Sarfaesi Act is now being called into play even for dues as low as Rs 1.5 lakh
HYDERABAD, JUNE 4:
Think twice before defaulting on your home/property loan. You might simply lose your asset.
Unlike earlier, banks are now increasingly resorting to the use of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) 2002 to recover their dues.
MORTGAGING PROPERTY
The Act empowers banks and financial institutions to auction mortgaged residential/commercial property when borrowers fail to repay their loans.
The Act, which was enacted when the economy (including banking) was booming, has been rarely used to recover smaller dues; it can be applied to any loans/dues over Rs 1 lakh.
But now one can find many possession notices in banks/newspaper even for dues as low as Rs 1.5-2 lakh.
“This is because of the worrisome increase in the non-performing assets and the Reserve Bank of India's constant goading to keep NPAs under manageable limit,” a top official of Canara Bank said. According to Mr B. A. Prabhakar, Chairman and Managing Director, Andhra Bank, the Sarfaesi Act has proved to be a “very effective instrument” for recovery.
“A substantial amount of dues have been recovered using this Act in the recent past,” he said.
POSITIVE RESPONSE
Mr Krishna Kumar, Managing Director, State Bank of India, told Business Linehere recently that use of the Act was also prompting the customers to go all out to pay the dues.
“Some customers, though few, respond to possession and auction notices triggering some settlements and restructuring,” he said.
Mr Shiv Kumar, Managing Director, State of Bikaner and Jaipur, said deployment of the Sarfaesi Act was one of the last but effective recovery tools for banks.
“But one should ensure proper repayment in home/property loans while remembering that a bank is also under obligation to recover the dues,” he said.
http://www.thehindubusinessline.com/industry-and-economy/banking/article3490632.ece
Another Landmark Judgement against bank Loan Defaulters
A recent Supreme Court verdict holding that a financier cannot be prosecuted even if he forcibly seizes a financed vehicle following default in payments should be a cause for worry as it will encourage financial institutions to use their might to recover money from debtors rather than taking recourse to the process of law.
The decision virtually approving use of force in a dispute between a powerful financial institution and a lone debtor takes us back to the 'might is right' era which is antithesis to the 'rule of law' which ensures a level playing field.
No doubt, financiers retain the ownership of a financed vehicle till repayment, as per the standard form of hire- purchase agreements which also give them a right to claim back a vehicle in case of default in payment of installments, but the question is whether financial institutions should be allowed to unilaterally interpret and violently enforce the agreement against a debtor after holding him to be at fault.
The question has baffled courts since the 19th century, eluding an authoritative clear answer. It is high time that a larger bench of the Supreme Court should do away with the uncertainty in the legal position as hire-purchase agreements have become the order of the day, touching the lives of people across the spectrum.
The latest verdict, absolving a financier from prosecution for "repossessing the goods owned by him", clearly draws strength from a number of precedents/ judgments cited in the order.
In what makes a clear case for clarity on the subject, the order by a division bench of the court has neither referred to judgments to the contrary nor has discussed how use of force or interference with peaceful possession even by the owner would not attract offences under the penal code. The order cites judgments in support but has not referred to the 2008 Shanti Devi Sharma case in which the apex court refused to quash a criminal case against a bank charged with using musclemen.
The Shanti Devi Sharma is not an isolated case. The observations in the judgment only echoed what was said a year ago in the 2007 Prakash Kaur case. " The recovery of loans or seizure of vehicles can be done only through legal means. The Banks cannot employ goondas to take possession by force," the court had said. The 2007 and 2008 judgments unfortunately do not find mention in the latest order.
The hire-purchase agreements confer ownership on financiers primarily to protect them against unscrupulous consumers disposing of a financed vehicle (and not to confer immunity from prosecution).
Any interpretation enlarging the scope of the protection is likely to disturb the balance, apart from leaving scope for counterexploitation of consumers by financial institutions. Stressing that " whoever" takes any property out of the "possession" of any person commits theft as per the Indian Penal Code ( IPC), the Calcutta High Court overruled a number of judgments in 1895 to hold that a creditor who takes goods in possession of his debtor would be liable to be prosecuted for theft.
But the debate on the point is yet to settle down in the absence of an authoritative ruling applying to all fact situations.
