Sale of secured assets by Quotation method is less expensive step for expeditious recovery in small NPA accounts

Secured creditors (particularly the banks) do not prefer Quotation method for sale of secured assets for various unknown reasons. The secured creditors might not have given proper guidelines to the Authorised Officers in this regard.

According to Rule 6 of S.I.(E) Rules,

(1) the authorised officer may sell the moveable secured assets taken possession under sub-rule (1) of rule 4 in one or more lots by adopting any of the following methods to secure maximum sale price for the assets, to be so sold-

(a) obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or

(b) inviting tenders from the public; or

(c) holding public auction; or

(d) by private treaty.

Similarly, the immovable secured assets may also be sold as contemplated in Rule 5 of S.I.(E) Rules, after obtaining valuation and fixing ‘Reserve Price’ by following any of the methods:-

(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or

(b) by inviting tenders from the public;

(c) by holding public auction; or

(d) by private treaty.

For adopting any mode of sale, service of 30 days sale notice to the borrower is must as borrower has right of redemption. Non service of sale notice is fatal to the action initiated under Sec.13(4) of SARFAESI Act. Authorised Officers of many bankers are very well aware of the modes of sale namely ‘tenders or auction’ ‘tenders and auction’ and are practicing for last 12 years. Some times sale by private treaty. But no secured creditor prefers sale by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets (e.g. firms/companies dealing in consumer goods, electronic goods, garments or some other goods) hypothecated. Tender is more formal whereas quotation refers to the estimate. Tenders lay down the terms and conditions. But, there will be not be any terms and conditions in the quotation method. In the tender or auction method seller claims that the asset cannot be sold below ‘reserve price’ fixed.

In quotation method there will not be anything like reserve price or such terms and conditions for sale of movable secured assets. Whereas in quotation method, the purchaser quotes his estimate price whether it is acceptable to seller or not.  EMD, Reserve price or stipulations as in case of tender/auction method are not features of quotation method.

Rule 8 of SI(E) Rules contemplate that, sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.

The word “parties” is not defined in the SARFAESI Act or S.I.(E) Rules. The dictionary meaning of the word “parties” is a group of persons gathered for a special purpose or task.

Let us understand that, the secured creditor, the borrower and the purchaser will collectively enter into a tripartite agreement as parties for sale of the secured asset in favour of the purchaser. If the borrower does not show any interest or is silent over the matter in spite of invitation for the above purpose, the secured creditor may serve a registered notice to the borrower informing him that, a purchaser is willing to purchase the property and submitted an estimate or price for the property and if he has any party who will offer a purchase price higher than the price offered by the purchaser. If the borrower in spite of the notice does not respond, then the secured creditor can proceed for further action for sale of the property in favour of the purchaser selected in quotation method. Supreme Court in Mardia Chemicals case held that, the secured creditors have to maintain two essential things for enforcement of security interest namely i) Bona fide action ii) and transparency.     

For sale of secured assets under quotation method, the secured creditor need not stipulate any conditions such as ‘EMD’, ‘reserve price’ etc. There is no need to publish the sale notice stipulating terms and conditions for sale of the secured asset after publication of possession notice. The secured creditor may give a notification to the public inviting them to submit their quotation for the property or contact the persons who are dealing in the secured assets or otherwise interested in buying such assets, and obtain quotations from them. The person who has offered highest price among all the persons from whom the quotations are obtained may be selected as ‘purchaser of the secured asset’. By following this method, the secured creditors particularly the banks can realise the secured assets expeditiously with less expenditure. This method can be followed initially for housing loan accounts. A model public notice inviting purchasers to submit their quotations is given below:

PUBLIC NOTICE FOR SALE OF SECURED ASSET(S)

UNDER QUOTATION METHOD

Public is hereby invited that, the secured assets described herein below are put to sale by following the ‘Quotation Method’ by the secured creditor (Give name of the secured creditor). Persons who are interested to buy it/them may contact the Authorised Officer (give full address of the bank) and submit their quotations personally or send by registered post within 30 days from the date of the publication. No reserve price is fixed for sale of the secured asset(s). No EMD need be paid while submitting the quotation. No quotation will be accepted after 30 days of the publication unless recommended by the borrower however before execution of registered sale certificate. A purchaser selected will have to enter into a tripartite agreement if suggested by the secured creditor. Before entering into the tripartite agreement, the purchaser has to pay the encumbrances if any known to the secured creditor and disclosed to you, to enable the secured creditor to pass on title to the property favouring the purchaser encumbrance free property (if any not known to the secured creditor). The property is open for inspection between 10 AM to 5 PM for 30 days from the date of publication within 30 days.

Authorised Officer

----------Bank

SCHEDULE PROPERTY-A

Movable secured assets (give description of the movable secured assets with identification marks with values noted) located in the premises No. (if building give door No. which is built on land admeasuring sq.y./ sq.ft bounded on: East: by ABCD, West: by DCBA; North: by XYZ and South: by ZYX (covered by Survey No.     situated at…… of…….Dist,………State )

SCHEDULE PROPERTY-B

Immovable Secured Asset (if open land admeasuring .y./sq.ft………. …………………………………………….. (if building give door No. which is built on land admeasuring sq.y./ sq.ft bounded on: East: by ABCD, West: by DCBA; North: by XYZ and South: by ZYX (covered by Survey No.     situated at…… of…….Dist,………State )