Need advise on Symbolic Possession / Sec.13(4) on Mort. Prop

1.  In my case symbolic possession was taken on 11.07.08 and possession notice affixed to self occupied flat. No paper publication was ever made within 7 days or till date. Possession taken for alleged dues of Pvt Ltd company of which me and my wife are directors.

This flat is prime security to Personal Home Loan of directors and continuing security to Business loans to Pvt Ltd company. No outstandings in Home Loan account..

Due to financial difficulties I have not been able to pay societies dues after symbolic possession and which have mounted to Rs. 9 lakhs by now and society has lodged case under Co-op act for recovery of the dues. Who is liable to pay the dues?

 

2. 13(4) notice was issued in Oct'07, thereafter entire arrears of interest & EMI were paid during Nov'07, once again in Jan'08 and once again in May'08. Bank refused account upgradation/ revival.

3. I have a strong case towards 'No NPA classification of accounts on NPA date specified in !3(2) notice - 07.04.07. Bank continued to charge interest in the account after the specified date for 3 months and upto 13(2) and 13(4) notice date. Advances were covered by ECGC's guarantees and bank debited our account for ECGC's monthly premium even after 13(4) notice dt 26.10.07 and upto Dec'07. Thereafter, in Dec'07,  bank encashed ECGC's guarantees to stonewall our account revival / upgradation requests. Illegal actions before and after NPA classification has resulted in sickness and shutdown of SSI -EOU unit.  Matter pending for argument at DRT since 2009.

 

What is the defense I should take (1) towards symbolic possession taken vis -a vis society's dues. (2) damages and compensation.

1.   

Y  Dear Mr Meha Harish,

Y  You have not raised any objection against the demand notice, invoking the statutory mechanism contemplated in Sec.13 (3A) of SARFAESI Act when you say that, you have a strong case against wrong classification of your account as NPA.

2.   This right to invoke Sec.13(3-A) was available to you before the action under Sec.13(4) was taken by the secured creditor. It seems that you have not filed any application under Sec.17 of the Act. This right was available to you within 45 days of taking possession. If the secured creditor has not published the possession notice as contemplated in Rule 8(2) of Security Interest (Enforcement) Rules 2002 it will vitiate the action taken by the secured creditor under Sec.13(4) for non compliance (expressio unius est exclusio alterius). However if the notice under Sec.13(4) is published, the burden of proof lies on the secured creditor to prove the compliance of Rule 8(2) of Security Interest (Enforcement) Rules 2002 (For short S.I.(E) Rules). If the secured creditor complied with Rule above stated, you have no case to argue on the point of non-compliance of Rule 8(2) of S.I.(E) Rules.

3.   The bank is entitled to charge interest even after classification of the loan account as NPA (however without reflecting the same in the books of its accounts) as per the RBI’s prudential norms on “Income recognition, Asset Classification & Provisioning”.

4.   Even though your accounts are covered by ECGC Guarantee Scheme, the amount paid by ECGC is not ‘debt’. This amount is to be refunded by the secured creditor to the ECGC on recovery made from the borrower. This amount is paid by the ECGC, subject to the secured creditor’s taking action against borrower. So it is an arrangement of payment by ECGC to see that the secured creditor does no go fundless ( temporary laming on account of borrower’s failure to repay the loan pertaining to the export activity).

5.   Your right to invoke Sec.17 of SARFAESI Act arises when the sale notice is served to you by the secured creditor for bringing the secured asset to sale (in any one of the modes provided under S.I.(E) Rules). It does not matter if you have not challenged validity of the possession notice. The DRT can examine the post Sec.13(4) events

6.   Please remember that, your personal problems or financial troubles have nothing to do with the bank’s action and such pleas that, you have suffered financial troubles or business loss does not carry any weight to support your case. The grounds related to deficiency of services, cannot be decided by the DRT.

7.   All other grounds, which rendered the action of the bank/financial institution illegal, can be raised in the proceedings under Section 17 of the SARFAESI Act.

 

8.   Hence you have to take action in time to avoid unsavoury action. You have to file SA in DRT and obtain stay order against the action of the bank in conducting sale of the secured asset(s) taken possession in 2007.  

Hi, On 23rd sep 15, I received a notice from our bank (NOTICE DEMANDING POSSESSION) What type of notice this? In that notice, didn't mention any sec. (Eg. Under sec. 13 (4).. ) My loan account already NPA on July 15. I have o/s 69 lacs under cc loan. First I received one notice from bank called Demand Notice (60 days time limit) on July 7th. After this I received 2nd notice called "Notice Demanding Possession" Please explain me, what is the exact possision in my case? Possession Notice under sec.13 (4) and this notice (which I received now) both are same? And please advise, what I do next? Please help me. Looking forward your valuable reply. Thanks

Dear Mr.Siva,

During the course of various discussion on the subject, we forgot to mention an important judgement that the Supreme Court of India in "Noble Kumar Vs Standard Chartered Bank of India" had decided Symbolic Possession is not a pre-rquisite to proceed under section 14 of the SARFAESI Act. The judgement reads as follows:

37.   Thus, there will be three methods for the secured creditor to take possession of the secured assets:-

      (i)   The first method would be where the secured creditor gives the requisite notice under rule 8(1) and where he does not meet with any resistance.  In that case, the authorised officer will proceed to take steps as stipulated under rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor.

 

      (ii)  The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under rule 8(1) is given. In that case he will take recourse to the mechanism provided under section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinize the application as provided in section 14, and then if satisfied, appoint an officer subordinate to him as provided under section 14 (1)(A) to take possession of the assets  and documents. For that purpose the Magistrate may authorise the officer concerned to use such force as may be necessary.  After the possession is taken the assets and documents will be forwarded to the secured creditor.

      (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under section 14 of the Act.  The Magistrate will thereafter scrutinize the application as provided in section 14 and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forwards them to the secured creditor as under clause (ii) above.