Securitisation / Securitization Act, Comments, Debt Recovery Tribunal

Highlights:- All problems of Debts NPA Recovery Tribunals i.e. DRTs, NPA Recovery and securitisation / securitization Act, ARCIL i.e. Asset Reconstruction Company (India) Limited, are tackled by us. People from all over the country are phoning us, then visiting and getting their problems solved. Please visit Home Page and other Pages also.

Our Weekly Mails are DRT Guide and gold mine of practical information for the borrowers and guarantors :- The visitors of this web site particularly Borrowers and Guarantors will be immensely benefited by our weekly mails, all previous issues from 1st one till the last one may be viewed by clicking Drt Solutions Weekly Mail for Borrowers & Guarantors Separate web pages have been created to contain these mails in batches of 10 so that pages open up fast. These mails are DRT Guide and gold mine of information on current topics giving lot of practical suggestions and comments. Any new comer to this site must go through all the weekly mails right from the issue no 1 to the latest. If possible please spread the reference of this web site and the weekly mail among the persons, borrowers and guarantors who are the bank victims. If anyone desires to get these mails regularly, he may write to us for inclusion of his e-mail ID in the regular mailing list. The weekly mail is issued on every Friday morning 6 AM. The particular issue of the weekly mail is first published on the web site and then mails are sent. These weekly mails have become quite popular among the borrowers and guarantors in the country as we are getting huge no of mails appreciating the same. We welcome suggestions for improvements as well as the topics on which more information is required.

Bank officials were to be arrested, bail refused by sessions as well as High Court, Supreme Court in its order dated 07.12.07 asks them to report to Police Investigating Officer on 09.12.07 & interrogation to be carried out continuously for 5 days and as and when necessary thereafter :- Seven Bank Officials of a Cooperative Bank in Mumbai were to be arrested for investigation in the matter of SARFAESI Act proceedings pertaining to Wings Entertainment Ltd., one of our clients in Mumbai. The anticipatory bail application of the said bank officials was rejected by Sessions Judge on 21.11.07. The High Court Mumbai in its order of 26.11.07 confirmed the said order of the court below vide proceedings in the matter of Jayant A. Joshi & others vs State of Maharashtra, Criminal Application no 3825 of 2007. The said officials have appealed to Supreme Court. In the hearing held on 7th December '07, the Supreme Court has asked the said officials to report to the police on 09.12.07 and interrogation is to be carried on continuously for 5 days and as and when needed thereafter. The investigation report is to be submitted to the Supreme Court on 07.01.08 for the hearing to be held on 08.01.08.

Important News - Challenging Constitutional Validity of Securitisation Act :- We have received an assignment to challenge the constitutional validity of Securitisation Act. The progress of this matter will be reported on this site from time to time.

Important Announcement - Video Arguments presented in Indian Court for the First Time :- We are pleased to announce that on 10th October 2007, proposed 'Computer Presentation' was held for the first time in the country by Mr. Ram Kishan before Hon'ble District Judge, Indore and the 'Video Arguments' were submitted and shown to the said Judge on 15.10.07. Thus a history has been made in the Judicial Management in our country. We have prepared two DVDs, one showing the method and system for such presentation, its advantages with a practical application. Another DVD showing the actual presentation before the District Judge, Indore on 10th October 2007. we have prepared an article titled 'Computer Presentation & Video Arguments' vide click here Court Technologies IT Presentation Video Arguments

DVDs containing Video Record of DRT Conference at Indore and Chennai:- All the proceedings were video recorded and the DVDs containing the same are available. Any one desiring to have the DVDs may send through e-mail their postal address, name of the company, and if possible details of the pending DRT case or Securitisation case and the amount involved, name of concerned person and his contact details including phone nos etc. to us. During these conferences, eminent DRT experts using PowerPoint Presentation dealt with all the aspects of Bank Litigations and Borrowers Defence. The participants from all over the country were highly impressed and benefited from the knowledge thus gained.

Important Victory of Our Client against Bank:- One of our important clients at Chandigarh who filed damage suit of Rs. 1825 crores against a public sector Bank on 13.01.05 registered an important victory on 03.03.07 when the Court waived the entire court fee despite all opposition by the defendant Bank. The alleged dues of the Bank are Rs. 30 crores. Since the damages are much more than the alleged claim of the bank, no recovery action can be executed till the said damage suit is finally decided. The usual delay in the litigation does not affect our client as the damages are increasing day by day due to interest charges at rate which is much higher than the increase in the alleged claim of the bank. The said damage suit was drafted by us and all necessary advice and guidance was provided on all dates of proceedings.

Technology in Court Rooms - Video Briefs and Video Arguments:- Application of current presentation technology can tremendously improve the quality of legal process in the court rooms including DRTs. Presentation in Microsoft PowerPoint will help the Advocates in preparing their arguments in advance. They can carry their notebook computers in the court rooms and present their arguments in better manner. Their entire arguments can be videotaped and submitted to the court in form of a CD as document. This will be akin to written arguments and may be called as video argument. This will help the judges to view and replay if necessary before writing the judgments. The judges need not make any notes and the entire argument will be available to them at any time and due to replay facility, the judgment writing will be much easier and accurate too. Such CDs will also be helpful in appeals. With such use of the current video technology, the quality of adjudication will improve a lot.

