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I-47
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About the author I-5Foreword to Sixth Edition I-7Preface to Sixth Edition I-9Foreword to Fifth Edition I-13Preface to Fifth Edition I-15Preface to Fourth Edition I-17Foreword to Third Edition I-19Preface to Third Edition I-21Foreword to Second Edition I-23Preface to Second Edition I-25Foreword to First Edition I-29Preface to First Edition I-31Chapter-heads I-35List of cases I-93
AN INTRODUCTION
0.1 Reforms in Financial Sector I-1210.1-1 Rights of mortgagee under TP Act I-121
0.2 Act is major step in reforms I-1220.3 Comparable provisions of the Uniform Commercial
Code of USA I-1230.4 Concepts of UCC in present Act I-1240.5 Economic benefits of SARFAESI Act I-1240.6 Reforms required in SARFAESI Act I-1250.7 Other reforms for inheritance to Property Rights I-1270.8 Reforms relating to Property Rights I-1280.9 Historical background of the new legislation I-128
0.9-1 Recommendations of CFS in 1991 I-1280.9-2 Narsimhan Committee II I-1310.9-3 Subsequent Developments I-133
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0.9-4 Constitutional validity of the Act I-1340.9-5 Amendments to the Act consequent upon
Supreme Court judgment I-135
DIVISION ONE
LAW RELATING TO SECURITISATION ASSETRECONSTRUCTION & RIGHTS
OF SECURED CREDITOR
SECURITISATION
S.1.1 Securitisation of Financial Assets 3
S.1.2 What is Securitisation? 3
S.1.3 Credit enhancement 4
S.1.4 Essential terms of securitisation 5
S.1.5 Why securitise ? 6
S.1.6 Advantages of Securitisation 7
S.1.7 What type of assets can be securitised? 7
S.1.8 Structure of a securitisation issue 8
S.2.1 Securitisation outside the purview of SARFAESI Act 9
S.2.2 Use of Trust structure for securitisation 9
S.2.3 Constraints in undertaking securitisation under theSARFAESI Act 10
S.2.4 Legality of securitisation of loans of banks under theBanking Regulation Act, 1949 10
S.3.1 Securitisation under other laws 11
S.3.2 National Bank for Agriculture and Rural DevelopmentAct, 1981 (NABARD) 12
S.3.3 Securitisation under RBI Guidelines 12
S.3.4 Revised RBI Guidelines 14
S.4.1 Accounting Norms for Securitisation 15
S.4.2 Accounting for securitisation 16
S.5.1 Transactions similar to securitisation 16
S.5.2 Factoring Regulation Act, 2011 17
S.5.3 Assignment of receivables in International Trade 19
CONTENTS I-48
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S.5.4 Common provisions in UN Assignment Conventionand SARFAESI Act 19
S.5.5 Forfaiting 20
S.6.1 Amendment suggested to SARFAESI Act 20
S.6.2 Tax issues relating to securitisation 20
S.7.1 Multiple regulations for securitisation 24
S.7.2 RBI Guidelines on Securitisation of Housing Finance 25
S.7.3 Legislative measures for development of market forsecuritized debt instruments 27
S.7.4 SEBI Regulations for Securitised Debt Instruments 28
S.7.5 Suggestions for reforms for Uniform Law of Securitisation 29
S.7.6 Recommendation of CFSA 31
ASSET RECONSTRUCTION
AR.1.1 Asset Reconstruction 32AR.1.2 Reforms Suggested 32AR.1.2A Reforms Implemented 33AR.1.3 Other problems of ARCs 35AR.2.1 Issues involved in Take-over of Management 37AR.2.2 RBI Guidelines on Take-over or change in management 37AR.3 Appointment of Administrators 40AR.4 Creation of environment conducive for asset reconstruction 40
RIGHTS OF SECURED CREDITORS
SC.1.1 Policy consideration for priority to secured creditors 41SC.1.2 Advantages for banks 41SC.1.3 Rights of secured creditors 41SC.1.4 Priority for secured creditors over other claimants 42SC.1.5 Doctrine of priority to Crown Debts - Applicability in India 43SC.1.6 Existing laws recognizing common law doctrine 47SC.1.7 Priority to secured creditors under Insolvency Laws 49SC.1.8 Validity of State Laws giving priority to Government claims 49SC.1.9 Inconsistency of State Sales Tax Laws with Union Laws 52SC.2.1 Position of priority to secured creditors over claims of revenue 57SC.2.1A New Company Law 60SC.2.2 Suggestions for further reforms 60A
I-49 CONTENTS
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DIVISION TWO
SECURITISATION AND RECONSTRUCTIONOF FINANCIAL ASSETS AND ENFORCEMENT
OF SECURITY INTEREST ACT, 2002
CHAPTER I
PRELIMINARY
1. Short title, extent and commencement 63
1.1 Extension of Act [Section 1(2)] 64
1.1-1 Coverage of Act 64
1.1-2 Law extended to certain Housing FinanceCompanies 64
1.1-2A Law extended to Regional Rural Banks 64
1.1-2B Law extended to Co-operative Banks 65
1.1-2C Statement of objects and reasons 66
1.1-3 Applicability to existing cases 68
1.1-3a Supreme Court views on retro-spective operation of the Act 68
1.1-3b Enforcement in pending cases 69
1.1-4 Effective date of the Act 69
1.1-5 Flexibility to handle financial assets 70
1.1-6 Existing Law 70
1.1-6A United Nations Convention on theAssignment of Receivables 71
1.1-7 New law supplemental to Transfer ofProperty Act 72
1.1-8 Enforcement of Security Interest 72
1.1-9 Interpretation of statutes 73
1.1-10 Mischief rule 75
1.1-10A Harmonious Construction 75
1.1-10B Inconsistency between general law andspecial law 76
1.1-10C Non obstante clauses in two conflictingstatutes 76
1.1-11 Parliamentary Debates 77
CONTENTS I-50
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1.1-12 Purposive interpretation 77
1.1-13 Relevance of various parts of the Act tointerpretation 77
1.1-14 Headings in statutes 78
1.1-15 Explanation 78
1.1-16 Proviso 79
1.1-17 Press notes and circulars of Government 79
1.1-18 Non obstante clause 79
1.1-19 Definition clause 80
1.1-20 Object of the Act 84
1.1-21 Reconstruction of financial assets 86
1.1-22 Benefits of sound secured transactions law 87
1.2 Judgments of High Courts on constitutional validity 88
1.2-1 Constitutional validity of the Act 89
1.2-2 Validity of enforcement action afterjudicial determination of a bank’s claimor during the pendency or any litigation 92
1.2-3 Remedy of raising dispute under StateCo-operative Societies Acts 93
1.2-4 Amendments to SARFAESI and DRTActs 94
2. Definitions 94
2.1 Appellate Tribunal [Section 2(1)(a)] 100
2.2 Asset Reconstruction [Section 2(1)(b)] 100
2.2-1 Sale of Non-Performing Assets 101
2.2-2 Sale of Non-Performing Assets inter seby banks 101
2.3 Bank [Section 2(1)(c)] 102
2.3-1 Applicability to Co-operative Banks 103
2.3-2 Co-operative credit societies acting asbanks 104
2.3-3 Stay on Government Notification 105
2.3-3a Gujarat High Court declaresGovt. Notification as unconsti-tutional 105
2.3-3b Author’s view 106
I-51 CONTENTS
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2.3-4 Constitutional validity of extendingSARFAESI Act to co-operative banks 107
2.4 Banking company [Section 2(1)(d)] 109
2.5 Board [Section 2(1)(e)] 109
2.6 Borrower [Section 2(1)(f)] 110
2.6-1 Nature of Guarantors’ Liability 111
2.7 Central Registry [Section 2(1)(g)] 111
2.7-1 Cause to be set up 112
2.7-2 Registry established 112
2.8 Corresponding new bank [Section 2(1)(h)] 112
2.8A Debt [Section 2(1)(ha)] 112
2.8A-1 Debts under the SARFAESI Act 112
2.9 Debts Recovery Tribunal [Section 2(1)(i)] 113
2.9-1 Jurisdiction of Debt Recovery Tribunals 113
2.10 Default [Section 2(1)(j)] 114
2.10-1 Amendment of the definition of default 114
2.10-2 Concept of default 1142.10-2a Rights of secured creditors on
default 1162.10-3 RBI Directions on Asset Classification 1172.10-4 Prudential norms for asset classification 1172.10-5 Applicability of RBI NPA norms to HFCs 1172.10-5A Borrowers right to get his account classified
as Non-Performing Asset 1182.10-6 Wilful Defaulters 1182.10-6A Non-co-operative borrowers 1222.10-7 Grievances Redressal Mechanism 1222.10-8 Losses under derivative contracts
whether ‘Loans’ 1232.11 Financial Assistance [Section 2(1)(k)] 124
2.11-1 Loans and advances 1252.11-2 Credit facilities 125
2.12 Financial asset [Section 2(1)(l)] 1262.12-1 Any debt or receivable 126
2.12-2 “Any debt or receivable secured bymortgage . . . .” 126
