. 31/1/12 even though same has been supplied to earlier to I.O. during proceedings before Ld. KK Patialia Court Interruption: Multiple Litigation is pending before several court in this matter , This recovery of loan amount causes huge litigation expense and unnecessary diversion of effective man’s work Hours of the department

B) M/s CFC Laboratories Ltd

1.

Date of sanction

29.12.1987

2.

Amount of sanction

23.00 lacs

3.

Amount of Disbursement 12.87 lacs

4.

Period of repayment

1.5.89 to 1.2.1994

5

Rate of Interest

17.5% with rebate of 4% with [email protected]% on default

7

Committed default since

10. Suit

filed

by

1.5.1992

the Corporation

Corporation or Borrower

2. Brief facts of the case The party hypothecates the plant and machinery with the corporation and Mortgage the property Khasra no. 768, Situated at village suraj pur, gautam Budh Nagar, U.P admeasuring 4.41 Hectare Property for a sanctioned amount of Rs 23.00lacs. The Party start deflating since beginning. After giving the notice 32G proceeding had been initiated and RC was issued. To complied the same the corporation want to sell the said property but the said Property mortgaged with the Corporation stand acquired and the possession had been taken by the land acquisition authorities, Meerut Zone on 14.7.2000. The Corporation has filed objection before learned ADM (land acquisition), Greator Noida, Distt Gautam Budh Nagar on 30.11.2002. The report further reveals about the recovery proceedings filed by the various bank before DRT, Lucknow, DRT, Allahabad and DRT, Delhi for attachment of property owned by different owners in the same khasra number. The Corporation to file

objection before DRT-II & III, Delhi and matter is pending before learned ADM (land Acquisition),Greater Noida, Distt. Gautam Budh Nagar. RC was transferred from Office of the Collector ( R )

to Dadri in

January,2003. In view of the transfer of RC the advocate advised that the Corporation now is not required to intervene in the proceeding before DRT-II & III and also at Lucknow and Allahabad and these were duly approved by CMD’s order dt. 13.12.02 (55/N). After transferred the RC and filing of objection by the DFC the correspondence was exchanged by ADM vide his letter dt. 11.3.2004 and filed a writ petition in the High Court Allhabad,U.P Writ petition has been filed by M/s CFC Labs.

i)

Allahabad Bank V/s Sandhera Minerals (264/1/2006, 45553/2016

ii)

IOB v/s Indian Tech & Granites Ltd. (M/s CFC Laboratories Ltd) DRT Patel Chowk and Patiala House Court

Intervening application filed by the Corporation for compensation in both the matters pending in DRT.

iii)

State V/s CFC Lab (M/s CFC Lab) Patiala House Court

For framing of charge.FIR No. 607/2003 U/s 406/420 IPC against the accused on November, 2002

Interruption: The property was mortgage before different banks and corporation. It is a case of cheating and FIR was also lodge. This recovery of

loan amount causes huge litigation expense and

unnecessary diversion of

effective man’s work Hours of the department

6.4.3 Legal recovery process of Public sector Bank under SARFAESI Act-2002

The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (also known as the SARFAESI Act) is an Indian law. It allows banks and other financial institution to auction residential or commercial properties to recover loans.[1] The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.[2] Under this act secured creditors (banks or financial institutions) have many right for enforcement of security interest under section 13 of SARFAESI Act, 2002. If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as Non performing Asset by secured creditor,then secured creditor may require before expiry of period of limitation by written notice to the borrower for repayment of due in full within 60 days by clearly stating amount due and intention for enforcement. Where he does not discharge dues in full within 60 days, THEN WITHOUT INTERVENTION OF ANY COURT OR TRIBUNAL Secured creditor may take possession (including sale,lease,assignment) of secured asset, or takeover management of business of borrower or appoint manager for secured asset or without taking any of these action may also proceed against guarantor or sell the pledged asset, if any. Section 13 in The Securitisation And Reconstruction Of Financial Assets Andenforcement Of Security Interest Act, 2002

13. Enforcement of security interest.(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882 ), any security interest created in favour of any secured creditor may be enforced, without the int rvention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (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 on- 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 e ercise all or any of the rights under sub- section (4). (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 non- payment of secured debts by the borrower. (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 realising the secured asset; (b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured asset;

(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. (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. (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. (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 ischarge 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. (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or

transferred by the s cured creditor, and no further step shall be taken by him for transfer or sale of that secure asset. (9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursua t to sub- section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three- fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956 ): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to su- section (1) of section 529 of the Companies Act, 1956 (1 of 1956 ), may retain the sale proceeds of his secured assets after depositing the workmen' s dues with the liquidator in accordance with the provisions of section 529A of that Act: Provided also that liquidator referred to in the second proviso shall intimate the secured creditor the workmen' s dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956 ) and in case such workmen' s dues cannot be asc rtained, the liquidator shall intimate the estimated amount of workmen' s dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimate dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmen' s dues, such creditor shall be liable to pay the balance of the workmen' s dues or entitled to receive the excess amount, if any, deposited by the secured creditor w th the liquidator: Provided also that the

secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen' s dues, if any. Explanation.- For the purposes of this subsection,(a) " record date" means the date agreed upon by the secured creditors representing not less than three- fourth in value of the amount outstanding on such date; (b) " amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. (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) Without prejudice to the rights conferred on the secured creditor under or by this section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measured specifies in clause (a) to (d) of sub- section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub- section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written con ent of the secured creditor.