DRT Litigations in South India - Special Arrangement:- We have made an special arrangements for the DRT Litigants in South India. For all such matters, we have our legal representative based at Chennai who has panel of advocates for contesting DRT matters in Chennai, Bangalore, Hyderabad, Coimbatore and other DRTs in South India as well as in respective High Courts and Supreme Court. The litigant Borrowers and Guarantors facing actions under DRT Act and Securitisation Act in DRTs, ADRTs, High Courts and Supreme Court may contact us on phone to get details of our said representative for South India

Purchase of NPAs by ARCIL and Counter-claims against the sellers:- The asset reconstruction companies like ARCIL are buying NPAs from the financial institutions and banks on average price of 24% and then they will sell at higher price. On the other hand the ARCIL will contest cases in DRTs for 100% claims with future interest. Such intended recoveries and earnings are much more exorbitant than the Pathans and Village money lenders. Hence it is all the more necessary to file counter-claims against ARCIL for the wrong doings of the lenders who should also be made parties. We have full expertize to prepare such counter-claims.

Our approach of counter-claim or damage suit against the lenders fully endorsed by authorities:- Two leading authorities in law and banking both having more than 40 years of experience in law and banking have fully endorsed our approach to counter-claim in DRTs or damage suit against the lenders in civil courts. You may click the pages Video Interview - BS Malik, Sr. Supreme Court Advocate and Video Interview - GC Garg, Ex-Senior Bank Official which give the contents of the video clips of interview with them. You may take out the print and study the same. Listening to the video interview will be further useful. You may select the clips for replay for discussions with your colleagues as well as the advocates. You may obtain the VCDs from us to listen to their views which will be quite useful to all the borrowers and guarantors as well as to their advocates. The counter-claim or damage suit against the lenders are the only legal defence and we specialize in framing such defence. We have handled several such cases throughout the country. You may contact us on phone to know further details

DRTs, DRT solutions, Debts NPA Recovery Tribunal, DRTs matters, DRTs WS, DRTs Legal Opinions, DRTs Arguments, DRTs Documents, Appellate DRTs, Bank litigations, securitisation / securitization, Counter-claims, NPA Recovery, NPAs Settlements, checking of bank accounts and documents, 138 NI Act - Dishonour of Cheques etc., expertize in all these matters past 14 years. Legal BPO and offshore BPO is our new activity for which we have launched new web site www.usindolegal.com

Counter-claim is the only defence for the borrowers against Notice under Securitisation Act and or Original Application under the DRT Act:- Under the present provisions of law, the only legal defence for the borrowers is Counter-claim giving quantum of loss and damages suffered due to wrong doings of the lenders. The pleadings must be prepared by a person having mastery of facts and mastery of law. The documents such as project report, application for financial assistance, loan sanction letters, correspondence, balance sheets, annual reports need to be referred to properly keeping in view the law of pleadings, law of torts, law of damages, principles of natural justice, equity and good conscience. If you are unable to get such pleadings prepared, our professional services may be utilized. With our drafting of pleadings, you get additional advantage of expert advice during course of litigation from beginning to end. Since our clients are from all parts of the country and due to our focussed attention, you get complete and exhaustive guidance. All our clients are having upper hand over the lenders. In many cases the lenders have come forward to waive total interest and settle at fraction of the principal amount. In one of the cases the proposal of the lender is to waive the total claim provided the borrower withdraws the damage claim, which the borrower has declined.

Counter-claim must be prepared much in advance of the Notice under Securitisation Act or filing of the Original Application under the DRT Act:- The counter-claim or damage suit must be prepared much in advance of the recovery action initiated by the lender. The most appropriate stage is as soon as the lender declares the unit as NPA. The said counter-claim or damage suit must be ready before the lender issued Notice under Securitisation Act or files Original Application is filed by the lender in DRT. With such advance action only, the counter-claim or the damage suit will attain proper quality standards from legal considerations. As soon as the legal Notice from the lender under Securitisation or DRT Act is received the said counter-claim or damage suit is updated and filed before expiry of the Notice Period. Since prima facie there is no debt due, the lender can not take any action for the possession of the assets till the litigation pertaining to the said counter-claim or damage suit is decided by the court of law. Even if any attempt is made by the lender to take possession, the property can not be sold. Further steps in the DRT should be as outlined in the next para.

Winning bank litigations in DRT:- The first step is perfect pleadings drafted by a person having mastery of facts and mastery of law. The borrower must setup his counter-claim in money value based on law of damages and law of torts. In almost all the cases, the counter-claim is much more than the claim of the lender. These are the condition precedents before commencement of litigation in DRT. The next important step is thorough preparation of the case by the borrower as well as his advocate much in advance of the commencement of the trial in DRT. The borrower and his advocate must prepare at least 7 days before the date. In case the counter-claim has been drafted by us, the outcome of the said preparation must be discussed with us on phone so that our guidance is also available prior to the date. The proceedings on the date must be properly recorded in the DRT. All the relevant facts must be obtained much before the arguments and through preparation must be made. No arguments be held at any stage till all the facts are discovered. Long dates should be resisted. With proper alertness and vigilance by the borrower who must work in unison with his advocate in advance will ensure winning bank litigations in DRTs. It must be understood that the battle is long drawn, time consuming and expensive. Even after winning in DRT, the borrowe and his advocate will have to work hard in facing the appeals in ADRT, High Courts and Supreme Court. If the pleadings are drafted by us, we provide all guidance from DRT to Supreme Court.