CONTENTS I-52
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2.12-3 Mortgage charge, hypothecation orpledge . . . . 127
2.12-4 Any right or interest in security under-lying such debt or receivables 127
2.12-5 Any beneficial interest in property..... 127
2.12-6 Any financial assistance 127
2.12-7 Wide definition under the Act 127
2.12-8 Financial asset definition restricted bysection 5 127
2.12-9 Whether financial assets include retailloans below Rs.1 lakh 128
2.12-10 Can originator bank continue to recoverloans on behalf of ARC 129
2.13 Financial Institution [Section 2(1)(m)] 129
2.13-1 Financial institutions definitions in otherlaws 130
2.13-1a Securitisation or reconstructioncompanies 131
2.13-1b Are securitization or recons-truction companies financialinstitutions (FIs)? 132
2.13-1c Revised RBI Guidelines on saleof assets by SC/RC to another 134
2.13-2 Are securitisation or reconstructioncompanies NBFCs 134
2.13-3 Public financial institutions 135
2.13-3A Public financial institutions under NewCompany Law 135
2.13-4 Financial Institutions under section 45Aof the Reserve Bank of India Act, 1934 136
2.13-5 Financial Institutions under DRT Act 136
2.13-6 Applicability of SARFAESI Act to variousfinancial institutions 137
2.14 Hypothecation [Section 2(1)(n)] 138
2.14-1 Floating charge 139
2.14-2 Powers of enforcement of hypothecationcharge 141
I-53 CONTENTS
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2.14-3 Powers of enforcement under SARFAESIAct whether against public policy 141
2.14-3A Supreme Court view on Hypothecation 143
2.14-4 Courts declare the law to be valid 144
2.14-5 Supreme Court on validity of SARFAESI 144
2.15 Non-Performing Asset [Section 2(1)(o)] 144
2.15-1 Amendment to the definition of NPA 145
2.15-2 Income recognition principles 146
2.15-3 Asset Classification Norms of RBI 147
2.15-3A Whether asset classification is discretionary 148
2.15-3B Constitutional validity of definition of NPA 148
2.15-4 Norms applicable to Asset Classifications 150
2.15-5 Prudential Norms 150
2.15-6 Guidelines for classification of assets 152
2.15-7 Upgradation of loan accounts 153
2.15-8 Accounts regularized near about thebalance sheet date 154
2.15-9 Asset classification to be borrower-wiseand not facility-wise 154
2.15-9a Advances under consortiumarrangements 155
2.15-10 Accounts where there is erosion in thevalue of security/frauds committed byborrowers 155
2.15-11 Loans with moratorium for paymentof interest 156
2.15-12 Agricultural advances 156
2.15-13 Government guaranteed advances 157
2.15-13A Projects under implementation 158
2.15-14 Transactions involving transfer of assetsthrough direct assignment of cash flowsand the underlying securities 163
2.15-15 Income recognition 164
2.15-16 Sale of financial assets to ARCs 166
CONTENTS I-54
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2.15-17 Sale of financial assets to banks/FIs/NBFCs 170
2.15-18 Prudential Guidelines on Restructuringof Advances by Banks 173
2.15-19 Key Concepts 174
2.15-20 General Principles and PrudentialNorms for Restructured Advances 177
2.15-21 Corporate Debt Restructuring (CDR)Mechanism 180
2.15-22 General principles and PrudentialNorms for Restructured Advances 192
2.15-23 Off-balance sheet exposures of Banks 193
2.15-24 Relaxation of Prudential Norms forforeign exchange Derivative Contracts 194
2.15-25 Relaxation of Prudential Norms fordelayed Infrastructure Projects 195
2.15-26 Other relaxation 195
2.15-27 Provisioning Norms 196
2.15-28 Prudential norms on creation andutilisation of floating provisions 198
2.15-29 Summary of Asset Classification norms 199
2.15-30 Asset Classification whether discretionary 200
2.15-31 Asset classification dependant onapplicable RBI Guidelines 201
2.15-32 Relaxation of classification 203
2.16 Notification [Section 2(1)(p)] 205
2.17 Obligor [Section 2(1)(q)] 205
2.18 Originator [Section 2(1)(r)] 206
2.19 Prescribed [Section 2(1)(s)] 206
2.20 Property [Section 2(1)(t)] 206
2.20-1 Applicability to financial asset of privateparties 206
2.20-2 Reforms suggested in regard to propertyrights 207
I-55 CONTENTS
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2.21 Qualified institutional buyer [Section 2(1)(u)] 209
2.21-1 The expression ‘qualified institutionalbuyers’ is also defined in SEBI Guidelines 209
2.21-2 Reasons for exclusion of PF/Pension/Gratuity Funds 210
2.22 Reconstruction company [Section 2(1)(v)] 210
2.22-1 Foreign Direct Investment in AssetReconstruction Companies 211
2.22-2 FII investment in Security Receipts 212
2.22-3 Dr. Raghuram Rajan CommitteeRecommendations 212
2.23 Registrar of Companies [Section 2(1)(w)] 213
2.24 Reserve Bank [Section 2(1)(x)] 213
2.25 Scheme [Section 2(1)(y)] 213
2.26 Securitisation [Section 2(1)(z)] 214
2.26-1 Securitisation under SARFAESI Act 215
2.26-2 Terminology used in the Act 215
2.26-3 Applicability of NBFC Regulations 217
2.26-4 RBI Directions and Guidelines forsecuritisation or reconstruction companies 218
2.26-5 Regulation of securitisation andreconstruction companies 219
2.26-6 Check list for banks and financialinstitutions desirous of undertakingsecuritisation transactions underthe Act 219
2.26-7 Check list for reconstruction of assets 220
2.26-8 RBI Guidelines to banks on sale of NPAs 220
2.26-9 Impact of Gujarat High Court Judgmenton Securitisation Transactions 221
2.27 Securitisation company [Section 2(1)(za)] 225
2.27-1 Memorandum of Association 226
2.28 Security agreement [Section 2(1)(zb)] 227
2.29 Secured asset [Section 2(1)(zc)] 227
2.30 Secured creditor [Section 2(1)(zd)] 227
2.30-1 Definitions under Insolvency Laws 228
CONTENTS I-56
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2.30-2 Secured Creditor under Companies Act 228
2.30-3 Rights of secured creditors underInsolvency Laws 228
2.30-4 Restricted meaning of secured creditorsunder the Act 228
2.30-4a Validity of such classification ofsecured creditors 229
2.30-5 Secured creditor has priority over claimsof Revenue 229
2.30-6 Supreme Court on statutory priority toState Sales Tax dues 230
2.30-7 Priority to central taxes 231
2.31 Secured Debt [Section 2(1)(ze)] 233
2.31-1 Recovery of debts written off 234
2.32 Security interest [Section 2(1)(zf)] 234
2.32-1 Uniform Commercial Code of USA 234
2.32-2 Rights of enforcement of security interest 235
2.32-3 Security interest under English Law 235
2.32-4 Excluded Security Interest 235
2.32-4a Possessory security interest 235
2.32-4b Title retention contracts 235
2.32-4c Small loans 236
2.32-4d Agricultural loans 236
2.32-5 Definition of secured loan 236
2.32-6 Concept of comprehensive security interest 236
2.33 Security receipt [Section 2(1)(zg)] 237
2.33-1 Why “security receipt” 237
2.34 Sponsor [Section 2(1)(zh)] 238
2.34-1 Restrictions on investment in ARC 238
2.34-2 RBI Guidelines on Foreign Investments 238
2.35 State Bank of India and Subsidiary Bank[Section 2(1)(zi) & (zj)] 239
2.36 Definition under other Acts relevant [Section 2(2)] 239
I-57 CONTENTS
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CHAPTER II
REGULATION OF SECURITISATION ANDRECONSTRUCTION OF FINANCIAL ASSETS OF
BANKS AND FINANCIAL INSTITUTIONS
3. Registration of securitisation companies or reconstructioncompanies 239
3.1 Registration of securitisation companies orreconstruction companies 242
3.2 Application for registration 243
3.3 Conditions for registration 243
3.3-1 Shareholding pattern in Securitisationor Reconstruction Companies 243
3.3-2 Foreign investment in Asset Recons-truction Companies 244
3.3-3 Reforms Suggested 245
3.4 Structure of securitisation or reconstructioncompany 245
3.4-1 Arrangement for servicing assets 246
3.4-2 Management of Financial Asset 246
3.4-3 Independent Directors 247
3.4-4 Disqualification of Directors 247
3.4-5 Restriction on Sponsors 247
3.4-6 Compliance with RBI prudential norms 247
3.4-6A Minimum owned fund requirement 247
3.4-7 Compliance with RBI guidelines 248
