Amend SARFAESI Act, says Justice Ramachandran

High Court Judge Justice C N Ramachandran Nair inaugurating the seminar on ‘The implication of action taken by the bankers against borrowers under ‘SARFAESI Act’ in Kochi on Saturday

By Express News Service - KOCHI

29th July 2012 10:44 AM

Justice C N Ramachandran Nair said that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act which came into effect in 2002 should be removed since it has brought much harm to the loan borrowers from banks. If not revoked, it should be amended so as to benefit the borrowers, he said.

Justice Ramachandran was speaking at the inauguration of a seminar on implications of action taken by the bankers against borrowers under SARFAESI Act.

“The Act was brought into effect to help banks so that they could recover their dues from the borrowers. It has helped the bankers. However, it has given them unnecessary power since they can auction off the properties of the owner without their consent at a much lesser price than the market price. This will bring huge losses to the borrower as the market price of land is presently at an all time high,” Justice Ramachandran said.

Speaking about the atrocities being meted out by the bankers to the borrowers through this Act around the country, the High Court Justice pressed for the need of the Parliamentarians to amend the Act so that the owner gets a right to sell his land at his own price, after the bank auctions off a portion of the land to get back his dues. Justice Ramachandran added many suicides have been committed in the past because the borrowers, especially the farmers, are not provided any security.

Deccan Chronicle Holdings Limited is almost insolvent, says Industrial Finance Corporation of India Ltd

TNN | Jul 29, 2012, 03.22AM IST

HYDERABAD: Deccan Chronicle Holdings Limited (DCHL) has liabilities running into thousands of crores of rupees that may lead to the erosion of the entire net worth of the company and make it commercially unviable and insolvent, Industrial Finance Corporation of India Ltd (IFCI) has said in the winding-up petition which it has filed in the high court against the Hyderabad-based company.

Contending that DCHL was unable to discharge debts of its creditors and had almost become insolvent, IFCI urged the high court to order winding up of the company under the relevant sections of the Companies Act 1956. The high court was also requested to appoint an official liquidator and restrain the company and its officials from disposing of, transferring or encumbering the company's assets pending the admission hearing and final disposal of the petition.

The petition was filed by IFCI on Friday after DCHL defaulted on redemption of 250 unsecured redeemable non-convertible debentures (NCDs) on June 26 this year and failed to pay up its dues of Rs 27,80,47,945 despite "repeated requests and demands".

The NCDs were part of a Rs 150 crore NCD

issue made by way of private placement by DCHL with Infrastructure Development Finance Company (IDFC) last year at an interest rate of 11.25% per annum for a tenure of 364 days. In July last year, 250 of these NCDs were acquired by IFCI from IDFC.

IFCI said DCHL had massive secured and unsecured debts running into thousands of crores of rupees with various banks, financial institutions, non-banking finance institutions etc. and feared that many more winding up petitions may be filed by other creditors as the company had defaulted on several liabilities.

It also cited the recent order of a London court ordering the company to pay Pounds 10,533,478 (around Rs 90 crore) to Tim Wright, the former chief executive of its Indian Premier Leagueteam Deccan Chargers, for breach of employment contract as one of the major liabilities facing the company.

In its petition, IFCI also revealed that DCHL chairman T Venkattram Reddy had visited their offices in Delhi on June 30 of this year and given a stamped undertaking acknowledging the company's liability of Rs 25 crore plus interest on the NCDs with a promise to make the full payment to IFCI by July 4 this year.

IFCI also said that following this meeting, DCHL had arranged for a payment of Rs 2,80,47,945 via RTGS (real time gross settlement) towards interest of 11.25% per annum on the NCDs and gave two cheques, dated July 4, for the principal amount of Rs 25 crore drawn on ICICI Bankat Chennai as well as for Rs 7,36,718 drawn on ICICI Bank, Secunderabad. The cheque of Rs 25 crore, however, was dishonoured by the bank on grounds of insufficient funds.

After this, IFCI filed an application before the Debt Recovery Tribunal in Delhi for recovery of Rs 25,17,28,944 against DCHL on July 16, this year.

