• Joint property given as collateral for Company

Sir, one of my Friend has a jointly owned residential property with his wife, which he had given as a collateral for Bank Finance for Company where he is Director. Now his company's Account is declared as NPA by Bank and his residential property is now being attached... Please advise relief he can sought 
Regards
Harish
Asked 4 years ago in Business Law

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13 Answers

1. IF the WIFE had nothing to do with the "collateral for Bank Finance" (means she had not signed on any documents AND SINCE she is the joint-owner of the Flat, THEN she can file for restraining order against any legal action on the Flat, stating that it is her matrimonial house.

Keep Smiling .... Hemant Agarwal

Hemant Agarwal
Advocate, Mumbai
5612 Answers
25 Consultations

5.0 on 5.0

Was the consent of wife taken for giving property as collateral for bank finance

If so the residential property can be attached by bank

Ajay Sethi
Advocate, Mumbai
87955 Answers
6207 Consultations

5.0 on 5.0

Remedies for the NPAs using various measure. The most popular ones are listed below:

1. Debt Recovery Tribunal Act

When a borrower, is unable pay the loans, the bank after failed attempts at recovering the loan, approaches a Securitisation and Reconstruction company. If that company also fails to recover the loans, they can approach a Debt Recovery Tribunal. Passed in 1993, the Indian Parliament had introduced the act with the intention of ensuring high efficiency in settling claims of the banks and financial institutions and helping them recover their dues for loans of Rs. 10 lakh and above.

An act with good objectives, it has not managed to generate the kind of results it was expected to and about 70,000 cases are pending. This is mainly because the influential borrowers get away by claiming to have their cases pending in civil courts. The other reasons include lack of infrastructure, grey areas in the judiciary and lethargy of the various systems.

2. Amendment to SARFAESI Act

The Amendments to the SARFAESI (Securitisation and reconstruction of financial assets and enforcement of security Interest) Act, 2002 were introduced in 2016, in the hope that NPAs would be recovered faster and make the functioning of the ARCs (Asset Reconstruction Companies) smoother. ARCs are companies that buy NPAs from banks at a discount and recover the money from defaulters.

The bill took into consideration and amended 4 acts—Sarfaesi Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Indian Stamp Act, 1899 and the Depositories Act, 1996. This bill places more power in the hands of the RBI, which can now audit and inspect ARCs, impose penalties for not adhering to its directives and sack any chairman or director. No matter how transparent the amendments make the system, the key is implementation, which is yet to be seen. The lack of infrastructure can be an added hurdle.

3. Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code (IBC) helps troubled corporates, partnership firms and individuals in debt to re-organise and opt for insolvency resolution in a time-bound manner to maximise value of its assets. The National Company Law Tribunal (NCLT) is the adjudicating authority for the corporate insolvency and bankruptcy cases.

The NCLT already has more than 4,000 cases pending. The added burden might cause inefficiency and further postponement of cases. Another challenge could be the lack of information utilities’ infrastructure. Even though a significant reform, it requires meticulous planning and proper implementation for its best utilization.

4. Amendment to Banking Regulation Act

The Banking Regulation (Amendment) ordinance was replaced by the Banking Regulation (Amendment) bill in July, 2017. This is an amendment to the Banking Regulation Act, 1949. It allowed the Central Government to grant RBI the right to keep an eye on bank accounts of big loan defaulters.

RBI will also be able to implement stringent rules on Joint Lenders’ Forum (JLF) and Oversight Committee (OC) for monitoring the levels of NPA. Under this amendment, a bank will no longer have the permission to extend loans to a defaulter. These powers vested in the hands of RBI will mean increased stability of banks.

5. Lok Adalat

Lok Adalat, literally translating to People’s court is an innovative special court where a conclusion is reached by making the two parties cooperate and compromise by direct communication. First started in 1982 to relieve regular courts of their insurmountable burdens, the court requires no fees and in case there is a settlement, the fees given earlier when the case was going on in the regular court, will be reimbursed.

Even though this system has picked up, it comes with its own set of pitfalls. Firstly, it is not capable of solving all types of cases, as some of them require punishment and not settlement. Another point is that in some cases, justice comes with a big compromise for 1 of the 2 parties. This is definitely not a desirable situation as it is depriving the party of justice in its true spirit. However, Lok Adalat is still a preferred way of dealing with a majority of cases as it saves citizens the headache of regular courts.

Ganesh Kadam
Advocate, Pune
12338 Answers
191 Consultations

4.9 on 5.0

If you have defaulted on a loan, the rules do not give lenders a complete walkover.

Banks initiate such proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act.

If the borrower’s account is classified as a non-performing asset (NPA), where repayment is overdue by 90 days, the lender has to first issue a 60-day notice to the defaulter.

“If the borrower fails to repay within the notice period, the bank can go ahead with sale of assets. However, in order to sell, the bank has to serve another 30-day public notice mentioning details of the sale.

