CONTENTS SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (SARFAESI ACT)

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1 CONTENTS I-27 Foreword to Third Edition I-5 Preface to Third Edition I-7 Foreword to Second Edition I-11 Preface to Second Edition I-13 Foreword to First Edition I-17 Preface to First Edition I-19 Disclaimer by author I-23 Chapter-heads I-25 1 SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (SARFAESI ACT) 1.0 Introduction Asset classification - Prudential norms Empowerment to banks/fis Authorised officer Eligibility of accounts for taking action under Act Basis of identification of NPA accounts for issue of demand notice u/s 13(2) Abatement of reference before BIFR Limitation Issue of notice in non-suit filed and suit filed cases Expiry of 60 days notice period Norms for taking over possession of secured assets Procedure for taking possession of movable/immovable assets Engagement of counsel for filing of application before CMM/DM Sale of acquired secured assets Appropriation of sale proceeds Recovery of balance dues Taking possession of assets Amendments Security Interest (Enforcement) Amendments Rules 14

2 CONTENTS I-28 (JUDICIAL RULING) 1.18 Historical Decision of the Hon ble Supreme Court Latest Judicial Ruling in the case of M/s. Transcore v. Union of India [2007] 73 SCL 11 (SC) Main effects of the Decision of Hon ble Supreme Court in M/s. Transcore v. Union of India [2007] 73 SCL 11 (Case No of 2006) Amendments 2012 SARFAESI Act & DRT Act Amendments Security Interest (Enforcement) Rules, PRACTICAL TIPS FOR TAKING ACTION UNDER SARFAESI ACT 2.0 Identification of accounts Agricultural security/agricultural Land Negative lien Hypothecation of Stock, Plant & Machinery and Book Debts/ Receivables etc Service of demand notice under section 13(2) Publication of undelivered notices Demand Notice u/s 13(2) General Complaint Powers of Secured Creditor under section 13(4) A Restraint on Sale/Lease/Transfer without consent of bank/ FIs (secured creditors) under section 13(13) A-1 Joint Financing [SARFAESI Act Section 13(9)] Physical possession of secured assets through CMM/District Magistrate Filing of application before CMM/DM A Documents required for taking assistance from CMM/DM [Application under section 14] B CMM/DM Orders under section 14 through the process of non-adjudication only Possession of immovable assets Service of possession notice A Possession of Nursing Homes, Hospitals etc. mortgaged/ hypothecated to the banks/fis B Possession of abandoned movable/immovable properties C Possession through receiver appointed by the Court 69

3 I-29 CONTENTS 2.6-3D Custody of properties/perishable goods taken under possession Publication of possession notice A Possession-cum-sale notice B Offences Valuation of immovable secured assets Possession Kit Possession of movable secured assets Possession of valuable stocks hypothecated to the banks/fis Valuation of movable secured assets Procedure for sale of movable secured assets Certificate of sale Notice for sale of immovable secured assets Appointment of Manager Procedure for recovery of shortfall Overriding effect of the Act Release of securities Appointment of enforcement agents Safeguarding Bank s interest in case of equitable mortgage of immovable property Registration of sale certificate of immovable property Settlement/Compromise proposals No sale on payment of full dues and expenses E-Auction for sale of Immovable Properties/Secured Assets Seal/Lock Broken by the Borrower after Actual Possession Benefits of Caveat Physical Possession after sale of immovable property on symbolic basis Assets sold by borrower after receipt of demand notice under section 13(2) without bank s consent Seeking of CMM/DM help even 60 days of demand notice u/s 13(2) not expired referring section 13(13) of SARFAESI Act Possession of undivided immovable properties - Method & procedure for demarcation Change of court receiver appointed by the CMM/DM u/s 14 of SARFAESI Act - Method & procedure Common Passage - Possession of Property Conclusion 83

4 CONTENTS I-30 3 SCHEME OF SARFAESI ACT AND SECURITY INTEREST (ENFORCEMENT) RULES, Scheme of the SARFAESI Act - Related sections & other important provisions under different Laws with Explanations The Security Interest (Enforcement) Rules, 2002 with Explanations CHECK LIST : FOR BANKS/FINANCIAL INSTITUTIONS TO BE FOLLOWED WHILE TAKING ACTION UNDER THE SARFAESI ACT 4.1 Procedure Points to remember Excluded transactions [Section 31] Joint financing section 13(9) General Other Important Points ROLE AND RESPONSIBILITY OF AUTHORISED OFFICER 5.1 Precautions to be taken by Authorised Officer Service of notice Taking over possession Sale of charged secured assets Sale certificate Movables Appropriation of sale proceeds Possession Certificate from the purchaser of secured Assets FREQUENTLY ASKED QUESTIONS u Frequently asked questions CENTRAL REGISTRY 7.0 Role of Central Registry Relevant Sections SARFAESI Act relating to Central Registry Rules - Central Registry (CERSAI) 163