The Supreme Court rules that simultaneous proceedings under Securitisation Act and DRT Act are valid:- This ruling was given by a Bench comprising Justices Arijit Pasayat and S H Kapadia in its 86-page judgment favouring dual remedy for banks and FIs. Sarfaesi Act is treated as an additional remedy, which is not inconsistent with the DRT Act," said Justice Pasayat. "Sarfaesi Act is an additional remedy to the DRT Act. Together they constitute one remedy and, therefore, the doctrine of election does not apply. Therefore, we hold that withdrawal of proceedings pending before the DRT is not a pre-condition for taking recourse to Sarfaesi Act."

With such change in law, the Government will again have to amend the DRT Act 1993. The only remedy left is counter-claim or damage suits against the banks and financial institutions. Wherever the damages are more than the claim of the lenders, the executory actions under Securitisation or DRT Act will have to wait till the damages are finally decided. Since 2001 we have emphasized all the aspects of filing of counter-claim or damage suits against the lenders as this is the only remedy for the borrowers and guarantors facing recovery actions.

The said judgment of the Supreme Court in the matter of M/s Transcore vs Government of India and another, Civil Appeal No 3228 of 2006 decided on 29.11.06 can be seen by clicking the link SC Judgment on DRT, Securitisation, Transcore

(1) In almost all the cases, the facts are same in both the proceedings viz DRT and Securitisation. (2) Hence the defence is also same in both the proceedings. The counter-claim or damage suit will also be same. (3) The litigant borrowers and guarantors should prepare exhaustive pleadings giving full facts, law and damages based on law of torts and law of damages. The person who is preparing the pleadings must have mastery over banking, finance and law. Since we possess this expertise, our help may be taken. (4) In almost all the cases, we have found that the loss and damages are more than the claim of the lenders, the cases must be fought properly. (5) It is observed that the lenders are unable to tender proper replies and hence they must be called to witness box and cross examination conducted till the admit the wrong doings. (6) With such approach only, one can win in DRT

Securitisation Act and Precautions for the Borrowers and Gurantors:- The following are important precautions:-

(1) After borrowing, the problems arise if there are difficulties in payment of interest or installments. Under such situation, efforts must be made to record all the dealings with the lenders in writing. If possible, obtain copies of all the documents signed by you.

DRAT Mumbai stays taking physical possession under Securitisation Act in appeal under sec 17:- The DRAT Mumbai in its order dated 02.08.06 in the matter of Maze Plastics vs Bharat Co-operative Bank Ltd awarded ad interim stay on taking physical possession of the properties including residential flat subject to pre-deposit of Rs. 20 lacs as against alleged dues of more than Rs. 75 lacs. The said pre-deposit shall be invested in FDR in the name of Registrar DRAT, Mumbai until disposal of appeal.

Our Client wins against Bank, DRT Mumbai declares possession of factory illegal under Securitisation act:- in the matter of M/s Aarti Cables vs Bharat Co-operative Bank, the PO DRT Mumbai passed an important judgment on 16.09.05 against the bank declaring the possession of the factory under Securitisation Act as illegal.

Video CD containing Interview of Mr. B.S. Malik, the Supreme Court Advocate as well as Our Client available from us:- This video interview will be immensely useful to industrialists, borrowers, guarantors and bank litigants in DRTs.

Our Client files damage suit of Rs. 1825 Crores against a bank and a financial institution in Chandigarh:- Our Client, an eminent Supreme Court Advocate (practice more than 25 years in Supreme Court) has filed a damage suit of Rs. 1825 Crores in Chandigarh on 13.01.05 against a bank and a financial institution. The said damage suit was drafted by us and it runs in 118 pages having documents of 537 pages. In a video interview lasting more than 30 minutes on 23.01.05, the said Mr. Malik appreciated our legal concepts, our drafting and our knowledge and experience about application of law of torts to banking, industrial sickness, drt, counter-claim, securitisation act and calculations of damages.

Our Computer Cell for checking of Accounts has started functioning:- Our Accounts Cell headed by an ex-Bank auditor (experience 38 years) has started functioning. You get your entire account checked up and certified by him. Invariably in all cases, the accounts filed by the banks are defective and illegal and thus the very debt due for the purpose of DRT and Securitisation becomes questionable requiring rework and refiling, a difficult task for the banks and financial institutions. Please contact us for the details and charges through e-mail ramkishan@drtsolutions.com

Simultaneous NPA Recovery action under DRT Act and Securitisation Act barred:- As per the recent amendment in DRT Act, the banks will have to first withdraw the case before DRT in order to initiate action under the Securitisation Act vide news item titled 'Banks seek amendment to debt Recovery act of 1993' in the Financial Express dated 11th January 2005. Our following comments appear in the Financial Express below the said news item:-

The bankers have been aiming at and pursuing route to easy NPA Recovery. This is simply not possible due to our Constitution which is one ot the best in the world. As per the latest provisions, the bankers will have to withdraw from DRT before initiating action under Securitisation Act. Once they withdraw, they can not go back to DRT in future. Even if they withdraw the counter-claim, if any, of the borrower will continue. After withdrawing from DRT, if they proceed under Securitisation, the NPA Recovery action will have to wait till the counter-claim is decided. The bankers are in a fix. At the most they can resort to Securitisation Act only in respect of the new cases. In that eventuality they will have to abide by the provisions of law laid down by the Supreme court in the matter of Mardia Chemicals. Thus what ever way the bankers proceed, the NPA Recovery is not easy. The best route to NPA Recovery is to help the borrower to run his business profitabily and all other routes are difficult. - Ram Kishan on behalf of www.drtsolutions.com

Securitisation Bill passed on 07.12.04 The Lok Sabh has passed the bill relating to the Ordinance mentioned below. Our comments as under will apply.

