PRESENTATION ON

RECOVERY PROCESS &

ENFORCEMENT OF SECURITY
INTEREST IN INDIA

PRESENTED BY :- IOB STC, MUMBAI

 OVERVIEW OF THE PRESENTATION

 RECOVERY OF DEBTS – LEGAL FRAMEWORK IN INDIA

 DEBT RECOVERY TRIBUNALS & PROCESS OF RECOVERY

 RECOVERY OF DEBTS (DUE TO BANKS AND FINANCIAL

INSTITUTIONS) ACT 1993 (“DRT ACT”)

 SECURITISATION AND RECONSTRUCTION OF

FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST ACT 2002 (“SECURITISATION ACT”)
 DEBT RECOVERY – LEGAL FRAMEWORK IN INDIA

Indian Legal system encompasses varied legal provisions for recovery of debts
by the Banks and Financial Institutions as follows :-
 Summary suits under Order XXXVII of the Code of Civil Procedure,
1908.
 Ordinary suits for recovery, under Civil Law.
 Original Applications to be filed by Banks and Financial Institutions
before Debt Recovery Tribunal for debt not less than Rs. 10 lakhs, under
Recovery of Bank Due to Banks & Financial Institutions Act, 1993 (DRT
Act).
 Action under Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 (Securitisation Act).

 Initiation of criminal action in addition to civil proceedings for

prosecution and punishment as per the Indian Penal Code and other laws
where debt is also tainted with fraud, cheating, misfeasance etc.
 Filing of criminal complaint under Section 138 of Negotiable Instruments
Act, 1881 for dishonor of any cheque issued by borrower to the bank in
discharge of legally enforceable liability.
BROAD CLASSIFICATION OF THE DEBT WORK OUT PROCESS IN INDIA

Amount to be recovered Procedure

Does not exceed Rs. 10,00,000/- i) Filing simple suit for recovery before Civil
Court.
ii) Filing of summary suit under Order XXXVII
of CPC, 1908.
iii) Filing suit for foreclosure of mortgage.
iv) Arbitration proceedings if arbitration
agreement exists.
Exceeds Rs. 1,00,000/- In case the “Security Interest” has been created
in specific movable / immovable property
provisions of the Securitization Act may be
invoked to repossess the mortgaged property,
without intervention of the court, and sell the
same, provided the account has been classified as
NPA.
Exceeds Rs. 10,00,000/- Original application is to be filed before the DRT
for recovery of dues. Bank can simultaneously
initiate proceedings under Securitization Act as
well. Civil court / Arbitrator will not have
jurisdiction to entertain such claim.
DEBT RECOVERY TRIBUNALS & PROCESS OF RECOVERY

Debts Recovery Tribunals (DRT) and Debts Recovery Appellate

Tribunals (DRAT) have been constituted under the provisions of
the DRT Act for establishment of Tribunals for expeditious
adjudication and recovery of debts due to Banks and Financial
Institutions and for matters connected therewith.

DRT has also been given the power to adjudicate the

applications filed by the Borrower/Mortgagor against the action
of the Secured Creditor initiated under the Securitization Act
 ESTABLISHMENT OF DRTs

The Central Government by notification has established Tribunals known as Debts

Recovery Tribunals (DRT) to exercise the jurisdiction, power and authority confers
under the Act at:

Mumbai, Delhi, Kolkata, Chennai,

Bangalore, Allahabad, Ahmedabad, Aurangabad,

Chandigarh, Madurai, Coimbatore, Cuttack,

Orissa, Patna, Bihar, Ernakulam,

Guwahati, Hyderabad, Vishakhapatnam, Jabalpur,

Jaipur, Lucknow, Nagpur, Ranchi

Pune.
 Establishment of DRATs
In exercise of powers, the Central Government has established DRAT at
places :-

 Allahabad – Jurisdiction over DRTs functioning at Allahabad,

Lucknow and Jabalpur.

 Chennai – Jurisdiction over DRTs functioning at Bangalore, Chennai,

Coimbatore, Hyderabad, Vishakhapatnam and Ernakulam.

 Delhi – Jurisdiction over DRTs functioning at Delhi, Chandigarh,

Jaipur.

 Kolkata – Jurisdiction over DRTs functioning at Cuttack, Guwahati,

Patna, Kolkata and Ranchi.

 Mumbai – Jurisdiction over DRTs functioning at Ahmedabad,

Aurangabad, Mumbai, Nagpur and Pune.
 Composition of DRT and DRAT

DRT is presided over by a Presiding Officer, who is qualified to

be a District Judge, and is appointed by notification by Central
Government.

