Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act  2002

• Wef  21 June, 2002
• Extends to whole of India
• Based upon recommendations of Narasimham committee II

 The Act empowers  Banks and Financial Institutions to take action for recovery of their dues through Sale of assets without intervention of the court. 

 Three alternate methods of recovery are provided in  the act : 

• Securitization of assets 
• Reconstruction of assets 
• Enforcement of security without intervention of court. 

 ELIGIBILITY

• Applicable on financial assets exceeding Rs. 1.00 lakh.
• Action can be taken within the limitation period. 
• Assets are hypothecated, mortgaged or assigned to the bank

 NOT ELIGIBLE

• Amount is less than 20% of the principal and Interest
• Securities under pledge, lien and lease and hire purchase
• Agricultural Land

 In Consortium / Multiple banking, if the action is agreed upon by secured creditors representing not less than 60% in value of the amount outstanding as on record date and such action shall be binding on all the secured creditors.

 Notice u/s 13(2)

• Issue demand notice to the defaulting borrower and guarantor calling them to pay the dues within 60 days of the demand notice. 
• Give notice to any person who has acquired such secured assets from the borrower to surrender the same to bank.
• Ask the debtor of the borrower to pay the sum due or accruing due to the borrower. 

 If bank has given advance to A, and B is guarantor in the case, Bank can demand recovery of its dues from A as well as from B. Now if A has sold the property/assets (which are charged to bank) to C, bank can give notice to C to surrender the assets/property to the bank.

 Grievance of the Borrower against demand notice under section 13 (2) -Secured Creditor must communicate the reasons for non-acceptance of representation/objections within 15 days of receipt of such objections 

 Notice u/s 13(4)

• Taking possession of the secured assets of the borrower including right to transfer, lease, sale 
• Take over management of the business 
• Appoint any person to manage the secured asset 
• If any person has acquired the secured assets from the borrower, the Secured Creditor can demand payment from such person. 

 (As per amendment of Aug 2016, possession process is allowed only if charge is registered with CERSAI) 

 Appeal by Borrower with DRT/DRAT against action u/s 13(4)

• Borrower can file an appeal with Debt Recovery Tribunal under section 17 of the SARFAESI Act within 45 days.  Such application must be disposed off by DRT within 60 days 
• If not disposed off within 4 months, the borrower has the right to take his grievance to Debt Recovery Appellate Tribunal (DRAT). 
• In case, the borrower is not satisfied with the decision of DRT, he can file an appeal with DRAT within 30 days of receipt of judgment of DRT. 
• DRAT should not entertain such appeal unless the borrower deposits 50% (can be reduced to 25% in exceptional cases) of the amount claimed by Secured Creditor or determined by DRT whichever is less. 
• No Court other than DRT to intervene:  As per section 34 of the Act. No civil court has jurisdiction to deal with cases which are subject matter of DRT or DRAT.  No injunction shall be Granted by any such court. 

 Procedure after Issue of Notice u/s 13/4

• Where property is movable and in possession of the borrower:  Authorized Officer shall take possession in presence of two witnesses after drawing Panchnama. 
• List of property should be delivered to the borrower / his agent.
• AO shall take steps for preservation and protection of the secured asset and insure them. 
• Valuation of Property: To fix the reserve price for sale. 

 Where property is immovable: AO should take possession by delivering the notice to the borrower and affixing a copy of the same at the outer door or other conspicuous place. 

 Sale of Assets

AO shall serve a notice of 30 days to the borrower regarding sale of assets. The process of sale should start after lapse of 30 days

 AO should then call either:- 

• Quotation from interested parties 
• Inviting Tenders: 
• Holding Pubic Auction including e Auction 
• By Private Treaty 

 If sale is proposed through public auction or inviting tender, the public notice to be Published in two dailies – one should be  vernacular.

• If the offer price is higher than the reserve prices, sale should be confirmed by AO.
• The purchaser should immediately deposit 25% of the sale price. 
• In case of failure to deposit the same, the sale shall be held again. 
• Balance shall be payable within 15 days of confirmation of sale. 
• On confirmation of sale, AO shall issue a sale certificate in favour of the purchaser. 
• AO should deliver  property free of all encumbrances to the purchaser. 

Insolvency and Bankruptcy Code 2016

Key Features

• Separate Insolvency Resolution process for individuals, companies and partnership firms.
• Processes may be initiated by either the Debtor or the Creditor.
• Time Limit for completion of Insolvency Resolution Process:-
  • for Companies : 180 days  - may be extended by 90 days
  • for Start-ups (other than partnership firms), Small Companies and Other Companies (with assets less than Rs 1 crore : 90 days - may be extended by 45 days
• RP will be conducted by licensed Insolvency Professionals (IPs) who will be members of Insolvency Professional Agencies (IPAs).

(Indian Institute of Insolvency Professionals of ICAI  &  ICSI Institute of Insolvency Professionals)

• Insolvency Regulator : Insolvency and Bankruptcy Board of India (IBBI) regulates functioning of IPs, IPAs & IUs. 
• Adjudicators: 

National Company Law Tribunal for Companies and Limited Liability Partnership Firms

Debt Recovery Tribunal for individuals and Partnership Firms.

Insolvency Resolution

• Insolvency refers to the inability of a person or corporate to pay up his debt / bills as and when they become due. He may be able to pay at a later date some amount or even in full, but at the promised date of payment, he is unable to make the payment. The negotiation between creditor and debtor to resolve the issue is called Insolvency Resolution. 
• Insolvency is short term inability to meet liabilities during the normal course of business.
• Bankruptcy is a long term view on the business.

Highlights of the Code

• The Code creates time-bound processes for insolvency resolution of companies and individuals. These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.
• Information Utilities (IUs) will collect, collate and disseminate financial information to facilitate insolvency resolution.
• National Company Law Tribunal (NCLT) will adjudicate insolvency resolutions for companies. Debt Recovery Tribunal (DRT) will adjudicate insolvency resolutions for individuals.
• Insolvency and Bankruptcy Board of India (IBBI) will regulate functioning of IPs, IPAs and IUs.