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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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� 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

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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

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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

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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

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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