Provisions and Action Flow Under SARFAESI ACT for Enforcing the security interest

IMPORTANT ASPECTS AND ACTION FLOW - 

LENDER SHOULD BE A SECURED CREDITOR- "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes— (i) debenture trustee appointed by any bank or financial institution; or (ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance;

APPLICABILITY OF SARFAESI- The provisions of this act are applicable only for NPA loans with outstanding above rs. 1.00 lac. Npa loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this act.

BORROWER MEANS- According to section 2(1)(f) of SARFAESI act "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by .Any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance  

AUTHORISED OFFICER- Authorised officer" means an officer not less than a chief manager of a public sector bank or equivalent, as specified by the board of directors or board of trustees of the secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, as the case may be, to exercise the rights of a secured creditor under the

NON-PERFORMING ASSET - SARFAESI ACT proceeds on the basis that borrower created security interest in favour of bank and his liability stood crystallised on account of his default and his account is classified as NPA- 13(2): where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under subsection(4).

SECURITY DEBT AND INTEREST- "secured debt" means a debt which is secured by any security interest; (zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31; mortgage of property financed.

DEFAULT MEANS - "default" means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor.

HOW TO CALCULATE THE QUANTUM OF CLAIM AMOUNT IN THE DEMAND NOTICE- Please ensure that, the balance outstanding in the bank’s book and the un-debited portion of interest accrued but not reflected in the bank’s book (on account of status of the loan account as NPA) are added and incorporated in the demand notice. The authorised officer (for short “A.O.”) need not approach any court or tribunal for determination of the quantum of amount of claim.

FINANCIAL ASSISTANCE- financial assistance" means any loan or advance granted or any debentures or bonds subscribed or any guarantees given or letters of credit established or any other credit facility extended by any bank or financial institution;

FINANCIAL ASSET- Financial asset" means debt or receivables and includes-- (i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or (ii) any debt or receivables secured by, mortgage of, or charge on, immovable property; or (iii) a mortgage, charge, hypothecation or pledge of movable property; or (iv) any right or interest in the security, whether full or part underlying such debt or receivables; or (v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables whether such interest is existing, future, accruing, conditional or contingent; or (vi) any financial assistance.

AGRICULTURE LAND- Any security interest created over agricultural land cannot be proceeded with.

NPA CLASSIFICATION- non-performing asset" means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset,-- (a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body; (b) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the reserve bank

DEMAND NOTICE UNDER SECTION 13(2)- Demand notice.- (1) the service of demand notice as referred to in sub-section (2) of section 13 of the 9 [act] shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail service: provided that where authorised officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service can not be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality. (2) where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1). (3) any other notice in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in this rule. (4) where there are more than one borrower, the demand notice shall be served on each borrower.

PROCESS FLOW UNDER PROVISIONS OF SARFAESI 13(2) AND 13 (4)- A secured creditor shall be entitled to exercise all of any of the rights under sub-section (4) of section 13 of SARFAESI ACT without the intervention of the court only ifthe following actions are initiated by the secured creditor / authorised officer.

•  Security agreement should be executed between the secured creditor and the borrower.
• Security interest should be created on the secured assets in favour of the secured creditor.
• Debt of the borrower should be classified as non-performing asset (NPA) for which the debt has to be crystallized.
• Secured creditor has to issue a notice u/s 13(2) of SARFAESI ACT demanding the dues from the borrower by giving all the details of the dues and securities to be enforced based on the definition of NPA AS PER RBI NORMS.
• The borrower is required to make the payment as demanded by the secured creditor within 60 days from the date of the notice.
• The borrower is entitled to make his representation and raise his objections to the notice.
• The authorised officer has to give a reply to the representation made and objections raised by the borrower within 7 days giving valid reasons if he rejects the representation made and objections raised by the borrower.
• 13 (4) in case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.

SERVICE OF DEMAND NOTICE: please note changes in the addresses of the borrowers if any before addressing the demand notice. Change of address of borrower(s) must be obtained in writing. Oral information is not reliable as it is construed as not born out of record. Serve demand notice as contemplated in rule 3 of security interest (enforcement) rules 2002- 3(1) the service of demand notice shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower (or his agent empowered to accept the service) or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail service.

PROCEDURE WHERE BORROWER AVOIDS SERVICE OF DEMAND NOTICE OR FOR ANY REASON NOTICE COULD NOT BE SERVED- Proviso to rule 3(1):where authorised officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality. Evidence of this exercise is to be reduced to writing (record panchanama).Preserve full page of the relevant newspapers as the same are required in evidence.

