Monday, 30 November 2015

FAQS ON SECURITIZATION


Once an Account is not serviced for 90 days and the Bank classified the Account as NPA, is it compulsory for the Bank to initiate Securitization Act?
Yes. Though it is not compulsory under the lay, it is in the interest of the Bank that the situation may not go out of control, it is necessary for you to issue Securitization Notice to the borrower and guarantor, so that it will work as a pressure.

Once the notice is given, if the borrower pays overdue installment dues with interest and charges within 60 days period of notice, whether Bank can normalize the Account?
If the borrower pays over-due installments with interest and charges up to the date of their making the payment, there is nothing wrong in the Bank treating the Asset as Performing Asset, as Securitization Act does not say that it cannot invoke Securitization Act repeatedly for the same Account.  If in the bank’s view, the party is genuine and they had genuine difficulty and they pay the money – overdue installment and interest and other charges, with a covering letter that they will not default in future, and thereby requesting the Authorized Officer to withdraw the notice, in our opinion, there is nothing wrong in regularizing the account; however, the Bank has to take a commercial decision in this matter.Authorized Officer is advised to take the Bank’s permission before treating the Account as Performing Asset.  However, depending upon the party, you can even refuse to stop the proceedings unless entire amount with interest and charges are paid the Bank, as per the Securitization Notice.


If during the period of 90 days before treating the account as NPA, a small amount is paid which is not servicing the overdue installments and interest & charges, whether Bank can accept the money and treat this account as NPA and issue notice under Sec.13(2) of the Securitization Act?
Mere paying a small amount may be a mischievous act on the part of the borrower and unless the installment with interest & charges are not fully serviced for 3 months, the Account need to be treated as NPA. The very fact that he has not serviced the entire amount of installment and Bank charges for 90 days title the Bank to treat the account as NPA and Bank may issue notice under Securitization Act. However, since issuing Securitization Notice is not compulsory, administrative decision has to be taken, to be issued for a future date.

How soon after expiry of 60 days should the Bank act to proceed and take physical possession of the Assets?
There is no such date given in the Securitization Act, but in case of movable properties, it is in the interest of the Bank to proceed forthwith and take physical possession after the expiry of 60 days notice period. If it is movable item, perishable, the Authorized Officer can forthwith sell and recover the money. Such recovered movable property must be taken care of and insured as a person of ordinary prudence would do if the material belonged to him. Insurance and other charges can be debited to the Defaulters Account. If the movable property is not likely to fetch sufficient money to even cover the cost of storing, the Authorised Officer may sell the same at once.

What is the mode of sale of moveable property?
It can either be sold by Public notice, newspaper or by calling for quotation from businessmen, who are dealing with such material and or by Private Treaty, but all those actions of the Authorised Officer must be transparent and the Principle of Natural Justice has to be followed. We have already explained in the earlier pares.

When the notice under Sec.13 is not accepted by the borrower and guarantor, what should be done?
If notices are dispatched at the last known address available with the Bank and if the notices come back with the reason: “Refused”, then if the notices is returned with the reason “Left” it is better that you must paste the notice or to publish it in two newspapers, one in vernacular language, then proceed with the matter after 60 days. If the Borrower and Guarantor are Registered Company, notice sent to Registered Address will be enough. Notices under Securitization Act can even be enough. Notice under Securitization Act can even be served by e-mail, fax and courier or by hand delivery. But, all these must be properly authenticated to show that in fact attempt has been made to deliver the notice. The best way of ensuring that notices are saved is to send by Registered Post A.D. and send a copy under UPC.

Whether Authorised Officer can straight away go to the Borrower and take physical possession of the secured asset without the help of Judicial Magistrate or District Magistrate?
Though in certain cases it can be done, but it is advisable to make an application under Sec.14 of the Act and once the Magistrate passes an order, Court Officers proceed to the site and by taking police help, they take possession of the secured asset themselves and then the officer of the Court will hand over the recovered charged property to the Authorised Officer. Hence, though physical possession is taken by the Court Officer, the Authorised Officer of the Bank must be physically present at the site while taking over of any of the assets charged to the Bank, by the Court Officer, as directed by the Magistrate.

There is a fear that the Authorized Officer may be beaten up or ill-treated by the Borrower or guarantor?
Since, taking of physical possession of the assets charged to the Bank is to be recovered by the Officer of the Court, with the help of Police; the question of any attack on the Authorized Officer does not arise. However, the Court officer’s along with the police must be accompanied by the Authorised Officer of the Bank to the site as after the Court Officers take physical possession of the property, the Authorised Officer should take charge from the Court Officer. Therefore, the presence of Authorised Officer is a must while taking physical possession of the property, and nobody normally dares challenge the Court Officer and Police. The Panchanama drawn by the Court Officer must also be signed by the Authorised Officer.

While taking physical possession of the property, what all has to be ensured?
The Court Officer will draw the Panchanama of the items seized by him and he will take 2 signatures from independent witnesses and after taking the physical possession of immovable property, the Authorised Officer should fix a board at the site giving the full description that under the Securitization Act, this property has been attached by the Bank (name of the Bank, Address of the Bank must be specifically mentioned) and a notice preferably on a metallic sheet must be fixed at the premises properly fixing the nail and preferably a photo must be taken of the site after fixing the Bank’s name plate. The Authorised Officer must also put the Bank’s lock to the premises and he should safeguard the property as if he would have done if it had been his own property. In certain cases, the property may be of very high value and then the Bank may even engage some Security Guards to safeguard the said properties till such time the properties are disposed off.

If it is a moveable property, what action is to be taken?
If it is a moveable property, the Court Officer, will take physical possession of the property and make a Panchanama with two witnesses and an Authorised Officer must ……………  properties to an Official and go down or post security guards at the site to safeguard the property of the Bank.

Under the amended securitization Act after getting the notice under section 13, within what period the objections/representations can be made by the Borrower and Guarantors?
It should be done within a specified time limit of 60 days, which is shown in the notice under Section 13 of the Act. Before expiry of 60 days after getting the notice, they should make a representation/objection in writing, and the Authorised Officer must reply by giving proper speaking order within 7 days of such representation. This reply must preferably be drafted by a Legal Man so that from reading of the reply, it must be seen that justice is not only done, but also appears to have been done by the Authorised Officer. Just rejecting the representation may result into invoking Article 226 & 227 of the Constitution of India by the borrower and the High Court in a Writ may interfere, thereby action under Securitization Act will be delayed and unnecessary legal expenses will have to be incurred by the Bank.

 Can the property of Guarantor be attached?

Yes. You can attach the Guarantor’s property as long as Bank has the charge on that property and such properties can be attached irrespective of belonging to the borrower or guarantor. What is required is that the property must be charged to the Bank and while issuing notice of 60 days, you ensure that the borrower as well as the guarantors is served with Sec.13 Notice, without exception.

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