Meha Harish
12 December 2012 at 11:50
As per statement of accounts - Bank classified all Working Capital and Machinery term Loan a/c's as NPA on 02.07.07 and reversed interest entries during April-June'07 and also stopped charging interest to all accounts thereafter. On 31.07.07 it issued Sarfaesi act 13(2) notice wherein it stated that NPA is on 07.04.07 and gave no reasons.
At DRT it initially stated date of NPA as 07.04.07 and gave no details in the OA. After our rejoinder to COD and our consistent stand that there were no overdues and NPA classification is illegal, they gave some Mach Term Loan EMI overdue amounts (Jan'07 to April'07 - 4 EMI's)which are not true.
1. Can we challenge that the date of NPA - 07.04.07 stated by bank itself is false because it continued to charge interest during April-June'07 and also did not reverse unrealised interest in April'07??
2. Bank had given several letters during April-May'07 seeking various documents - latest stock statement, provisional Balance Sheet, orders in hand, etc for annual renewal of accounts which was due in Nov'06 but nowhere stated about accounts being already classified as NPA on 07.4.07 nor did it mention about any overdues in any accounts.
3. There was sufficient balance in cash Credit account during March'07. We gave letter to bank on 20.03.07 to adjust all interest and EMI dues to avoid NPA classification on 31.03.07. On 20.03.07 they debited the account for Rs. 1.80 Lakhs but did not clear the Interest/EMI dues nor given credit to any other account. This resulted in EMI outstanding in one Term loan account for Jan-March'07.Interest / EMI in all other accounts was paid till Feb'07.
4. Could we state that it is a case of NPA due to siphoning or misappropriation of funds.
5. Can bank classify NPA with back date??
6. Is bank legally correct in invoking Sarfaesi act on 31.03.07 whereas NPA classification was done on 02.07.07. Is it deliberately stating a back date to justify this illegality??
Please advise how I could legally defend myself at DRT.
Meha Harish
11 December 2012 at 20:00
In response to banks Sarfaesi act 13(4) possession notice and also written assurance that measures towards flow of funds to our SSI unit shall be taken on payment of about Rs. 4 Lakhs overdues, I gave the bank shares of Blue chip companies - Siemens & G E Shipping worth about Rs 10 Lakhs in Nov07 in physical form with stamped share transfer forms duly discharged with request to encash and adjust against all dues.
The bank officials delayed the encashment process by 7 months and realised only 4.5 lakhs in May'07 due share market crash in Jan'08.
At DRT, bank states that delay was due to long process and of transfer in Bank's name the Demat and then sell. They stated that initially share transfer registrars returned the transfer requests due to signature authorisation stamp / letter, etc etc. I smell foul play because blank signed share transfer form were given. Physical Shares could be encashed straightaway with any broker in 4-5 days.
Please guide on what grounds I could nail the bank for the loss as well as fraud because they also promised revival of funds. This foul play is extremely damaging especially in view of the fact that it was a case of recovery under Sarfaesi act.
Thanks in advance.
Meha Harish
05 December 2012 at 21:43
Export client covered under ECGC standard buyer wise policy. He defaulted for 50% bill payment. Claim lodged with ECGC by exporter through the bank. Next week Bank classifies his account as NPA inspite of ECGC claim being in process and issues legal notice under Sarfaesi act 13(2) within 2 weeks of NPA. There are no overdues in any other account.
In view of RBI's NPA guidelines on Central Govt Guaranteed advances - was NPA classification legally correct??
Please advise ASAP.
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Legal action for recovery before filing claims with ecgc
Bank had whole turnover ECGC cover on Pre shipment Packing Credit and Post shipment FBD advances. Exporter also had ECGC policy covering his buyers for default in export payments. One buyer defaulted for 50% payment. Exporter filed claim with ECGC through the bank under his policy with instructions to pay claim amount to bank since the bills were discounted.
Next week bank classified the accounts as NPA and one week thereafter issued Sarfaesi act 13(2) demand notice and 80 days thereafter issued 13(4) notice for possession of secured flats.
After NPA and Sarfaesi act notices, the exporter regularly kept on paying the interest and principal dues and requested revival of accounts. However, the bank adjusted all payments towards principal and interest was not adjusted.
1. RBI directives state that 'The credit facilities backed by guarantee of the Central Government though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked.'
'Credit protection given by the following entities will be recognised:
Sovereigns, sovereign entities (including BIS, IMF, European Central Bank and European Community as well as those MDBs referred to in paragraph 5.5, ECGC and CGTSI), banks and primary dealers with a lower risk weight than the counterparty;'
Can the bank classify account as NPA till ECGC claims are settled or declined. Our claim was paid in full after one year by ECGC - to the bank.
2. RBI circular states 'In respect of post-shipment credit extended by the banks covering export of goods to countries for which the ECGC’s cover is available, EXIM Bank has introduced a guarantee-cum-refinance programme whereby, in the event of default, EXIM Bank will pay the guaranteed amount to the bank within a period of 30 days from the day the bank invokes the guarantee after the exporter has filed claim with ECGC.
ii. Accordingly, to the extent payment has been received from the EXIM Bank, the advance may not be treated as a nonperforming asset for asset classification and provisioning purposes.
Can the account remain classified as NPA after claims are received from ECGC???
3. After issuing Sarfaesi act 13(2) and 13(4) notice, bank filed claims with ECGC on both - pre and post shipment advances. ECGC paid both the bank's claim at a reckless speed of 10 days.
4. Bank sold the mortgaged flat under Sarfaesi act and adjusted the proceeds to wipe out the outstanding in Cash Credit & Mach Term Loan accounts. It lodged OA with DRT for recovery of outstanding in Packing Credit a/c for which ECGC claim was received and parked in Suspense a/c at branch.
5. Concerning ECGC's cover to banks, there various circulars in public domain which state:
ECGC gives cover to bank's for reducing their NPA's.
Claim shall be paid in case of protracted default by exporter
legal action for recovery after claims are paid
rehabilitation measures can be taken by bank for viable / potentially viable units after claims are paid with permission from ECGC.
ECGC's claim paid NPA accounts cannot be sold to ARC's.
In view of these,
a. was the bank legally correct in classifying the accounts as NPA before filing claims with ECGC.
b. Was the bank legally correct when it issued Sarfaesi act 13(2) & 13(4) notices before filing claims with ECGC.
c. Was the bank legally correct in maintaining the accounts as NPA after ECGC paid the banks claim - even though it had issued Sarfaesi act demand & possession notices.
d. Was the bank legally correct in pursuing recoevry action under sarfaesi act after ECGC paid claims for Pre & post shipment cover to Bank.
e. If ECGC claim paid accounts cannot be sold to ARC's, can the bank take legal action under Sarfaesi act at all.
f. Can the bank recover the ECGC claim paid amounts from Personal guarantors and continuous security given by directors by filing OA at DRT.
Please guide. Thanking all in advance.