 SERVICE OF NOTICE TO WIFE OF BORROWER IS SUFFICIENT SERVICE- If borrower’s marital relationship is not judicially separated or dissolved by order of competent court.

IF BORROWER IS A BODY CORPORATE- Rule 3(2): where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1).

HOW MANY DEMAND NOTICES A SECURED CREDITOR CAN ISSUE- There is no bar. Any number of notices can be issued provided the security interest sought to be enforced is not barred by limitation

THE MANNER OF SERVICE OF ANY NOTICE RULE 3(3) OF S.I.(E) RULES- Rule 3(3): any other notice [i.e. Possession notice under 13(4) of sarfaesi act or rule 8(6) of s.i.(e) rules] in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in rule 3.

REPLY OF BORROWER- Reply to representation of the borrower.- (a) after issue of demand notice under sub-section (2) of section 13, if the borrower makes any representation or raises any objection to the notice, the authorised officer shall consider such representation or objection and examine whether the same is acceptable or tenable. (b) if on examining the representation made or objection raised by the borrower, the secured creditor is satisfied that there is a need to make any changes or modifications in the demand notice, he shall modify the notice accordingly and serve a revised notice or pass such other suitable orders as deemed necessary, within seven days from the date of receipt of the representation or objection. (c) if on examining the representation made or objection raised, the authorized officer comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection, the reasons for non-acceptance of the representation or objection, to the borrower.

REPRESENTATION/OBJECTION: AGAINST THE DEMAND NOTICE SEC13 (3A)- After service of the notice if the borrower makes any representation or objection against the demand notice the A.O. should immediately send it to the secured creditor who in turn should send a reply or advise the A.0. to communicate reply to the borrower within “fifteen days” (recent amendment substituted for one week) of receipt of such representation or objection by registered post with ad or courier. Evidence of communication is to be preserved for evidence. Representation: seeking for extension of time for payment or ots. Objection: challenging the validity of the demand notice on various grounds.

PROCEDURE AFTER ISSUE OF NOTICE- PROCEDURE AFTER ISSUE OF NOTICE.- if the amount mentioned in the demand notice is not paid within the time specified therein, the authorised officer shall proceed to realise the amount by adopting any one or more of the measures specified in sub-section (4) of section 13 of the 11[act] for taking possession of movable property, namely:- (1) where the possession of the secured assets to be taken by the secured creditor are movable property in possession of the borrower, the authorised officer shall take possession of such movable property in the presence of two witnesses after panchnama drawn and signed by the witnesses as nearly as possible in appendix i to these rules. (2) after taking possession under sub-rule (1) above, the authorised officer shall make or cause to be made an inventory of the property as nearly as possible in the form given in appendix ii to these rules and deliver or cause to be delivered, a copy of such inventory to the borrower or to any person entitled to receive on behalf of borrower. (3) the authorised officer shall keep the property taken possession under sub-rule (1) either in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as owner of ordinary prudence would, under the similar circumstances, take of such property: provided that if such property is subject to speedy or natural decay, or the expense of keeping such property in custody is likely to exceed its value, the authorised officer may sell it at once. (4) the authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) in case any secured asset is:- (a) a debt not secured by negotiable instrument; or (b) a share, in a body corporate; (c) other movable property not in the possession of the borrower except the property deposited in or in the custody of any court or any like authority, the authorised officer shall obtain possession or recover the debt by service of notice as under:- (i) in the case of a debt, prohibiting the borrower from recovering the debt or any interest thereon and the debtor from making payment thereof and directing the debtor to make such payment to the authorised officer, or (ii) in the case of the shares in a body corporate, directing the borrower to transfer the same to the secured creditor and also the body corporate from not transferring such shares in favour of any person other than the secured creditor. A copy of the notice so sent may be endorsed to the concerned body corporate's registrar to the issue or share transfer agents, if any; (iii) in the case of other movable property (except as aforesaid), calling upon the borrowers and the person in possession to hand over the same to the authorised officer and the authorised officer shall take custody of such movable property in the same manner as provided in sub-rules (1) to (3) above; (iv) movable secured assets other than those covered in this rule shall be taken possession of by the authorised officer by taking possession of the documents evidencing title to such secured assets

VALUATION REPORT- Valuation of movable secured assets.- after taking possession under sub-rule (1) of rule 4 and in any case before sale, the authorised officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to he sold in realisation of the dues of the secured creditor.