3.5 Registration by RBI 248
3.6 RBI can reject application for registration 249
3.7 Approval of RBI for change in management 249
4. Cancellation of certificate of registration 249
4.1 Cancellation of certificate of registration 251
4.1-1 Appeal against order of cancellation 252
4.2 Consequences of cancellation of registration 252
5. Acquisition of rights or interest in financial assets 252
5.1 Acquisition of rights or interest in financial assets 254
5.1-1 Financial assets of any bank or financialinstitution 254
CONTENTS I-58
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5.1-2 Deployment of funds by ARCs forrestructuring acquired loans 254
5.1-2A Revised RBI Guidelines on sale ofassets by SC/RC to another 255
5.2 Overriding effect to provision 256
5.2-1 Applicability of Companies Act to issue ofdebentures 257
5.2-2 SEBI Regulations in regard to DebentureIssue 257
5.2-3 SARFAESI Act supplemental to SEBIRegulations 258
5.2-4 Can Securitisation Company acquirestandard assets? 258
5.2-4A Exception for Distressed Assets 261
5.2-5 Interpretation of securitisation by Courts 261
5.3 Transfer of rights to securitisation or reconstructioncompany 262
5.4 Transfer despite restrictions in other laws 262
5.5 Continuation of legal proceedings 263
5.5-1 Transfer of pending proceedings 263
5.6 Exception in regard to BIFR proceedings 263
5.6-1 NCLTs replacing BIFR 264
5.7 Assignment of secured loans to securitisationcompany 265
5.7-1 Investment in security receipts by banksand Financial Institutions 265
5.7-2 Restrictions on Investment in non-SLRSecurities 266
5.7-3 Conversion of debt into equity 267
5.7-4 Investment in securitised assets 268
5.8 Securitisation of Housing Finance 269
5.8-1 Stamp duties for securitisation documents 269
5.8-2 Contrary view on documentation 270
5.8-3 Conclusion on stamp duties 270
5.8-4 Stamp duty on agreement 270
5.8-5 Changes required in State Laws 271
I-59 CONTENTS
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5.8-6 Reserve Bank guidelines for debentures 271
5.8-7 Documentation for Securitisation 272
5.8-8 Offer document 272
5.8-9 Debenture 272
5.8-10 Debenture document 274
5.8-11 Security receipt 274
5.8-12 State stamp duties 274
5.9 Acquisition of retail loans 274
5.9-1 Can asset reconstruction companyacquire retail assets not exceedingRs. 1 lakh? 274
5.9-2 Can Originator Bank continue to recoverretail loans after acquisition by AssetReconstruction company? 275
5A. Transfer of pending applications to any one of DebtsRecovery Tribunals in certain cases 276
5A.1 Transfer of recovery proceedings in DRTs 276
6. Notice to obligor and discharge of obligation of such obligor 277
6.1 Notice to debtor optional 278
6.2 Obligor to make payment to concerned company 279
6.3 Effect if notice to obligor is not given 279
6.4 Parallel provisions in Transfer of Property Act,1882 279
6.5 United Nations Convention on Assignment ofReceivables 280
6.5-1 Factoring Regulation Act 280
7. Issue of security by raising of receipts or funds bysecuritisation company or reconstruction company 280
7.1 Raising money by issuing security receipts 281
7.1-1 Provision whether overrides CompaniesAct, SEBI Act & SCRA 281
7.1-2 Offer to QIBs other than by offer to public 282
7.1-3 Can ARC acquire assets in trust for thebenefit of investors? 282
7.2 Bankruptcy remoteness of transactions 284
7.2-1 Power to set up trusts undersub-section (2A) 285
CONTENTS I-60
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7.2-2 Rating of Security Receipts (SRs) issuedby the Trusts set up by ARC and compu-tation of Net Asset Value (NAV) of SRs 285
7.2-3 Rating procedures 286
7.2-4 Computation of NAV 287
7.2-5 Investment in security receipts 289
7.3 Rights of security receipt holders in case ofdefault 291
7.4 Meeting of security receipt holders 291
7.5 Security Receipts are Securities 292
8. Exemption from registration of security receipt 292
8.1 Registration of security receipt not required 292
9. Measures for assets reconstruction 293
9.1 Asset reconstruction measures 294
9.9-1 Conversion of debt into shares 294
9.9-1a RBI Guidelines 294
9.2 Takeover of management of borrower 294
9.2-1 Need for power to takeover manage-ment 295
9.2-2 Such power to takeover managementwill be disincentive to entrepreneurship 295
9.2-3 Burden of rehabilitation should not beon lender 297
9.2-4 Whether default is necessary for actionunder section 9 297
9.2-5 RBI guidelines for takeover of manage-ment 300
9.2-6 Steps ARCs need to take for takeoverof management 304
9.2-7 Sale or lease of the business of theborrower 304
9.2-8 Policy to be framed by ARC 305
9.2-8A Power to secured creditors to takeovermanagement 305
9.2-9 Power to takeover management underother Laws 305
I-61 CONTENTS
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9.2-10 Whether show cause notice necessaryfor action under section 9 306
9.2-11 Reconstruction under the Companies Act 306
9.2-12 Reconstruction under SARFAESI Act 307
9.2-13 Powers under section 9(a) different fromthose under section 13(4) 307
9.3 Sale or lease business of borrower 308
9.3-1 Scheme under section 391 308
9.4 Reschedulement of debt 309
9.5 Enforcement of security interest 310
9.6 Settlement of debt with borrower 310
9.7 Conversion of debt into equity 310
9.8 Constitutional validity of section 9 310
10. Other functions of securitisation company or recons-truction company 311
10.1 Other functions of securitisation or reconstructioncompany 312
10.1-1 Can ARC give advice to banks andFinancial Institutions? 312
10.2 Prohibition of other business 313
10.2-1 Can one ARC acquire assets fromanother ARC 313
10.3 Structure of SPV 314
11. Resolution of disputes 314
11.1 Arbitration mandatory for dispute resolution 314
11.2 Whether defaulting borrower can invokesection 11 315
12. Power of Reserve Bank to determine policy and issuedirections 316
12.1 Reserve Bank can determine policy and issuedirections 317
12.1A Framework for revitalizing distressed assets 317
12.2 Specific powers of RBI 320A
12.2-1 Guidelines and directions of the ReserveBank for securitisation companies andreconstruction companies 320B
CONTENTS I-62
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12.2-2 Recent directive on capital adequacy 320C
12.2-3 Deployment of funds by ARC 320D
12A. Power of Reserve Bank to call for statements andinformation 320D
12A.1 Power of Reserve Bank to call for statements andinformation 321
12A.1-1 Quarterly statements to be submittedto RBI 321
CHAPTER III
ENFORCEMENT OF SECURITY INTEREST
13. Enforcement of security interest 321
13.1 Enforcement of security interest 326
13.1-1 Scope of power of enforcement 327
13.1-2 Distinction between foreclosure andenforcement of securities 328
13.1-3 Powers of enforcement under section69 of the Transfer of Property Act, 1882 329
13.1-4 Foreclosure rights to mortgages in USA 329
13.1-4A Powers to extend to all types of securities 330
13.1-5 Powers of enforcement and rights ofborrowers 330
13.1-6 Exploring possibility of revival 331
13.1-7 Corporate Debt Restructuring SchemeReschedulement/Restructuring of Loans 332
13.1-8 Enforcement of security withoutintervention of court [Section 13(1)] 332
13.1-8A Whether DRT is a court for the purposes of section 13 334
13.1-9 Jurisdiction of DRTs and Civil Courts 334
13.1-10 Registration of security interest 336
13.1-11 Action against guarantors 336
13.1-12 Supreme Court on guarantors’ rights 336
13.1-13 Suggested steps for recovery action 336
13.1-14 Right of SFCs to take action undersection 13 337
I-63 CONTENTS
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13.1-15 Retroactive operation of powers ofenforcement 338
13.2 Notices under section 13 339
13.2-1 Formats of notices under the Act 339
13.2-2 Notice of default [Section 13(2)] 340
13.2-2a Pre-conditions for notice undersection 13(2) two conditionsrequire to be fulfilled 342
13.2-2b Whether jurisdiction of civilcourt is barred after noticeunder section 13(2) 342