Our Comments on the Ordinance dated 11.11.04 on the Securitisation Act:- The government has issued the Ordinance on 11.11.04. There are several illegalities constitutional validity of which would be questioned. Our comments in respect of some of the proposed amendments are as under:-

(1) In sec 2(1) (j) the phrase "in accordance with the directions or guidelines issued by the Reserve Bank" has been dropped. Hence the classification of NPA and NPA Recovery has been left to the banks.

Our Comments :- It is not known as to how the banks would do this and that too on uniform basis.

(2) The clause 2(1)(o) has been amended. Some banks will have the authority to determine the loss or doubtful assets.

Our Comments:- It is not known as to how the banks would formulate their norms in an uniform manner.

(4) The sec 5 has been extended to consolidate cases in Appellate Tribunal if needed.

(5) The sec 13 now specifies that if on receipt of notice under sub-sec (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and the secured creditor comes to the conclusion that such representation or objection is not tenable, he shall communicate within one week of receipt of such representation or objection the reason for non -acceptance of the representation or objection to the borrower. Provided that the reasons so communicated shall not confer any right upon the borrower to prefer an application to the Debt Recovery Tribunal under sec 17 or the Court of District Judge under sec 17A. Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. The creditor may initiate action to do so provided substantial part of the business is held as security for the debt.

Our Comments:- It is against the letter and spirits of the verdict of the Supreme Court in respect of Mardia Chemicals. The creditor will have to apply its due mind in attending to the objections raised by the borrower. If it is not done, the borrower can agitate the issue through writ in High Court.

(6) The sec 17 has been amended and in place of "may prefer an appeal", the proposed substitution is "may make an application along with such fee, as may be prescribed" and such subsititution shall deemed to have taken place with effect from the 21st day of June 2002. The different fees may be prescribed for making the application by the borrower and the person other than the borrower. Further the applicant has been barred to approach the DRT if has objection has not been accepted by the secured creditor.

Our Comments:- It is against the letter and spirits of the verdict of the Supreme Court in respect of Mardia Chemicals. In fact no fees should have been prescribed and if any such fee has been prescribed at all, it should be same as that for an ordinary applilcation i.e. Rs. 250 but it has been observed that the govt has prescribed a very heavy fee, which needs to be questioned before the writ jurisdiction of the High Court.

(7) In respect of disposal of the said application, detailed instructions have been issued to the DRTs and ADRTs and time limits have been prescribed.

Our Comments:- It is against the letter and spirits of the verdict of the Supreme Court in respect of Mardia Chemicals. Such time limits are impractical and meaningless. It is well known that such applications will bring forth all the wrong doings of the creditors including the counter-claims which can not be adjudicated upon in such a short time frame prescribed in the proposed amendment.

(8) In respect of appeal against the verdict of the DRT in the matter of the said application, it has been prescribed that the borrower will have to deposit 50% of the debt due. This amount may be reduced only upto 25% by the ADRT.

Our Comments:- It is against the letter and spirits of the verdict of the Supreme Court in respect of Mardia Chemicals. In cases where the appellant is not having the 25%, he will have to approach to High Court and thus in many cases, the High Court and Supreme Court will have to handle such adjudications involving the quantum of court fee for appeal. It is well known that in almost all the cases, the borrower will not have lump sum amount of 25% when their units are closed are sick.

(9) In respect of Jammu and Kashmir, the ceiling of 25% has been prescribed for the High Court.

Our Comments:- It is obviously against the law as no such directive can be issued to any High Court. The vires of this Ordinance can be questioned on this point alone.

(10) The secured creditors representing three-fourth in value of the debt due will have overriding power to invoke the provisions under this Ordinance even if they have reference for the scheme for revival and rehabilitation.

Our Comments:- It is against the letter and spirits of the laws relating to creation and development of industries. The borrowers and guarantors having become victims of wrong doings of the lenders will have no options but to contest for their counter-claims as outlined in this web site.

Bombay High Court rules in Borrower's favour in respect of Notice under Securitisation Act- On 6th Sept. '04, the Bombay High Court ruled in favour of the Borrowers in respect of three writ petitions relating to Notice under the Securitisation Act. The bank did not attend properly to the objections raised by the borrowers. The Court asked the bank to issue fresh notices.

DRT rules in Borrower's favour, asks Bank to pay Damages- Vide news item at page 8 of the ET dated 17.07.04 with the title "It's a first, DRT rules in borrower's favour, asks bank to pay damages" This news item is also available on internet ET edition. In what may be a disappointment to the banking sector, the debts Recovery tribunal (DRT) has ruled in favour of the borrower under the new NPA Recovery law, and has even directed the lender to pay damages for the number of days the property was attached. This is the first time under the securitisation / securitization Act that a bank has lost a case against a borrower. The case gains significance as banks looked to the securitisation / securitization Act as a route to quick NPA Recovery of bad loans. The bank has been asked by DRT Mumbai to return the secured property back with per day damages as well as cost of the appeal. This is an important judgment upholding our contentions past several years and also propounded in this web site. The award and fear of damages for the wrong doings of the banks and the financial institutions alone can usher in requisite level of responsibility and accountability. Then only proper financing would be done in time and in adequate amount keeping in view the requirements of business and industry, the same would be nursed promptly during incipient sickness, financial help would be provided during such situations and circumstances beyond the control of the entrepreneurs etc. All such measures will result in definite surplus generation in the business and there will be definite NPA Recovery which is the only and the best NPA Recovery much compared with the litigation route which does not result in virtually any NPA Recovery except legal fights.

