WELCOME

LEGAL ASPECTS
OF
ADVANCES
STATE BANK LEARNING CENTRE, RANCHI

ISSUES FOR DISCUSSION

TYPES OF BORROWERS
DOCUMENTATION
STAMP DUTY
MORTGAGE & OTHER SECURITIES
REGISTRATION OF CHARGE
LIMITATION ACT
LEGAL OPTIONS FOR RECOVERY OF NPAs

BORROWERS
COMPANIES
LEGAL ENTITY-DISTINCT FROM OWNERS OR
SHAREHOLDERS; PERPETUAL SUCCESSION;
LIMITED LIABILITY OF SHAREHOLDERS;
COMMON SEAL; GOVERNED BY THE INDIAN
COMPANIES ACT 1956
u/s 11 :REGISTRATION REQUIREMENTS
(BANKING BUSINESS >10 PERSONS; OTHER
BUSINESS>20 PERSONS)

COMPANIES
PRIVATE LTD. CO. (u/s 3(1)(iii));MIN.

MEMBERS 2,MAX 50.MIN DIRECTORS

2;SHARES CANNOT BE TRANSFERRED TO
THIRD PARTIES WITHOUTTHECONSENT OF
OTHER SHAREHOLDERS
PUBLIC LTD.CO. MIN MEMBERS 7, MIN
DIRECTORS 3
NON-LIMITED COMPANIES

COMPANIES

CERTIFICATE OF INCORPORATION OR (both In Pvt Ltd

and Public Ltd Company)

DOCTRINE OF CONSTRUCTIVE NOTICE
MEMORANDUM OF ASSOCIATION
(OBJECT CLAUSE;MAIN OBJECTS;ANCILLARY
OBJECTS;OTHER OBJECTS)
SHAREHOLDERS CAN AMEND THE OBJECT CLAUSE
ARTICLES OF ASSOCIATION OR
DOCTRINE OF INDOOR MANAGEMENT
CERTIFICATE OF COMMENCEMENT OF BUSINESS
only in Public Limited Company
DOCTRINE OF ULTRA VIRES any action against
memorandum of association can not be rectified
at a later date even by Genl Body Meeting.
COMMON SEAL- an identity & signature of company

PARTNERSHIPS
DESCRIBED UNDER SEC 4 OF INDIAN

PARTNERSHIP ACT. NO WRITTEN DEED

NECESSARY BECAUSE AS PER LAW A
PARTNERSHIP CAN ALSO BE AN ORAL
AGREEMENT.
ALL PARTNERS ARE JOINTLY, SEVERALLY
AND CO-EXTENSIVELY LIABLE FOR ALL
ACTS OF THE FIRM
BANKS ASK FOR A REGISTERED DEED OF
PARTNERSHIP AS WELL AS PERSONAL
GUARANTEE OF ALL PARTNERS

PARTNERSHIPS
A MINOR HAS TO DECLARE WITHIN 6

MONTHS OF BECOMING A MAJOR OR

LEAVE; ELSE HE WILL BE DEEMED TO HAVE
JOINED THE PARTNERSHIP AND WILL BE
LIABLE RETROSPECTIVELY.
LEGAL HEIRS OF A DECEASED PARTNER
ARE NOT PERSONALLY LIABLE
A FIRM IS BOUND BY ALL THE ACTS OF A
PARTNER DONE IN THE USUAL COURSE OR
WAY OF THE FIRMS BUSINESS

SOCIETIES

ONLY A REGISTERED SOCIETY ATTAINS A

SEPARATE IDENTITY AND CAN BE SUED

60 DAYS NOTICE u/s 126 OF THE COOPERATIVE SOCIETY ACT IS REQUIRED FOR
FILING A SUIT AGAINST A SOCIETY
CONSTITUTION & BYE LAWS SHOULD BE
CAREFULLY EXAMINED
WHETHER AFFILIATED TO ANY OTHER
SOCIETY
RESOLUTION AUTHORISING BORROWING
OR OPERATION OF ACCOUNT
REQUIRED.OBTAIN PERSONAL GUARANTEE
OF ALL OFFICE BEARERS

DOCUMENTATION
PROPER DOCUMENTS TO BE EXECUTED IN
A PROPER MANNER BY THE PERSONS
AUTHORISED THEREFOR
INCOMPLETE DOCUMENTS ARE LIKELY TO
BE TERMED AS UNRELIABLE AND NOT
ADMISSIBLE AS EVIDENCE
INTEREST

FUTURE RATE OF INTEREST

DOCUMENTATION
PROVISO - I SECTION 34 OF CPC FUTURE

RATE OF INTEREST CAN BE BROUGHT

DOWN
PROVISO II AGREED RATE OF INTEREST TO
BE APPLIED IN COMMERCIAL TRANSACTION
PROVISO III IF THERE IS NO AGREED
RATE,THEN MAX 12 % SIMPLE RATE OF
INTEREST MAY BE AWARDED

DOCUMENTATION
WHO SHOULD FILL THE DOCUMENTS
PREFERABLY THE PERSON WHO HAS

FILLED THE REST OF THE DOCUMENT

OR A PERSON WHO WAS ATTACHED
TO THE BRANCH AT THE MATERIAL
TIME
A DOCUMENT WITH GAPS / BLANKS, IF
MENTIONED IN THE PLAINT, MAY BE
ADMITTED AS SECONDARY EVIDENCE

