By : M.S.Yatnatti Editor and Video Journalist Bengaluru : The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is a powerful instrument in the hands of the banks and financial institutions (FIs) as secured creditors. This Act helps them enforce securities held as collateral to loans disbursed by them should such loans turn out as non-performing assets (NPAs) during the currency of the loan without interference from the Courts. Section 13 of the Act gives power to the secured creditor even to evict the tenant. It is our observation that the banks have been overenthusiastic in taking recourse to SAFRAESI Act provisions as a first resort of recovering the micro, small and medium enterprises (MSME) loans, mostly violating guidelines of Reserve Bank of India (RBI).Finance is the backbone of business.No trade or industry can run without adequate finance.The internal resources of a business organisation are often insufficient for meeting all its needs.It is also not always possible for the owners, promoters or the entrepreneurs to mobilize finance from their own resources.Therefore promoters raise capital through borrowings, keeping in view the short term, medium term or long term requirements of the trade or industry.Every industrial project requires finance in the form of risk capital, long term, medium term and short term or working capital and/or machinery on hire purchase/lease basis. All these types of financial assistance are provided by various institutional agencies, commercial banks, co-operative banks, Regional Rural Banks, State Financial Corporations and International FinancialInstitutions and Syndicated Loan Market and NSIC etc,. A great emphasis has been placed by the government to ensure that all viable projects are provided adequate finance (Capital) for a sustained growth of trade and industry.The borrowed funds have enabled many promoters to realise their dreams and to bring their project to an actual shape. Timely availability of Institutional and bank finance at reasonable rates is essential for successful implementation of any commercial project. This requires thorough and upto date knowledge of lending schemes of various financial institutions likeIDBI, IFCI, ICICI, IRBI, SCICI, Exim Bank, Commercial Banks, RCTC, SIDBI, UTI, LIC, SFCs etc., particularly with reference to the preparation of project report, appraisal by the lending institutions, assessment of financial requirements as per RBI norms, terms and conditions on which finance is available, procedure for filing application for finance, execution of documents and charging of securities.Besides the financing has to be done as per the RBI Credit Policy & Instructions contained in its various Circulars & Committee Recommendations. Special RBI instructions have also been issued on bank finance, for Leasing & Hire purchase Concerns, Diamond Exporters, Consortium Advances, Housing Finance, Priority Sector Advances, Export Credit, Commercial papers etc.
According to experts a default does not strip you of your rights or make you a criminal. Banks have to follow process and give you time to repay dues before repossessing your assets to realise the arrears. Typically, banks initiate such proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act. If the borrower's account is classified as a non-performing asset (NPA), where repayment is overdue by 90 days, the lender has to first issue. the lender has to first issue a 60-day notice to the defaulter. "If the borrower fails to repay within the notice period, the bank can go ahead with sale of assets. However, in order to sell, the bank has to serve another 30-day public notice mentioning details of the sale,” says banking and management expert. Do not write off your asset mentally the moment it is repossessed. Keep track of the auction process--it's easier to do so now as most lenders conduct e-auctions. Lenders are required to refund any balance after recovering the dues, which is a real possibility given that property prices can shoot up beyond the owed amount. "After recovering the dues and all expenses of conducting the auction, the bank has to refund the amount to the borrower as the money belongs to him legitimately,” says financial experts .. During the notice period, you can make your representation to the authorised officer and put forth your objections to the repossession notice. "The officer has to reply within seven days, giving valid reasons if he rejects the representation and objections raised by the borrower,” says financial experts.
Do not forget that banks are regulated entities that cannot behave like moneylenders while trying to collect dues. Following adverse reports about the conduct of recovery agents, the RBI had pulled up banks over the issue a few years ago. Banks too decided to voluntarily commit to certain best practices as part of their code of commitment to customers. For one, agents can contact borrowers at a place chosen by the latter. In case they have not specified a place, the agents can visit either the borrower's residence or place of work. They are required to respect borrowers' privacy during these visits and ensure civil and decent behaviour. They also cannot land up at unearthly hours. The window available is 7 am to 7 pm, unless the borrower's working hours necessitate different timings. Agents cannot resort to harassment or intimidation and nor can they humiliate the borrowers or their family members. The SARFAESI act gives the customer the right to appeal against the action of repossession taken by the bank in the Debt Recovery Tribunal u/s 17 within 45 days from the date when the action was taken. If the DRT passes an order against the borrower, then an appeal can be filed before the Appellate Tribunal within 30 days of receiving it. If it is held in the appeal that the possession of the asset taken by the secured creditor was wrongful, the Tribunal or the Appellate Tribunal may direct its return to the borrower, along with appropriate compensation and cost.