Page 34 - BANKING FINANCE OCTOBER 2021

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matter of identification of NPAs, the '90 days overdue' norm the account turning NPA. The elaborate procedure as to
was made effective from 31.03.2004 in the matter of issue of notice for 60 days etc., may be made to be
classification of account as a NPA. applicable only in respect of the personal properties and for
personal loans like Home Loans, educational loans etc.,
Therefore, a Secured Creditor Bank should wait for a period
of 90 days after the initial default to issue notice under Section Demand Notice:
13(2) of the Act. Section 13(2) provides that to initiate action, The rules framed under the Act called Security Interest
a notice, called as "Demand Notice" should be issued to the (Enforcement) Rules, 2002 provided various standard forms
borrower calling upon him to pay up the dues within 60 days like Possession Notice, Panchnama, Sale Notice, Sale
from the date of the notice. Therefore, before enforcement Certificate etc., But, the format of the "Demand Notice"
of security, Banks have to wait for 150 days. If a suit has to which has to be issued under Section 13(2) has not been
be filed before the DRT or a Civil Court, the issue of NPA is prescribed in the Act or the Rules. The Secured Creditors
not there and a bank can file suit before the DRT or Civil Court have been issuing such notices by devising their own formats.
as soon as there is a default by the borrower. Borrowers have been challenging the said notices on the
ground that the notice issued to them is not in accordance
Therefore, the SARFAESIA is required to be amended to with the Act. There are several instances where the courts
enable the banks to issue demand notice, contemplated had quashed the said notices issued by the Secured
under Section 13(2), during the said period of 90 days itself Creditors. In the case of P.N.B. Housing Finance Ltd. Vs.
and action of enforcement action could follow at the end of M.C. Gupta, the DRT, Delhi had quashed the notice issued
90 days if the account turned NPA. In fact, in this on the ground that the date of NPA was not mentioned.
mechanism, the borrower would get time of 90 days to
settle or regularize the account. If not, the notice period In the case of Indiabulls Housing Finance Ltd. Vs. Mahendra
under Section 13(2) should be curtailed from 60 days to 30 K. Modi [MANU/DD/01777/2011], the DRAT, Delhi had
days to avoid delay in recovery since the borrower anyway quashed the notice on the ground that the demand notice
gets time of 90 days before the account declared as NPA. under Section 13(2) of the SARFAESI Act did not mention the
details of the amount, separate details regarding principal
As stated earlier, similar power has been given to the State and interest. In the case of Kotak Mahindra Bank Vs. Marvel
Financial Corporations to enforce the securities in the event Industries Ltd. [MANU/DM/0004/2010], the DRT, Mumbai
of default by an Industrial Concern. However, no such held that since the said Bank failed to provide facility wise
issuing of notice has been envisaged therein before details, the notice was quashed.
enforcement of security interest. Similarly, at least in the
case of industrial/company properties, Banks should also be Section 13(3) of the Act provides that the demand notice
allowed to enforce the security interest immediately after must contain the details of the amount payable by the
borrower and the secured assets intended to be enforced
by the secured creditor in the event of non-payment of
secured debts by the borrower. Therefore, the notice must
contain the details of the amount payable and assets
intended to be enforced for realization of the debt. The
language of the section is plain and simple that the notice
is required to let the borrower know the amount payable
and the secured assets intended to be enforced. However,
different principles are being laid down by different courts
as to the contents of the notice. Hence, there is a need for
amending the rules to provide for a Standard Format of the
"Demand Notice" to avoid litigation on this score.
Representation to demand Notice:

In the case of Mardia Chemicals Ltd. Vs. Union of India

34 | 2021 | OCTOBER | BANKING FINANCE