IFCI said that the action of DCHL in failing to redeem the NCDs on the due date was sufficient to establish that the company had no funds to pay off its dues in the first instance and the letter of DCHL requesting IFCI for a cure period (grace period) of 30 days to redeem the dues with interest had further established that the company was unable to pay off the dues and reconfirmed its inability to pay up the amount due to IFCI.

DCHL officials could not be reached for comments despite repeated attempts.

SC notice to Centre on bringing tribunals under one ministry

Dhananjay Mahapatra, TNN Jul 25, 2012, 02.44AM IST

Litany of tribunals set up under diverse ministries to deal with a slew of issues — ranging from environment to income tax — has resulted in lack of uniformity in their functioning, so much so that members appointed to decide cases were not qualified to practice in them.

A Supreme Court bench of Justices A K Patnaik and Madan Lokur issued notice to the Centre — on the basis of a PIL filed by the Madras Bar Association — that gave a direction to the Union government to bring all tribunals under the administrative aegis of the ministry of law and justice.

The PIL filed through advocate Nikhil Nayyar said Competition Commission of India (CCI) and its Appellate tribunal along with Company Law Board came under the ministry of corporate affairs, while Copyright Board functioned under the HRD ministry.

"Intellectual Property Appellate Board was under the ministry of industry and commerce, while Customs, Excise and Service Appellate Tribunal, Debt Recovery Tribunal and its Appellate Tribunal, and Securities Appellate Tribunal were set up under the aegis of the ministry of finance," it said.

Since the tribunals were not set up under one administrative control, there had been great diversity in the functioning of these grievance redressal forums, it said.

"First, the qualification of members (of these tribunals and boards) is not uniform. In many tribunals, 'administrative' or 'technical' members do not even require a law degree. This has resulted in a curious situation where 95% of the 'technical' members will not be allowed to practice before the tribunal, but will be able to sit on its bench," senior advocate Arvind Datar said arguing for the petitioner.

The retirement age of the members were also not uniform, it said and complained that the administrative ministries have adopted a step-motherly treatment to these tribunals as far as providing infrastructure and staff was concerned.

Besides, the government had never carried out judicial impact assessment while enacting a new statute resulting in defeating the purpose of creating tribunals, which was to reduce pendency.

The apex court had recently taken exception to the manner in which government had treated the National Green Tribunal (NGT), which was woefully short of office space, staff and residential accommodations. Peeved over lack of basic amenities, two judicial members of NGT resigned from their posts.

The PIL said that government had paid scant regard to two judgements of the apex court - the 2010 judgement in R Gandhi case and 1997 judgement in L Chandra Kumar case - that mandated all tribunals be brought under the aegis of the ministry of law and justice.

Coming clean on NPAs

BL:26 July 2012

It is in banks’ interest to recognise the diminution in the ‘fair value’ of impaired assets, ‘regulatory forbearance’ or not.

A Reserve Bank of India (RBI)-appointed panel has rightly recommended that all bank loans being subject to ‘restructuring’ be classified as non-performing assets (NPA). Currently, such loans are treated as ‘standard’, even when the terms of their restructuring involve banks taking a hit, whether through reduction in interest rates, elongation of repayment period, part waiver of principal or interest, and so on. Whichever way one sees it, restructuring entails borrowers being granted concessions that the banks would not otherwise even consider

. Moreover, not treating these loans for what they are — in practical terms, their performance is nothing but ‘sub-standard’ — makes no sense when the amounts involved are not small either. Between March 2009 and March 2011, the gross NPAs of Indian banks rose from around Rs 68,000 crore to Rs 94,000 crore. 

But restructured advances, technically regarded as ‘standard’, soared even more from just over Rs 60,000 crore to almost Rs 107,000 crore. While there are no figures yet for 2011-12, an indication can be had by the Rs 206,500 crore worth of loans referred only to the banking industry’s formal corporate debt restructuring cell as on end-March.

There is little to be gained from making fine distinctions between NPAs and ‘restructured loans’ that merely obfuscate the underlying problem of bad debts. The panel under the RBI Executive Director, Mr B. Mahapatra, has correctly observed that restructuring of a bank account amounts to an “event of impairment”, whether or not its asset classification undergoes a downgrade. Since international accounting standards and regulations followed in advanced economies treat any restructured bank account as impaired, there is no reason for India not aligning its prudential guidelines with the global best practices. 

