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An estimated 7-minute read

Securitization Act and Agony of Borrowers

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This is an exclusive example of abuse of securitization act and victimization of borrower by nationalized bank under the pretext of the said act. It is evident that banks are enjoying supreme power under this act and may go to any extent to victimize a borrower against the spirit and stipulation laid down in this act.

As per the spirit of Securitization act it  does not allow the bank/secured creditor to exercise its power arbitrarily to the utter disadvantage of borrower. The act prescribes that recovery of public dues should be made expeditiously but it should be in accordance with prescribed law and not to frustrate the constitutional right and human right of the borrower to hold his property. And if any action is taken against the stipulation laid down in the act, such action is to be treated as null and void as per Sub rule (1) to (8) of rule 4.

But In this case, bank was involved in flagrant violation of Securitization act  and had snatched immovable and movable assets and properties of the borrower  in the pretext of this act.

In the instant case ,account of the borrower had became NPA  and a  revival  package had also proved futile for want of adequate fund ,  as  such  bank advised the borrower to opt for an one time settlement of their account.

 Accordingly  a consensus for an  one time settlement was arrived . As mutually agreed  and desired by the bank, borrower deposited 5% of the compromise offer with the bank.

However indulging in breach of trust , without any information and intimation,  and  rejecting the earlier agreed OTS offer, bank  took over the possession of the borrower’s immovable and movable assets. It is also pertinent to mention here that prior to the attachment of assets ; bank never disclosed its unwillingness or conveyed any disapproval to the OTS  arrangement so arrived.

 

It is also noteworthy to mention here, that, at the time of taking the possession, the authorized officer of the bank did not declare the estimated value of the inventory in violation of Appendix II [RULE 4(2) ]of  the Sarfaesi Act.

Further, after the attachment, bank changed its color and in a arm twisting act demanded double the amount it had originally demanded as OTS. It was like ,first you abduct  someone and then ask a ransom to free.

The company did not  to accept such unilateral demand , as the bank had  already  stripped of the borrower from  its assets.

The Hon’ble Apex Court in a judgment, in the matter of one  Ramkishnu & others vs. State of Utter Pradesh (JT2012 (5) SC483 had said that :-

“Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statuary provisions.”

Subsequently bank called a public auction to sale the immovable assets of the borrower. Accordingly, advertisements were released in two local dailies, one in “ENGLISH” and another in a vernacular LANGUAGE daily. But both the advertisements were released in English language only, instead of one in vernacular language, in violation of mandatory provision of Sarfaesi act, sub rule (2) of Rule 8. Further, no competitive public bid was received up to the last date fixed for receiving the bid.

 

To avail the opportunity, bank submitted its own bid at the reserve price.  Bank fully aware about the fact that no competitive bid had been received from public as such there was no relevance of holding a public auction .However, indulging in window dressing and ignoring the very spirit of fair public auction, Bank; enacted a  public auction  without any mandatory public participation , on the appointed day.

 

As per the spirit of the Sarfaesi act, in absence of requisite public participation,  such public auction ought to be postponed to some other date, to attract larger public participation and obtain fair value. However it was ignored.

As anticipated, the sale was confirmed in favor of the Bank by the Authorized Officer  at the minimum reserve price, whereas, Sarfaesi Act, sub rule (2) of Rule 9 prescribes, That, the sale can be effected in favor of the purchaser, who offers the highest price.

However the Authorized officer and the   bank continued to violate the rules. It is pertinent to mention here that on confirmation of the sale, in violation of sub rule (3) Rule 9 ,which stipulates that, on every sale of immovable property, the purchaser shall immediately pay a deposit of 25% of the amount of the sale price, to the authorized officer  conducting the sale and in default of such deposit; the property shall forthwith be sold again. But in the instant matter bank ignored this important stipulation.

Bank also violated sub rule (2) of Rule 9, which prescribes that , “Provided further, that, if the authorized officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.” However bank ignored this mandatory stipulation too.

It is amazing that neither any bids were invited to dispose of movable assets nor it was considered fit to sale it off .

However at the time of taking the possession of immovable assets, to suppress the real value of the assets, bank in nexus with the authorized officer, cunningly seized the costly movable assets also, free of cost, in violation of Rule 6 and sub rule (2) and  (3) of Rule 6.

 

As per  Sarfaesi act, under section 13(8), secured creditor cannot transfer any assets without the consent of the borrower.

Bank had substantially undermined the real value of the whole assets. The present market value of the movable assets are far in excess than the total claims of the bank ,

by indulging in such act, bank had caused an  irreparable loss to the borrower. Further if the bank would have sold the movable assets on priority basis, that would have saved the life of the movable assets and arrested the dues from further mounting and reduced their liability substantially. However bank did not prefer to initiate  such measure in violation of sub rule (3) of Rule 4.

Since bank officials are above accountability, it was not deemed necessary to take  care, protection and preservation of the movable assets. Since last more than 9 years  these movable assets are under the possession of the Bank and  and left the same to natural decay, damage, loot and theft, in negation of the spirit of Sarfaesi Act.sub rule (2),(3)(4),(5) of Rule 4 and Rule, 6.

The Hon’ble Apex Court in a judgment, in the matter of one Ramkishnu & others vs. State of Utter Pradesh (JT2012 (5) SC483 had said that ,

 “A right to hold a property is a constitutional right as well as a human right and a person cannot be deprived of his right property except in accordance with the provisions.”

 

The bank had been successful in suppressing the material facts from the  Presiding Officer and the Recovery Officer and  could obtain a notice of demand under section

25 to 29 of  RDDB & FI Act 1993. It is also worth mentioning that the appeals of the borrower are still pending for adjudication before DRAT. Last but not the least , In the mean time the bank has declared the borrower  a willful  defaulter too to  deprive it  from getting any loan from any bank . As a result the borrower is exposed to  severe financial constraint.  From the cited conduct of the bank it confirms that the banks are above law and free to violate and take advantage of  the Securitization act to victimize and exploit the borrower .

It  is a pertaining  question, whether a borrower can expect natural justice in such a situation where  banks bonafide is always treated above  doubt  but borrowers integrity and bonafide is always doubted .

This matter also raise  a question ,whether a bank can initiate recovery proceedings  against a borrower whose assets i.e. movable  assets have been fraudulently seized by  the bank along with the immovable assets so  purchased by the bank in the   purported public auction. Besides , is it not correct that once the secured assets are sold or purchased by a  bank, it eases its status of a secured assets and cannot be construed as a secured asset.

                               By. Vijay Kr Goenka

                                     

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