STAMP DUTY
LEGAL REQUIREMENT
INDIAN STAMP ACT 1899 REQUIRES THAT

DOCUMENTS SPECIFIED IN ENTRY 91 OF UNION

LIST SHOULD BE PROPERLY STAMPED
AN UNSTAMPED OR UNDERSTAMPED
DOCUMENT MAY BE PRODUCED BEFORE THE
REGISTRAR OF ASSURANCES;ELSE, SUIT MAY
BE FILED WITH A REQUEST TO THE COURT TO
SEND THE DOCUMENT TO ROA FOR PROPER
STAMPING.
STAMPS AFFIXED AFTER DATE OF EXECUTION
ARE NOT ADMISSIBLE

STAMP DUTY
ANY INSTRUMENT DRAWN AND EXECUTED

OUTSIDE INDIA MUST BE STAMPED WITHIN

THREE MONTHS OF ENTRY IN INDIA
UNSTAMPED OR UNDERSTAMPED
D.P.NOTES AND BILLS OF EXCHANGE
CANNOT BE CORRECTED EVEN IF THE
PENALTY IS PAID.
ADHESIVE STAMPS CAN BE AFFIXED ONLY IF
THE DOCUMENT IS PRINTED.ADHESIVE
STAMPS MUST BE DULY CANCELLED
STAMP PAPER MUST BE PURCHASED IN THE
NAME OF ONE OF THE PARTIES TO THE
CONTRACT

SECURITY
MORTGAGE
SEC 58 OF T.P.ACT

SIMPLE,ENGLISH,EQUITABLE,
OWNERSHIP FREE HOLD, LEASE HOLD,
GOVERNMENT OWNED
ANY RESTRICTIVE CLAUSES ?
CASE OF ADVERSE POSSESSION ?
T I T L E CLEAR, MARKETABLE, CHAINcomplete
SEARCH REPORT

MORTGAGE
IN THE CASE OF A LIMITED CO.,

RESOLUTION TO BE PASSED IN THE

GENERAL BODY MEETING TO CREATE
MORTGAGE ON THE COS PROPERTY.
ANOTHER RESOLUTION TO BE PASSED
BY THE BOARD AUTHORISING A
REPRESENTATIVE OF THE CO TO
CREATE THE MORTGAGE BY DEPOSIT OF
THE TITLE DEEDS
IF LAND IS OWNED BY A TRUST,
TRUSTEES MUST HAVE THE RIGHT TO
MORTGAGE THE TRUSTS PROPERTY

SECURITY
PLEDGE
DEFINED u/s 172 OF INDIAN CONTRACT
ACT.PLEDGEE HAS THE RIGHT TO
POSSESSION.
REASONABLE NOTICE u/s 176 REQUIRED
TO BE GIVEN TO THE BORROWER
BEFORE SELLING THE PLEDGED
GOODS.BANK IS LIABLE u/s 151 TO TAKE
GOOD CARE OF THE SEIZED GOODS

SECURITY
HYPOTHECATION
RIGHTS CAN BE EXERCISED THROUGH A
COURT OF LAW
HYPOTHECATION IS NOT DEFINED
IT IS A NOTIONAL,SPECIAL AND
EQUITABLE CHARGE
BORROWER IS FREE TO SELL THE
HYPOTHECATED GOODS
PROVISIONS OF T.P.ACT AND CONTRACT
ACT NOT APPLICABLE

SECURITY
LIEN
RIGHT TO RETAIN PROPERTY TILL

PAYMENT OF DEBT. BANKERS LIEN u/s

171 OF THE INDIAN CONTRACT ACT IS A
WITHOUT LIMITATION IMPLIED PLEDGE

SET OFF
STATUTORY RIGHT,REQUIRES PRIOR

NOTICE. BANK CANNOT SET OFF

BALANCE IN BORROWERS JOINT
ACCOUNT WITH ANOTHER PERSON TO
LIQUIDATE DEBT OUTSTANDING IN THE
BORROWERS NAME

REGISTRATION OF CHARGE
(IN CASE OF COMPANIES)

CHARGE DEFINED u/s 100 OF T.P.ACT (NOT

DEFINED IN COMPANIES ACT)

FLOATING CHARGE; FIXED CHARGE
HYPOTHECATION, MORTGAGE, HIRE PURCHASE
REQUIRE REGISTRATION BUT NOT THE CHARGE
OF PLEDGE
FILING OF PARTICULARS OF CHARGE FORMS
MUST BE SIGNED BY BOTH, THE COS
AUTHORISED OFFICIAL(S) AND THE CHARGE
HOLDER
WHENEVER TERMS & CONDITIONS, EXTENT OR
OPERATION OF ANY CHARGE IS MODIFIED, SUCH
MODIFICATION IS ALSO REQUIRED TO BE
REGISTERED

REGISTRATION OF CHARGE
(IN CASE OF COMPANIES)

FORMS
FORM 8 REGISTRATION/MODIFICATION
OF CHARGE
FORM 13 REGISTER OF CHARGES
FORM 17 SATISFACTION OF CHARGE
FORM 18 CHANGE OF SITUATION OF
OFFICE
FORM 32 APPOINTMENT/CHANGE OF
DIRECTORS

IMPORTANT SECTIONS OF
COMPANIES ACT

SEC 124 CHARGE TO INCLUDE MORTGAGE

SEC 125 CHARGE VOID IF NOT REGISTERED
(PARTICULARS OF CHARGE MUST BE FILED
WITHIN 30 DAYS OF THE CREATION OF
CHARGE)
SEC 126 DATE OF NOTICE OF CHARGE
SEC 127 MODIFICATION OF CHARGE IN
RESPECT OF PROPERTIES ACQUIRED SUBJECT
TO CHARGE
SEC 130 REGISTER OF CHARGES TO BE KEPT
BY THE REGISTRAR OF COMPANIES
SEC 135 MODIFICATION OF CHARGE
SEC 136 COPY OF INSTRUMENTS CREATING
CHARGE TO BE KEPT AT COMPANYS OFFICE