This is required especially from a transparency angle: A bank may show only, say 3 per cent its gross advances to be NPAs, when it might also be having equal or more loan amounts earning a fraction of the cash flows projected prior to restructuring. In doing so, the bank would be misleading both depositors and investors, as they fail to get a picture of its true financial position, warts and all.

Of course, reclassifying all restructured loans as impaired overnight may not be feasible, more so in times of economic downturns such as now. The panel has, therefore, suggested a two-year “regulatory forbearance” period for withdrawing the standard asset classification benefits now extended to restructured loans. 

In fact, it would help if banks themselves explicitly start recognising at least those loans as NPAs, which have suffered considerable diminution in their original ‘fair value’ upon restructuring. Relaxations in asset classification or provisioning norms are justified only in extreme crisis situations, when even solvent borrowers face temporary cash flow problems and banks must have the flexibility to grant some leeway.

 But in normal times, there is no case for any such regulatory forbearance.

Sri.P.Mallikarjuna Chetty V/S City Union Bank ltd

R.A(S.A):66/2012

1.         This appeal impugns the order dated 24.8.2011 passed by the Learned Presiding Officer, DRT Bangalore in SA No.888/2010.                                                                                   

2.         The case of the Appellant may be stated as follows:

The Appellant is the Proprietor of M/s P. Ramaiah Chetty Son dealing in old empty bottles, machinery parts etc.  The Appellant availed certain credit facilities from the 1^stRespondent Bank and defaulted in repayment of the same due to losses sustained in the business.  The 1^st Respondent Bank initiated proceedings under the provisions of the SARFAESI Act and issued the notice under Section 13(2) of the Act on 23.2.2008 demanding a sum of Rs.22,22,214/-.  While the Appellant was negotiating with the Bank for a settlement the 1^st Respondent Bank issued the Possession Notice under Section 13(4) of the Act on 9.7.2009 and took symbolic possession of the secured asset.  The 1^st Respondent Bank also issued the tender-cum-auction sale notice dated 20.8.2009.  The Appellant remitted a sum of Rs.5 lakhs on 5.10.2009 and by his letter dated 23.10.2009 sought time till 31.10.2009 for the payment of the remaining dues.  The 1^stRespondent Bank again issued the sale notice dated 12.6.2010 fixing the auction sale on 21.7.2010.  The Respondent Nos. 2 to 5 belonging to one family offered to settle the dues of the Appellant but the same could not be accepted for the reason that they wanted to take the secured asset for a meager sum of Rs.45 lakhs.  The Appellant again remitted a sum of Rs.40,000/- on 22.7.2010 and offered to settle the dues in installments which was not accepted by the 1^st Respondent Bank.  The 1^stRespondent brought the secured asset for sale again on 2.11.2010 fixing the auction sale on 6.12.2010 with the reserve price as Rs.75 lakhs for the recovery of its dues of Rs.28,71,026.90. In the auction the Respondent Nos. 2 to 5 jointly submitted a bid for Rs.75,01,000/- and it was the only bid received in the auction.  The Respondent Nos. 2 to 5 being the successful bidders in the auction had deposited Rs.18,75,250/- being 25% of the bid amount and did not remit any money thereafter and therefore the sale remained incomplete.  Thereafter the Appellant filed SA No.888/2010 before DRT Bangalore and the Tribunal below dismissed the appeal without considering the pleadings and authorities submitted by the Appellant.  Hence this appeal.

3.          Ld. Counsel appearing on behalf of the Appellant took this tribunal through the factual matrix of the case and stated the following:

a)      The valuation of the property has not been properly done because the valuation was not done through the approved valuer as per the Wealth Tax Act.

b)      The same valuer had enhanced the value of the property after a year.

c)      The secured creditor arrived at the valuation of the property which was obtained three years and 9 months before and that the same is  not proper.

d)      There was only one bidder and that the price at which the sale was knocked down was just Rs.1000/- more than the reserved price.

e)      The successful bidder in this case did not pay the 75% of the bid amount within a period of 15 days as stipulated in the Rules and that he has not paid the said sum even till today and therefore the Authorized officer has violated the provisions of the SARFAESI Act.

f)        The order of the Ld. Presiding officer, DRT, Bangalore is erroneous as it states that the SA has been filed after the issuance of the sale certificate as no sale certificate was issued in this case. The proceedings of the authorized officer are not in accordance with the provisions of the SARFAESI Act and the rules made thereunder and that the Ld. Presiding officer has not considered the facts of the case and that the appeal deserves to be allowed.

g)      The Authorized Officer contravened the rule 8(5) and proceeded to sell the whole of the property whereas a portion of the property would have been sufficient to discharge the dues.

