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Siva (Consultant)     06 April 2010

Queries reg- SARFAESI ACT Sec-13, 13(2), 13(A), NPA

Dear Law Experts,

 

I’m writing the following on behalf of my cousin.

 

One of my cousins availed a Mortgage loan of Rs. 10 Lakhs on Nov’2007 from one of the nationalized bank in Chennai and the Loan tenure is about 10 years. The Interest is w.r.to the current PLR and of daily diminishing from the outstanding. Initially for a period of 23 months (almost 2 yrs.), my cousin happily paid the Principal as well as the interest without any delay.  But unfortunately, Due to global recession, he lost his job and also been hospitalized for some months because of illness. So at this situation, he couldn’t able to re-pay the EMIs for about 4 months intermediately, however, he made some adjustments in his loan account in the subsequent months and mobilised accordingly. Suppose, if he couldn’t able to pay the EMI by the month of January, he must dropped both Jan & Feb month’s EMIs by the next subsequent month i.e., by February. Likewise, he tried to settle his loan.

On November 2009, the Bank Manager has effected the Standing Instruction from his Saving Account where he has already with the same branch but without his mandate / consent. While my cousin questioned about this matter with the Bank Manager, the manager said that he only effected the SI under Sec-171 Act and also, said that he never need his mandate / consent to effect SI to recover the loan EMI.

But as per RBI guidelines, we understand that ‘’Banks have a right to exercise lien under section 171 of the Indian Contract Act against the dues from constituents/customers. However, the banks CAN NOT exercise lien over the personal account of a customer on the ground that money was due to the bank in another account where he acts in a different capacity, if there is no agreement to that effect’’. If it is so, how the manager has effected the SI? Moreover, he admitted that he can take action under Sec-138. How it’s possible to enact such act in this case?

 

Till last January’2010, the past due is for 4 months (i.e., Rs. 22,500 per month). So, my cousin has to pay around Rs. 90, 000. But he has paid only Rs. 40,000, where he has only that much of amount at that time. Also, he communicated to manager that the rest will be paid soon. But the Manager has declared his loan a/c as NPA and sent the preliminary Notice to pay the outstanding due amount of Rs. 1, 35,000 within 10 days of time. Since my cousin has paid around Rs. 5.25 Lakhs till date (Principal cum Interest), he doubted that there’re some discrepancies in the amount mentioned. So, he asked the manager to send the 'Detailed Amortization Schedule / Statement' of his Loan A/C and asked the manager to re-classify his account as ‘Standard Account’ and asked for Re-Scheduling of re-payment plan after explaining his crisis.  But, on the other hand, the manager said that my cousin has to pay 8 months EMI with some penal charges and also, he sent the Notice u/s 13(2) of SARFASI ACT by next week itself by giving 60 days of timeframe. The bank didn’t give any time to serve the notice period of 10 days as declared in the earlier preliminary notice. Later, my cousin has given a counter by sending ‘Representation/Objection under Sub-Sec-13(A) of Sec-13 of SARFAESI ACT’.  Although, originally, there is another 3 years of tenure for full disbursement, we're forced to pay the full settlement now. However, we’re planning to settle the amount in FULL now and get the property back; we need some time to arrange the said amount.

 

If there’s NO reply from banker side for our representation, shall we go appeal at DRT? If so, what are all the procedures? To appeal at DRT, is it mandatory to send Representation/Objection letter to the concerned Banker? And are we needed to wait till the notice period of 60 days to complete for appealing at DRT / DRAT? If they go for possession, is that symbolic possession or critical possession that they must enact and how long it will take for them to achieve the auction / sale? If we appealed at DRT / DRAT, can we get some benefits like interest free installments when disbursing of loan amount? Also, can we get some additional time to settle our loan amount? Furthermore, can we request the manager or DRT officials to Re-schedule his Mortgage Loan and grant him some 'Re-payment Holiday / Moratorium' until he get placed in a job.  Also, let us know when an account has declared as NPA? As per RBI Guidelines, we understand that the account of any concern/individual can be declared NPA by the banks when NO amount (Interest/Principle) is deposited by the borrower in its account for the last 90 days (Earlier it was 180 days). Is that the 90 days period is of continuous or intermediate terms because he failed to make his EMI only intermediately? 