Cooperative Banks and not Societies are covered under Securitisation Act- The Department of Economic Affairs of the Central Govt. has already issued a notification no SO 105(E) dated 28.01.03 extending applicability of the Securitisation Act to the Cooperative Banks. The Bombay High Court also decided accordingly in the case of Shamrao Vithal Cooperative Bank Ltd. vs Star Glass Works [2003] Mah LJ 1. The societies are not covered under the Securitisation Act.

Important Questions and our Answers in respect of securitisation / securitization Act- A leading Financial Association of the country has asked 6 important questions and desired to publish the answers in form of our interview. The said 6 questions and answers are given below. The visitors and readers my interact by sending e-mails to us:-

Question No (1):- Section 17 of the securitisation / securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act, 2002, which required borrowers to deposit 75% of the dues to appeal in court, has been quashed. Do you think now there is a scope for defaulters to misuse the relaxations and flood the court with cases?

Our Answer The Supreme Court has dealt with legality of the said deposit in detail and has rightly quashed it. It is an essential assumption and desired pre-requisite that the readers have gone through and have understood the relevant contentions of the Supreme Court. Easy approach to court of law to redress grievances is foundation of democratic society. Flooding of the cases, if that be so, is a sign of vibrant and developing democracy. It is a well known fact that the bureaucracy in lending banks and financial institutions particularly in public domain is highly conservative, averse to responsibility and accountability, can not take any risk which many a times is needed in dynamic business environment, its officials pass the buck to either lower or higher level, tends to take group decisions to avoid individual accountability and responsibility, such group decisions entail huge amount of time which no business process can sustain etc. etc. All such weaknesses, defaults and wrongdoings will now be highlighted in the said appeal along with the counterclaim for the loss and damages suffered by the business. As regards misuse by the defaulters, huge deposit can not be the permissible remedy or deterrent in democratic set up. Resolution of the grievances of the borrowers is by way of proper legal fight only. Most of the said lenders unfortunately are as weak litigants as weak financiers. The legal fight by the borrowers will force the other side to improve its strengths. It is unpalatable reality that the required strength can only be attained by way of privatization of the financial sector which is long overdue. The flood of the litigations, if that be so, will also ultimately improve judicial process and its competency as well as its efficiency.

Question No (2):- What do you think is the likely impact of rescinding of Sec.17 on the overall Non Performing Assets (NPAs in NPA Recovery of the banks?

Our Answer There will be salutary impact on the NPAs and NPA Recovery of the banks due to rescinding of the sec. 17 of the securitisation / securitization Act. The wrong doings of the banks and the financial institutions will be presented and revealed before the judiciary and hence the bankers will be forced to arrive at mutual settlements due to counter-claims. Such exposure of the banks will also force them to amend their approach in future and thus it would minimize the future NPAs and NPA Recovery. Further side benefits would be that the judiciary in DRTs will become more knowledgeable, competent and efficient due to larger number of such litigations. The black sheep among the borrowers will also be located and punished.

Question No (3):- One of the major objectives of the Act, was to productively deploy assets worth thousands of crores of rupees in sick assets at a fast pace. However, one of major problems of Sarfaesi Act is delays, due to court stays in a particular case. How can this problem be overcome and matters be expedited?

Our Answer Before suggesting any solution, the underlying realities and historical facts, circumstances and consequences need to be understood and related actions taken. In most of the sick industrial units it is observed that the major cause of sickness is due to external factors which are beyond the control of the entrepreneur. In our country there is no ‘no fault’ insurance. We have not yet enacted ‘Lenders’ Liability’ Bill though it was to be done along with the securitisation / securitization Act. The lender banks and the financial institutions, in most of the cases, instead of helping in nursing and rehabilitation, wrongly apply pressure for NPA Recovery. The entrepreneur is left with no options but first to fend himself and his dependents. His such act is highlighted and termed as diversion of funds, willful defaulting etc, Further the statutory and mandatory RBI Guidelines in existence since 1976 are openly flouted by the lending banks and financial institutions. Ultimately the matter lands in court of law. Earlier the civil suits used to take years and decades. The correct approach should have been to improve the efficiency of the judicial system in the civil court instead of creating DRTs. The judicial system needed to utilize modern Information Technology. Adequate numbers of judges should have been appointed. The system of training of the judges needed to be evolved. Instead, separate courts like DRTs were created and new statutes like DRT Act 1993 were enacted. Such an approach without fundamental corrections was bound to fail. Similar approach continued by enacting another piece of legislation in form of securitisation / securitization Act 2002. It is destined to meet the same fate as the DRT Act 1993. The advocates, judges and the judicial systems are same except the statutes. All wrong doings of the lending banks and financial institutions will now be brought out in quicker process and earlier time frame. It is well known that the administrative machinery in the banks and financial institutions can not match the fighting spirit of the industrial and business community. Above all our country has one of the best constitutions in the world. Unfortunately it is so comprehensive that it has become the paradise for the legal community to cause delay as one of the means of defense. In this context again, the judges and advocates dealing with DRTs cases need to be trained in proper understanding of the facts relating to banking, industrial finance etc. Assuming that all such preliminary and pre-requisite infrastructure has been created and evolved properly, there will not be any problem as posed by this question. Till such time, the existing state of affairs will continue. It is submitted that how so ever serious problems of NPA Recovery may be but no short cuts in the judicial system can be devised by way of legislation as it would be struck down on the touchstone of our constitution when agitated before the Supreme Court of India. In fact, it reflects on the agency which drafted such defective legislation or the legislative body like the parliament which passed it or on the President of India who approved it. In view of all these factors, there is no such isolated solution for the problem posed in this question and it is outcome of deficiencies of the system as a whole. It is needless to mention that the industrial finance involves complex facts adjudication of which definitely will take time and mere emphasis on NPA Recovery alone will not result in quicker NPA Recovery of alleged debtss. The DRT Act 1993 has cut down the adjudication process to some extent but the execution through DRT Act 1993 or securitisation / securitization Act 2002 will be highly time consuming due to the basic reality that generation of the funds was the only desirable source of NPA Recovery rather than the sale of securities in case industrial finance which distinctly differs from personal finance. Unfortunately the age old principles of NPA Recovery of personal finance are being wrongly applied for NPA Recovery of debts involving industrial finance. For detailed elaboration and clarification of these concepts, the readers are advised to visit our web site www.DRTssolutions.com as space of this interview column is too small to deal with such important topic in an appropriate manner.