Ld. Counsel relied upon judgments laid down in the case of ‘Punjab National Bank, New Delhi Vs Sunil Agarwal and others (2011) (1) D.R.T.C. 271 (DRAT, Delhi)’ and in the case of ‘Mithilesh Goel & others Vs. Punjab National Bank, New Delhi & others (2011 (1) D.R.T.C. 275 (DRAT Delhi)’ and prayed that the appeal be allowed with exemplary costs.

4.         Ld. Counsel  for the Respondent Bank drew the attention of this Tribunal to the facts of the case and stated that a reading of the securitization application filed by the Appellant would clearly reveal that the ground taken up by the Appellant before the tribunal below was that the valuation was not obtained before the sale of the property and that the point that has been urged with respect to the requirement of the valuer to be registered under the Wealth Tax Act has been developed subsequent to the SA and that such a development cannot be permitted.  Ld. Counsel further stated that the Appellant ought to have placed the above fact before the tribunal below to have enabled the Bank to reply to the same and that the Appellant is not entitled to take a new ground at this stage and the said ground has to be negatived.  Ld. Counsel prayed that orders may be passed.

5.         Ld. Counsel appearing on behalf of R2 to R5 stated that 25% of the bid amount was paid immediately after the knocking down of the bid and that the remaining 75% of the bid amount could not be paid because of the orders of stay passed by the Tribunal below and thereafter by the Hon’ble High Court of Karnataka.  Ld. Counsel added that the auction purchasers have offered to deposit the said amount before the Hon’ble High Court of Karnataka but the Hon’ble High Court of Karnataka had directed the auction purchasers to pay the money to the Bank at the appropriate time.

6.         Heard the Ld. Counsel for the Appellant, Ld. Counsel for the 1^st Respondent Bank and the Ld. Counsel for the auction purchasers i.e. R2 to R5.

7.         A perusal of SA No. 888/2010 on the file of DRT, Bangalore reveals that the Appellant has challenged only the sale conducted by the 1^st Respondent Bank on 6.12.2010.  It is also seen that the Appellant has not questioned the measure of taking of possession of the property.  It is seen that the Appellant has not pleaded that the valuer is not a registered valuer under the Wealth Tax Act in the SA before the Tribunal below and that the Appellant has submitted that the valuer is not a registered valuer under the Wealth Tax Act for the first time in this Appeal.  The perusal of the SA before the Tribunal below also reveals that the Appellant has stated that the Rule 8(5) and 9 of the Security Interest Enforcement Rules have not been adhered to by the Authorized Officer. 

8.         A perusal of the order of the Ld. Presiding Officer passed in SA 888/2010 reveals that the Appellant has not demonstrated any violation of any of the provisions of the SARFAESI Act or the rules made there under in the SA and that the Appellant has also not utilized the opportunity given to him to redeem the mortgage before the sale.  It is also seen that the Appellant has not put forward the plea that the valuer is not a registered valuer under the Wealth Tax Act before the Tribunal below and that when the Appellant has chosen to give up his right to submit a plea on the above question before the Tribunal below the Appellant cannot be permitted to raise the plea of non registration of the valuer under the Wealth Tax Act before this Tribunal in this Appeal and such being the case the Appellant’s contentions made for the first time with respect to the valuer cannot be taken into the consideration especially when the Respondent Bank had been denied the opportunity to counter a claim not made before the Tribunal below but presently made before this Tribunal with respect to the registration of the valuer under the Wealth Tax Act.   It is seen that two valuations have been made by valuer in this case.   A perusal of the valuation report dated 10.3.2008 i.e. the first report reveals that the “PURPOSE” of the valuation is “For City Union Bank Ltd., Sultanpet Branch, Bangalore” and a perusal of the valuation report dated 21.1.2009 i.e. the second report reveals that the “PURPOSE” of the valuation is “To Assess the fair Market Value to any Financial Institutions etc”.  A comparison of both the valuation reports reveals that the 1^st valuation report has been used by the secured creditor as shown for the purpose that it was obtained for and that the second valuation report has not been used as the purpose of the second valuation report was “to assess the fair market value to any financial institution etc” and that the act of the 1^stRespondent Bank in relying upon the first valuation report is proper.  The Appellant has also not shown that he was prejudiced by the sale stated to have been conducted based on the valuation report given by a valuer who has not been registered under the Wealth Tax Act and in the absence of any prejudice being demonstrated by the Appellant it cannot be said that the sale is bad in law. 

