Can I negotiate with the bank after receiving a possession notice under the SARFAESI Act?

Can I Negotiate with the Bank After Receiving a Possession Notice Under the SARFAESI Act?

Yes, you can negotiate with the bank even after receiving a possession notice under the SARFAESI Act, 2002. While receiving a possession notice under Section 13(4) signals that the lender has escalated the recovery process, borrowers still have opportunities to negotiate, settle the outstanding amount, or seek alternatives to prevent further enforcement actions such as auctioning the secured asset. Acting promptly and strategically is key to resolving the matter. Below is a detailed explanation of the process and available options.

Understanding the Possession Notice Under Section 13(4)

A possession notice is issued after the 60-day period provided under Section 13(2) has elapsed without the borrower fully repaying the outstanding dues or addressing the lender’s concerns. The notice may:

- Indicate the lender’s intention to take symbolic possession of the secured asset (e.g., publishing the notice in newspapers).

- Lead to physical possession if the borrower fails to act further.

- State the lender’s right to sell the asset to recover the dues.

However, the issuance of a possession notice does not mean the matter is beyond resolution. The SARFAESI Act provides borrowers with avenues for negotiation and resolution, even at this stage.

Steps to Negotiate with the Bank After a Possession Notice

1. Understand Your Financial Position

- Review your ability to clear the dues, either partially or fully.

- Assess whether you can arrange funds through other sources, such as family, friends, or financial institutions.

2. Contact the Bank for Settlement

Banks are often willing to negotiate, as a settlement can save them time and effort compared to pursuing auctions or further legal proceedings. You can:

- Propose a One-Time Settlement (OTS): Offer a lump-sum payment to clear the dues, often at a discounted rate. Banks frequently accept such offers to expedite recovery.

- Request Restructuring of the Loan: Ask the bank to extend the repayment term, reduce interest rates, or waive penalties.

3. Submit a Formal Proposal

- Draft a detailed proposal outlining your repayment plan, including how you intend to clear the dues (e.g., part payment followed by installments).

- Attach supporting documents, such as proof of income or funds arranged, to substantiate your repayment capacity.

4. Seek Time for Regularization

- Request the bank to allow time to regularize the loan by paying overdue EMIs or making partial payments.

- Highlight valid reasons for non-payment, such as a financial crisis, health issues, or unforeseen circumstances.

Bank’s Perspective During Negotiations

Banks prefer recovering their dues without auctioning the secured asset because:

- Auctions involve additional administrative costs and legal formalities.

- Recovering dues directly from the borrower is faster and less risky.

Hence, they are often open to reasonable settlement proposals.

Legal Remedies to Support Negotiation

If the bank does not cooperate or you need more time to negotiate, you can pursue legal remedies to delay enforcement actions:

1. File an Appeal with the Debt Recovery Tribunal (DRT)

Under Section 17 of the SARFAESI Act, borrowers can challenge the possession notice by filing an appeal with the DRT.

- Grounds for appeal include procedural lapses, incorrect calculations, or a violation of natural justice.

- The DRT can grant a stay on further actions, providing time for negotiation.

2. Obtain Interim Relief from the High Court

If urgent relief is required to stop possession or auction proceedings, you may approach the High Court under Article 226 of the Constitution to seek a stay. However, courts generally advise exhausting remedies before the DRT first.

Precautions During Negotiation

1. Maintain Communication:

- Respond to the bank’s notices and communicate proactively.

- Avoid ignoring calls or letters, as non-cooperation may escalate the situation.

2. Provide Honest Proposals:

- Avoid over-promising or submitting unrealistic repayment plans.

- Ensure your proposal reflects your genuine financial position.

3. Document All Correspondence:

- Keep records of emails, letters, and meetings with the bank.

- Obtain written confirmation of any agreements reached during negotiations.

What Happens if Negotiation Fails?

If negotiation efforts are unsuccessful, the bank may proceed to:

- Auction the Property: Publish the sale notice and sell the secured asset to recover the dues.

- Recover Shortfalls: If the auction proceeds are insufficient, the bank may pursue further recovery against you personally.

In such cases, borrowers may still:

- Participate in the auction to reclaim the property.

- Appeal to the DRT or higher forums to challenge the auction process if procedural lapses occur.

Judicial Precedents Supporting Negotiation

1. Mardia Chemicals Ltd. v. Union of India (2004):

- The Supreme Court held that borrowers should be given reasonable opportunities to repay or negotiate before enforcement actions escalate.

2. Mathew Varghese v. M. Amritha Kumar (2014):

- The court emphasized the importance of procedural fairness, including providing borrowers with sufficient time to negotiate or repay.

3. ITC Ltd. v. Blue Coast Hotels Ltd. (2018):

- The court highlighted that lenders must act in good faith, and borrowers should be allowed to resolve the matter amicably whenever possible.

Frequently Asked Questions (FAQs)

1. Can I stop the possession process by negotiating with the bank?

Yes, if you present a reasonable settlement or repayment proposal, the bank may halt possession or auction proceedings to recover dues amicably.

2. What happens if the bank rejects my proposal?

If the bank rejects your settlement or restructuring request, you can file an appeal with the DRT to seek relief and propose a new repayment plan.

3. Can I negotiate even after physical possession is taken?

Yes, you can still negotiate to reclaim the property by clearing the dues and associated costs before the asset is auctioned.

4. How much time will the bank give me to negotiate?

Banks typically expect swift action. However, by filing a DRT appeal or obtaining a stay, you can buy additional time for negotiations.

5. Will the bank agree to waive penalties or interest?

Banks may agree to waive penalties or reduce interest rates during one-time settlement negotiations, but this depends on the borrower’s financial situation and the bank’s policies.

Conclusion

Negotiating with the bank after receiving a possession notice under the SARFAESI Act is not only possible but often advisable. Banks prefer to recover dues through amicable settlements rather than auctioning assets, as it saves time and reduces risks. By presenting a well-drafted proposal, maintaining open communication, and exploring legal remedies, borrowers can effectively resolve the issue and prevent the loss of their property. Acting promptly and seeking professional advice can significantly improve the chances of a successful negotiation.

Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.

Adcocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)

Contact: 88271 22304

www.jsrohilla.in