SALE OF MOVABLE SECURED ASSETS- Sale of movable secured assets.- (1) the authorised officer may sell the moveable secured assets taken possession under sub-rule (1) of rule 4 in one or more lots by adopting any of the following methods to secure maximum sale price for the assets, to be so sold- (a) obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or (b) inviting tenders from the public; or (c) holding public auction; or (d) by private treaty. (2) the authorised officer shall serve to the borrower a notice of thirty days for sale of the movable secured assets, under sub-rule (1): provided that if the sale of such secured assets is being, effected by either inviting lenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality by setting out the terms of sale, which may include,- (a) details about the borrower and the secured creditor; (b) description of movable secured assets to be sold with identification marks or numbers, if any, on them; (c) reserve price, if any, and the time and manner of payment; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of movable secured assets. (3) sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.

SECTION 14- CHIEF METROPOLITAN MAGISTRATE OR DISTRICT MAGISTRATE TO ASSIST SECURED CREDITOR IN TAKING POSSESSION OF SECURED ASSET- Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the chief metropolitan magistrate or the district magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the chief metropolitan magistrate or, as the case may be, the district magistrate shall, on such request being made to him-- (a) take possession of such asset and documents relating thereto; and (b) forward such assets and documents to the secured creditor. (2) for the purpose of securing compliance with the provisions of sub-section (1), the chief metropolitan magistrate or the district magistrate may take or cause to be taken such steps and use , or cause to be used, such force, as may, in his opinion, be necessary. (3) no act of the chief metropolitan magistrate or the district magistrate done in pursuance of this section shall be called in question in any court or before any authority.

SALE CERTIFICATE- Issue of certificate of sale.- (1) where movable secured assets is sold, sale price of each lot shall be paid as per the terms of the public notice or on the terms as may be settled between the parties, as the case may be, and in the event of default of payment, the movable secured assets shall be liable to be offered for sale again. (2) on payment of sale price, the authorised officer shall issue a certificate of sale in the prescribe form appendix iii to these rules specifying the movable secured assets sold, price paid and the name of the purchaser and thereafter the sale shall become absolute. The certificate of sale so issued shall be prima facie evidence of title of the purchaser. (3) where the movable secured assets are those referred in sub-clauses (iii) to (v) of clause (1) of sub-section (1) of section 2 of the 12[act], the provisions contained in these rules and rule 7 dealing with the sale of movable secured assets shall, mutatis mutandis, apply to such assets.

SALE PROCESS- sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) the sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender 12 substituted by s.o. 103(e), dated 2-2-2007, for “ordinance” (w.e.f. 2-2-2007). 13 inserted by s.o. 1837(e), dated 26-10-2007. Prior to its substtution sub-rule (2) read as under:- “the possession notice as referred to in sub-rule (1) shall also be published in two leading newspaper” or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor: provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9 : provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (3) on every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent. Of the amount of the sale price, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again. (4) the balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. (5) in default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. (6) on confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in appendix v to these rules. (7) where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. 14[provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from date of finalisation of the sale.] (8) on such deposit of money for discharge of the encumbrances, the authorised officer 15[shall] issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make, the payment accordingly. (9) the authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on Time of sale, issue of sale certificate and delivery of possession, etc.- (1) no deposit of money as specified in sub-rule (7) above. (10) the certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.

SALE PROCESS OF IMMOVABLE PROPERTIES- Sale of immovable secured assets.- (1) where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in appendix iv to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) 13[the possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspaper] one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) in the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. (4) the authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed off. (5) before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treaty. (6) the authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, - (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. (7) every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the website of the secured creditor on the internet. (8) sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.

PROCEDURE FOR RECOVERY OF SHORTFALL OF SECURED DEBT- Procedure for recovery of shortfall of secured debt.- (1) an application for recovery of balance amount by any secured creditor pursuant to sub-section (10) of section 13 of the 18[act] shall be presented to the debts recovery tribunal in the form annexed as appendix vi to these rules by the authorised officer or his agent or by a duly authorised legal practitioner, to the registrar of the bench within whose jurisdiction his case falls or shall be sent by registered post addressed to the registrar of debts recovery tribunal. (2) the provisions of the debts recovery tribunal (procedure) rules, 1993 made under recovery of debts due to banks and financial institutions act, 1993 (51 of 1993), shall mutatis mutandis apply to any application filed by under sub-rule (1). (3) an application under sub-rule (1) shall be accompanied with fee as provided in rule 7 of the debts recovery.

RESERVE PRICE- Valuation minus 15% or 20%

SALE NOTICE-PERSONAL RULE 8(6)- The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5).

