Section 31(j) of sarfaesi act regarding exemption

Mr. Jain,

Once the account is marked as NPA & Sarfaesi Notice is issued - the point of 20% does not hold good. U have to repay the full amount demande in 13(2) Notice.

If u want some time to set things right & resist forcible possession and sale by the Bank U should contact a good lawyer. He will help u to sustain for at least 1 - 2 years.

If u r based in maharashtra - U may contact Adv. Manish Bohade. He is extremly competent and reasonable at the same time. 

His number is - 9371505560.

sir,

 in the notice they r demanding for the complete loan amount i.e. rs.27,40,000/-. not the unpaid emis. so i should contact to a DRT lawyer or any other lawyer. and plz let me know during trial of my case in DRT i need to pay the emis of that duration?

If you have paid the entire "amount in defalt" to the bank, the bank has to treat your accounts as standard as per the guidelines of the Reserve Bank of India pertaing to Non Performing Assets (NPAs). Since your accounts are no more NPAs, the bank cannot proceed afauinst you Section 31(J) of Sarfaesi Act

In most of loan agreement, there is clause that if three or more instalments are overdue, entire amount outstanding in loan account and interest becomes payable immediately. Thus even if overdue amount is deposited, banks continue to recover entire amount.

Purpose of the SARFAESI proceedings is to recover the full amount under the NPA a/c.  However, if the entire overdues, interest accrued and also expenses are paid by the borrower, bank has discretion to re-classify that account into out-of-NPA and hence to stop SARFAESI proceedings.  In that case, the borrower has to obtain a written communication from the bank stating that the a/c is re-classified into out-of-NPA; otherwise any time they may proceed further under SARFAESI.  Once the a/c is classified as Performing Asset, and if the a/c is again became NPA, the bank has to start the procedure by fresh issue of Demand Notice u/S13(2). 

Agree with Adv. Raju.

As advised the quiriest must approach a competent lawyer & defend himself. That's the ONLY way forward.

Even to get the Bank to reclassify the account as Performing Asset, help from a lawyer would be required because the Bank would resist such a move.

SO do not waste valuable time & contact a lawyer. If in Maharashtra U may contact Adv. Manish Bohade in Mumbai - 9371505560.

The banks in India are not permitted to flout the guidelines of the RBI, which provide for re-classifying the account as standard asset once the entirte amount in default is deposited in the bank. Once the account is reclassified as "standard Asset" the question of proceeding for recovery of the entire outstanding does not arise. No assistance from any Advocate is required in this respect upto this stage

It is a very remote chance that banks voluntarily re-classifying the NPA a/c into 'standard asset' in a case in which already SARFAESI proceedings started.  Bank officials are experts to find loop-holes in the RBI guidelines, even if such provision is available.  Courts also may not compel banks to re-classify such accounts into 'standard assets' and  also to stop SARFAESI proceedings.

RBI MASTER CIRCULAR on PRUDENTIAL NORMS : UPGRADATION

RBI/2011-12/66  DBOD.No.BP.BC.12 /21.04.048/2011-12 DATED.July 1, 2011

Paragraph :4.2.5 Upgradation of loan accounts classified as NPAs  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. With regard to upgradation of a restructured/ rescheduled account which is classified as NPA contents of paragraphs 11.2 and 14.2 in the Part B of this circular will be applicable.

Query: If a loan account has been upgraded as per RBI Master Circular On Prudential Norms dated July 1, 2011, will the action initiated under section 13(4) of SARFAESI Act abate?

Reply: The bank may, or may not, abandon it, in its absolute discretion.  In my view, the action already initiated by the bank u/s 13(4) of SARFAESI Act will not abate automatically, for the following reasons. Section 13(2) of SARFAESI Act reads as follows.

(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as , then, the secured creditor may require the borrower by notice in writing to discharge in Full his liabilities to the secured creditor within 60 days from the date of notice failing which the secured creditor shall be entitled to exercise all or any other rights under sub-section (4).

COMMENTS:

The debt is to classified by the secured creditor as non-performing asset (‘NPA’) before issue of notice u/s 13(2).The borrower has to discharge in full his liabilities to the secured creditor within sixty days.Failing which the secured creditor shall ber entitled to exercise all or any of the rights under subsection(4).

RBI Master Circular On Prudential Norms dated July 1, 2011, quoted above, refers to a situation where notice u/s 13(2) has not been issued by the secured creditor. In view of aforesaid, even if arrears of interest and principal are paid by the borrower in the case of loan account classified as NPA AFTER issue of notice u/s 13(2), the account may become eligible to be classified as ‘standard’ accounts, however, in Bank’s absolute discretion.

Further, in view of aforesaid, even if arrears of interest and principal are paid by the borrower in the case of loan account classified as NPA AFTER issue of notice u/s 13(2), the classification of debt by the secured creditor as NPA BEFORE the date of issue of notice u/s 13(2) will not become non est so as to invalidate the exercise of the rights u/s 13(4) by the secured creditor.