5 I-31 CONTENTS 8 TYPES OF RECOVERY MECHANISMS u Types of Recovery Mechanisms RECOVERY CAMPS - SETTLEMENT OF NPAs 9.0 Holding of recovery camps Negotiating Skills Action Plan LOK ADALAT u Lok adalat RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (DRT ACT) 11.0 Important provisions - DRT Act Powers of Recovery officer to issue arrest orders Important Points/Tips for DRT cases Procedure of sale in Decreed Accounts Other Important Points Registration of sale certificate of Immovable Property Filing of Caveat Petition in DRT/DRAT - Amendments SARFAESI Act, RECOVERY THROUGH STATE RECOVERY ACTS u Recovery through state recovery acts BIFR SCHEME FOR SETTLEMENT u BIFR scheme for settlement BOMBAY RELIEF UNDERTAKING (SPECIAL PROVISION) ACT, 1958 u Bombay Relief Undertaking (Special Provision) Act, CORPORATE DEBT RESTRUCTURING 15.1 Background 198

6 CONTENTS I Objective Structure Other Features Legal Basis Exit Option & Other Important Issues SECURITISATION COMPANIES (SCs) & ASSET RECONSTRUCTION COMPANIES (ARCs) 16.0 Securitization and reconstruction of assets through SCs/ARCs Asset Reconstruction Companies (ARCs) Objectives/Vision/Mission of ARCs Advantages to banks/fis from sale of NPAs Procedure/system of sale and transfer of assets by the Banks/ FIs to the ARCs/SCs Resolution strategy by ARCs Funding A Other important points Important definitions and relevant sections under SARFAESI Act relating to SCs/ARCs ANNEXURES (PROFORMAS & FORMATS) Annexure I Format of notice under section 13(2), read with section 13(13), of SARFAESI Act, Annexure II On Bank s/fi s Letter Head 251 Annexure III Proforma for informing court/drt 254 Annexure IV Undertaking to be obtained from the borrower/ guarantor/partner/director/mortgagors, etc. 255 Annexure V Possession notice Appendix IV 256 Annexure V(A) Annexure VI Possession notice Proforma for publishing in the newspaper for immovable property 257 Application before the Chief Metropolitan Magistrate/District Magistrate 258 Annexure VI(A) Affidavit to be submitted to the CMM/DM alongwith application u/s 14 - Proforma 261 Annexure VII Format for intimation to take possession 263 Annexure VIII Panchnama Appendix I 264 Annexure IX Inventory Appendix II 265

7 I-33 CONTENTS Annexure X Annexure XI Annexure XII Certificate of sale Appendix III (for movable property) 266 Sale certificate Appendix V (for immovable property) 267 Application to the DRT under sub-section (10) of section 13 of the SARFAESI Act (Appendix VI) for Balance dues 268 Annexure XIII Physical possession notice (General) to be affixed on the Immovable property 271 Annexure XIII(A) Possession notice to the borrower by the receiver 272 Annexure XIII(B) Annexure XIV Possession letter by the receiver to the police authorities for providing police force 273 Tamsuk deed (undertaking) - Proforma of undertaking to be obtained at the time of settlement of protested bill/suit filed/decreed accounts (including accounts in which action taken under SARFAESI Act) from the borrower(s)/guarantor(s) 274 Annexure XIVA Tamsuk deed (undertaking) - (For accounts not settled but party gave an undertaking to pay full dues of the bank in instalments or lump sum including accounts in which action taken under the SARFAESI Act) 276 Annexure XV Notice for sale of assets to the borrower 278 Annexure XVI Draft of tender notice (Type I) 279 Annexure XVI(A) Tender notice for sale of assets (Type II - website) 281 Annexure XVII Draft of auction notice 283 Annexure XVIII Annexure XIX Annexure XX Notice to the debtor of the borrower under section 13(4)(d) of the SARFAESI Act 285 Notice to the Corporate body wherein borrower is holding the shares under section 13(4)(d) of the SARFAESI Act 286 Notice to party holding the movable secured assets of the borrower under section 13(4)(d) of the SARFAESI Act 287 Annexure XXI Notice to the tenant/lessee of the borrower under section 13(4)(d) of the SARFAESI Act 289 Annexure XXII Notice u/s 13(2) of the Securitisation Act, 2002 for publication in the newspapers 291 Annexure XXIII Possession-cum-sale notice by inviting tenders 292 Annexure XXIV Proforma of Decree/order for recovery Debts Recovery Tribunal 295 Annexure XXV Recovery certificate under section 19(22) - Proforma - Debts Recovery Tribunal 296

8 CONTENTS I-34 Annexure XXVI Recovery certificate - Demand Notice Proforma 298 Annexure XXVII Sale of non-performing financial assets (NPAs) - Notice Proforma 300 Annexure XXVIII Delinquency card (Client Data sheet) - Proforma 301 Annexure XXIX Possession Certificate from the purchaser of secured assets - Proforma 306 Annexure XXX Format - A for Recovery Camp 307 Annexure XXXI Format - B for Recovery Camp 309 Annexure XXXII Application for change of Receiver (Proforma) IMPORTANT CASE LAWS u Important case laws CASE STUDIES u Case studies AMENDMENTS & NOTIFICATIONS 20.1 SARFAESI (Amendment) Act, Notifications under Security Interest Enforcement (Amendment) Rules, Amendments in Rules 2012 of the SARFAESI Act, Amendments in the SARFAESI Act & DRT Act, APPENDICES u SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, u SECURITY INTEREST (ENFORCEMENT) RULES, u RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, u DEBTS RECOVERY TRIBUNAL (PROCEDURE) RULES, u ENFORCEMENT OF SECURITY INTEREST AND RECOVERY OF DEBTS LAWS (AMENDMENT) ACT, u ENFORCEMENT OF SECURITY INTEREST AND RECOVERY OF DEBTS LAWS (AMENDMENT) ACT,