13.2-3 Default in secured debt or instalment 342
13.2-4 Action under section 13 in respect ofclaim settled by co-operative Tribunal 343
13.2-5 Publication of photographs of defaultingborrowers 344
13.2-5A Contrary view of Kolkata High Court 345
13.2-6 Default in debt rescheduled after noticeunder section 13(2) 346
13.2-7 OTS Proposals 348
13.2-7a Company under winding up 348
13.2-8 Section 13 and Rule 9 of the SecurityInterest (Enforcement) Rules, 2002 348
13.3 Requirements of notice [Section 13(3)] 349
13.3-1 Claim of interest on loans by securedcreditors against companies underwinding up 349
13.3-2 Form of Notice 352
13.3A Reply to borrower [Section 13(3A)] 352
13.3A-1 Representation by borrower 353
13.4 Measures to recover secured debt [Section 13(4)] 356
13.4-1 Leave of winding up court 357
13.4-2 Enforcement action against companyunder winding-up 357
13.4-3 Power to take-over management 359
CONTENTS I-64
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13.4-4 Distinction between power to takeovermanagement under section 9(a) andsection 13(4)(b) 359
13.4-5 Taking possession of assets 36013.4-5A Taking possession directly 36213.4-6 Procedure for taking possession 36213.4-6A Applicability of O.21, Rule 64 CPC to
sale under section 13(4) 36413.4-6B Rule 8 of the Security Interest (Enforce-
ment) Rules, 2002 36413.4-6C Disclosure of encumbrances 36513.4-6D Sale of secured assets below reserve price 36513.4-6E Whether waiver of Rule 9(1) & (4) by
the parties permissible 36713.4-7 Symbolic possession (SARFAESI Act) 36813.4-8 Taking possession through Recovery Agents 36913.4-9 Recovery modes available to banks and FIs 36913.4-10 Use of force under Contractual Powers 37013.4-11 Rule of Law 37113.4-12 Relief Undertakings under State Laws 37213.4-13 Objects of Relief Undertaking Act 37213.4-14 Scheme under section 391 of Companies
Act for relief undertaking 37213.4-15 Debt Recovery proceedings against relief
undertaking 37313.4-16 Action under SARFAESI Act against Relief
Undertakings 37313.4-17 Secured Creditor vis-a-vis Depositors 37413.4-18 Taking over management of assets 37413.4-19 Appointment of manager 37413.4-20 Debtor to pay directly to secured creditor 37513.4-21 Secured creditors need to act in a fair and
reasonable manner 37613.4-21a Public Auction negotiations
with bidders 376
13.4-22 Applicability of SFC cases to SARFAESIpowers 378
13.4-23 Validity of notice under section 13(2) 380
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13.4-24 Power of DRT to grant stay 380
13.4-25 Priority of Secured Creditor overdues ofCentral Excise/Income-tax 380
13.4-26 Rights of Secured Creditor in Winding-upproceedings 382
13.4-27 Whether sale can be set aside on receivinghigher offer 383
13.4-28 Setting aside sale in Public auction 384
13.4-28A Sale of Securities 385
13.4-29 Pledge of goods 389
13.4-30 Simultaneous Proceedings under DRTAct and SARFAESI Act 390
13.4-31 Whether sale of assets by securedcreditors holding 75% share bindingon minority secured creditors? 390
13.4-32 Power to frame Scheme underCompanies Act 391
13.4-32A Power to extinguish tenancy rights 392
13.4-33 Security interest 393
13.4-34 Concept of security interest recognised 393
13.4-35 Powers overriding provisions of Transferof Property Act 394
13.4-36 Distribution of sale proceeds of assets 394
13.4-37 Secured Creditor entitled to recovercosts and expenses 395
13.4-38 Powers of Secured Creditors in the eventof insolvency 396
13.4-39 Sections 29 to 31 of the State FinancialCorporations Act, 1951 399
13.4-39a Section 38 of SIDBI Act 399
13.4-40 Relevance of Court pronouncements underthe SFCs Act 400
13.4-41 Safeguard to borrowers and naturaljustice 401
13.4-42 Position of lenders rights under commonlaw 401
13.4-43 Ruling of the Supreme Court on the issueof natural justice 402
CONTENTS I-66
SECTION PAGE
13.4-44 Effect of action under section 13(4)on BIFR proceedings 403
13.5 Valid discharge to debtor of borrower[Section 13(5)] 404
13.5-1 Right of secured creditor to purchaseproperty 404
13.5-2 Provisions of Banking Regulations Act, 1949 405
13.5-3 Capital gain on sale of mortgagedproperty purchased by bank 406
13.6 Transfer as if it is made by owner of asset[Section 13(6)] 407
13.6-1 Finality of sale under section 13 408
13.6-2 Rights of purchaser in auction 408
13.7 Appropriation of sale proceeds [Section 13(7)] 409
13.7-1 Surplus after sale of secured asset andright of set-off 410
13.8 Right of redemption by borrower [Section 13(8)] 411
13.8-1 Banks to consider settlement proposals 412
13.8-2 Non-compliance with court orders 412
13.8-3 Amendment to sub-section (9) 413
13.9 Notice where more than one secured creditors[Section 13(9)] 413
13.9-1 Co-ordination issues between banksand financial institutions 414
13.9-2 Scheme approved by 75% creditorsbinding on minority 417
13.9-2a Binding nature of decisionof 60% creditors 417
13.9-3 Lease and hire purchase excluded 418
13.9-4 Lease 418
13.9-5 Hire purchase 418
13.9-6 Secured creditors 419
13.9-7 Inter se priority amongst securedcreditors 419
13.9-8 Payment of workmen’s dues 420
13.9-9 Interest on Workmen’s Dues payableunder sections 529 & 529A 421
I-67 CONTENTS
SECTION PAGE
13.9-10 Priority for claims of workmen 421
13.10 Application to DRT for balance amount[Section 13(10)] 423
13.11 Action against guarantor and sale of pledgedgoods [Section 13(11)] 423
13.12 Authority to exercise powers [Section 13(12)] 425
13.13 Prohibition on transfer of assets on receipt ofnotice [Section 13(13)] 425
13.13-1 One-time settlement schemes 426
13.13-2 Power of Court to direct settlement 426
13.13-3 One-time settlement - Non-discretionary 427
13.13-4 Loans obtained by fraud 428
13.13-5 Liability to repay loans in fraud cases 431
14. Chief Metropolitan Magistrate or District Magistrate toassist secured creditor in taking possession of securedasset 432
14.0 Amendments by the Enforcement of SecurityInterest and Recovery of Debts Laws(Amendment) Act, 2012 434
14.1 Assistance in taking possession of secured assets 436
14.1-1 Similar provisions in other laws 437
14.1-2 Scope of powers under the section 438
14.2 Nature of proceedings under section 14 440
14.3 Writ petitions against orders of DM/CMM 440
14.4 Application to Chief Judicial Magistrate 441
15. Manner and effect of take-over of management 442
15.1 Taking over management of business of theborrower 444
15.1-1 Whether taking possession amounts totake-over of management 444
15.2 Power of takeover Management by StateFinancial Corporations 445
15.3 RBI Guidelines for Securitisation or Reconstruc-tion Companies 445
16. No compensation to directors for loss of office 446
16.1 Effect of take-over on directors 446
CONTENTS I-68
SECTION PAGE
17. Right to appeal 446
17.1 Application against action of secured creditor 449
17.1-1 Applicability of section 19(1) of DRT Actto the Appeal 450
17.1-2 Supreme Court declares sub-section (2)invalid 450
17.1-2a Limitation period 451
17.1-2A Powers of DRTs under section 17 452
17.1-3 Procedure for dealing with applicationby DRT 453
17.2 Writ petitions against possession notice 455
17.2-1 Constitutional validity of amendedsection 17 456
17.2-2 Application under section 17(1) 457
17.2-3 Can DRT entertain application to declarethat guarantee is extinguished? 457
17.2-4 Scope of remedy under section 17 458
17.3 Fees for application and appeal 459
17.3-1 Validity of fees for application 460
17.4 Writ petition against action under section 13 461
17A. Making of application to court of District Judge in certaincases 463
17A.1 Appeals for borrowers of Jammu & Kashmir 463
18. Appeal to Appellate Tribunal 464
18.1 Appeal against order of DRT 464
18.1-1 Fees for appeal 464
18.1-2 Requirement of pre-deposit 465
18.2 Supreme Court jurisdiction 467
18A. Validation of fees levied 468
18A.1 Validation of fees already charged 469
18B. Appeal to High Court in certain cases 469