 

Hope you can understand our queries and get us clarified, which helps my cousin to exit from his problems. Also, please correct us, if we were wrong anywhere.

 

Thanks a lot for your valuable time!

 



Learning

 20 Replies

Siva (Consultant)     06 April 2010

Dear Law Experts,

 

I’m writing the following on behalf of my cousin.

 

One of my cousins availed a Mortgage loan of Rs. 10 Lakhs on Oct’2007 from one of the nationalized bank in Chennai and the Loan tenure is about 5 years. The Interest is w.r.to the current PLR and of daily diminishing from the outstanding. Initially for a period of 23 months (almost 2 yrs.), my cousin happily paid the Principal as well as the interest without any delay.  But unfortunately, Due to global recession, he lost his job and also been hospitalized for some months because of illness. So at this situation, he couldn’t able to re-pay the EMIs for about 4 months collectively, however, he made some adjustments in his loan account in the subsequent months and mobilized accordingly. Suppose, if he couldn’t able to pay the EMI by the month of January, he must dropped both Jan & Feb month’s EMIs by the next subsequent month i.e., by February. Likewise, he tried to regularize his loan.

 

On November 2009, the Bank Manager has effected the Standing Instruction from his Saving Account where he has already with the same branch but without his mandate / consent. While my cousin questioned about this matter with the Bank Manager, the manager said that he only effected the SI under Sec-171 Act and also, said that he never need his mandate / consent to effect SI to recover the loan EMI. Is that been possible to do so? Please clarify me.

 

But as per RBI guidelines, we understand that ‘’Banks have a right to exercise lien under section 171 of the Indian Contract Act against the dues from constituents/customers. However, the banks CAN NOT exercise lien over the personal account of a customer on the ground that money was due to the bank in another account where he acts in a different capacity, if there is no agreement to that effect’’. If it is so, how the manager has effected the SI? Moreover, he admitted that he can take action under Sec-138. How it’s possible to enact such act in this case?

 

Till last January’2010, the past due is for 4 months (i.e., Rs. 22,500 per month). So, my cousin has to pay around Rs. 90, 000. But he has paid only Rs. 40,000, where he has only that much of amount at that time. Also, he communicated to manager that the rest will be paid soon. But the Manager has declared his loan A/C as NPA and sent the preliminary Notice to pay the outstanding due amount of Rs. 1, 35,000 within 10 days of time. Since my cousin has paid around Rs. 5.25 Lakhs till January’2010 (Principal cum Interest), he doubted that there’re some discrepancies in the amount mentioned. So, he asked the manager to send the 'Detailed Amortization Schedule / Statement' of his Loan A/C and asked the manager to re-classify his account as ‘Standard Account’ and asked for Re-Scheduling of re-payment plan after explaining his crisis. 

 

But, on the other hand, the manager said that my cousin has to pay 8 months EMI with some penal charges and also, he sent the Notice u/s 13(2) of SARFASI ACT immediately by next following week itself by giving 60 days of timeframe to settle the amount of Rs. 7.8 Lakhs (Principal cum Interest for the period served of 2 years / till date). The bank didn’t give any time to serve the notice period of 10 days as declared in the earlier preliminary notice. Later, my cousin has given a counter by sending ‘Representation/Objection under Sub-Sec-13(A) of Sec-13 of SARFAESI ACT’ based on the aforesaid grounds.  Although, there is another 3 years (apprx.) of tenure for full disbursement, we're forced to pay the full settlement now. However, we’re planning to settle the amount in FULL now and get the property back; but, we need some buffer time to arrange the said amount.

 

If there’s NO reply from banker side for our representation, shall we go appeal at DRT? If so, what are all the procedures? To appeal at DRT, is it mandatory to send Representation/Objection letter to the concerned Banker? And are we needed to wait till the notice period of 60 days to complete for appealing at DRT / DRAT? If they go for possession, is that symbolic possession or critical possession that they must enact and how long it will take for them to achieve the auction / sale? If we appealed at DRT / DRAT, can we get some benefits like interest free installments when disbursing of loan amount? Also, can we get some additional time to settle our loan amount? Furthermore, can we request the manager or DRT officials to Re-schedule his Mortgage Loan and grant him some 'Re-payment Holiday / Moratorium' until he get placed in a job (as he’s getting some job offers now). 