IMPORTANT SECTIONS OF
COMPANIES ACT
SEC 138 140 SATISFACTION OF

CHARGE.CHARGEHOLDER HAS A DUTY TO INFORM

ROC WITHIN 30 DAYS OF SATISFACTION OF
CHARGE
SEC 141 POWER OF COMPANY LAW BOARD TO
AMEND THE REGISTER OF CHARGES
SEC 142 PENALTY
SEC 149(2A) RESTRICTIONS ON COMMENCEMENT
OF BUSINESS
SEC 292 POWER OF THE BOARD TO BORROW
SEC 293(i) (a) SHAREHODERS RESOLUTION OF
THE PUBLIC LTD CO.TO BACK THE MORTGAGE OF
THE PROPERTY OF THE COMPANY
SEC 293(i)(d) RESOLUTION TO BE PASSED BY
SHAREHOLDERS IF THE AMOUNT OF LOAN
>PUC+FREE RESERVES

REMEMBER

SURETY HAS THE RIGHT TO BENEFIT OF SECURITY

SEC 139 & 141 OF INDIAN CONTRACT ACT

POWER OF ATTORNEY
CHECK IF THE PRINCIPAL
(ASSIGNOR) HIMSELF HAS THE POWER THAT HE
INTENDS TO ASSIGN. DOES THE P/A HOLDER HAVE
THE POWER TO MORTGAGE PROPERTY FOR THE
BENEFIT OF THE PRINCIPAL OR THE P/A HOLDER OR A
THIRD PARTY
ONLY ACTIONABLE CLAIMS CAN BE ASSIGNED u/s 130
OF T.P. ACT
STAMPED INDEMNITY (u/s 124 OF INDIAN CONTRACT
ACT) SHOULD ONLY BE TAKEN
SOME DOCUMENTS ARE REQUIRED TO BE WITNESSED
TO BECOME ADMISSIBLE AS EVDENCE (e.g.
REGISTERED MORTGAGE)
CONVEYANCE MORTGAGE OF FIXED ASSETS (LEASE >1
YEAR) TO BE COMPULSORILY REGISTERED WITH THE
SUB-REGISTRAR OF ASSURANCES
IN THE CASE OF MORTGAGE OF AGRL LAND, SIMPLE
MORTGAGE SHOULD BE PREFERRED

LIMITATION ACT 1963

DEBT BECOMES TIME BARRED 3 YEARS FROM THE

DATE IT BECOMES DUE AND CANNOT BE RECOVERED

BY LEGAL PROCESS
THE LAW ONLY EXTINGUISHES THE REMEDY AND NOT
THE RIGHT. GOODS PLEDGED TO BANK CAN BE SOLD
EVEN AFTER THE EXPIRY OF THE LIMITATION PERIOD
LIMITATION PERIOD MAY BE EXTENDED UNDER
CERTAIN CIRCUMSTANCES
SEC 4 : IF PRESCRIBED PERIOD EXPIRES WHEN
COURT IS CLOSED, SUITMAY BE FILED ON THE NEXT
DAY WHEN THE COURT REOPENS
SEC 6 : LEGAL DISABILITY (MINOR, INSANE OR IDIOT)
SEC 11:SUITS AGAINST TRUSTEES AND THEIR
REPRESENTATIVES SHALL NOT BE BARRED BY ANY
LENGTH OF TIME

LIMITATION ACT 1963

SEC 12 (I): DAY OF EXECUTION OF DOCUMENTS TO

BE EXCLUDED
Sec 14 & 15 : EXCLUSION OF TIME IN CERTAIN
CASES
(FOR EXAMPLE TIME SPENT FOR
PROCEEDING BONA FIDE IN A COURT WITHOUT
JURISDICTION OR TIME TAKEN FOR OBTAINING
PRIOR PERMISSION OF GOVERNMENT WHEN
REQUIRED FOR INSTITUTING A SUIT OR THE TIME
DURING WHICH THE DEFENDANT HAS BEEN
ABSENT FROM INDIA ETC.)
SEC 18 : REVIVAL/ACKNOWLEDGEMENT OF DEBT
SEC 19: PAYMENT/DEPOSIT OF ANY AMOUNT BY
THE BORROWER HIMSELF BY A SIGNED VOUCHER
EXTENDS LIMITATION PERIOD FURTHER BY 3 YEARS

RECOVERY OF NPAs
LEGAL OPTIONS
LAW SUITS
RECOVERY THROUGH DRTs
RECOVERY CERTIFICATES
SUMMARY SUITS
ACTION UNDER PUBLIC DEBT
RECOVERY ACT (WHERE
APPLICABLE)

LAW SUITS
CHECK WHETHER DOCUMENTS ARE IN ORDER

AND ENFORCEABLE
KEEP ALL RELEVANT DOCs/BOOKS/ RECORD IN
A SEPARATE FOLDER
SEND LEGAL NOTICE
TRY TO SELL PLEDGED GOODS AFTER GIVING
DUE NOTICE (u/s 176 OF CONTRACT ACT)
BEFORE INSTITUTING THE LAW SUIT
SCRUTINISE THE PLAINT CAREFULLY; GET IT
VETTED BY THE LAW OFFICER IF REQD.
CAN A MORTGAGE SUIT BE FILED (UNDER
ORDER 34 RULE 4 OF CPC) ? COURTS HAVE
NO POWERS TO REFIX/REPHASE REPAYMENT
IN CASE OF MORTGAGE SUITS