18B.1 Validation of fees for borrowers in J&K 469
18C. Right to lodge a Caveat 470
18C.1 Caveats 471
18C.2 Right to lodge a Caveat 472
I-69 CONTENTS
SECTION PAGE
19. Right of borrower to receive compensation and costs incertain cases 473
19.1 Amendment to section 19 473
19.2 Compensation can be awarded by DRT 474
CHAPTER IV
CENTRAL REGISTRY
20. Central Registry 474
20.1 Establishment of Central Registry 475
20.1-1 Applicability of the Registration System 476
20.1-2 Securitisation and ReconstructionCompanies 477
20.1-3 Why one more Registry 478
20.1-4 Satisfaction of reconstruction transaction 479
20.1-5 Transactions which need registration 479
20.1-6 Effective date of the registry system 480
20.1-7 Registration of subsisting mortgages 480
20.1-8 Suggestions for further reforms 481
20.1-9 Registration of factoring transactions 482
20.2 Registration under other Acts also required 483
20.2-1 Transactions requiring registration 483
20.2-2 Effective date of registration 485
20.3 Suggestions for setting up Central Registry 486
21. Central Registrar 486
21.1 Appointment of Central Registrar 487
22. Register of securitisation, reconstruction and securityinterest transactions 487
22.1 Central Register to record transactions 488
23. Filing of transactions of securitisation, reconstructionand creation of security interest 488
23.1 Filing of particulars with Central Registrar 489
23.2 Registration of past transactions 489
24. Modification of security interest registered under this Act 489
24.1 Filing of modification of security interest 490
CONTENTS I-70
SECTION PAGE
25. Securitisation company or reconstruction company orsecured creditor to report satisfaction of security interest 490
25.1 Satisfaction of security interest to be reported 491
26. Right to inspect particulars of securitisation, reconstructionand security interest transactions 491
26.1 Inspection of Central Register 492
26A. Rectification by Central Government in matters ofregistration, modification and satisfaction, etc. 492
26A.1 Condonation of delay in registration 493
26A.2 Effect of failure to register 493
CHAPTER V
OFFENCES AND PENALTIES
27. Penalties 494
27.1 Penalty for not filing particulars 494
28. Penalties for non-compliance of direction of Reserve Bank 495
28.1 Penalty for violating RBI directions 495
29. Offences 496
29.1 Punishment for offences 496
30. Cognizance of offences 496
30.1 Cognizance of offences 497
CHAPTER VI
MISCELLANEOUS
31. Provisions of this Act not to apply in certain cases 497
31.1 Exclusion from provisions of the Act 498
31.1-1 Lien on any goods 499
31.1-2 Pledge of movables 499
31.1-3 Security in any aircraft 500
31.1-4 Security in any vessel 500
31.1-5 Conditional sale, hire purchase andlease transactions 500
31.1-5a Treatment of Hire-purchase/lease as secured transactions 501
31.1-6 Rights of unpaid seller 502
I-71 CONTENTS
SECTION PAGE
31.1-7 Properties exempt from attachment 502
31.1-8 Security interest in agricultural land 504
31.1-8a Whether Agricultural Land usedfor Commercial Purpose Excluded 505
31.1-8b Payment of land revenue 506
31.1-9 Loans not exceeding rupees one lakh 507
31.1-10 Loans with 20% balance outstanding 507
31A. Power to exempt a class or classes of banks or FinancialInstitutions 508
31A.1 Power to grant exemption 509
32. Protection of action taken in good faith 510
32.1 Protection to secured creditor 510
32.2 Notice under section 13(2) whether defamation 510
32.3 Similar provisions in other laws 511
33. Offences by companies 511
33.1 Offences by company and firms 512
34. Civil Court not to have jurisdiction 512
34.1 Bar to jurisdiction of Civil Court 513
34.1-1 Suit for partition of family property 514
34.2 Bar to jurisdiction cannot be questioned 515
34.3 Reasons for barring jurisdiction of Civil Courts 515
34.4 Proceeds of crime 516
35. The provisions of this Act to override other laws 517
35.1 Overriding provisions 517
35.1-1 Priority amongst mortgagee anddepositors of the company 518
36. Limitation 519
36.1 Limitation Act is fully applicable 519
36.2 Notice for recovery of time-barred debt 519
36.3 Limitation for execution of decree 521
36.3-1 Limitation for action under section 13(2) 521
36.3-2 Claim under section 13(2) within limitationperiod but measures under section 13(4)beyond limitation 522
CONTENTS I-72
SECTION PAGE
36.3-3 Limitation for claim of shortfall after saleof secured assets 522
36.3-4 Limitation under section 17 523
37. Application of other laws not barred 523
37.1 Provisions of other laws also applicable 523
38. Power of Central Government to make rules 523
38.1 Power to make rules 525
39. Certain provisions of this Act to apply after Central Registryis set up or cause to be set up 525
39.1 Provisions of registration to apply only after CentralRegistry is set up 526
39.1-1 Establishment of central registry 526
40. Power to remove difficulties 526
40.1 Power to remove difficulties 527
41. Amendments to certain enactments 527
41.1 Amendments to other Acts 528
41.1-1 Securitisation company or ARC as PFI 529
41.1-1a Amendment to section 4A ofthe Companies Act 529
41.1-2 Security receipt as security 530
41.1-3 Amendments made to SICA 530
41.1-3A When can reference be treated aspending 532
41.1-4 Section 22 of SICA 534
41.1-5 Present status of BIFR & NCLTs 538
41.1-6 Amendment to Companies Act, 1956 539
41.1-7 Revival and Rehabilitation of SickCompanies under the new CompaniesAct, 2013 539
42. Repeal and saving 542
42.1 Protection to actions taken under ordinance 542
43.1 Lender’s liability 543
43.2 Enforcement of securities is a contractual right 543
43.3 Demand for Lender’s Liability Law 543
43.3-1 Working group set up 544
I-73 CONTENTS
SECTION PAGE
44.1 Need for law on lender’s liability 545
44.1-1 Corporates need to tune their operationto new regime 545
45.1 Environmental Liability 546
45.1-1 Position in USA 546
46.1 Position in India 546
47.1 Supreme Court on lender’s liability 547
47.2 Model code for collection of dues 547
47.3 Future agenda for Lender’s Liability Law 547
47.4 Caution for borrowers 548A
DIVISION THREE
RECOVERY OF DEBTS DUE TO BANKS ANDFINANCIAL INSTITUTIONS ACT, 1993
CHAPTER I
PRELIMINARY
1. Short title, extent, commencement and application 551
1.1 Historical background of the Legislation 552
1.1-1 Statement of Objects 552
1.1-2 Amendments to the Act 553
1.2 Applicability of the Act 5541.2-1 Constitutional validity of the Act 5551.2-2 Supreme Court on constitutional
validity 5561.3 Further Amendment 5581.4 Pecuniary Jurisdiction 558
1.4-1 Jurisdiction conferred on Debt RecoveryTribunal’s (DRTs) by SARFAESI Act, 2002 559
1.4-2 Pending SLP in Supreme Court 5602. Definitions 560
2.1 Appellate Tribunal 5622.2 Application 563
2.2-1 Application to DRT equivalent to plaintfor civil suit for recovery of debt 563
CONTENTS I-74
SECTION PAGE
2.3 Appointed Day 563
2.4 Bank 564
2.4-1 Applicability to co-operative banks 564
2.5 Amendment of definition of ‘Bank’ 568
2.5A Meaning of ‘debt’ 568
2.5A-1 Decretal debt 572
2.5A-2 Loss caused to bank 572
2.5A-3 Fraudulent debts 573
2.5A-4 Recovery of debts written off 573
2.5A-5 Debt due under decree or order of anyCivil Court 574
2.5A-6 ‘Debt’ whether includes interest 574
2.5A-6a Claims under derivative contracts 575
2.5A-7 Recovery of machinery on hire 576
2.6 Admiralty jurisdiction - Whether can beentertained by DRT 577
2.6-1 ‘Debt’ defined in SARFAESI Act 578
2.7 ‘Financial Institutions’ 578
2.7-1 Specified Company or Specified Under-taking of UTI whether FinancialInstitution 579
2.7-2 Securitisation and Asset ReconstructionCompanies 580
2.7-3 Extent of jurisdiction of DRTs 580
CHAPTER II
ESTABLISHMENT OF TRIBUNAL ANDAPPELLATE TRIBUNAL
3. Establishment of Tribunal 581
3.1 Debts Recovery Tribunals 581
4. Composition of Tribunal 581
4.1 Composition of the Tribunals 581
5. Qualifications for appointment as Presiding Officer 582
6. Term of office 582
6.1 Age limit for Presiding Officer 582
I-75 CONTENTS