The lender starts the process of auctioning your property to recover dues if you fail to clear what you owe or respond during the 60-day notice period. However, before doing so, they will have to issue another notice specifying the fair value of the secured asset as assessed by the banks’ valuers, along with other details like reserve price, date and time of auction. “The borrower can object if the property is undervalued. He can justify his objection by conveying any better offer that he may have so that the bank can make a decision, alternately you can look for prospective buyers on your own and introduce them to the lender if you think that the property can yield a better price.

Keep track of the auction process—it’s easier to do so now as most lenders conduct e-auctions. Lenders are required to refund any balance after recovering the dues, which is a real possibility given that property prices can shoot up beyond the owed amount. “After recovering the dues and all expenses of conducting the auction, the bank has to refund the amount to the borrower as the money belongs to him legitimately,”

T Kalaiselvan
Advocate, Vellore
78113 Answers
1543 Consultations

5.0 on 5.0

1. Since the property was stood a collateral security the creditor on default of loan can proceed to attach the property to recover the loan

2. So it appear the bank has already initiated SARFAESI proceeding. If that is so then the option is either to repay the debt or to file an application under section 17 of the Act seeking injunction on attachment o sale of the property.

3. So ask the company to repay the debt . Else you may loose the property.

Devajyoti Barman
Advocate, Kolkata
22515 Answers
402 Consultations

5.0 on 5.0

See if the property is given with the consent of the wife in collateral than nothing this regard can be much done only the matter can be contested before DRT and the proceedings can be delayed and secondly the amount has to be deposited with 60 days from date notice under 13(2) Sardesai after that 60 days bank can proceed for possession.

.Further this need to be checked that colletral was kept with consent or not

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

Hello,

Please contact a lawyer with the entire set of facts.

The process adopted by the bank can be challenged if the same has not been done as per the mandate of the RBI guidelines.

In the case of M/s. Signal Apparels Pvt. Ltd. & Another Vs. Canara Bank P.N. Road Branch, Tirupur & Another, 2010 (5) CTC 337, 2010 (8) MLJ 967, the court was pleased to observe as follows:

“16. To put it precisely, for invocation of provision of Section 13(2) of the Act, the declaration of an asset or account to be a non-performing asset is a condition precedent. In the event such declaration is not in accordance with the R.B.I. guidelines and the account of a borrower is a performing account, Section 13(2) may not be pressed into service; as such account cannot be brought under Section 2(o) of the Act. Equally, going by the scheme of the Act, the discretion conferred on the bank to declare an asset to be a non-performing asset is in order to tackle the issue of increase of non-performing asset to high level. That is why; the legislature had left the discretion to the bank while declaring a debt as a non-performing asset, qualifying such bank to follow the directions or guidelines issued by the Reserve Bank of India while classifying the assets to be sub-standard, doubtful or loss assets to be known as non-performing assets. This discretion is on national policy and all that requires for the secured creditor is to exercise the discretion judicially. In the wake of the right of the secured creditor to declare a debt as a non-performing asset, to show the application of mind for such declaration, it may indicate the reasons thereof in the notice under Section 13(2) and the Section does not contemplate that in all cases such reasons should be indicated in the notice. The application of mind could be culled out from the materials that were existed on the date of such declaration.”

Regards

Anilesh Tewari
Advocate, New Delhi
17940 Answers
377 Consultations

5.0 on 5.0

Give some part payment to the bank towards it's dues and request to not attach.

If it's already been attached, then request the bank to not proceed with public auction to sell the property, by offering a part payment.

Request bank to work out a one time settlement for settling and closing the loan account.

Since there is a default, the law will take it's own course. So you need to keep trying negotiating with the bank

Yusuf Rampurawala
Advocate, Mumbai
6882 Answers
79 Consultations

5.0 on 5.0

Hello sir, the bank has power to auction the property if the account becomes NPA under SARFASI act...The only way is to repay the loan amount..However, if the loan was obtained without the consent of wife , she can file a civil suit for permanent injuction and can obtain a stay order from court

Hemant Chaudhary
Advocate, Gurgaon
4619 Answers
67 Consultations

4.9 on 5.0

You can approach to DRT under different provisions of Safari Act challenging the attachment.

Further course of action can be told only after perusing the case file.

Uzmi Jamil Husain
Advocate, New Delhi
15 Answers

Not rated

Bank cannot attach this flat to extenet of his wife's share in this.

Vibhanshu Srivastava
Advocate, New Delhi
9426 Answers
245 Consultations

5.0 on 5.0

At least wife can take restrain orders against the bank up to her share.

Yogendra Singh Rajawat
Advocate, Jaipur
21481 Answers
31 Consultations

4.4 on 5.0

Since the property was already attached therefore the Bank is doing things according to procedure. But you can delay the activity by the following methods.

Your friend can do the following:

1. He can approach the DRT and get a stay order;

2. He can apply before the High Court and get a stay order;

3. He can seek time to repay the loan amount;

4. He can seek prayer to not to take residential property as that is violation of fundamental right of Right to Live under Art.21 of the Constitution;

5. Give away something such a movables or other immovable properties of equal amount to be attached in replace of the residential property.

Gowaal Padavi
Advocate, Mumbai
1920 Answers
5 Consultations

5.0 on 5.0

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