Friday, 5 December 2014

FAQs on Securitization

 FAQs on Securitization

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.

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.

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.

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.

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.

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.

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.

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.

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, 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.

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.

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.

If after receipt of the Securitization Notice, during the period of 60 days or thereafter, if the borrower or guarantor sells the property which is charged to the Bank, this sale or assignment is an illegality and therefore, the Purchaser or the Assignee will not get the title. Moreover, as per section 29 of the Act, if any person contravenes or abets the contravention, the provision of the Act or any rule made thereunder, he shall be punishable with imprisonment, which may extend for a period of one year or with fine, or with both. Therefore, if anybody transfers or sells the charged properties, after getting the Securitization Notice, the person who is the Purchaser, the Borrower and the guarantor (in which the Bank has a secured interest), and if disposed, they may be prosecuted under Sec.29 before the Judicial Magistrate, 1st Class Court. Section 29 provides that not only the contravention of the provisions of the Act but also rules made therein. Therefore, it is difficult for the Offender to escape from the clutches of laws, if any monkey business is done by him by disposing of the secured assets charged to the Bank, after getting the Notice u/s. 13(2) of the Act. Moreover, in case of immoveable properties, those are charged to the Bank normally by creation of an Equitable or Registered Mortgage and almost all the Original Title Deeds are with the Bank, as such, the Original Title Deeds are left with the Mortgagor. Hence, he cannot sell or dispose of the immoveable properties, if done, the Purchasers right to the property will be subject to Banks first claim being satisfied. However, Banks right to declare the sale/assignment as invalid cannot be denied to the Bank. Even a criminal case can be filed by the Bank against all the concerned.

Yes. If the State in which such Equitable Mortgage is made, there is a State Stamp Act, which prescribes Stamp Duty to be paid on such Stamp Act which prescribes Stamp Duty to be paid on such Equitable Mortgage created in the State, you must draw Memorandum of Entry and affix the requisite stamp duty and keep it with the Title documents. If no stamp is affixed on the Memorandum of Entry which is required under State Law, the Stamp Officer of the State can enter the Bank and take physical possession of all those mortgaged documents; thereby the Bank will be bereft of the security. Not only the Bank should draw the Memorandum of Entry and affix stamp as required by State Law, but also the Memorandum of Entry must be entered in a Register maintained by the Bank.

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