DRAT is presided over by a Chairperson, who is qualified for

appointment or who has been a Judge of a High Court, or has been
member of the Indian Legal Services who has held the post of
Grade I of such services for at least three years.
The Recovery Of Debts Due To Banks And Financial Institutions
Act, 1993

Applicability (DRT Act)

 The Act applies to whole of India except State of Jammu &

Kashmir.

 The provisions of Act applies where the amount of debt due

is not less than Rs. 10,00,000/-.

 Original Application for recovery of Debts can be filed only

by Banks and Financial Institutions.
 Applications to be made to DRT under DRT Act

 Only Banks and Financial Institutions defined under the DRT

Act, can file an application before the DRT. Normal fees, based on
amount claimed in O.A., has been fixed as court fee which does
not exceed Rs. 1.50 lakhs.
 Summary procedure is adopted by the DRTs for adjudication of
dispute. Evidence is taken on affidavit and cross examination is
not permitted except in few deserving cases.
 The defendants can file counter claim or claim of set off against
the claimed amount.
 The final order is passed by the Tribunal directing the borrowers
to pay the amount. In case, the borrower does not pay the ordered
amount, recovery certificate is ordered to be issued against the
borrower which is then executed by Recovery Officer of the DRT.
 Powers of DRT

DRT has power to:

 summoning and enforcing the attendance of any person and
examining him on oath;
 requiring the discovery and production of documents;
 receiving evidence on affidavits;
 issuing commissions for the examination of witnesses or documents;
 reviewing its decisions;
 dismissing an application for default or deciding it ex-parte.
 make interim order by way of injunction, stay or attachment against
the defendant to debar from transferring, alienating or otherwise
dealing with the property or asset without permission of Tribunal.
 direct the defendants to provide security sufficient to satisfy the debt.
Willful disobedience of powers of Tribunal are punishable under
Contempt of Court Act.
 Appeal against the order of DRT

Any person aggrieved on account of order passed by DRT

may file an appeal before DRAT.

However, the DRAT does not entertain the appeal unless the
Appellant deposits with the Appellate Authority, 75% of the
amount or such other lesser amount as directed by DRAT.
SARFAESI ACT 2002
THE SECURITISATION AND
RECONSTRUCTION OF FINANCIAL
ASSETS AND ENFORCEMENT OF
SECURITY INTEREST ACT, 2002 –
Empowers Banks / Financial Institutions to
recover their non – performing assets
without the intervention of the Court.
 Applicability of Securitization Act

 The Act applies to whole of India.

 The provisions of the Act shall apply to Security Interest created in

favour of Secured Creditor, except on :-

(a) A lien on any goods, money or security given by or under the

Indian Contract Act, 1872 or the State of Goods Act, 1932 or
any other law for the time being in force;

(b) A pledge or movables within a meaning of Section 172 of

Indian Contract Act.

(c) Creation of any security in any aircraft as defined in clause (1)

of Section 2 of Aircraft Act, 1934.

(d) Creation of security interest in any vessel as defined in clause

(55) of Section 3 of the Merchant Shipping Act, 1958.
(g) Any property not liable to attachment (excluding the properties
specifically charged with the debt recoverable under this Act) or sale
under the first proviso to sub section (1) of Section 60 of the Code
of Civil Procedure, 1908.

(h) Any security interest for securing repayment of any financial asset
not exceeding one lakh rupees.

(i) Any security interest in agricultural land.

(j) Any case in which the amount due is less than twenty per cent of
the principal amount and interest thereon.
Compliance under “The Securitization & Reconstruction of
Financial Assets & Enforcement of Security Interest Act
2002” (“Securitization Act”) & “Security Interest
(Enforcement) Rules, 2002”(“Rules” )
 CHECK LIST FOR ENFORCEMENT OF SECURITY INTEREST IN
CASE OF IMMOVABLE ASSETS

SR. NO. COMPLIANCES RELEVANT PROVISIONS

1 Bank/FI to give a Power of Sec 13 (12) read with Rule 2(a)

Attorney/ Letter authorising its
concerned official to take steps
under the Act.

2 Sending of Demand Notice for Sec 13(2) read with Rule 2(b) & 3
enforcement of Security Interest.
3 Notice can be sent by Registered Post Rule 3(1)
or Speed Post or Courier or Fax or E-
mail

4 If Borrower avoids notice, service shall Proviso to Rule 3 (1)

be made by affixing the notice in some
conspicuous place of his residence/
business and by publishing the notice in
two leading newspapers, one in a
vernacular language having sufficient
circulation.