Question No (4):- As per the Act, secured creditors are given the right to take over management of the defaulting companies or take possession of the mortgage assets of loan defaulters. Don’t you think this clause has to be reworked as it is tilting towards the lenders?

Our Answer Any right presumes and as well as based on corresponding duty. The more serious is the impact of certain right, more responsibility is assigned to the corresponding duty. If the secured creditors have chosen the right for extreme step of taking over the management of the company or possession of the mortgaged assets, the standard of their duties is very high. It is well known that the bureaucracy in Indian Public Sector banks and financial institutions is highly inefficient and commits several wrong doings in respect of statutory duties laid down in the RBI Guidelines in existence since 1976. Hence in most of the cases, legally it would be difficult to exercise the said extreme rights of taking over the management or possession of assets. The said clause is similar to sec 29 of the State Financial Corporations Act which is existing since 1951. It is well known that in many cases the SFCs have not been successful in exercising such rights due to failure in their own duties. Hence there is no need for reworking the said clause. We have copied the securitisation / securitization Act from a similar act in USA. But the copying is not complete. We have not enacted the Lenders’ Liability Act which should have been done along with the securitisation / securitization Act. Further in US, the lender and borrower create a third agency with whom trust deed is created, During any dispute, the matter is decided by the said third agency including any action on the mortgaged assets. Such arrangements is more practical than that in our country. Further in US there is wide application of law of torts, The wrong doer, whether borrower or lender, are very much afraid of damages. Hence the bureaucracy is much more accountable and responsible due to fear of damages compared with that in our country. We find that the banks and financial institutions openly violate the statutory RBI Guidelines in existence since 1976. In US, the courts and judicial system has adopted modern IT technology since 1980, which we have just started. Such infrastructure and culture (i.e.. to be afraid of damages before committing any wrong doing) are greater need compared with any amendments in the Act. Another important aspect is emphasis on comprehensive trial at DRTs stage rather than tendency to sort out the matters through writs at the High Court level. With passage of time, the claims of the lenders will be adjudicated upon more comprehensively along with the counterclaims and in that eventuality, the award of damages will usher in requisite level of accountability and responsibility in the banks and financial institutions. A very recent example of award of damages by the DRTs Court in the matter of securitisation / securitization act against a bank has been reported in the Economic Times, Mumbai dated 17.07.04 at page 8 ‘ …DRTs rules in borrower’s favour, asks bank to pay damages’ In this particular case the DRTs has ruled that the bank should pay the borrower Rs. 500 per day damages from the day of taking possession till handing over the secured property. Besides the bank should pay the borrower the cost of making the appeal. This is just the beginning. Such instances will be going up in future in the litigations relating to DRTs Act and securitisation / securitization Act.

Question No (5):- 75% deposit called for by the Act was widely criticized by borrowers. Do you recommend a lower percentage? If a deposit is not the best way, in which other way can it be ensured that borrowers do not use the legal framework to block NPA Recovery of loans?

Our Answer The situation has been best described and analyzed by the Supreme Court in its latest judgment delivered on 8^th April 2004 in respect of Mardia Chemicals. If we consider from practical angles, most of the NPA Recovery litigations relate to sick or closed industrial units. They or even a healthy unit can not have liquid sparable funds to the extent of 75% of alleged dues. They can not raise or procure such funds as all the assets are already mortgaged with the lending banks and financial institutions. Further as also rightly found out by the Supreme Court, the said appeal under the sec 17 of the Act is not an appeal which is a misnomer in this particular case, In fact it is first application of grievance before the judiciary and in such application there can not be any precondition of any deposit. Since at this stage it is not known whether there is any debts due or not, condition of any deposit is baseless and illegal. Hence there is no justification even for any limited or lower deposits. It is a wrong notion that we should restrict the borrowers in approaching the courts with the presumption that they may misuse the legal framework to block NPA Recovery of loans. Greater number of litigation will bring more number of leading judgments and ultimately the cases will come down. Further due to such litigations, lot of problems between the lenders and borrowers will be solved as the analysis and decisions on rights and liabilities between the parties would be contained in the said judgments. All advanced societies welcome greater activity in the arena of judiciary rather than restricting it.