LAW SUITS
REQUEST
contd
FOR

INTERIM/INTERLOCUTARY ORDERS SUCH AS

ATTACHMENT BEFORE JUDGEMENT,

APPOINTMENT OF RECEIVER,ORDER FOR
CUSTODY, PRESERVATION AND/OR SALE OF
SECURED ASSETS,ISSUE OF AD INTERIM
INJUNCTION ETC.
EXPEDITE SERVICE OF SUMMONS. IF REQUIRED,
PRAY FOR SUBSTITUTED SERVICE (UNDER
ORDER 5 RULE 20 )
ARRANGE FOR WITNESSES TO BE
PRODUCED;CONTEST ADJOURNMENTS
AFTER PRONOUNCEMENT OF JUDGEMENT,
APPLY FOR A CERTIFIED COPY THEREOF AND
SCRUTINISE THE SAME CAREFULLY

LAW SUITS

contd

INTERIM DECREE (ISSUED UNDER ORDER 35

CPC IN CASE OF MORTGAGE SUITS)

FINAL DECREE
PROCEED FOR EXECUTION; IF DETAILS OF THE
ASSETS OF JUDGEMENT DEBTORS ARE NOT
KNOWN, FILE AN APPLICATION IN THE COURT
UNDER ORDER 21, RULE 41 OF CPC
IN CASE EXECUTION PROCEEDINGS ARE FILED
WITHIN 2 YEARS OF THE DATE OF JUDGEMENT
ATTACHMENT ORDERS WILL BE ISSUED
STRAIGHTAWAY; OTHERWISE, SUMMONS WILL
HAVE TO BE ISSUED AGAIN TO THE JUDGEMENT
DEBTORS, AND THE RECOVERY PROCESS WILL
BE FURTHER DELAYED.

SUMMARY SUITS
SUMMARY SUITS MAY BE FILED

SELECTIVELY UNDER ORDER 37 IF NO

SECURITY IS AVAILABLE WHEREUPON
DEFENDENTS WILL HAVE TO PRAY FOR
LEAVE TO DEFEND AND SHOULD THEY
FAIL,DECREE WILL BE AWARDED.
HOWEVER, IF THE DEFENDENTS GET
THE LEAVE TO DEFEND, THEN THE
SUIT WILL BE CONVERTED INTO A
NORMAL MONEY SUIT.

DEBT RECOVERY TRIBUNALS

(THE RECOVERY OF DEBT DUE TO BANKS
AND FINANCIAL INSTITUTIONS ACT 1993)

COVERS ALL STATES EXCEPT J & K

DRTs AND DRATs CONSTITUTED (SEC 3 (1) , 8(1))
SEC 17 : JURISDICTION; POWERS; AUTHORITY
SEC 18 : BAR OF JURISDICTION
PROCEDURE:
-APPLICATION u/s 19 SUBMITTED ALONGWITH
DOCUMENTS , AFFIDAVITS OF WITNESSES AND
PRESCRIBED FEE (SEC 19(2))
-DEFENDENTS TO SHOW CAUSE WITHIN 30
DAYS OF SERVICE OF SUMMONS (SEC 19(3))
-AFTER HEARING THE CASE, ORDER PASSED
WHEREUPON THE PRESIDING OFFICER ISSUES
THE RECOVERY CERTIFICATE

DRTs
contd..
PROCEDURE
FOR APPEAL:

BOTH PARTIES CAN APPEAL

APPEAL TO BE FILED WITHIN 45 DAYS ACCOMPANIED BY

PRESCRIBED FEE (SEC 20) NO APPEAL IN CASE ORDER IS

ISSUED WITH THE CONSENT OF BOTH THE PARTIES
AT LEAST 75 % OF DEBT DUE TO BE DEPOSITED BY THE
DEFENDENTS PREFERRING AN APPEAL BEFORE THE DRAT
(SEC 21)
MODE OF RECOVERY : SEC 25 AND SEC28
REMEMBER
EVIDENCE MUST BE FILED ON AFFIDAVIT
ENSURE METICULOUS FOLLOW UP WITH PANEL
ADVOCATES
CERTIFIED EXTRACTS OF ACCOUNTS MUST BE ATTACHED
TO CLAIM APPLICATION UNDER THE RELEVANT
PROVISIONS OF BANKERS BOOKS EVIDENCE ACT AND IT
ACT

REMEMBER
ADVOCATES
MUST BE PRESENT ON ALL THE DATES OF

HEARING
CLAIM AFFIDAVITS MUST COMPREHENSIVELY DEAL WITH
ALLTHE PONTS RAISED IN THE DEFENCE IN THEIR
WRITTEN STATEMENTS
DETAILS OF MORTGAGED PROPERTY MUST BE
ENCLOSED. THERE IS NO NEED TO SEEK ATTACHMENT
OF MORTGAGED PROPERTY BUT ASK FOR INJUCTIONS
ON THE DEFENDENTS TO RESTRAIN THEM FROM
ALIENATING THEIR OTHER ASSETS
DO NOT PRAY FOR ALL THE RELIEFS AT A TIME AS IT
MAY DELAY THE FINAL DECISION
RESIST ADJOURNMENTS
TRY TO OBTAIN INTERIM RECOVERY CERTIFICATE TO
THE EXTENT CLAIM IS ADMITTED BY THE DEFENCE