Some of the later judgments have noted the money at stake to tilt the balance in favour of financers. There can be no dispute on the need to protect investment but making a financer a judge in his own cause clearly defies logic. What if a vehicle is seized to coerce the debtor to pay more than that is due? The argument that a financier cannot be prosecuted as such disputes are purely civil in nature is neither here nor there. Is the financier himself not under an obligation to resort to civil proceedings to seize the vehicle in case of default? Besides, our legal system allows parallel civil and criminal proceedings for one cause of action.
Can this right be denied to a debtor? Reading the hire- purchase agreements in isolation without reference to penal and other laws will amount to introducing Shylock's "pound of flesh" clause against debtors. But, as with Shylock, using the clause on ownership as a shield could at times turn out to be self defeating as it would lead to bizarre situations.
What if a landlord decides against long- drawn eviction proceedings and walks into his house bag and baggage? And worse, imagine you forget to pay an installment for your housing loan and someone from the bank or a new owner knocks at your door next morning.
The decision virtually approving use of force in a dispute between a powerful financial institution and a lone debtor takes us back to the 'might is right' era which is antithesis to the 'rule of law' which ensures a level playing field.
No doubt, financiers retain the ownership of a financed vehicle till repayment, as per the standard form of hire- purchase agreements which also give them a right to claim back a vehicle in case of default in payment of installments, but the question is whether financial institutions should be allowed to unilaterally interpret and violently enforce the agreement against a debtor after holding him to be at fault.
The question has baffled courts since the 19th century, eluding an authoritative clear answer. It is high time that a larger bench of the Supreme Court should do away with the uncertainty in the legal position as hire-purchase agreements have become the order of the day, touching the lives of people across the spectrum.
The latest verdict, absolving a financier from prosecution for "repossessing the goods owned by him", clearly draws strength from a number of precedents/ judgments cited in the order.
In what makes a clear case for clarity on the subject, the order by a division bench of the court has neither referred to judgments to the contrary nor has discussed how use of force or interference with peaceful possession even by the owner would not attract offences under the penal code. The order cites judgments in support but has not referred to the 2008 Shanti Devi Sharma case in which the apex court refused to quash a criminal case against a bank charged with using musclemen.
The Shanti Devi Sharma is not an isolated case. The observations in the judgment only echoed what was said a year ago in the 2007 Prakash Kaur case. " The recovery of loans or seizure of vehicles can be done only through legal means. The Banks cannot employ goondas to take possession by force," the court had said. The 2007 and 2008 judgments unfortunately do not find mention in the latest order.
The hire-purchase agreements confer ownership on financiers primarily to protect them against unscrupulous consumers disposing of a financed vehicle (and not to confer immunity from prosecution).
Any interpretation enlarging the scope of the protection is likely to disturb the balance, apart from leaving scope for counterexploitation of consumers by financial institutions. Stressing that " whoever" takes any property out of the "possession" of any person commits theft as per the Indian Penal Code ( IPC), the Calcutta High Court overruled a number of judgments in 1895 to hold that a creditor who takes goods in possession of his debtor would be liable to be prosecuted for theft.
But the debate on the point is yet to settle down in the absence of an authoritative ruling applying to all fact situations.
Some of the later judgments have noted the money at stake to tilt the balance in favour of financers. There can be no dispute on the need to protect investment but making a financer a judge in his own cause clearly defies logic. What if a vehicle is seized to coerce the debtor to pay more than that is due? The argument that a financier cannot be prosecuted as such disputes are purely civil in nature is neither here nor there. Is the financier himself not under an obligation to resort to civil proceedings to seize the vehicle in case of default? Besides, our legal system allows parallel civil and criminal proceedings for one cause of action.
Can this right be denied to a debtor? Reading the hire- purchase agreements in isolation without reference to penal and other laws will amount to introducing Shylock's "pound of flesh" clause against debtors. But, as with Shylock, using the clause on ownership as a shield could at times turn out to be self defeating as it would lead to bizarre situations.
What if a landlord decides against long- drawn eviction proceedings and walks into his house bag and baggage? And worse, imagine you forget to pay an installment for your housing loan and someone from the bank or a new owner knocks at your door next morning.
http://indiatoday.intoday.in/story/gyanant-singh-handing-victory-to-goliath/1/228916.html
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