Question No (6):- As per the Act, if the objections against the action of the lender filed by the borrowers are rejected by the lenders, then the borrowers have no option but to approach the High Court. This clause is more in favor of the lenders. What can be the other options for borrowers?

Our Answer As per the existing provisions of the Act and in light of the said judgment of the Supreme Court under the mentioned situation, there is no other option. The borrowers who had already filed their damage suits or the counterclaims will have much stronger case in the high courts. However, it is well known that the bureaucracy in banks and financial institutions, invariably and almost in all the cases, commit numerous mistakes and errors in the ordinary course of dealings with the borrowers. During our experience of past 15 years we have found this to be true including mistakes and errors even in accounts entries. We have highlighted some of these important aspects on our web site www.drtsolutions.com It is well known that the banks and financial institutions have been openly flouting the statutory RBI Guidelines in existence since 1976. Under these facts, circumstances and consequences, in almost all the cases, the borrowers will have valid reasons before the High Courts. Hence the battle will continue on the route of High Court and Supreme Court with back to DRTs for conducting full trial. Thus the NPA Recovery of debts due through the legal route as usual will continue to take years despite special legislations like DRT Act 1993 and securitisation / securitization Act 2002. It would be worthwhile to reconsider that the best mode of NPA Recovery is out of the earnings of the project and hence the banks and institutions should have the attitude and conduct to help the borrowers during the difficult period, to postpone the NPA Recovery till the time changes and help the project till surplus is generated making the NPA Recovery more assured. The assets created will also be not wasted and ultimately the whole society would gain. On the other hand any coercive NPA Recovery action will not only fail but will result in greater number of unproductive litigations.

Mr. Ram Kishan is an Attorney at Law and Injury Claims based at Indore. He has been handling litigations pertaining to sick industrial units past 15 years. Details of his approach and solutions are available at his web site www.drtsolutions.com He can be approached through his e-mail id ramkishan@drtsolutions.com

Mardia case - DRT extends the stay upto 13th July, Mardia to appeal to DRAT- Vide news item at page 5 of the ET dated 05.07.04. The DRT has extended the stay up to 13th July by which time Mardia has to appeal to ADRAT i.e. Appellate Debts Recovery Tribunal. His case was very strong but the level of judiciary in DRTs in our country has not yet developed to requisite standards and hence the matter has been pushed to higher courts the chain of which starts from ADRAT, High Court and Supreme Court. The case may travel back and forth among these courts till justice has been found. In our view the application of law of torts would have given much greater strength than the promissory estoppel.

RBI Guidelines available from us:- As per law and Supreme Court judgments, the RBI Guidelines are statutory and their violations constitute an important defense for the borrowers and guarantors. We have prepared an useful compilation of the same in various formats viz. subject wise, date wise etc. Desired RBI Guidelines are available at nominal cost.

securitisation / securitization Act - Govt may plug gaps, DRT Act may also be amended:- Vide news item at page 1 of the Economic Times dated 15.06.04. It is reported that consequent on stay by DRT Ahmedabad in the matter of Mardia Chemicals, the Govt is considering amendment to the securitisation / securitization Act. The Govt is requested to enact the Lenders' Liability Bill along with such amendments. Further there are certain lacunae such as after submission of objections by the borrowers to the notice under securitisation / securitization act, if the same are rejected by the lenders, the borrowers have no option but to approach the High Court. It would be better if the borrower is allowed to approach the DRTs In respect of sick companies, the fees at various stages must be reduced. It appears that the intended amendments, if are not based on justice, equity and good conscience, the matter would again be referred to the Supreme Court.

Mardia ne maar diya - Vide editorial in the ET dated 03.06.04. The contentions and perception in the editorial are wrong and misplaced. The writer of the said editorial has not studied the Supreme Court judgment properly. It is a pity that in our country, the entrepreneurs have to fight for their legitimate rights because the bureaucracy has upper hand in framing the law as well as in the judicial activities. In developed countries like USA, (vide page 159 of the book Taxmann's Law & Practice Relating to securitisation / securitization & Reconstruction of Financial Assets & Enforcement of Security Interest - by M.R. Umarji, 2nd Edition April 2004) the practice followed is to create mortgage by a trust deed by which the legal title to the property is transferred to a trustee (usually a lawyer) with power of sale in the event of default. This creates an equity as against in our country one of the two parties having dispute if any i.e. the lending bank or FI wields such power. No body is looking to the faults of the banks which are not providing adequate and timely finance to the borrowers when they actually need funds. The only solution is to raise counterclaim against the wrong doings of the lenders under law of torts as proposed in this web site. The bank bureaucracy will become responsible and accountable due to fear of damages. Further the Lenders' Liability Bill must be enacted without further delay. In fact it was to be done along with the securitisation / securitization Act but the bureaucracy has scuttled it. All these aspects have been ignored in this editorial.

Mardia gets stay from DRT against Bank - Vide news item at page 1 in the ET dated 2.6.04, the DRTs Ahmedabad has awarded stay against any further action after attachment by ICICI Bank in the matter of notice under securitisation / securitization act. This order is presumably under sec. 17 of the securitisation / securitization act.