SERVICE OF SALE NOTICE- Sale notice must be served in the same manner as the demand notice and possession notice are served in the same manner as contemplated in the sub rule(1) of rule 3 of s.i.(e) rules 2002. See rule 3(3) demanding the borrowers to pay the debt as demanded in the demand notice and possession notice together with interest. If the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, -

(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor

(b) the secured debt for recovery of which the property is to be sold;

(c) reserve price, below which the property may not be sold;

(d) time and place of public auction or the time after which sale by any other mode shall be completed;

(e) depositing earnest money as may be stipulated by the secured creditor;

(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value Of the property.

PUBLICATION OF SALE NOTICE- Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the website of the secured creditor on the internet

AFFIXTURE OF SALE NOTICE - Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the website of the secured creditor on the internet

SALE CANNOT BE EFFECTED BEFORE EXPIRY OF THIRTY DAYS- No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower.

BIDDER- A bidder who has offered highest prize shall be identified as successful bidder and he has to deposit 25% of the bid amount immediately.

CONFIRMATION OF SELL- The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor.

SELL LESS THAN RESERVE PRICE- No sale shall be confirmed, if the amount offered is less than the reserve price.

PAYMENT BY BIDDER IN WHOSE FAVOUR THE BID IS CONFIRMED- The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.

FORFEITURE AND RESALE OF SECURED ASSET- In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.

CONSENT OF BORROWER- If the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.

COMPUTATION OF 60 DAYS- The date of service of the demand notice or publication of the demand notice after affixing it (as stated in the proviso to rule 3(1) of s.i.(e) rules) and the 60th day to be expired are to be excluded for computing the 60 days.

PROCEDURE FOR TAKING POSSESSION OF MOVABLE SECURED ASSETS- Taking symbolic possession of movable secured assets is not permissible in law. Procedure for taking possession of movable secured assets is different from the procedure relating to the immovable secured assets. In case the secured assets are movable, the a.o. has to take possession of them in the presence of two witnesses and draw a panchanama, as nearly as possible as given in appendix-i [ see rule 4(2) of s.i.(e) rules] (evidence to be preserved).

INVENTORY REPORT- After taking possession of the movable secured assets, the a.o. has to record ‘inventory report’ as per appendix–ii [see rule 4(1) of s.i.(e) rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the a.o. has to mention the name of the person appointed by him in whose custody the secured assets are preserved.

PRESERVATION- To take care to preserve movable secured assets which owner of ordinary prudence would take. In case of factories or stores the secured creditor has to entrust the same for custody of an authorised person or approved re-possessors / security persons.

INSURANCE COVER- A.O. has to take insurance cover if necessary until sale is completed. Comprehensive policy with a clause to pay the sum assured to the company which would discharge the insurance company against adverse claim of borrower if any.

CIRCUMSTANCES FOR IMMEDIATE SALE- There are two circumstances for immediate sale of movable secured assets.

If movable secured assets are subject to speedy or natural decay

Or the expense of keeping such property in custody is likely to exceed its value, the authorised officer may sell them at once. (issue sale notice but need not wait for expiry of 30 days of the sale notice).

A.O. has to record reasons if necessary by drawing a panchanama in this regard.

PLANT AND MACHINERY ATTACHED TO EARTH- Plant and machinery should be treated as part of the immovable secured asset if they are fastened to the earth with cement and concrete as on the date of taking possession. In the possession notice (appendix-iv) the same must be mentioned specifically giving brief description of the particulars of the machinery vide separate annexure attached to it.

PLANT AND MACHINERY IF DETACHED FROM EARTH- If plant and machinery are detachable from earth as on the date of taking possession then A.O. has to record ‘inventory report’ as per appendix–ii [see rule 4(1) of s.i.(e) rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the A.O. has to mention the name of the person appointed by him in whose custody the secured assets are preserved.

VALUATION OF MOVABLE ASSETS- After taking possession under sub-rule (1) of rule 4 and in any case before sale, the authorised officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to he sold in realisation of the dues of the secured creditor.

PROCEDURE IN CASE OF IMMOVABLE SECURED ASSETS- Take possession of immovable secured asses (whether symbolic or physical), serve possession notice (appendix-iv) under sec.13(4) read with rule 8(1) and(2), obtain acknowledgment of service, affix it to secured asset and publish it in two leading newspapers(one in vernacular) having sufficient circulation in the locality If borrower refuses to acknowledge service of the possession notice, then the ao may send it by registered post /courier and preserve evidence and the same may be recorded at the foot of the possession notice and obtain signature of two witnesses.

BORROWERS AS BIDDER- Borrower can participate as tenderer / bidder to purchase the secured asset in the process of sale.

ENCUMBRANCES- The purchaser has to deposit the encumbrances if any in respect of the secured asset sold. Where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him.

PAYMENT OF SURPLUS TO THE PURCHASER- Provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from date of finalisation of the sale.