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Frequently Asked Questions - Bank NPA Consultants

Frequently Asked Questions

Can an NPA account be regularized?

Yes, provided the outstanding amount as on the date of issuance of notice u/s 13(2) is paid within time

Who is an Authorised Officer?

The secured creditor may appoint any officer not less than the chief manager of a public sector bank or equivalent or any other person or authority as specified by the Board of Directors/Trustees as the case may be.

What assets are covered under SARFAESI?

Any asset, movable or immovable, given as security whether by way of mortgage, hypothecation or creation of a security interest in any other form except those excluded u/s 31 of the Act.

Can the guarantors’ personal property be proceeded against under SARFAESI?

Only those property given as security can be proceeded under the provisions of SARFAESI Act.

Can the rights of a third party such as a tenant be affected in case of action taken under SARFAESI?

Any rights created in favour of any third party before the creation of security interest in the asset will not be affected.

Are residential houses exempt from under SARFAESI Act?

No, there is no provision for exemption for any property secured to the bank/financial institution including mortgaged residential house save and except those specified u/s 31 of the Act.

What is the remedy available to the borrower upon receipt of notice u/s 13(2)?

The borrower can raise objections/representations, if any in writing to the secured creditor who has to deal with the same and reply back in writing

Can the borrower or mortgagor transfer the asset after receipt of a notice u/s 13(2)?

No, S. 13(13) prohibits the borrower from transferring the asset after receipt of the notice u/s 13(2) save and except in the usual course of business.

What is the order u/s 14 passed by the Chef Metropolitan Magistrate or the District Magistrate? Is such an order mandatory?

The Chief Magistrate or the District Magistrate may, on an application in writing being made by the secured creditor, pass an order for taking possession through its office by taking such steps, including force as in his opinion be necessary. However, such an order is not mandatory except where an obstruction may be apprehended

When can the creditor take possession of the assets? Is taking of physical possession compulsory?

In case the outstanding demanded in the notice u/s 13(2) is not paid within 60 days, the creditor can take possession u/s 13(4). The creditor has the option of taking either symbolic or physical possession.

Can the creditor take possession of a running unit?

There is no bar under the SARFAESI Act which prohibits the secured creditor from taking possession of a running unit.

Can the secure creditor also take action under SARFAESI against a company in liquidation?

Yes, the secured creditor can take action against a company in liquidation in respect of its dues secured by the assets of the company. However, the secured creditor shall keep the Official Liquidator informed/updated about the steps being taken by it for liquidating the assets

Can the secured creditor take action against a sick company which is registered with BIFR?

Yes, SARFAESI action can be initiated against any sick company registered with the BIFR provided 75% of the secured creditors agree. Upon 75% of the creditors agreeing, the proceedings before BIFR abate.

Is the borrower entitled to any prior notice at the time of taking possession u/s 13(4)?

No, the SARFAESI Act does not contemplate any such notice prior to action being taken u/s 13(4).

What is the remedy available to the borrower upon possession being taken? Within what time frame?

The borrower or any aggrieved person can make an application u/s 17 of the Act to the Debt Recovery Tribunal to challenge the action within 45 days from the action being taken u/s 13(4).

Can the party apply for waiver of court fees in an application u/s 17 of the Act?

No, there is no provision for waiver of any court fees except for an indigent person or a pauper.

What about the recovery of balance amount of liability after assets sold under SARFAESI Act?

The secured creditor can initiate proceedings under the RDDB & FI Act for recovery of balance amount due after sale of the secured assets.

What is the difference between RDDB & FI ACT and SARFAESI Act?

The RDDB & FI Act allows filing of proceedings for recovery of the entire defaulted amount including enforcement of the secured assets and recovery from the personal properties of the debtors whereas the SARFAESI Act confers power of enforcement only in respect of the secured asset/s.

Can the bank/financial institution proceed simultaneously under RDDB&FI Act and SARFAESI Act?

Yes, in view of the judgement dated 29-11-2006 of the Supreme Court in the matter of Re : Transcore Electricals vs. Union of India the secured creditor can proceed simultaneously under the RDDB & FI ACT and SARFAESI Act.

Can the secured creditor sell the secured asset immediately upon possession being taken?

Upon possession being taken, the secured creditor has to give a mandatory 30 days notice to the borrower prior to the date of sale.

Is the secured creditor compulsorily required to sell the secured asset?

No, he may lease out or assign the secured asset as provided u/s 13(4).

Is the property purchased under SARAESI action clear and free from encumbrances?

Any asset sold under SARFAESI action is sold on an as is where is and as is what is basis unless specified otherwise. Sale under SARFAESI is governed by the terms and conditions of sale forming part of the sale process.

What would happen to the excess amount in case of surplus after sale of the secured asset?

The owner of the secured asset shall be entitled to the surplus amount.

Is the sale certificate required to be registered?