Sarfaesi act - regularization of cc a/c


Hi,

I have taken a CC facility of Rs. 1.18 Crs for my business and have mortgaged my shop premises for the same. I was unable to pay my interest amount since past few months.I have received a notice under SARFAESI act sec 13(2) from the banker demanding whole amount (loan amount plus interest overdue) to be paid within 60 days. I have contacted my banker and informed him that I am willing to settle interest  and loan amount  very shortly. But my banker says that I need to pay the overdue interest plus two months advance interest before 60 days period in order to regularize my CC account. Now my question is:-

  1. Can the banker take any legal action against me and take symbolic possession of my mortgaged property even after the overdue interest is paid fully.
  2. Also someone told me that even if I pay partial interest i.e, if the outstanding interest is brought under 3 months interest then also my account gets regularized.
  3. And somehow if I am not able to clear the total outstanding interest within 60 days period then is it possible for me to get some extra period to settle my dues and bank does not take the symbolic possession of my mortgaged property.
 
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Advocate

Firstly, you should have informed the bank in writing that you are willing to settle interest  and loan amount  very shortly.

And whatever your bankers said  orally it should have  been taken in in writing.   But your banker would never give in writing.

Answer to your question to my mind are:-

  1. Pay the overdue interest before the expiry of 60 days of notice.  If the bank is not allowing you to deposit the interest, send the same through pay order by speed post before expiry of 60days.   It would be your plus point.
  2. Yes, your account gets regularized once you brought the interest under 3 months interest.
  3.  No,   on expiry of 60 days the bank can initiate action.  Yes, in case you pay the overdue interest and regularize your account, the bank may stop taking action provided you ensure the bank that your account will be regular in future.

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Sir,

One more query regarding the above, can you please clarify that if I pay overdue interest entirely and regularize my account then also can the banker take the symbolic/ physical possession of my mortgaged property. Also what are the legal rights banker has if I pay partially and bring the interest due to less than that of three months.

 
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Advocate

After your account has declared NPA, the bank has every right to initiate action under section 13 (2) of Securitization Act, 2002 to recall the sum dues.   As I said earlier, you can give reply/objection to the notice in writing and the bank is bound to give reply.   In case bank give reply,  the contents of reply can be discussed with your lawyer.   In case the bank did not reply, it can be a ground in your favour.   However, it is in your own interest to do whatever advised which can help you to take stay when the possession proceedings will be initiated against you.  


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4.2.5 of RBI's circular on Income Recognition, Asset Classification and Provisioning lays down that, if the entire defaulted interest payment is made together with interest for delayed payment and penal interest (calculated at simple rate), the account should be upgraded from NPA to PA, even if the account is classified as NPA in the books of the bank.

Paragraph 4.2.5 of RBI’s Prudential norms on Income Recognition, Asset Classification & Provisioning deals with up-gradation of NPAs to PAs.

"If arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs,  the account should no  longer  be  treated  as  non-performing  and  may  be  classified  as  ‘standard’  accounts". 


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LAWYER

Dear Mr. Vijay, 

The payment of overdue interest would not bring the account in order as the limit is CC Limit. The entire amount has to be repaid in order to stop the action under Sarfaesi. 

It is the discretion of the Bank to allow u to operate the account after payment of overdue interest. Try convincing them. Keep talking/writing to the Bank. 

At the same time, do not ignore the legal situation in the wake of 13(2) Notice. 

Contact a competent lawyer. Entrust him with the legal side of the problem. 

If u r in Maharashtra, u may contact Adv. Manish Bohade - 09371505560. 

He is competent as well as reasonable. 

Manoj Harit 


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Paragraph 4.2.5 of RBI’s Prudential norms on Income Recognition, Asset Classification & Provisioning is not only mandatory in nature but also has statutory flavour. Please see the judgments  in    Sardar Prem Singh Vs. Bank Of Baroda & Ors. : III (2004) BC 455 (DB All.);Sardar Associates Vs. Punjab & Sindh  Bank: 2009 (8) SCC 257;Central Bank Of India Vs. Ravindra 2002 (2) CTC 354 (SC). Therefore, the question of proceeding with the further action u/s 13 does not arise and the bank is bound to upgrade the NPA to Performing Asset. Please work on this line instead of choosing litigation which is wasteful exercise. If the bank does not heed to your request, then you have to file Sec.17 application in DRT specifically pleading on bank's obligation to follow the circular of RBI as laid down by the Courts mentioned above. If the loan is repayable in instalments, then the defaulted instalments and interest for delayed payment together with penal interest (at simple) and interestd penal interest an in case of OCC/COD/Bills facility. You have to contacte an advocate with experience in banking law practice.


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Respected Law experts,

I paid my overdue interest before 60 days time. But now again interest in my account is overdue for 3 months and the 90 day period is about to expire soon. Now I am receiving call from my banker to clear the interest payments. Now I want to know what will be the consequences if I m not able to pay the balance interest amount. Also will it work if I pay only one month interest now.

Waiting for your valuable reply,

Vijay

 
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Advocate

Unless you bring and keep the default less than 90 days bank may again proceed with SARFAESI


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Sir,

My actual doubt is

1) That whether the banker need to serve a fresh notice under sarfaesi or the same notice (3 months old) can be used for legal actions.

2) Also if I pay one month interest now and bring the total interest to less then 3 months interest then can I avoid my account from slipping to NPA and thus avoid legal proceedings by the banker.

 
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