SECTION PAGE
7. Staff of Tribunal 583
7.1 Recovery Officer 583
7.2 Qualifications for Recovery Officers 583
8. Establishment of Appellate Tribunal 584
8.1 Appellate Tribunal 584
9. Composition of Appellate Tribunal 584
10. Qualifications for appointment as Chairperson of theAppellate Tribunal 585
11. Term of office 585
11.1 Chairperson of Appellate Tribunal 585
12. Staff of the Appellate Tribunal 585
13. Salary and allowances and other terms and conditions ofservice of Presiding Officers 586
14. Filling up of vacancies 586
15. Resignation and removal 586
15.1 Safeguards against removal from service 587
15.2 Amendments to DRT Act by the Enforcementof Security Interest and Recovery of Debts Laws(Amendment) Act, 2012 588
15.3 Power of investigation 589
16. Orders constituting Tribunal or an Appellate Tribunal tobe final and not to invalidate its proceedings 589
16.1 Service Conditions of Chairperson of AppellateTribunals, Presiding Officers, Recovery Officersand other staff members 589
16.2 Powers of Appointment of Presiding Officers andChairpersons 590
CHAPTER III
JURISDICTION, POWERS ANDAUTHORITY OF TRIBUNALS
17. Jurisdiction, powers and authority of Tribunals 591
17.1 Powers of Tribunal 591
17.2 Claims that can be entertained by Tribunal 591
17.2-1 Claim against the bank 592
CONTENTS I-76
SECTION PAGE
17.2-2 Amendment of plaint 592
17.2-3 Applications for setting aside ex parteorders 593
17.3 Execution of decree of Foreign Court 593
17.4 Claim of set off and counter-claims before DRT 593
17.5 Transfer of pending cases 594
17.5-1 Application for transfer undersection 24 CPC 595
17.6 Admiralty jurisdiction 596
17.7 Property of notified person 596
17.8 Suit for Specific Performance 597
17A. Power of Chairperson of Appellate Tribunal 598
17A.1 Supervisory powers of Chairperson of AppellateTribunal 598
17A.2 Power to transfer cases 598
18. Bar of jurisdiction 599
18.1 Jurisdiction of civil court barred 599
18.1-1 Jurisdiction of the High Court 600
18.1-2 Suits for Damages, Specific Performance 601
18.2 Relevant date for bar of jurisdiction 601
18.2-1 Revision application against orders ofDRT 602
18.2-2 Ex parte orders passed by Civil Courts 602
18.2-3 Debt Recovery by Multi-StateCo-operative Banks 603
CHAPTER IV
PROCEDURE OF TRIBUNALS
19. Application to the Tribunal 604
19.1 Recovery provisions prior to establishment ofTribunals 610
19.1-1 Who can avail DRT jurisdiction 611
19.1-2 Whether co-operative banks are coveredby the Act? 612
19.1-2A Amendments to section 19 of the DRT Act 613
I-77 CONTENTS
SECTION PAGE
19.1-3 Pecuniary jurisdiction of DRTs 613
19.1-4 Amendment to sub-section (1) regardingenforcement measures by securedcreditors 614
19.1-5 Simultaneous action under DRT &SARFAESI 615
19.1-5a Action under DRT Act pendingSARFAESI Action 618
19.1-6 Action during pendency of suit 619
19.1-7 Need for amendment of section 19 619
19.2 Claims of other banks/FIs 619
19.3 Form of Application and fees 619
19.3A Refund of court fees 621
19.4 Simplified Procedures of the Tribunal 621
19.5 Written Statement 622
19.5-1 Amendments for the purpose ofexpediting the hearing before theDebts Recovery Tribunals 623
19.5-2 Amendment to section 19 623
19.5-3 Discretion to grant adjournments 625
19.6 Set offs and counter-claims by defendants 626
19.6-1 Claim for compensation and damagesbefore the Banking Ombudsman andright of set-off 626
19.6-2 Parallel proceedings before Ombudsmanand DRT 626
19.7 Written statement claiming set-off 628
19.8 Counter-claim against the Bank or FI 628
19.9 Counter-claim is same as cross-suit 631
19.9-1 Position prior to amendment ofsection 19 631
19.10 Applicant can file reply 632
19.11 Applicant can ask for exclusion of the counter-claim 632
19.11-1 Supreme Court on maintainability ofcounter-claim or set-off 632
CONTENTS I-78
SECTION PAGE
19.11-2 Counter-claims and set-offs 634
19.11-3 Reconsideration of view on transfer ofsuits making counter-claims 635
19.11-4 Whether DRT is a Court for the purposeof Insolvency Laws 639
19.12 Power to pass interim orders 641
19.13 DRT can direct the borrower to furnish security 641
19.13-1 Injunction in DRT cases 644
19.14 Valuation of property 645
19.15 Conditional attachment 645
19.16 Compliance with provisions of sub-section (13) 646
19.17 Powers of DRT to attach properties or orderdetention of defendant 647
19.18 Power to appoint receiver of any property 647
19.18-1 Power to appoint Commissioner forpreparation of inventory 648
19.19 Sale of assets belonging to a company 649
19.19-1 Powers of Winding-up - Court and theDRT 649
19.19-2 Powers of winding-up a company undersections 433 and 434 of the CompaniesAct 651
19.19-3 Supreme Court on jurisdiction of DRTand Company Court 654
19.19-4 Objection to under-valued sale 655
19.19-5 Winding up proceedings and debtrecovery proceedings 657
19.19-6 Computation of dues of workmen forthe purpose of section 529A of the Com-panies Act 659
19.19-7 Current status of the law 662
19.19-8 Powers of DRTs under the DRT Act 663
19.19-9 Supreme Court may re-examine appli-cability of section 446 663
19.19-10 Payment of workmen’s dues under theSARFAESI Act 664
I-79 CONTENTS
SECTION PAGE
19.20 Power of DRT to pass interim or final orders 664
19.20-1 Opportunity of hearing 665
19.20-2 Discretion of DRT to award interest 666
19.20A Settlement proposals during the pendency ofDRT proceedings 668
19.21 Service of copies of orders passed by DRT 668
19.22 Certificate of recovery 668
19.23 Transfer of Recovery Certificate to other DRTs 669
19.24 Directions for expeditious disposal 669
19.25 Inherent powers of DRT 670
19.25-1 Inherent powers of Civil Courts 671
19.26 Other issues relating to DRT jurisdiction 672
19.26-1 Ousting jurisdiction by agreement 672
19.26-2 Delayed payments pursuant to settlement 672
19.26-3 Joint and several liability 673
19.26-4 Proof of documents 673
19.26-5 Applicability of section 41(b) of theSpecific Relief Act, 1963 to DRTs 674
19.27 Recovery certificates - Whether a decreeof the Court 675
19.27-1 Whether DRT is a Court for the purposeof Insolvency Laws 675
19.27-2 Whether filing case in DRT amounts todefamation of the borrower 677
19.27-3 Writ against DRT orders 678
19.27-4 Power of DRT to restrain defendantfrom travel 679
19.28 One time settlement 67919.29 RBI Guidelines 679
20. Appeal to the Appellate Tribunal 68020.1 Appeal against order of DRT 680
20.1-1 Appeal against interim orders 68220.2 Appeal against ex parte order of DRT 68320.3 Further appeal against order of Appellate Tribunal 683
20.4 Writ jurisdiction of High Court 684
CONTENTS I-80
SECTION PAGE
20.4-1 Setting aside decree of DRT in writproceedings 686
20.5 One-time Settlement Scheme of RBI 687
20.6 Challenge to DRT proceedings on the groundthat there was no service of summons 687
21. Deposit of amount of debt due on filing appeal 688
21.1 Pre-deposit of 75 per cent amount to entertainappeal 689
21.2 Whether requirement of 75 per cent depositonerous 689
21.3 Constitutional validity of section 21 690
21.4 Constitutional validity of section 21 in view ofSupreme Court judgment in Mardia Chemicalscase 691
22. Procedure and powers of the Tribunal and the AppellateTribunal 691
22.1 Principles of natural justice 692
22.1-1 Natural justice requirements under theDRT Act 695
22.1-2 Procedures to be based on Principlesof Natural Justice 697
22.2 Applicability of Code of Civil Procedure to DebtRecovery Proceedings 698
22.2-1 Provisions applicable to DRT proceedings 717
22.2-2 Revisional jurisdiction of the HighCourt over DRT proceedings 718
22.2-3 Applicability of section 24 of CPC toDRT proceedings 718
22.3 Transfer of civil suit to Tribunal 719
22.3-1 Powers of Registrar 719
22.4 Amendment to Pleadings 719
22.4-1 Cross-examination of witness 720
22.5 Constitutional validity of rules 53 and 54 ofSecond Schedule 720
22.6 Proceedings before the Tribunal and AppellateTribunal whether Judicial 721
