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J. P. Shah (RTI & CONSUMER ACTIVIST)     07 April 2008

SECURITISATION ACT-SMALL LOANS

SUGGESTIONS FOR STOPPING MISUSE OF THE SECURITISATIN AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002  [Known as Securitisation Act] and THE RECOVERY OF DEBTS AND BANKS AND FINANCIAL INSTITUTION ACT 1993 [Known as DRT Act] in case of SMALL BORRWERS.

 

There are large number of small borrowers with loans upto Rs.5.00 lacs including housing loans in rural, taluka and district level from banks. The bank can dispossess them on default of 91 days plus 60 days notice, as per present NPA norms from home and means of living, for which loan is availed.

 

Under securitization act the borrower can file appeal u/s 17 with DRT of the state if he is aggrieved with the action of authorized officer of the bank.

 

 The semi-literate small borrower firstly does not understand whom to approach for appeal, as he can not afford a lawyer at taluka/district level, who is well versed with securitization act and DRT act. This mainly happens because bank seals their flats with the other belongings including cash etc. Usually notices in these acts are sent in English, which semi-literate person cannot understand.

 

Majority of advocates at district level are also not aware of whom to appeal in securitization act. He cannot afford fee of advocates and traveling/staying expenses for visiting state capital, where DRT is functioning. Even if he gets an advocate practising in DRT, advocate is   not interested in small cases, or he charges normal fee which he charges for big accounts above Rs.10.00 lakhs, as the efforts are same for him.

 

Thus assets of small man are disposed off by the bank for recovery and he is out of home and business. This affects his family and  children. He is on the road to starve. He pays huge human cost for small overdue in small loan account.

 

There is lot of corruption and inhuman treatment to small borrowers at small places by misuse of captioned acts. Bank officers transgress their authority, fully knowing that the common man will not be able to do any thing except to beg from him, because of lack of knowledge, money and precarious condition in which he and his family is placed after dispossession. He can not fight with all powerful bank. This is the plight of small borrowers, who are by and large regular in repayment but for reasons beyond their control. Most  of such borrowers are self employed in small enterprises. Banks do not touch or in some cases bank officers indirectly help big defaulters to delay repayment or frustrate above acts.

 

To save common man from such harassment, I humbly suggest as under:

 

1. The limit of Rs.one lakh in the securitization act under section 31 (h) should be raised to Rs.5.00 lakhs to which this act will not be applicable.

 

In case if this is not possible following amendments should be made for loans upto Rs.5.00 lacs.

 

2. At present, with default of 91 days the account becomes NPA and bank can proceed against borrower under securitisation act and he is asked to pay ENTIRE outstanding of the bank. Banks do not take into account part repayments made by the borrower after getting  60 days notice and can take possession of assets of loanee even when the account is regular or non-NPA on the date of  taking possession of assets or sale of assets.

 

I suggest that in case of small loans upto Rs.5.00 lacs, banks should be able to invoke securitization act only if there is overdue of 181 days.  Small borrowers face uncertainty of income for various reasons and hence they cannot be at par with big borrowers. RBI definition of NPA should not be applied to small loans up to Rs.5.00 lacs for the purpose of captioned acts.

 

It should also be provided in law that even after serving first 60-day notice under section 13 [2], the bank should not proceed further if the account ceases to be NPA as per repayment schedule. This notice should interalia mention amount of overdue as on date of notice, so that borrower can make the payment of overdue amount and stop further action under said acts.  

 

3. The securitization act provides first representation against 60-day first notice u/s 13 [3A] to the authorized officer, who initiated the action under securitization act. The authorized officer will not take representation in right spirit, as it will go against his own decision to initiate recovery proceedings under the act. In the interest of fair play and justice to small man, I suggest that this representation be made to an officer in the bank, who is higher in rank of that of authorized officer posted in Head Office of the bank.

 

4. There is lot of  intimidatory, inhuman and high handed treatment to small borrowers when physical possession of flat or house and other movables are taken. Later on it becomes difficult for the borrower to prove bad treatment to him and his family at the time of taking possession. Hence in addition to panchanama, it should be made mandatory for the bank to have entire process videographed at its own cost and one CD should be given to borrower with panchanama copy etc. This will deter bank officers and recovery agents from indulging into questionable behaviour at the time of taking possession.