5 If more than one Borrower (which Rule 3(4)

includes guarantor), individual notice
to be served on each of them.
5A In case any reply/representations are Section 13(3A)
received, the Bank to suitably adjudicate
upon and decide.

5B Issue Notice for taking possession of Secured Sec 13(4)

Asset u/s 13(4) of Act .

5C Take symbolic possession of the Secured Sec 13(4)

Assets

6 File an application before the Chief

Metropolitan Magistrate or District Sec 14(1)
Magistrate for taking actual possession of
the property

7 Comply with the order of the Chief Sec 14(2)

Metropolitan Magistrate or District
Magistrate
8. Liaisoning with the Court Receiver, Police
authorities, etc.

9. Deposit of fee with Police authorities, if any, in

case the police force is to be made available by
police station in Utter Pradesh

10 After taking the possession a notice in terms of Rule 8(1)

Appendix IV will be sent to the Borrower,
which will also be affixed on the Property.

11 The said notice will also be published in two Rule 8(2)

leading newspapers one in vernacular language
within 7 days.
12 Name of Bank/FI to be displayed on the Rule 8(1)
Property.
13 Insurance cover to be arranged Rule 8(4)

14 Take Photographs Not specified

15 Security Guards to be deployed at the site of Rule 8(4)

the Property.

16 Valuation of property by an approved valuer Rule 8(5)

before effecting the sale

16A Serve on the Borrower a notice of 30 days for Rule 8(6)

sale.
17 Obtaining Quotations/Inviting Rule 8(5)
tenders/Holding Public Auctions/ Signing
Private Agreement for sale of the property.
18 If sale is by way of inviting tenders from
public or holding of public auction, a Proviso to
public notice to be published in two Rule 8(6)
leading news papers one in vernacular
language, having sufficient circulation,
setting out the terms of the sale.

19 Notice and Publications to be affixed on Rule 8(7)

conspicuous part of the property and put
on the website of the Bank.

20 Sale other than public auction/tender to Rule 8(8)

be on terms settled between the parties in
writing.

21 Sale to be confirmed in favour of highest Rule 9(2)

bidder
22 No sale to be confirmed on less than reserve Proviso to Rule 9(2
process. However sale at less than Reserve
price can be made with the consent of
Borrower

23 25% of the sale price to be deposited Rule 9(3) and (4)

forthwith and balance within 15 days

24 If balance is not deposited the deposit would Rule 9(5)

be forfeited and the property be resold.

25 Sale of Property to be made effective from Not specified

execution of Sale Deed

26 If the terms of payment have been complied Rule 9(6)

with, the Bank/FI shall issue a certificate of
sale in favour of the purchaser
27 The certificate of sale to specify whether
the property is free from encumbrances
known to the Bank

28 Acknowledgement from buyer of having Not specified

taken over the physical possession of
property to be obtained by the Bank/FI.

29 In case the dues of the Bank/FI are not Sec 13(10)

fully met with the sale proceeds of the Read with
property, Bank/FI may file an application Rule 11
before Debt Recovery Tribunal or Court
having jurisdiction, for recovering the
balance amount.
 Applications to be made to DRT under said Securitisation Act

 Any person, aggrieved by any of the measures referred to in sub-

section (4) of sector 13 taken by the secured creditor may make
an application under section 17 of the Act to the Debts Recovery
Tribunal, within forty-five days from the date on which such
measures had been taken.

 Procedure prescribed under the DRT Act is to be adopted by the

DRT for disposal of such applications filed un/s 17 of the Act.
 Appeal against the order of DRT under Securitisation said Act

Any person aggrieved on account of order passed by DRT may

file an appeal before DRAT.

The DRAT does not entertain the appeal unless the Appellant
deposits with the Appellate Authority, 50% of the amount or such
other lesser amount as directed by DRAT.
 Powers of DRT under Securitisation Act

 In addition to the power of the DRT under DRT Act, a DRT

has following additional powers:

a. to restore for ordering restoration of the management of the

secured assets to the borrower or restoration of possession of
the secured assets to the borrower.

b. to order payment of cost/compensation to the borrower if it

holds that the possession of the secured assets by the secured
creditor is not in accordance with the provisions of the Act.
 Disposal of Application /Appeal by DRT/DRAT

 Any application made by the Banks and Financial Institutions is

to be dealt with by the Tribunal as expeditiously as possible and
endeavor is to be made by Tribunal to dispose off the application
finally within a period of 180 days from the date of receipt of
application.

 The appeal filed before the Appellate Tribunal is to be disposed

off as expeditiously as possible and endeavor is to be made by
Tribunal to dispose off the appeal finally within a period of six
months from the date of receipt of appeal.