THE SECURITISATION
AND
RECONSTRUCTION OF FINANCIAL
ASSETS AND
ENFORCEMENT OF SECURITY INTEREST
ACT, 2002

STATE BANK ACADEMY, GURGAON

SRESI ACT, 2002

(Promulgated on 24.06.2002; re-promulgated on
21.08.2002)
THE ACT PERMITS BANKS AND FIs TO TRANSFER
THEIR NPAs TO SECURITISATION AND ASSET
RECONSTRUCTION COMPANIES (REGISTERED
UNDER INDIAN COMPANIES ACT)
RBI WILL BE THE REGULATOR FOR THE ASSET
RECONSTRUCTION COMPANIES AS WELL
ASSET RECONSTRUCTION & SECURITISATION
COMPANIES WILL ACQUIRE THE FINANCIAL
ASSETS OF BANKS/FIs BY ISSUING BONDS/
DEBENTURES/SECURITIES.

SECURITISATION ACT contd.

SEC 3 : REGISTRATION OF SCs/RCs
SEC 5 : MODE OF ACQUISITION OF LOAN ASSETS

AND THE UNDERLYING SECURITY BY THE SCs/RCs

SEC 6 : MANNER IN WHICH NOTICE MAY BE GIVEN
BY BANKS/FIs TO BORROWERS REFGARDING
TRANSFER OF LOANS TO SCs/RCs
SEC 7: ISSUE OF SECURITIES TO RAISE RESOURCES
FOR PURCHASE OF LOAN ASSETSFROM BANKS/FIs
SEC 8 : EXEMPTING SECURITY RECEIPTS FROM
REGISTRATION REQUIREMENTS
SEC 9,15 : POWERS OF SCs/RCs TO TAKE OVER THE
BORROWERS BUSINESS AND INITIATE MEASURES
FOR REALISATION OF LOANS

SECURITISATION ACT contd.

SEC 12 : POWERS OF RBI TO REGULATE THE

BUSINESS OF THE SCs/RCs

SEC 13 : ENFORCEMENT OF SECURITY INTEREST
BY THE SECURED CREDITOR WITHOUT THE
INTERVENTION OF A COURT OR TRIBUNAL BY
GIVING 60 DAYS NOTICE. THE SECURED
CREDITOR CAN
TAKE POSSESSION/MANAGEMENT OF THE
SECURED ASSET FOR TRANSFER BY SALE OR
LEASE OR ASSIGNMENT FOR REALISATION OF
DUES FROM THE SECURED ASSET
APPOINT ANY PERSON TO MANAGE THE SECURED
ASSET SO TAKEN

SECURITISATION ACT contd.

REQUIRE ANY PERSON WHO HAS ACQUIRED ANY OF

THE SECURED ASSETS AND OWES MONEY TO THE

BORROWER TO PAY THE SECURED CREDITOR
TOWARDS CLEARING OF THE DEBT (AND ALL COSTS)
PREVENT TRANSFER BY SALE, LEASE OR OTHERWISE
ANY ASSET BY THE BORROWER AFTER RECEIPT OF
NOTICE
SEC 14 : DISTRICT MAGISTRATE/CMM TO PROVIDE
POLICE PROTECTION TO BANKS/FIs FOR TAKING
POSSESSION OF ASSETS
SEC 17,18 : DRTs/DRATs TO ENTERTAIN APPEALS
AGAINST ACTION TAKEN BY BANKS/FIs UNDER THE ACT
(ANY PERSON MAY PREFER APPEAL TO THE DRT
WITHIN 45 DAYS AND TO THE DRAT WITHIN 30 DAYS)
SEC 20 TO 26 : CENTRAL REGISTRY TO BE SET UP FOR
REGISTRATION OF TRANSACTIONS OF SECURITISATION
AND RECONSTRUCTION OF FINANCIAL ASSETS .

SECURITISATION ACT contd.

SEC 31 : PROVISIONS OF ACT NOT TO APPLY IN THE

FOLLOWING CASES:
LIEN ON ANY GOODS, MONEY OR SECURITY
PLEDGE OF MOVABLES
CREATION OF SECURITY INTEREST IN ANY AIRCRAFT
OR IN ANY VESSEL
ANY CONDITIONAL SALE, HIRE-PURCHASE OR LEASE
OR ANY OTHER CONTRACT IN WHICH NO SECURITY
INTEREST HAS BEEN CREATED
RIGHTS OF UNPAID SELLER
PROPERTIES NOT LIABLE TO ATTACHMENT OR SALE
UNDER CPC
ANY SECURITY INTEREST FOR SECURING
REPAYMENT OF ANY FINANCIAL ASSET NOT
EXCEEDING ONE LAKH RUPEES

ANY SECURITY INTEREST IN AGRL LAND

ANY CASE IN WHICH AMOUNT DUE < 20 %

OF PRINCIPAL AMOUNT AND INTEREST

THEREON
SEC 32 : PROTECTION OF ACTION TAKEN
IN GOOD FAITH
SEC 34 : CIVIL COURT NOT TO HAVE
JURISDICTION
SEC 35 : PROVISIONS OF ACT TO
OVERRIDE OTHER LAWS. HOWEVER,
APPLICATION OF OTHER LAWS NOT
BARRED CLAIM WITHIN THE PERIOD OF
LIMITATION

