Notice u/s 13(2) sarfaesi act

Yes, parallel proceeding is permitted under the SARFAESI Act. There is no bar. It is well settled by the "Transcore" Judgement.

Practically such situation does not arise since after notice the lender has powers to attach property and sale it. It is only for few expert debtors with proper legal advice to thwart such action and force the lender to bring legal order for attachement and sale.

the party comes to know NPA declaration only through 13(2). is it correct? or there should be a separate written declaration of account being declared NPA.

Even after filing OA in DRT banks and FIs initiate SARFAESI proceedings by issue of Demand Notice

u/Sec.13(2) especially after the disposal of Transcore case by Hon'ble Supreme Court.  There is no specific ruole to mention the date of NPA, in the Demand Notice.  But the mortgagor/ borrower can challenge against the classification of account as NPA, if such classification was wrong.

If Bank resort to action u/s 13(2( and subsequently under 13(4) where the defaulted amount is less than 20% or RS.1 LAKH, whether bank is right.  If not, what is the forum where this wrong declaration of NPA and taking action under 13(2) and 13(4)  can be challenged.

Can you please clarify the meaning of defaulted amount. Does it mean the defaulted EMIs or the entire outstanding?

The NPA is declared on account of irregularity in payment.   As per RBI guidelines, if irregular dues are paid, the account should no longer be treated as NPA and should be converte into standard account.   I am talking about irregular amount of dues due to which the account become NPA.  The account in question is PC, Term Loan, OD in current account, interest.

The "defaulted Amount" as on any date includes instalments of term loan(s) and interest debited in the account(s)  which remains unpaid.

If the default is for more than 90 days the banker can classify that account  ( full loan dues) as NPA. If that due amount is more than Rs.1 lakh or more than 20% of principal+interest, bank can also take proceedings under SARFAESI Act.

Dear Mr.Raju,

Can you please explain your answer with an example? Request you to enlighten me by clarifying what is meant by Principal and Interest thereon?

Dear Mr. Raju,

I also echo the views of Mr. Uday on my query.   There are RBI Prudential Norms for NPA.  It states if the overdue emphasis OVERDUE are paid, then the account will no longer be treated as NPA and hence no further action under Sarfaesi is necessary.   Entire loan can not become overdue, only the instalments of term loan, interest, etc. not paid upto 90 days can be recalled, not the entire loan.  In the instant case, the query is about a party having working capital limits, term loan, and OD in current account.   The Bank had stated before declaring the account as NPA to clear an amount of approximately Rs.15 lakhs out of a total limit of Rs. 2.6 crores, but issued notice u/s 13(2) declaring entire amount payable.   It is true if party does not make any representation u/s 13(3A), the case may be different.  However, if party pays the OVERDUE amount due to which the acoc*nt was declared NPA, then further action is not warranted.  

I look forward to your views with reference to that.   If according to you entire loan become due after issue of 13(2) then what is the meaning of Rs.1 lakh or 20% of the amount.   Can you enlighten us.

Dear Mr Uday,

The case referred in the above judgment " Sravan Dall Mill P.Ltd Vs. Central Bank of India"  decided by Andhra Pradesh High Court is a landmark judgment with respect to classification of loan accounts into NPA for proceeding under SARFAESI Act.  Mere catagorising as NPA is not enough to take action under SARFAESI, as per amended Sec. 2(1)(o) of the Act; it has to be classified as 'sub-standard, doubtful or loss asset.'  How such classification can be done, is well explained in Sravan Dall Mill case.  It can be inferred that even if the account is defaulted  and the secured assets are not enough to recover the loan dues, SARFAESI proceedings cannot be initiated, if the net-worth of the borrower (including guarantors) is greater than the due amount, since such account cannot be classified as sub-standard or higher.  Please go through Sravan Dall case reported in  'II (2010) Banking Cases 96 (DB).

Generally, if the defaulted portion of the dues are remitted by the borrower after the NPA date, the banker has discretion to re-classify the said account as out-of-NPA. Then further proceedings under SARFAESI is not warranted. But bankers always wish to close such accounts by selling the secured assets and to proceed further under Sec.13(10), if sale proceeds not sufficient to close the loan.

Unfortunately, it is very difficult to convince the judges of DRTs, since it will take further long time to have settled laws in SARFAESI proceedings; till then each one will interpret the said law according to his will.

Dear Mr.Raju,

I agree with your view. But when the discretion ot reclassify the account is vested with the banks, can we expect a bank to reclassify the account? This apart, the bank does not classify the account as NPA all of a sudden. They might have struggled for a longer period before it touches the 90 days over due. Do you agree with me?

If the loan due is substantial, bank may re-classify the account as out-of-NPA, if they are convinced that the borrower will further keep it out-of-NPA/  or shift to someother bank.  If the account is kept in NPA catagory, banker cannot appropriate any accured interest and also he has to debit provision of percentage of the total loan amount, at the cost of his profits. Hence, prudent banker would avoid NPA as far as possible.  They may not apply the same rule for small loan accounts, say, less than Rs.1 crore.