23. Right to legal representation and Presenting Officers 723
I-81 CONTENTS
SECTION PAGE
24. Limitation 724
24.1 Limitation period for enforcement of recoverycertificate 724
24.2 Limitation for execution of decree 724
24.2-1 Condonation of delay in application forsetting aside ex parte order 725
24.2-2 Important Provisions of the LimitationAct, 1963 726
24.3 Legal principles applicable in regard to limitationperiod 727
24.3-1 Distinction between rights and remedies 729
24.4 Blank Documents 730
24.5 Limitation period for loan outstanding in LiveAccounts and loans payable on demand 731
CHAPTER V
RECOVERY OF DEBTS DETERMINED BY TRIBUNAL
25. Modes of recovery of debts 73225.1 Enforcement of orders of DRT 732
25.1-1 Power of Recovery Officer to evicttenants on sale 733
25.1-2 Modes of recovery - Attachment and saleof property 735
25.1-2A Contempt proceedings against theRecovery Officer 735
25.1-3 Deposition by Attorney in DRTproceedings 736
25.1-4 Arrest and detention of defaultingborrowers under DRT Act 737
25.1-5 Power to arrest judgment-debtorunder CPC 738
25.1-6 Power to impound passport of defaulter 74025.2 Constitutional validity of powers of arrest of
defendant and detention in civil prison 740
25.3 Liability for sales tax on sale of movables 741
25.4 Sale of surplus assets by a company to repayoverdue debt 741
25.4-1 One Time Settlement 742
CONTENTS I-82
SECTION PAGE
25.5 Powers of DRT to sell assets of a company(in liquidation) 743
25.6 Whether DRT Act prevails over the CompaniesAct, 1956 743
25.7 Power of DRT to sell assets of a company (underLiquidation) 744
26. Validity of certificate and amendment thereof 745
26.1 Powers of Tribunal to review its orders 745
26.2 Amount certified in recovery certificate cannotbe challenged before Recovery Officer 746
26.3 Withdrawal of certificate of recovery 746
27. Stay of proceedings under certificate and amendment ofwithdrawal thereof 747
27.1 Tribunal can stay recovery proceedings and granttime 748
27.1-1 Can banks settle claims and obtainconsent orders 748
27.2 DRT’s powers to settle claims 749
27.2-1 Delayed Settlement 750
28. Other modes of recovery 750
28.1 Powers of Recovery Officer 753
28.2 Objections to Garnishee Order 753
28.3 Applicability of Second Schedule to the Income-tax Act, 1961 753
28.4 Sale of assets of company under liquidation 754
28.4A Power to order disclosure of assets 755
28.5 Applicability of Third Schedule to Income-taxAct 755
28.6 Case Law under section 226 of the Income-taxAct 756
28.7 Power to order arrest or impound passport 757
28.8 Direction to borrower’s wife to deposit passportin the Court 757
28.9 Attachment of Principal Deposit Account of theState Government with RBI 758
I-83 CONTENTS
SECTION PAGE
29. Application of certain provisions of Income-tax Act 75829.1 Certificate Proceedings under Income-tax made
applicable to recovery proceedings 75929.1-1 Third party objection to attachment and
sale - Rules applicable to recoveryproceedings 759
29.1-2 Some important provisions of the Schedule 76129.1-3 Can Recovery Officer exercise Powers of
Civil Court 76229.1-4 Public auction - Payment of purchase
price by the highest bidder 76229.2 Attachment and sale of assets 764
29.2-1 Income Tax (Certificate Proceedings)Rules, 1962 764
29.2-2 Third Party claims over attachedproperties 764
29.2-3 Protection of bona fide purchases 76529.3 Defaults in payment of purchase price 766
30. Appeal against the order of Recovery Officer 76730.1 DRT to hear appeal against order of Recovery
Officer 76730.1-1 Limitation - Condonation of delay 767
30.2 Further appeal to Appellate Tribunal 76730.3 Writ Petitions against DRT orders 768
CHAPTER VI
MISCELLANEOUS
31. Transfer of pending cases 76831.1 Transfer of pending cases 769
31.1-1 Object of transfer of cases to DRT 76931.1-2 Pending the recovery proceedings of
multi-State co-operative banks 77131.1-3 Transfer of execution proceedings from
Civil Court to DRT 77231.1-4 Transfer of DRT cases to High Court 77431.1-5 Transfer of pending cases 77431.1-6 Remand of suit by Appellate Court to
the Trial Court 776
CONTENTS I-84
SECTION PAGE
31.1-7 Suits of counter-claim which need notbe transferred to the Tribunal 776
31.1-8 Joint trial of suits - Powers of Courtsunder section 151 of the Code of CivilProcedure, 1908 777
31.1-9 Execution Petition before CompanyCourt 779
31.1-10 Suits for Damages, Specific Performance 77931.1-11 Suit based on foreign judgment 78031.1-12 Remedies under SFCs Act 780
31.2 Provision when Receiver already appointed byCourt 780
31.3 Joint Family Property 78131.4 Ex parte orders of Civil Courts 781
31A. Power of Tribunal to issue certificate of recovery in caseof decree or order 78231A.1 Tribunal can issue recovery certificate on basis
of order of Civil Court 78331A.2 Recovery of debts due under a decree or order
of the Court 78331A.3 Notice before issue of certificate under section
31A 78432. Chairperson, Presiding Officer and staff of Appellate
Tribunal and Tribunal to be public servants 78532.1 DRT officials to be Public Servants 785
33. Protection of action taken in good faith 79033.1 Protection of an action taken in good faith 791
34. Act to have overriding effect 79234.1 Overriding effect 793
34.1-1 Overriding effect given to provisions ofthe Act 793
34.1-2 Whether DRT Act overrides CompaniesAct 794
34.1-3 Saving of rights under Special Laws 79534.1-4 Whether DRT Act prevails over SICA 79734.1-5 Alternate remedy under the State
Revenue Recovery Law 799
I-85 CONTENTS
SECTION PAGE
34.2 Relief Undertakings under State Laws 79934.2-1 Proceedings for recovery under section
30 of the IFCI Act, 1948 80034.3 Applicability of State Public Money Recovery Acts 80034.3A Rights of recovery under State law 80134.4 DRT Act and the Companies Act, 1956 801
34.4-1 Sale of assets of company underliquidation 802
34.4-2 Leave of Company Court for recoveryaction 803
34.4-3 DRT Act and provisions of sections 391to 394 of the Companies Act 804
34.4-4 Whether DRT Act prevails over theSpecial Court (Trial of Offences Relatingto Transactions in Securities) Act, 1992 805
34.4-5 Whether DRT Act prevails over theArbitration and Conciliation Act, 1996 806
35. Power to remove difficulties 80836. Power to make rules 808
36.1 Rules framed under the Act 80937. Repeal and saving 811
DIVISION FOUR
RBI’s GUIDELINES AND DIRECTIONS GOVERNINGSECURITISATION AND RECONSTRUCTION OF FINANCIAL
ASSETS AND ENFORCEMENT OF SECURITY INTEREST
� Securitisation Companies and Reconstruction Companies(Reserve Bank) Guidelines and Directions, 2003 815
� Master Circular on Directions/Instructions issued to theSecuritisation Companies/Reconstruction Companies 835
� Conversion of Debt into shares, consent level of securityenforcement actions and permission to acquire debt fromother SC/RCs 859A
� Application for a Certificate of Registration to commencecarry on the business of Securitisation Company orReconstruction Company 860
� Code of Bank’s Commitments to Customers 873
CONTENTS I-86
SECTION PAGE
� Guidelines on Fair Practices Code for Lenders 900� Recovery by engaging recovery agents 906
APPENDICES
APPENDIX 1 : Securitisation and Reconstruction of FinancialAssets and Enforcement of Security InterestAct, 2002 913
APPENDIX 2 : Security Interest (Enforcement) Rules, 2002 944APPENDIX 3 : Removal of Difficulty Order of 2002 966APPENDIX 4 : Removal of Difficulty Order of 2004 968APPENDIX 4A : Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest(Central Registry) Rules, 2011 970
APPENDIX 5/6: Notifications issued under Securitisation andReconstruction of Financial Assets and Enforce-ment of Security Interest Act, 2002 1004
APPENDIX 7 : Master Circular - Exemptions from the provi-sions of RBI Act, 1934 1010
APPENDIX 8 : List of Public Financial Institutions notified byCentral Government under section 4A of theCompanies Act, 1956 1015
APPENDIX 9 : Financial Institutions notified by the CentralGovernment for the purpose of section 45A ofReserve Bank of India Act, 1934 1018