 On practical side the proceedings before may take from 1 (one)

year to 3 (three) years depending upon the facts and
circumstances of the case.
 IMPORTANT PRECEDENTS
 Mardia Chemicals Ltd.Vs Union Of India (AIR 2004 SC
2371)
Ratio: The constitutionality of the Securitisation Act was upheld
except 17(2) of the Act.

 Transcore Vs Union Of India (AIR 2007 SC 712)

Ratio: Withdrawal of suit pending before DRT under DRT Act,
1993 is not a pre-condition for taking recourse to the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 is an additional remedy, which is not inconsistent
with DRT Act, 1993 and, therefore, doctrine of election has no
application.
IMPORTANT PRECEDENTS continued…..
 Central Bank of India Vs State of Kerla (JT 2009 (3) SC
216)
Statutory first charge over property under any law will prevail over
rights created in favour of secured creditors such as banks and
other financial institutions.

 United Bank of India Vs Satyawati Tandon and Others

(AIR 2010 SC 3413)
Where statutory remedies are available under a fiscal statute then
exercise of jurisdiction under Article 226 by High Court for passing
orders, which could have serious adverse impact on the right of
banks and other financial institutions to recover their dues, is not
warranted
 OTHER IMPORTANT JUDGMENTS

 Rajshree Sugar and Chemicals Ltd.Vs Axis Bank

AIR 2011 Madras 144

 State Bank of India Vs Sharda Spuntex ;

I(2010) BC 562 Rajasthan

Transactions in derivatives, fall within the category of "business

activity undertaken by the Bank" as they are covered by Section
6(1) of the Regulation Act . If the transaction in question gives
rise to a claim by the Bank, of any liability, on the part of the
Company, the Bank may certainly be able to invoke the provisions
of DRT Act. Further held that what is expressly permitted by law,
cannot be held to be opposed to public policy
OTHER IMPORTANT JUDGMENTS continued…
 BOI Finance Ltd.Vs Custodians and Others; AIR 1997 SC
1952
The non-compliance of the directions issued by the Reserve Bank may
result in prosecution/or levy of penalty under Section 46, but it cannot
result in invalidation of any contract by the bank with the third party.
 ICICI Bank Ltd. Official Liquidator of APS Star Industries Ltd.
(2010) 10 SCC 1:
The Hon’ble Supreme Court held that an outstanding in the account of
the borrower is a debt due and payable by the borrower to the bank and
the bank is the owner of such debt. The bank can always transfer its
assets and such transfer in no manner affects any right or interest of the
borrower.
 Inderjeet Arya Vs. ICICI Bank Ltd., Writ Petition No. 7253/2011
The Hon’ble Delhi High Court held that the action against the Borrower
in the Debt Recovery Tribunal is not a suit and, therefore, such Guarantor
cannot take protection under Section 22 of SICA.
 Effect of the Act on the Economy / Banking Sector

The enactment of the Act has been a major

factor in improving the health of Banks and
Financial Institutions by enabling the bank to
reduce their NPAs to substantially lower level.
On account of availability of dual remedy, i.e.
remedy under the Securitization Act and DRT
Act, the Banks and Financial Institutions have
been able to substantially resolve the NPAs.
Time Period for Taking Action under
SARFAESI Act
1) Account classified as NPA on
31.03.2016.
2) Issue recall notice followed by Demand
Notice u/s 13/2 on 02.04.2016.
3) After 60 days, i.e. on 31.05.2016 take
possession of the property.
4) Publication of notice in news paper for
having taken possession 01.06.2016.
5) File an application before the Chief
Metropolitan Magistrate or District
Magistrate for taking actual possession of
the property on 02.06.2016.
6) Simultaneously, valuation is to be taken
and matter to be taken up with
appropriate authority for fixing Reserve
Price.
7) Sale notice to be issued after 20 days i.e.
on 24.06.2016.
8) Wait for 30 days after issue of sale notice
9) Fix sale date i.e. 24.07.2016.
10) If auctioned at the first auction itself
25% will be received and kept under
Sundry Creditor account awaiting sales
confirmation.
11) 15 Days time to take up with SARFAESI
Committee and to advise the sale
confirmation to the prospective bidder.
12) Sale confirmed on 08.08.2016.
13) Time taken to make payment of balance
75% - 23.08.2016.
14) In between keep on following up with
DM’s office for permission for actual
possession of the property.
15) Sale of property to be made effective
from execution of Sale Deed.
16) Issue Certificate of sale in favour of the
purchaser.
16) Take acknowledgement from buyer of
having taken over the physical possession
of the property.
THANK YOU