OPERATIVE GUIDELINES

NOTICES ARE TO BE ISSUED IF

TOTAL AMOUNT OUTSTANDING (LEDGER

BALANCE) IS Rs. 1 LAC AND ABOVE

BANK IS THE SOLE SECURED LENDER OR HAS
MINIMUM 75 % SHARE OR SECURED CREDITORS
HAVING MINIMUM 75 % SHARE (INCLUDING
SECOND CHARGE HOLDERS) GIVE THEIR
CONSENT
BORROWERS EXEMPTED
PSUs - CENTRAL / STATE
NPAs WHERE REHABILITATION / OTS IS APPROVED
OR IS UNDER PROCESS AND 25 % OF OFFER
AMOUNT IS RECEIVED
CASES REFERRED TO CDR CELL

 WHERE SECURITY AVAILABLE IS INADEQUATE TO

COVER COSTS
DRT / COURT OR BIFR TO BE ADVISED OF ACTION
TAKEN U/S 13(2) OR 13(4) OF THE ACT, AS THE
CASE MAY BE
RECEIVER, IF ALREADY APPOINTED, TO BE
ADVISED AND COURT / BENCH REQUESTED TO
KEEP THE CASE IN ABEYANCE
IN THE CASE OF NON- BIFR / SUIT-NOT-FILED
CASES, SIMULTANEOUS SUIT TO BE FILED IN DRT /
COURT TO KEEP FUTURE RECOURSE OPEN FOR
REALISATION OF BALANCE AMOUNT

PROCESS

LEAD/ DESIGNATED SECURED CREDITOR OR DSC

(HAVING MAXIMUM OUTSTANDINGS) TO OBTAIN

WRITTEN CONSENT OF ALL OTHER SECURED
LENDERS (OR THOSE HAVING MIN.75% SHARE)
SECURED CREDITOR STATUS TO BE DETERMINED
ON THE BASIS OF ASSET ON WHICH SECURITY
INTEREST IS PROPOSED TO BE ENFORCED
IRAC CLASSIFICATION OF DSC TO BE THE
DECIDING FACTOR
CONSENT TO BE CONVEYED ONLY ON WRITTEN
REQUEST FROM DSC
AUTHORITY STRUCTURE OSMGS IV

 NOTICE TO BE ISSUED BY ALL SECURED

CREDITORS
DSC TO BEAR ALL EXPENSES OF SECURITY
VALUATION / MAINTENANCE / INSURANCE /
ENFORCEMENT AND SHARE WITH ALL FIRST/ PARI
PASSU CHARGE HOLDERS IN RATIO OF
OUTSTANDINGS AND WITH SECOND CHARGE
HOLDERS IN RATIO OF RECOVERY OF OVERDUES.
DSC TO CO-ORDINATE LEGAL DEFENCE IF ACTION
IS CONTESTED BY BORROWER

 FURTHER COURSE OF ACTION

FULL RECOVERY ACTION TO BE SUSPENDED
PARTIAL RECOVERY DECISION OF AUTHORITY

CALLING UP THE ADVANCE SUBJECT TO FRESH

REVIVAL / BALANCE CONFIRMATION (WITHIN LAW
OF LIMITATION)
COMPROMISE OFFERS TO BE PROCESSED AS PER
PROCEDURE
CONTEST NOTICE FROM BORROWER TO BE DEALT
WITH IN CONSULTATION WITH LAW DEPARTMENT
IN CASE OF NO RESPONSE FROM BORROWERS,
TAKE POSSESSION OF SECURED ASSETS AFTER 60
DAYS

 OR, TAKE OVER MANAGEMENT OF SECURED

ASSET (NOT FOR THE TIME BEING)

OR, APPOINT AN ENFORCEMENT AGENCY
TO
MANAGE THE SECURED ASSET
SEND NOTICE TO THE DEBTORS OF THE
DEFAULTER BORROWER DEMANDING DIRECT
PAYMENT OF DUES TO THE BANK

PROCEDURE FOR SEIZURE OF

PROPERTY

IDENTIFY ASSETS AS PER BRANCH RECORD

BORROWER TO BE GIVEN 30 DAYS NOTICE
TAKE POSSESSION OF MOVABLE ASSETS WITH
THE HELP OF DISTRICT MAGISTRATE OR CMM IN
THE PRESENCE OF TWO WITNESSES

 PANCHNAMA AND INVENTORY TO BE PREPARED

IN CASE OF IMMOVABLE PROPERTY, ISSUE/

PUBLISH POSSESSION NOTICE

PROPERTY TO BE KEPT UNDER PROPER CARE /
MAINTENANCE OR SOLD IF LIKELY TO DECAY
NOTICE TO BE SENT TO DEBTORS TO DEPOSIT
PROCEEDS WITH BANKS AND PROHIBITING
DISPOSAL OF PROCEEDS / INTEREST IN ANY
MANNER
RESERVE PRICE TO BE FIXED ON THE BASIS OF
VALUATION BY VALUER (APPROVED BY ECCB)
VALUATION TO BE CLEARED BY THE SRESI
VALUATION COMMITTEE ( GM, Dy. G.M.(CB), Cir.
CO )

PROCEDURE FOR SALE

(AFTER VALUATION, FIX A RESERVE PRICE

BELOW WHICH SALE WILL NOT BE EFFECTED)
BY OBTAINING QUOTATION - MINIMUM 3
INTERESTED PARTIES
-NOTICE TO
BY INVITING PUBLIC TENDERS
BE PUBLISHED IN TWO NEWSPAPERS WITH
ONE OF THEM HAVING WIDE LOCAL
CIRCULATION
BY PUBLIC AUCTION
BY PRIVATE TREATY

APPOINTMENT OF ENFORCEMENT
AGENTS

AUTHORISED OFFICERS MAY ENLIST SERVICES OF

EAs, IF WARRANTED, FOR:TAKING POSSESSION OF MOVABLE AND IMMOVABLE

PROPERTIES
PREPARING THE PANCHANAMA/INVENTORY
MAKING SUITABLE ARRANGEMENTS FOR STORAGE,
MAINTENANCE, SECURITY, LOCKING-UP AND
INSURANCE
SENDING NOTICES TO DEBTORS OF BORROWERS
ARRANGING FOR VALUATION AND SALE OF ASSETS AS
WELL AS COLLECTING SALE PROCEEDS, ISSUING SALE
CERTIFICATE AND COMPLETING OTHER NECESSARY
FORMALITIES.