APPENDIX 9A : List of Public Financial Institutions 1019APPENDIX 10 : Summary of Stamp Duty and Registration Fee
on instrument for assignment of debts byBanks/FIs to ARCs 1020
APPENDIX 11 : Master Circular - Prudential Norms on IncomeRecognition, Asset Classification and Provision-ing Pertaining to Advances 1029
APPENDIX 11A: RBI Releases framework for revitalisingdistressed Assets in the economy 1106A
APPENDIX 11B: Framework for revitalising distressed assets inthe economy - Refinancing of project loans, saleof NPA and other regulatory measures 1106S
APPENDIX 11C: Framework for revitalising distressed assets inthe economy - Guidelines on joint lenders’Forum (JLF) and Corrective Action Plan CAP 1106ZB
I-87 CONTENTS
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APPENDIX 12 : Housing Finance Companies (NHB) Direc-tions, 2010 1107
APPENDIX 13 : Income Recognition, Asset Classification, Pro-visioning & other Related Matters for urbancooperative banks 1116
APPENDIX 14 : Second and Third Schedules to Income-tax Act,1961 1156
APPENDIX 15 : Draft of notice to borrower under sub-section(2) of section 13 of the SARFAESI Act, 2002 1179
APPENDIX 16 : Draft of notice to guarantor under sub-section(2) of section 13 of the SARFAESI Act, 2002 1181
APPENDIX 17 : Suggestions for steps to be taken before serviceof notice under section 13(2) of the Act andconsideration of the reply 1183
APPENDIX 18 : Action under section 13(3A) 1184APPENDIX 19 : Notice demanding possession 1185APPENDIX 20 : Application under section 14 of SARFAESI Act 1186APPENDIX 20A: Affidavit 1188APPENDIX 21 : Panchnama 1190APPENDIX 22 : Inventory 1191APPENDIX 23 : Possession Notice 1192APPENDIX 24 : Notice to person who has acquired secured
assets from the borrower 1193
APPENDIX 25 : Notice to borrower restraining him fromreceiving debts 1195
APPENDIX 26 : Specimen of letter to be addressed by lead bankto member banks of consortium 1196
APPENDIX 27 : Draft of letter to be addressed to BIFR by asecured creditor 1198
APPENDIX 28 : Draft of letter to be addressed to BIFR by aLeader of Consortium of secured creditors 1200
APPENDIX 29 : Notice of sale to the borrower under rule 6(2) ofthe Security Interest (Enforcement) Rules,2002 1202
APPENDIX 30 : Notice of sale of immovable property to bor-rower under rules 8(5) and 9(1) of the SecurityInterest (Enforcement) Rules, 2002 1203
APPENDIX 31 : Sale Certificate for movable property 1205APPENDIX 32 : Sale Certificate for immovable property 1206
CONTENTS I-88
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APPENDIX 33 : Application under section 13(10) of SARFAESIAct, 2002 1208
APPENDIX 34 : Draft articles of Association of ARC 1211
APPENDIX 35 : Disclosure in offer document 1215
APPENDIX 36 : Debenture certificate 1217
APPENDIX 37 : Draft of Security Receipt 1218
APPENDIX 38 : Receiving and Paying Agency Agreement 1220
APPENDIX 39 : Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 1226
APPENDIX 40 : Debts Recovery Tribunal (Financial andAdministrative Power) Rules, 1997 1244
APPENDIX 41 : Debts Recovery Appellate Tribunal (Procedure)Rules, 1994 1245
APPENDIX 42 : Debts Recovery Tribunal (Procedure) Rules,1993 1254
APPENDIX 43 : Debts Recovery Appellate Tribunal (Financialand Administrative Power) Rules, 1997 1268
APPENDIX 44 : Debts Recovery Tribunal (Procedure forAppointment as Presiding Officer of the Tribu -nal) Rules, 1998 1269
APPENDIX 45 : Debts Recovery Appellate Tribunal (Procedurefor Appointment as Chairperson of theAppellate Tribunal) Rules, 1998 1272
APPENDIX 45A: Debts Recovery Tribunal (Procedure for Inves-tigation of Misbehaviour or Incapacity ofPresiding Officer) Rules, 2010 1275
APPENDIX 46 : Jurisdiction of Debt Recovery Tribunals 1280
APPENDIX 47 : List of Debt Recovery Appellate Tribunals &Jurisdiction of DRATs 1288
APPENDIX 48 : Jurisdiction of DRATs 1290
APPENDIX 49 : Relevant extracts of other Acts 1293
APPENDIX 50 : Enforcement of Security Interest and Reco-very of Debts Laws (Amendment) Act, 2004 1315
APPENDIX 50A: Enforcement of Security Interest and Reco-very of Debts Laws (Amendment) Act, 2012 1324
APPENDIX 51 : Model Code for Collection of Dues and Repos-session of Security 1331
I-89 CONTENTS
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APPENDIX 52 : Revisions to the Guidelines on SecuritisationTransactions 1333
APPENDIX 53 : Master Circular on Foreign Investment in India 1352-1378
APPENDIX 53A: Foreign Investments in Asset ReconstructionCompanies (ARC) 1384
APPENDIX 54 : Chapter III of SEBI (Foreign InstitutionalInvestors) Regulations, 1995 1386
APPENDIX 55 : Master Circular on Wilful Defaulters 1392
APPENDIX 56 : Securities and Exchange Board of India (PublicOffer and Listing of Securitised Debt Instru-ments) Regulations, 2008 1406
APPENDIX 57 : Asset Reconstruction 1437
APPENDIX 58 : Master Circular - Housing Finance 1439
APPENDIX 59 : Lok Adalat 1444
APPENDIX 60 : Quarterly Statement to be submitted bySecuritisation Companies/ReconstructionCompanies registered with the Reserve Bank ofIndia under section 3(4) of the SARFAESI Act 1445
APPENDIX 61 : Change in or takeover of the Management ofthe Business of the Borrower by SecuritisationCompanies and Reconstruction Companies(Reserve Bank) Guidelines, 2010 1452
APPENDIX 62 : Prudential Norms for Off-Balance Sheet Expo-sures of Banks 1458
APPENDIX 63 : Guidelines for rehabilitation of Sick SME Units 1462
APPENDIX 64 : Prudential Norms for Off-Balance Sheet Expo-sures of Banks 1472
APPENDIX 64A: Prudential Norms for Off-Balance Sheet Expo-sures of Banks - Deferment of option premium 1473
APPENDIX 65 : Asset Classification Norms for InfrastructureProjects under Implementation 1474
APPENDIX 66 : Relevant Extracts of Companies Act, 2013 1476
APPENDIX 67 : Prudential Guidelines on Restructuring ofAdvances by Banks 1486
APPENDIX 68 : Prudential Guidelines on Restructuring ofAdvances by Banks 1487
APPENDIX 69 : Prudential Guidelines on Restructuring ofAdvances by Banks 1490
CONTENTS I-90
SECTION PAGE
APPENDIX 70 : Guidelines on declaration of net asset value ofsecurity receipts issued by securitisationcompany/reconstruction company 1491
APPENDIX 71 : Factoring Regulation Act, 2011 1494APPENDIX 72 : Registration of Assignment of Receivables Rules,
2012 1508APPENDIX 73 : Non-banking Financial Company - Factors
(Reserve Bank) Directions, 2012 1519APPENDIX 74 : Debt Recovery Tribunals (Refund of Court
Fee) Rules, 2013 1523APPENDIX 75 : Filing of records of equitable mortgages with
the Central Registry 1525
APPENDIX 76 : Submission of online Quarterly Statements bySecuritisation Companies/ReconstructionCompanies registered with the Reserve Bank ofIndia under section 3(4) of the SARFAESI Act 1526
APPENDIX 77 : Buy-back of assets from SC/RCs by theDefaulters and acquisition of assets by SC/RCsfrom sponsor banks 1527
TABLES
TABLE I : Jurisdiction of DRTs 113-114TABLE II : Financial Institutions under different laws 137
TABLE III : Provisioning requirements 159-160TABLE IV : Provisions for Infrastructure Loans 161TABLE V : Rehabilitation of sick SSI units 191-192
TABLE VI : Asset Classification Norms 199-200TABLE VII : RBI Circulars on Asset Classification 202-203
TABLE VIII : Suggested Reforms on Property Rights 207-209TABLE IX : Securitisation Terminology 215-217TABLE X : Debt Recovery Remedies 335TABLE XI : Fees for DRT Applications 461
TABLE XII : Caveats 472TABLE XIII : Time limits for action by NCLTs 540TABLE XIV : Time limits for sanction of Schemes by NCLTs 541TABLE XV : Fees for applications to DRTs 620
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TABLE XVI : Recovery powers of DRTs and Courts 657-659TABLE XVII : NPA Recoveries 670
TABLE XVIII : Applicability of CPC Provisions to DRTs 717-718TABLE XIX : Provisions of Limitation Act applicable to DRTs 726-727TABLE XX : Jurisdiction of DRTs and Company courts 803-804
SUBJECT INDEX 1529
CONTENTS I-92