 

5. As per provisions of securitization act u/s 4[3] & 8 [3] of the security interest [enforcement] rules 2002, authorized officer is required to keep the assets in his custody. Thus the authorized officer is singly entitled to hold the keys of locks put on immovable assets or where movables are stored. This is fraught with misuse by the authorized officer. He can remove cash, ornaments in almirah/drawers and such small but costly items by opening the seal and lock of the flat which is under his possession. He can again secretly lock and seal the flat/house. Such small items are not noted in panchanama while sealing alimirah etc. Mostly borrower and his family is terrorized by bank’s security personnel with gun or through police men-women who accompany. Borrower and his family are forced to leave the spot without locking flat/house.

 

 

 

To avoid such a situation, it should be mandated that all the keys of all the locks should be jointly held by authorized officer and another officer immediate higher or lower in rank of the authorized officer, in a locker of the bank. It should also be necessary to maintain key custody and movement register for such keys, as is done in case of keys of safe and important almirah of the bank. At present no register is maintained for custody and movement of keys of the locks affixed by bank while taking possession of borrowers’ properties.

 

6. The authorized officer should not take possession of residential flat or house during absence of borrower.

 

7. In the first 60 day notice under section 13 of securitization act, the authorized officer should also mention right of the borrower to represent against this notice to an officer, whose name and full address, email ID, phone number etc are mentioned. He should also mention full address of DRT/Court to whom the borrower can appeal u/s 17 of securitization act. This is done in case of The Right to Information Act.

 

8. State Legal Services Authorities offer legal assistance to borrower, but it is experienced that the allotted advocate asks for various papers which are not available with the borrower and he does not take interest. He tries to get the borrower to him in his personal capacity and charge heavy fees.  Hence this authority needs to be fine tuned for the interest of small borrowers.

 

9. Appeal against action of authorized officer should be to fast track court/principal district judge of the district for loans upto Rs.5.00 lacs, so that small borrower is not required to visit state capital for DRT.

 

10. Though there is provision of sending appeals to DRT by post u/s 4 (2) of DRT [procedure] Rule 1993, in practice the appeals/applications sent by post are not registered nor replied by DRT of any defect. Though the borrower or his authorized agent can present appeal/application to DRT for registration, DRT staff insists that borrower should approach through an advocate. This should be corrected.

 

11. Keeping in view circumstances of the borrower after he is thrown out of residence and business by the authorized officer, the presiding officer of DRT/courts should have discretion to waive fees for appeal. 

 

12. Bank should be mandated to prepare file notings/process note, while selecting borrowers for covering them under securitization act. Copy of this note should be given to borrower with the first 60 day notice. This will stop arbitrary or technical selection of borrowers based on returns sent by the branch to the controlling authorities. This will reduce corruption also.

 

Note: These suggestions are based on real life situation of a semi-literate small borrower in a district place against  officers of a big NATIONALISED BANK for total loan of Rs.360000/- and net overdue of below Rs.2500/- on the day of taking possession and advance repayment on the day of notice for sale of his flats.  Since last 9 months the borrower and his family are practically on road and are inching towards death!  

 

I SOLICIT VIEWS OF OUR LEARNED MEMBERS PLEASE .

 



Learning

 19 Replies

Kalpana.S (-)     10 April 2008

The banks were invoking the provisions of Securitisation Act to catch the small fish and allow the big ones to go scot-free. It is unfortunate that court too are against the case put forth by borrowers as if the statements of the bank are of gospel truth

Guest (n/a)     28 April 2008

you are right. This is exactly what is happening. But the problem is that courts are very reluctant to hear anything against provisons of Securitisation Act and rules framed thereunder. In fact, Supreme Court in Mardia Chemicals had stated that this is a very stringent act and should apply with caution. For which it proposed replies etc. But the observations made by SC did not appear to be applied by courts in real sense. The only option available is to challenge it by way of writ petition taking example of a suitable case.

Guest (n/a)     03 June 2008

your views are correct but court have to stick to letter of law.perhaps the correct forum would be legislative wings.you can send this to hon'ble law minister/parliament secretriate/law commission. in election year govt usually accepts such ideas readily.

