Pradeep (Proprietor) 02 September 2011

Npa account recovery

Dear Sirs,

An Account was classified as NPA and hence interest was not being debited to the account. The party in the meanwhile, made payments into the account. As and when the party made payments into the account, the amount was being appropriated to wards and over a period of time the outstandings in the said NPA account has become NIL. Now, the Bank has refused to release the security held and is claiming interest on the said interest.

As per RBI circular, as when interest is made into an account as NPA, the amount is to be first appropriated towards the accrued interest not debited to the account and in case of any balance thereafter has to be appropriated intowards the outstanding balance.

Now considering the current outstandings in the account is zero, can the bank proceed against the borrower under the SARFAESI Act for recovery of the dues? What is the option left with the borrower?

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6 Replies

RAJU O.F., (Advocate) 04 September 2011

If the account is presently out of NPA, bank cannot proceed under SARFAESI Act or any other act, provided there is no dues under the account. If necessary get the assistance of a good advocate by issue of lawyer notice.

zahid (PROPRIOTER) 28 November 2012

HI,

I HAVE TAKEN A COOLTRIAL LOAN OF RS 90,00,000=00 AGAINST MY HOUSE AND I HAVE EXEEDED 6,00,000=00 DUE TO HEAVY RECECION IN BUSNESS PARTIES HAVE OLSO SUFFERED HEAVY LOSES IN BUSNESS NOW THE BANK IS THREATNING TO MAKE MY ACCOUNT NPA THE PROPERTY IS IN 2 NAMES I ONLY HAVE SIGNED THE DOCUMENTS AND TAKEN LOAN FROM BANK WHAT ARE THE CONSEQUENCES AND AFFECTS

RAJU O.F., (Advocate) 28 November 2012

If the loan is defaulted for more than 90 days the bank can classify your a/c as NPA. If possible bring the default within 90 days so that a/c will not be NPA. If classified as NPA, bank can invoke proceedings under SARFAESI Act and later sell the property for recovery of money. Or they can file suit in Debts Recovery Tribunal, for recovery of the loan dues.

c.p.s. ramachary (1500) 28 November 2012

Mr. Pradeep

All the payments made by you have to be appropriated first towards interest portion and then to the principal borrowed amount. If the bank has appropriated first the amount to principal amount instead of interest, it can always pass necessary reversal entries in the account. There is no legal bar to do so. However the bank may get the corrected entries rectified and certified by the statutory auditors. Therefore under no immagination the balance in the account falls to zero level. Debt in borrowal account includes principal borrowed amount as well as interest accrued thereon. Banks business is to earn interest income and it does not mean that bank earns interest in one hand and looses principal from the other hand. The bank can recover the amount under SARFAESI Act if the loan account is supported by secured asset(s).

Pradeep (Proprietor) 28 November 2012

I take your point that the bank can reverse the entries from the principal and then credit the interest account. But the question is can it do so for 5 years now and get it certified by Statutory auditors? Also even the latest statement shows the balance as Zero in the said account.

c.p.s. ramachary (1500) 29 November 2012

There is no time limit for such reversals as the banks are entitled to rectify such accounts and amalgamate them and put them into order under Sec 171 of India Contract Act. Time limit is a matter when bank has to approach court for relief for such corrections.