SALE OF ASSETS TO SECURITISATION

CO./ RECONSTRUCTION CO. (SC/RC)
ELIGIBILITY CRITERIA
NPAs (INCLUDING BONDS/DEBENTURES) IN LIVE
LEDGER/PB/RD ACCOUNTS OR AUCA
WHERE WE ARE SOLE LENDERS, ACCOUNTS
WITH LEDGER OUTSTANDINGS OF Rs. 5 Crs. &
OVER. EXCEPTIONS MAY BE PERMITTED BY THE
MD & GE (NBG) IF RECOMMENDED BY CIRCLE
CGM
IN CASE OF CONSORTIUM OR SYNDICATED
LOANS/ MULTIPLE BANKING ARRANGEMENT, IF
75 % OF CREDITORS (BY VALUE) SEEK/ AGREE
FOR THE SALE.

SALE OF ASSETS TO SECURITISATION

CO./ RECONSTRUCTION CO. (SC/RC)
STANDARD ASSETS
ONLY ACCOUNTS UNDER CONSORTIUM/
MULTIPLE BANKING
AT LEAST 75 % OF ASSETS BY VALUE
SHOULD HAVE BEEN CLASSIFIED AS NPAs
IN THE BOOKS OF OTHER BANKS/ FIs
AT LEAST 75 % OF BANKS/ FIs BY VALUE
WHO ARE IN THE CONSORTIUM/MULTIPLE
BANKING ARRANGEMENT AGREE TO THE
SALE OF THE ASSET TO SC/RC

SALE OF ASSETS TO SECURITISATION

CO./ RECONSTRUCTION CO. (SC/RC)
THE FOLLOWING ASSETS WILL NOT BE OFFERED FOR
SALE TO SC/RC:

NPAs WHERE OTS/ REHABILITATION IS APPROVED AND

REPAYMENT IS BEING MADE AS PER APPROVED PLAN

BUT WHERE TERMS OF OTS ARE NOT BEING
COMPLIED WITH, ASSETS MAY BE OFFERED FOR SALE
WITH THE APPROVAL OF MD & GE (NBG)
ASSETS WHERE OTS IS UNDER PROCESS (AND WHERE
25 % OF THE OFFER AMOUNT HAS BEEN DEPOSITED
BY THE BORROWER/ GUARANTOR)
ACCOUNTS REFERRED TO CDR BY OUR BANK OR
OTHER BANKS/FIs WHERE RESTRUCTURING PRPOSALS
ARE UNDER CONSIDERATION OF THE CDR
EMPOWERED GROUP

IDENTIFICATION & VALUATION OF

ASSETS

SECURITISATION & RECONSTRUCTION CELL (SRC) SET

UP IN NBG UNDER CGM-CREDIT MGT TO INITIATE THE

PROCESS AND SUBSEQUENTLY COORDINATE
IDENTIFICATION OF ASSETS FOR POSSIBLE SALE TO
SC/RC.
AFTER THE ASSETS ARE IDENTIFIED, SRC WOULD SEND
AN INDICATIVE LIST OF ASSETS AVAILABLE FOR SALE TO
THE IDENTIFIED SCs/ RCs.
CIRCLES/CAG WILL SIMULTANEOUSLY UNDERTAKE A
FRESH VALUATION OF ASSETS BY A SUITABLE AGENCY
FROM THE PANEL OF ENFORCEMENT AGENTS/ VALUERS
(APPROVED BY THE ECCB) AND SEND REPORT TO SRC.
COMMON APPROACH MAY BE ADOPTED IN
COORDINATION WITH OTHER FIs/ BANKS OR WITH SC/RC
TO SAVE COSTS OR TO CUT DELAYS PROVIDED THE
ENFORCEMENT AGENT/ VALUER IS FROM OUR APPROVED
PANEL.

IDENTIFICATION & VALUATION OF

ASSETS
GM (NPA MGT) OR GM (COMM) TO
COORDINATE THE WORK AT THE CIRCLE LEVEL
FOR BOTH THE RNW AND CNW ACCOUNTS. IN
CAG, BRANCH HEAD WILL DISCHARGE THIS
RESPONSIBILITY.
PRICE OFFERED BY THE SC/RC TO BE
EVALUATED ON THE FOLLOWING BASIS: WHETHER THE UNIT IS IN OPERATION OR CLOSED
REALISABLE VALUE OF ASSETS
WORTH OF THE GUARANTORS
OTHER OPTIONS (RECOVERY THRU OTHER MEANS,
KEEPING IN VIEW THE REALISABLE AMOUNT AS
WELL AS TIME LIKELY TO BE TAKEN IN RECOVERY)