(Guest)
your views are correct but court have to stick to letter of law.perhaps the correct forum would be legislative wings.you can send this to hon'ble law minister/parliament secretriate/law commission. in election year govt usually accepts such ideas readily.

J. P. Shah (RTI & CONSUMER ACTIVIST)     07 June 2008

I have forwarded it to central law ministry for their consideration.

Gaurav Aggarwal (Owner)     21 April 2009

Sounds good .. however, it is good only to that extent.

Think of the bank as a pool large number of small investors.. while there is a small man at the borrowing end, there is a small man at the lending end whose money banks have accepted in form of deposits..

I would have definitely agreed in toto with you if say that for every default of a loan banks are free to dishonour the maturity of a small deposit..

We cannot continue to be a welfare state beyond a point..

 

Gaurav Aggarwal (Owner)     21 April 2009

While I agree that implementation of the act at times takes bad shape as the case mentioned by you .. but relaxing the norms just won't help it especially in a country like ours where we the people are on the look out to find ways to twist the law..

What we need is a better implementation not a relaxation

Y V Vishweshwar Rao (Advocate )     23 April 2009

Shri J P Sha Ji your suggestions are  good , I support all of them  , there must be  restrtain on the situations expalined by you. It requires some precedural changes in implementing the SARFASI ACT and the Bowwer should be allowed to  agitate his  greviences .At  Dsitrict Level the petition for  Posession  can be filed by the Bnak , in the same way the Bowrrower should be allowed to file his  appeal /objections to the measures taken u/s 13  of  the Act befoe the Prinicpal  District Judge . This  will minimise  the proceedings / process/co sts  and it will not  be  much cost to the Bowrrower who has genuine cause . 

With regards !    

J. P. Shah (RTI & CONSUMER ACTIVIST)     07 May 2009

Shri Gauravji,  I do not have data for the present position of NPA, but it would not be different than a decade ago when 65-70% of NPA outstanding of nationalised banks was from borrowers with outstanding above Rs.one crore as per RBI statistics.

Rahul Arun Prayage (Site HR ( Trainee Executive HR & Admin))     28 March 2010

This law is applicable to unsecured  Personal Loan  upto Rs. 50000/-?

What steps taken in case of  NPA If the borrower is not in position to pay the same ?

J. P. Shah (RTI & CONSUMER ACTIVIST)     28 March 2010

This law enables bank and financial institutions to recover from securities charged to the lender. For unsecured loan one has to file civil suit. 

Ajay (proprietor)     23 January 2011

now a days bank officer are conniving with real estate broker and selling the property at low value to grab money from broker,now specially pvt bank are trying make even regular account NPA and even not informing borrowe what is actual due,

we request that notice 1st issued should be of default amount and if default amount is paid than sarfesi act should not be invoked,

further NPA account should be made after6 month of default,Indian economy is very uncertain,so atleast 6month time should be granted to regularise acount.

Indian system is corrupt sarfesi system is adopted from US and UK law which is not suitable for indian environment.

hon. Judges in DRt should be appointed Other than banking and RBi system as they are from same fraternity,so they try to give benfit to Bank without going intto merit of case

Bank should be penalised heavily and officer who took decision of making accont NPA must be penalised under criminal as they are palying with life long hard earn money of borrowe.

Satya Narayana Palukuru (Advocates & Mediators.)     23 January 2011

Yes , legislative wings can be persuaded to increase the limit to 10 lacs as banks

common target is common man

RAJU O.F., (Advocate)     21 February 2011

As per Securitisation Act, banks can invoke the proceedings for dues of more than      Rs.1 lakh. 99% borrowers don't know what to do with the Demand Notice u/S13(2) issued by the bank, nor its consequences. Borrowers can raise objections against the arbitrary actions of the bank.  There should be provision in the Rules, to stipulate that any objections to the notice must be sent to the bank, within 60 days from the receipt of the Demand Notice.  Similarly, Rules must stipulate that Possession Notice must mention that  the grievances of the borrower can be appealed before DRT.  Once the relevant limitation periods are over, DRT Courts also may not help the aggrieved, against the arrogant bank officials.   

RAJU O.F.


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