• SARFAESI - extricate one property out of NPA with multiple loans

My father's loan with an NBFC became NPA a few days ago. He had mortgaged his home, his brother's wife's home, and another of his land for a large sum. We are yet to receive the NPA intimation from the bank, but are in discussion with a DRT lawyer so that we can stay the proceedings and sell the properties in the meanwhile.

I am interested in extricating my uncle's home (who passed away recently), and am able to raise the capital to clear that debt. These are filed as three different loan accounts, but linked to the same borrower. The bank claims it is not possible to set off just one of the properties, and I will have to pay the entire loan amount, which I do not have the capital to. 

I really need to ensure that my aunt and cousins do not lose their home due to my father's negligence. I see two possibilities: 
a) negotiate with the bank so that they allow me to extricate just one property (this is unlikely) 

b) wait for it to go to auction, and try to make a winning bid. I have been told that DRT auctions are highly contested and that this is very risky.

If I have to get back just this one property, what would be the best way to go forward? Thanks. Happy to supply any information needed.
Asked 10 months ago in Property Law from Trivandrum, Kerala
Religion: Hindu
1) make an offer for OTS settlement with bank . seek 2 years time to make payment 

2) in said offer inform the bank that on release of one  property the bank dues would be cleared proportionately . you can thus release your uncle property 

3) other dues would be cleared by selling off other 2 properties and sale proceeds deposited in bank account direcly on receipt of NOC from bank 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
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1) it is at discretion of bank to accept your OTS offer or not 

2) at a time when banks are saddled with huge NPA they should welcome your offer of OTS 

3)so make offer for all 3 properties but release your uncle property first . 

3) bank will gain confidence and will wait for you to find  buyers for other 2 proprieties 

4) pleas note that bidding in auctions is mostly collusive and you never get good market value .properties are mostly sold at reserve price .  hence better you find buyers and get good rate 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
5.0 on 5.0
1. When the mortgage consists of multiple properties which are linked to a single borrower the banks do not allow the mortgage to be cleared in part, in which event you have to move DRT through appropriate proceedings to clear the mortgage in part. 

2. Bidding for the property is likely to invite another round of litigation in the court. The appropriate recourse is to seek stay against the sale of the property of your uncle. This should be the last option which may be availed if all legal remedies prove futile.
Ashish Davessar
Advocate, Jaipur
18049 Answers
444 Consultations
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Move DRT upon receipt of notice.  
Ashish Davessar
Advocate, Jaipur
18049 Answers
444 Consultations
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The most important thing about the issue of recovery by the Bank is that they are allowed to proceed against the borrower for default in any of the facilities availed by him when a borrower avails multiple credit facilities. Banks are asked to initiate recovery proceedings ‘Borrower-Wise’ and not ‘Facility-Wise’ and it is very clear in the RBI guideline 4.2.7. It is difficult to envisage a situation when only one facility to a borrower/one investment in any of the securities issued by the borrower becomes a problem credit/investment and not others. Therefore, all the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower will have to be treated as NPA/NPI and not the particular facility/investment or part thereof which has become irregular.
Even-though Banks can consider the proposal for restructuring of a loan account upon certain conditions and re-negotiating the terms, Banks do exercise great discretion in this regard.
On certain issues, RBI guidelines are very clear as to when an account should be treated as NPA. But, with regard to providing relaxation or understanding the temporary difficulties of the borrower while considering upgradation of loan account or regularizing the loan account, Banks do exercise lot of discretion. If at all the borrower feels that the Secured Creditor or the Banks are unfair in dealing with his loan account or loan accounts, he can do nothing except approaching superior officers, approaching Banking ombudsmen or approaching High Court under Article 226 of Constitution of India. Though, even the DRT (Debt Recovery Tribunal) can consider all objections raised by the borrower while entertaining an Appeal under section 17 of SARFAESI Act, 2002, DRT may not have power to analyze a particular case in the light of RBI guidelines in its entirety though DRT can certainly look into the guideline dealing with the criteria for classifying a particular loan account or accounts as ‘Non-performing Assets’. 
Now, if the Bank takes a decision to classify an account as NPA and rejects the objections or the request by the borrower, then, apart from writ remedy, the remedy available to the borrower is to file an appeal under section 17 of the SARFAESI Act, 2002. Based on the merits of the case, the DRT will grant interim relief and finally, only when it is established that there is a procedural irregularity. If the Bank proceeds with the proceedings even during the pendency of the Appeal under section 17, then, it becomes further more complicated to the borrower and it is very often heard that the borrower is asked to file another appeal literally instead of looking into all developments in the pending Appeal itself by way of entertaining affidavits or petitions in the pending Appeal. Filing an Appeal against the order of the DRT to the DRAT under section 18 is another big process and many normally get discouraged to do this in-view of pre-deposit condition. Admittedly, on the issues of reduction of interest, acceptance of OTS etc., Banks will have their own internal systems and DRT may have little role in this regard.
If the Bank is to be asked to do something as per law, where can the borrower go?. The borrower can give a representation to the Bank officials, can write to the superior authorities and may approach the High Court under Article 226 of Constitution of India seeking direction. However, even the High Court may direct the Banks to consider the representation and with all the might and luxury, the Bank can make the borrower to run from pillar to post. This happens in many cases though the factor of habitual litigants can not be ignored.
T Kalaiselvan
Advocate, Vellore
13893 Answers
127 Consultations
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From what I understand, it is at the discretion of the bank manager to allow me to do One Time Settlement of just one of the properties. I have been told that they have an incentive to keep all properties together and anything else is going out of their way.
It would be great if you could tell if there is any leverage that I can use to convince them to allow me to settle just one property?


Emphasis is always laid as to how to enable the Banks to speed-up their recovery, but, little emphasis is laid as to how the borrower feels remediless in some cases. Even while providing the best possible legal-framework enabling the Banks to recover their dues, the concerns of the borrower can certainly be addressed and it is very much possible. From the borrowers’ point of view, the following issues need to be considered.
While it is important to improve the financial health of the Banks/Financial Institutions, there is no justification for a completely one-sided draconian legal system where the borrower is harassed like anything. Bank officials exercise great discretion and the Bank officials must be extremely happy with the legal provisions now governing the recovery of ‘secured loans’ under SARFAESI Act, 2002.
With the system aimed at speedy recovery and balanced heavily towards the Bank, genuine borrowers who are not willful or habitual defaulters also get affected. The borrowers feel remediless now and even if the remedy is provided, most of the borrowers feel that the remedy provided is ineffective. Public Sector Banks should concentrate on the recovery of money and at the same time, can not harass the borrowers who are willing to get their accounts regularized or willing to get their account finally settled. Even, the RBI guidelines hint at this. When there is security lying with the Bank and when original documents are with the Bank, the Banks pressurize the borrowers with all kinds of things and using the provisions of SARFAESI Act, 2002 to their advantage. 

Thus, instead of trying for auction bidding, it wold be useful if you talk to the bank manager about restructuring or OTS or any other relief to secure the property. 
T Kalaiselvan
Advocate, Vellore
13893 Answers
127 Consultations
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