9.         Therefore from the fact that the Appellant has chosen not to aver the aspect of the valuer being not registered under the Wealth Tax Act before the Tribunal below, from the fact that it can be seen that the Appellant has chosen to give up his right to challenge the aspect of the registration of the valuer under the Wealth Tax Act in the securitization application filed in the Tribunal below, from the fact that the Appellant by not averring about the non registration of the valuer under the Wealth Tax Act had denied the opportunity to the 1^st Respondent Bank to counter the claim about the non registration before the Tribunal below, from the fact that the Appellant has made a new claim about the non registration of the valuer for the first time in this appeal before this Tribunal, from the fact that the Appellant has not shown that he was prejudiced by the non registration of the valuer under the Wealth Tax Act this Tribunal is driven to conclude that the finding of the Ld. Presiding Officer in paragraph IV(ii) that “it is also seen that  proper valuation has been obtained by the Respondent Bank from the approved valuer before issuing the sale notice as per the relevant rules made under the Act” is correct. 

10.       The Appellant’s contentions that the property has been undervalued and a property of a very high value has been sold for a very meager sum and the further contention that only the sale of a portion of the secured assets would have been sufficient to meet out the dues payable to the Bank have all to be watered down in view of the findings of the Ld. Presiding Officer in his order that the Authorized Officer has not contravened any of the provisions of the SARFAESI Act or the rules made thereunder.  It is also seen that the Ld. Presiding Officer has correctly come to the conclusion that the Appellant has not utilized the opportunity available to him to redeem the property. 

11.       A combined reading of the proceedings of the Authorized Officer dated 6.12.2010 and Ground No. iv of the Affidavit filed in support of IA 1156/2011 before this Tribunal reveals that the sale had not been confirmed.  Rule 9(4) of the SARFAESI Interest (Enforcement) Rules 2002 states that the balance 75% of the bid amount has to be paid on or before the fifteenth day of the confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.  The confirmation of the sale was not done as on 21.12.2010 and an interim order of ‘status quo’ was passed by the Tribunal below on the said day and therefore the successful bidders could not pay the remaining 75% of the bid amount. Further it is also seen that the Hon’ble High Court of Karnataka was pleased to pass an interim order due to which also the 75% of the bid amount could not be paid by the successful bidders.  It is also seen in the “sealed application form for Tender cum Sale” dated 6.12.2010 submitted by the successful bidders that they have stated that they will pay the 75% of the bid amount on the same day of the delivery of possession of the property to them and that from this it can be seen that both the bidders and Authorized Officer have agreed to the condition that the successful bidders will pay 75% of the bid amount only on the delivery of possession.   Therefore it can be seen that the Authorized Officer has not contravened Rule 9(4) of the SARFAESI Interest (Enforcement) Rules 2002 and that the finding of the Ld. Presiding Officer that no Rule has been contravened is proper. 

12.       Therefore as it is seen that the Ld. Presiding Officer has properly considered all the material before him and arrived at a proper decision in his order no interference is warranted in this case.  Accordingly this Tribunal is driven to dismiss the appeal.

13.       In the result this appeal is dismissed.

IA 1155/2011 (Waiver):  RA(SA) is dismissed today.  The Registry is directed to send the deposit lying in this Tribunal alongwith the accrued interest to the Respondent Bank for being dealt with in accordance with law within a week.  This IA is closed.

This order was issed by the Honble Chair person of DRAT chennnai on 24th july 2012