Section 14 in The Securitisation And Reconstruction Of Financial Assets Andenforcement Of Security Interest Act, 2002 14. Chief Metropolitan 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 assets is r quired 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 assets, 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 asset and documents to the secured creditor. (2) For the purpose of securing compliance with the provisions of sub- section (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. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority.

6.4.4 Conclusion Comparative Study of SFC Act 1951 and SARFAESI Act 2002 for the legal Recovery purpose, the Section 29,30,31,32 of the SFC act and Section 13,14 of the SARFAESI act have been introduced as a legal tools to recover the dues of the amount financed to the borrowers by the lenders and also having similar effect except few one. A. The sub section 1 of section 29 of the SFC Act states that if the borrower makes any default in repayment of any loan or advance or any instalment thereofor in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the[right to take over the management or possession or both of the industrial concerns], as well as the[right to transfer by way of lease or sale] and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. On other hand the Section 13(2) of the SARFAESI act provides remedy to lender when 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 installment 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) B. It is submitted that the SARFAESI act is available only in case where the security is available with the lender but in SFC act no such condition has been mentioned and further under SARFAESI act it is mandatory that the account has to be declared as NPA as per the prudential guidelines of the RBI but the SFC act has no such condition. It has been mentioned that in case of any defaults as per the agreement, the corporation under SFC ACT is at liberty to take action against borrower who has defaulted. C. It is further submitted that section 13(2) of the act has given limitation of 60 days to respond to the notice issued by the lender however the section 29 of the SFC act has no such time limit. D. It is further submitted that section 13 of the act has been applicable on the Borrower, Guarantor or mortgagor who has created security interest with the lender however the section 29 of the SFC act is only applicable against the principle borrower and for taking action against the Guarantor

and other third party, The Lender Corporation has to go through Section 31 of the SFC act. E. It is submitted that the section 31 of the SFC act is similar to the section 13(4) of the SARFAESI act however Under SARFAESI act the lender has power to sale the property even without intervention of the Court. F. That the SARFAESI act is a special act which was introduced only to enforce the security interest for speedy recovery and the SFC is a complete act including recovery of the debt against the borrower/s. That the SARFAESI Act is a subsequent act therefore it has overriding effect to the SFC act. G. That the SFC act has wider power than the power vested in the SARFAESI act and further under section 32(g) of the SFC act any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorized by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it, and if the State Government or such authority, as that Government may specify in this behalf, is satisfied, after following such procedure as may be prescribed, that any amount is so due, it may issue a certificate for that amount to the Collector, and the Collector shall proceed to recover that amount in the same manner as an arrear of land revenue.

6.5 SWOT Analysis

STRENGTH

WEAKNESSES

1) We have a special power under 32G.

1) Under staff

2) We have a special collector power.

2) Lack of training and updation.

3) Corporation formard under special act so difficult to insolvent.

3) Settlement policies are not attractive .

4) We have special power from 1951 but banks got this power from 2002.

4)No amendment in act.

5)We can sale property without interpretation of court.

SWOT

OPPORTUNITES

THREATS

We can support in legal recovery of DDA and DSIDC for recovery of their from defaulters.

1) Prolong litigation in several fraud cases. 2) Lack of business opportunity due to continuous default of the borrower. 3)Document are not revised since loan.

Chapter 7

Conclusion And Suggestion

7.1 Conclusion Therefore in conclusion, the provision of the SFC act has wider power than that of the SARFAESI act . It is further submitted that the SARFAESI act is limited to the extent of enforcement of Security interest only but the SFC act deals with recovery of Secured as well as unsecured loans. After analysing ratios I can conclude that there is not very stable condition of the corporation but the main advantage is that it cannot be insolvent. And in legal department there are many powers which are very helpful for taking very good and strong immediate decisions. As DFC legal department can issue it’s own RC without intervention of court but other banks doesn’t have thus power. The DFC have it’s own collector which can take there own level of judgements for the cases that are going in DFC under section 32G.

7.2 Suggestion The suggestion for the corporation is that there is lack of training among employees and there are no new ideas among them so there is need to be good training sessions and new employees must be appoint so that they will bring good ideas. There should be amendment in the act by including some more beneficiary powers.