Case Law: Chembeti Bramaiah Chowdary Vs State Bank of Hyderabad, Authorised Officer, Vishakapatanam reported in : 2010-LAP-0-288 = 2010-ALT-4-574

A 13(2) notice is a demand notice which recalls the advance and asks the borrower to pay the entire amount outstanding. If a 13(2) notice has been issued, then payment of the overdue amount of Rs 17.5 lacs will not regularise the account or render SARFAESI proceedings redundant. However, if the account is regularised prior to 13(2) notice, then Bank cannot invoke SARFAESI provisions. Further, the instant case will not come under the purview of 31(j) 

1.  Action is not permissible if 81% of amount is paid prior to the date of the demand notice:

This sub-Sec (J) of Sec 31 of the Act is ambiguous and not clear if 20% refers to the unpaid principal amount originally advanced plus interest accrued thereon or the reduced balance of principal amount and the accrued interest remained unpaid after appropriation of payments as on date of initiation of action [under Sec.13(2)]. If a borrower paid 81% of the debt both principal and interest, in such cases enforcement of security interest is not permissible even though the account is NPA and the amount left over is 19%. This is meant to avoid incurring of expenditure which may be higher or equivalent or higher than the amount original debt. In such event suit/claim can be filed in DRT/Civil Court.

2.  Action is permissible even if 81% of amount is paid subsequent to the date of the demand notice:

It has been clarified that, any payment made by the borrower to a secured creditor after issuance of the notice under Sec.13(2) of the SARFAESI Act would not affect or invalidate pursuit of the remedies available to a secured creditor under sub sec.(4) Sec.13 of the Act, even where on giving credit to such subsequent payments made,  the amount due would fall below 20% of the principal amount and interest thereon [Azam Food Products Pvt. Ltd. Vs DRAT Chennai & Ors. [2011(1)D.R.T.C. 204 (A.P.)]; Chembeti Brahmaia Choudhary Vs.State Bank of Hyderabad :2010 (4) ALD 408 AP (DB)].

However if the payments made after classification of the loan account(s) as NPA and before service of the demand notice are sufficient to cover the over due amount, no longer such an account need be treated as NPA and such account should be upgraded as PA within the meaning of para 4.2.5 of RBI's Prudential norms on asset classification. 

Dear experts,  I  need help in the following in Bangalore.

1.   My client  has been  served notice  for taking possession  of the property mortgaged.

2.   The loan outstanding  which has become  NPA  was  Rs.10 Lakh  and interest amount thereon was  Rs. 3 Lakhs approximately.

3.   Immediately  my client has  arranged to repay  Rs. 5.00 Lakh and has committed to repay back  Rs. 1.25 Lakhs into four months  which amounts to another  Rs. 5.00 Lakh  if  the interest  amount of  Rs. 3 Lakh plus is  waived off.     Can  any  experts here  pls guide  me if there is any provision  to claim for  waive off entire interest  amount of  Rs. 3 Lakh   and  the procedure of how  to go about  to get  a waiver of  Rs. 3 Lakh interest  amount.     Also  I wish to know  the  powers of  the  Branch manager  to take decision  to waive off such  interest amount.     Thanks

There is no provision of law for claiming such waiver. Its absolutely a matter of discretion of the creditor to cede to such request. In case of O.T.S. policy if any evolved, the the borrower can claim benefit of it provided the proposal submitted is in tune with such policy and then bank is bound to settle the account without discretion and without discrimination. Borrower cannot claim O.T.S. settlement evolved by a secured creditor under its 'comprehensive corporate compromise policy' which is not only discretionary but also discriminatory and borrower's fate entirely depends upon the courtesy of the creditor and borrower has no right to demand settlement including claiming waiving interest accrued. However it depends upon your past record in respect of repayment of the bank's dues and convincing the bank. That is what is called financial discipline and moral responsibility. If you approach branch manager he may not take any decision to waive the interest portion partly or wholly. You have to approach regional or zonal authority authority under whose control the concerned branch is working. There are many cases where bank authorities have considered the personal problems (genuine problems like business failure etc.)  of some borrowers and accepted amicable settlements. However you may note there is no law to provide any such right to loan defaulter.  

In my reply posted now, after the following words

"In case of O.T.S. policy if any evolved " add the following words:

"by Reserve Bank of India"

Respectful  Sri. C.P.S. Ramachary,  my  sincere thanks to you  sir, for  your  most   valuable advice.   Right now i have this case in hand,  If u r in Bangalore  I wish to  take further help from your end  if it  comfortable for your goodself.   Sir r  u  from  Bangalore ?    I am available on 9845285555 or my mail id  is  sohan1912@rediffmail.com.    Thanks. again.