Difference between symbolic possession and physical possession?

When a borrower defaults on a loan, banks have the authority to take control of the secured property to recover the outstanding dues. Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), banks can initiate recovery proceedings that involve different stages of possession of the property—**symbolic possession** and physical possession. Understanding the differences between these two forms of possession is essential for borrowers to comprehend the implications and take appropriate action.

1. Definition and Nature of Possession

Symbolic Possession:

- Symbolic possession is the initial stage where the bank asserts its legal right over the property due to a loan default. At this stage, the bank does not take physical control of the property but rather makes a formal declaration of its claim.

- This declaration is typically made through a notice issued under Section 13(4) of the SARFAESI Act, informing the borrower and the public that the bank has taken possession of the property in a symbolic manner.

Physical Possession:

- Physical possession refers to the stage where the bank takes actual control of the property. This involves physically taking over the property, which could include changing locks, securing the premises, and, if necessary, evicting any occupants.

- Physical possession usually follows symbolic possession if the borrower fails to settle the outstanding dues after receiving the symbolic possession notice.

2. Control Over the Property

Symbolic Possession:

- In symbolic possession, the borrower retains physical access to and control over the property. The bank's control is only symbolic, meaning that the property remains in the borrower's possession, and they can continue to occupy or use it.

- The bank’s action is more about establishing a legal claim and signaling its intention to proceed with further recovery actions if the borrower does not comply with repayment demands.

Physical Possession:

- In physical possession, the bank takes actual control of the property, and the borrower loses access to it. The bank can take steps such as changing the locks or placing its representatives on the property to ensure that it is under their control.

- Physical possession marks a significant escalation in the recovery process, and the borrower is usually barred from entering or using the property once physical possession is taken.

3. Legal Procedures Involved

Symbolic Possession:

- The bank initiates symbolic possession by issuing a notice under Section 13(4) of the SARFAESI Act. This notice is sent to the borrower and also published in local newspapers to inform the public.

- The notice typically outlines the outstanding amount, the bank's decision to take possession, and a warning that further steps, including physical possession and auction, may follow if the dues are not cleared.

Physical Possession:

- Before taking physical possession, the bank must obtain an order from the Chief Metropolitan Magistrate (CMM) or District Magistrate (DM) under Section 14 of the SARFAESI Act. This legal step ensures that the bank’s action is authorized by a judicial or quasi-judicial authority.

- Once the order is obtained, the bank can take physical possession, often with the assistance of law enforcement if necessary, to evict any occupants and secure the property.

4. Impact on the Borrower

Symbolic Possession:

- During symbolic possession, the borrower still has an opportunity to negotiate with the bank, repay the outstanding amount, or seek legal recourse by approaching the Debt Recovery Tribunal (DRT) to challenge the bank’s actions.

- The borrower remains in possession of the property and can use this time to arrange for funds, negotiate a settlement, or explore other legal options.

Physical Possession:

- Once physical possession is taken, the borrower loses control and access to the property. The bank may proceed to auction the property to recover the outstanding dues.

- At this stage, the borrower’s legal options become more limited. The borrower must act swiftly to either repay the loan, negotiate a settlement, or obtain a stay order from the DRT or a higher court to prevent the sale of the property.

5. Public Notice and Auction

Symbolic Possession:

- The public notice of symbolic possession serves as a warning and is often the first step in the recovery process. It indicates that the bank is preparing to take more severe actions if the borrower does not repay the loan.

- No immediate auction or sale of the property is initiated at this stage, but the notice puts potential buyers or third parties on alert that the property is under the bank’s claim.

Physical Possession:

- After taking physical possession, the bank can move towards auctioning the property. The auction process involves issuing a sale notice with details about the property, reserve price, and auction date.

- The auction is usually the final step in the recovery process, where the property is sold to recover the outstanding loan amount. If the sale proceeds exceed the amount due, the excess is returned to the borrower.

6. Opportunities for the Borrower to Recover the Property

Symbolic Possession:

- The borrower has the opportunity to repay the outstanding amount, negotiate with the bank, or challenge the symbolic possession in the DRT during this stage.

- The borrower can also seek restructuring of the loan or propose alternative arrangements to avoid further escalation.

Physical Possession:

- After physical possession, the borrower’s primary recourse is to seek relief from the DRT, which may include a stay on the auction or restoration of possession if the bank's actions are found to be unlawful or unjust.

- Recovering the property after physical possession is more challenging, and the borrower must act quickly to prevent the auction and sale of the property.

Conclusion

In summary, symbolic possession is an early stage in the recovery process where the bank asserts its claim over the property without taking actual control, while physical possession involves the bank taking actual control and potentially moving towards auctioning the property. The borrower has more opportunities to resolve the situation during symbolic possession, while physical possession represents a more advanced and critical stage where immediate legal action is necessary to recover the property or prevent its sale. Understanding these differences is crucial for borrowers to effectively respond and protect their rights when facing loan recovery actions.

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.com