 

Also, let us know when an account has declared as NPA? As per RBI Guidelines, we understand that the account of any concern/individual can be declared NPA by the banks when NO amount (Interest/Principle) is deposited by the borrower in its account for the last 90 days (Earlier it was 180 days). Is that the 90 days period is of continuous or intermediate terms because he failed to make his EMI only for collective of 4 months, intermediately? 

 

Hope you can understand our above said queries and get us clarified, which helps my cousin to exit from his problems. Also, please correct us, if we were wrong anywhere.

 

Appreciate your immediate respond!

Thanks a lot for your valuable time!!

 

bhagwat patil (Property due diligence 9422773303)     13 April 2010

you may go to BCSBI

Siva (Consultant)     13 April 2010

Mr. Bhagawat,

Approaching Banking Codes & standards Board of India (BCSBI) itself solves the issue (or) Are we need to appraoch the 'Banking Ombudsman' also?

Which one is more effective, time conservation and gives immediate remedy too.

bhagwat patil (Property due diligence 9422773303)     13 April 2010

it depende upon the subtance in your matter and your presentation . if u r not a wiifuldefaulter in prima face u will get immidiate relif .u can lodge a complain on their site also. 

akshay (Director)     02 May 2011

 

Whether Sarfaesi Act is applicable when the loan Amount is below 10 Lac…

It is very urgent…

Akshay (Mob: 8149951110)

RAJU O.F., (Advocate)     08 May 2011

Banks can invoke the provisions of SARFAESI Act if the loan is defaulted for 90 days and the account has been classified as NPA.  Since bank has already issued Demand Notice under Sec.13(2) of the SARFAESI Act you have to send your objection/representation to the bank within 60 days from such Notice, ventilating all your grievences and requesting not to proceed further.  Bank has to answer such objection letter within 7 days.  In case bank is further issue Possession Notice U/Sec. 13(4) then only you can approach court- Debts Recovery Tribunal.  No ther courts or authorities can not help you.  You have file Securitisation Application before DRT within 45 days from the date of Possession Notice. In case of further delay, it may not be condoned.

TVD Rajkumar (Advocate)     24 May 2011

 

Whether Sarfaesi Act is applicable when the loan Amount is below 10 Lac…

It is very urgent…

Akshay (Mob: 8149951110)

 

Definite yes...


RAJU O.F., (Advocate)     24 May 2011

SARFAESI Act is applicable in cases of loan dues exceeding Rupees one lakh, subject to exemptions u/S.31 of the Act.

vinay.v (advocate)     30 June 2011

Dear Experts,

What is the remedy if a bank proceeds u/s 14 without 13(4) notice and subsequant proceedings as per rules of the SARFAESI Act???

Thank u very much

Vinay.

MANOJ HARIT (LAWYER)     03 July 2011

Mr. Vinay V,

U may file Appeal u/s 17(1) with DRT. And rest assured that any action without due Notice will be quashed by DRT.

vinay.v (advocate)     03 July 2011

but sir, DRT has declined to interfere in similar cases stating that s 17 appeal will lie only if 13(4) steps are taken as per DRAT notification and several SC, Judgments thats the sad state.....

RAJU O.F., (Advocate)     17 July 2011

Even if bank did not issue notice under Sec. 13(4) , but proceeded under Sec.14, there are reported  cases deciding that Sec. 14 of the SARFAESI Act is enforcement of Sec. 13(4)(a) and hence Securitisation Application before DRT under Sec.17(1) can be preferred.

khalid masood (partner.)     16 January 2012

The bank would invoke provisions of sarfeasi only if the interest amount is not remitted in time. You forget the the principal and try to remitt interest so far accrued in your account as early as possible . After getting the interest bank has to give the borrower some time to arrange EMIs.

RAJU O.F., (Advocate)     16 January 2012

Bank can proceed under SARFAESI if EMI (both principal & interest) defaulted for 90 days and not interest alone.  You may negotiate with the bank tactfully by remitting the defaulted portion or for re-scheduling the loan so as to avoid further proceedings under SARFAESI


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