DECISION MAKING PROCESS

CIRCLES/ CAG AND SRC WILL WEIGH ALL FEASIBLE

OPTIONS AGAINST THE OFFER MADE BY THE SC/RC

ON
THE PRESCRIBED (STRUCTURED) FORMAT WHICH
PROVIDES FOR FOUR RECOVERY OPTIONS, NAMELY,
SEIZURE UNDER THE ACT, RECOURSE TO LEGAL REMEDY
(DRT OR OTHER COURTS0, OFFER FROM A SC/RC, AND
OTS/COMPROMISE.
PRICE NEGOTIATION WITH THE SC/RC WILL BE DONE BY A
TEAM COMPRISING
GM (NPA MGT) OR GM (COMM) OF THE CIRCLE
DGM (SRC)
CONCERNED DGM (BRANCH/MODULE/CAG) OR
NOMINEE OF THE CGM(CAG CENTRAL)
AFTER PRICE NEGOTIATION, PROPOSAL TO BE PUT UP BY
CIRCLE/CAG TO CCC-I/COCC/ECCB AS PER DELEGATION
OF FINANCIAL POWERS FOR COMPROMISE SETTLEMENT.

DECISION MAKING PROCESS

IN CASE NEGOTIATION FAILS BECAUSE OF

THE OFFER PRICE BEING UNACCEPTABLE TO

BANK, REPORT TO BE SENT TO MD & GE
BEFORE REJECTING THE SC/RC OFFER.
IF OTHER BANKS/FIs HOLDING 75% OR MORE
OF THE ASSET BY VALUE DECIDE TO ACCEPT
THE VALUE OFFERED BY THE SC/RC, BANK
WILL ALSO HAVE TO ACCEPT THE OFFER AS
PER RBI GUIDELINES.

TERMS & CONDITIONS

NO LIABILITY SHOULD DEVOLVE ON THE BANK AFTER

THE SALE OF ASSETS TO SC/RC

BANK WILL NOT ASSUME ANY RISK AFTER THE SALE.
SALE CONSIDERATION OF FINANCIAL ASSETS SOLD TO
SC/RC BY THE BANK (BONDS, DEBENTURES OR
SECURITY RECEIPTS) TO BE CLASSIFIED AS
INVESTMENTS.
NO NEGOTIATION/TRANSFER AT A CONTINGENT PRICE
BUT IN ALL CASES, AGREEMENT WITH THE SC/RC
SHOULD PROVIDE FOR SHARING OF SURPLUS
REALISATION IN AGREED PROPORTION
SCs/RCs WILL NOT TAKE OVER THOSE FINANCIAL
ASSETS
WHICH CANNOT BE REVIVED BUT MAY ACT AS
RECOVERY AGENT FOR A FEE.

SECURITISATION & ASSET

RECONSTRUCTION COMPANIES : ISSUES
PROFESSIONAL APPROACH - SPECIALISED SKILLS
FOR
CONSIDERATION
EXPEDIENT REDUCTION IN NPAs
MORE APPROPRIATE WHERE WE ARE WC LENDERS

AND HAVE NO SIGNIFICANT FIXED

ASSETS/COLLATERAL SECURITY
RECYCLING OF BLOCKED FUNDS
OUTSOURCING RISKS
TRANSPARENCY AND ACCOUNTABILITY ISSUES
INTER-CREDITOR ISSUES : ALLOCATION OF
DETERMINED VALUE AMONG LENDERS
VALUATION : UPFRONT LOSSES; STATUTORY/
EMPLOYEE DUES; INTERESTS OF OTHER STAKEHOLDERS
STAMP DUTY ON ASSIGNMENT OF LOANS

SCs & RCs : ISSUES FOR

BALANCE-SHEET MANAGEMENT : IMMEDIATELY
CONSIDERATION

CLEANSES BALANCE SHEET; IMPROVEMENT IN CAPITAL

ADEQUACY RATIO
EASE OF DECISION MAKING vs. RISK IN TRANSFER OF
DECISION MAKING POWER
LOSS OF OPPORTUNITY FOR A NEGOTIATED SETTLEMENT
RBI HAS TO ISSUE GUIDELINES FOR CHANGE/TAKE-OVER
OF MANAGEMENT
LOW CAPITAL BASE OF SCs/RCs : ABSENCE OF MARKET/
INVESTORS FOR SECURITISED NPAs
LIQUIDITY ISSUES - REALISABILITY OF DUES IN
HARDCORE/ DIFFICULT CASES
INCOMPLETE/FLAWED/ INCONSISTENT DOCUMENTATION.
VIOLATION OF PRINCIPLE OF TRUE SALE?

SCs & RCs : ISSUES FOR

CONSIDERATION
MARKETABILITY/ REDEMPTION OF BONDS,

DEBENTURES OR SECURITY RECEIPTS RECEIVED IN

CONSIDERATION FROM SCs/RCs AND NORMS FOR
THEIR CLASSIFICATION IN THE BANKS BALANCE
SHEETS IN THE CASE OF DEFAULT BY SCS/RCS
ABSENCE OF FORECLOSURE/BANKRUPTCY LAWS;
LEGAL OPTIONS AVAILABLE TO DEFAULTERBORROWERS TO STALL ACTION UNDER THE SRESI ACT
(RELIEF UNDERTAKING ACTS, LABOUR LAWS ETC .)
TIME FACTOR - LAW vs. PRACTICABILITY OF RECOVERY
MECHANISM; MORE TIME (2-5 YEARS) NEEDED FOR
RECOVERY THROUGH LELAL PROCESS; NPA
RESOLUTION THROUGH DISCOUNTED PAY-OFF, LOAN
RESTRUCTURING OR SALE OF COLLATERAL.

THANK YOU
&
HAVE A NICE DAY
STATE BANK LEARNING CENTRE,
RANCHI