SC on Mardia :- (1) Finally the SC has awarded its judgment on 8th April. The judgment is in favour of the Borrowers and Guarantors. The doors for going to court before taking of possession have been restored. The draconian condition of 75% deposit for appeal has been removed. The full text of the judgment is available at www.judis.nic.in As suggested by us long back, the only defence is damage suit or counterclaim which has to be appropriate as suggested in this web site. The average advocates do not have in depth knowledge of banking, business and industrial finance and hence they can not prepare such counterclaim. We can do so because of specialization and long experience. Please speak to us on phone at the numbers given above.

(2) The judgment is, however, incomplete. Several issues have not been touched. Arguments have not been exhaustive. The parties must approach the Supreme Court for Review.

(5) Our suggested strategy for borrowers and guarantors with reference to NPA Recovery at different stages are as under:-

(5a) If you are facing losses in business and are unable to pay interest and installments dues in time i.e. you apprehend that your account is going to be classified as 'NPA', it is a time to plan strategy. The banks will declare your account as NPA just after 90 days. You must use this 90 days time in planning your litigation. You may phone us. We shall help you to plan the said strategy. You need to prepare certain damage suit and writ petition so that the damage suit is filed at appropriate time. The moment bank issues notice under securitisation / securitization Act, the writ may be filed. These actions will prevent the bank in taking further actions. The party will get sufficient time to pay attention to improve the business.

(5b) If you have received notice under the Act, you must immediately contact us on phone. Depending on the facts, we shall advise you for further action.

(5c) If the possession of the unit or management has been taken over by the secured creditor, you have no option but to approach the DRTs. In special circumstances, one may approach the High Court or Civil Court. Please speak to us on phone. Proper damages claim or counterclaim alone can provide suitable action to obtain stay from DRTs.

(6) As stated in this web site, whether you like it or not, you have to fight with the tool of law. With our advice, you can save yourself as well as your business.

securitisation / securitization Act - Court Fee for appeal to DRTs:- The recent imposition of fee vide news item at page 16 of the Economic Times dated 01.06.04 is unreasonable, arbitrary and hence illegal. The underlying principles have been laid down in the above judgment of the Supreme Court. Accordingly the court fee should have same as that for any application i.e. Rs. 250=00 only. At the most, the court fee could have been a nominal amount just like that in an Injunction and Declaratory Suits. The Ministry of Finance is totally wrong if it desires to discourage the borrowers by prescribing a heavy appeal fee. This is against equity, justice and good conscience. The borrowers must file writs against the said imposition of heavy court fee in light of the principles laid down by the Supreme Court.

securitisation / securitization Act - Writs in respect of Private Banks, Cooperative Banks, Foreign Banks etc. :- The borrowers and guarantors should understand that the writ jurisdiction can not be used against private banks, co-operative banks, foreign banks etc. which are not authorities under the Article 12 of the Constitution. The Supreme Court in its latest judgment dated 08.04.04 has specifically mentioned this aspect in the para 68 of the judgment reproduced below under the para entitled 'Important extract from the SC judgment.

(1) Article 'Why settle for false teeth?' at editorial page in the Economic Times dated 19.04.04 - extract as under:- A dispassionate reading of the judgment makes it clear that as compared to status quo before the ruling, borrowers have gained. .... Clearly the ruling has blurred the powers given to the banks/FIs under the Act.

(2) Banks say 'Easier Norms For Appeal Against Seizure Order Will Delay Action' - 'SC Ruling to hit NPA Recovery, seek stringent laws' :- vide news item dated 19.04.04 published at page 14 of the Economic Times dated 20.04.04. The bankers feel that the Act got diluted with the waiver of a provision requiring defaulters to to deposit 75% of the loan amount. .... the initial fear psychosis would wean away. ....The process of NPA Recovery would be hit since the defaulters are now more free to move courts and there would be roadblocks in the form of "frequent" judicial intervention... Another banker said "big fishes" would now be able to buy more time as the act has become "toothless" with the removal of punitive action.

(3) No direct attachment of defaulter's assets :SC:- vide news item dated 14.04.04 published at page 16 of the Economic Times dated 15.04.04. after receiving the notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections howsoever brief they may be, must be communicated to the borrower.

(4) The SC has restored the borrower's right to justice:- vide view points reported at Editorial Page of the Economic Times dated 14.04.04 Mr. Mardia stated that the Supreme Court has accepted the borrowers' argument that the concept of lenders' liability cannot be ignored. The Supreme Court has not only restored the borrower's right but also made lenders accountable. By this order the lenders are also liable for any default. Now the real defaulters will be punished whether they are borrowers or lenders. If lenders agree/commit to lend an amount and if they do not lend the full amount as committed and the project fails because of their negligence, carelessness or high-handedness, they will be held responsible by way of lender's liability and the borrower can file a NPA Recovery suit against the lenders.

(5) Mardia Jubilant:- vide news item dtd 09.04.04 "Mardia to prolong legal battle", Mr. Mardia commented that the closed legal channels for borrowers have now been restored and the securitisation / securitization Act has become toothless,

Our Comments:- Mr. Mardia is perfectly right. He can now expedite his pending damage suit of Rs.5600 crores against the ICICI bank claiming principal amount of Rs. 800 crores. Our view is that Mr. Mardia should have based his damage suit on law of torts instead of promissory estoppel.

(6) Mardia too claims victory :- vide news item dtd 09.04.04 "Mardia too claims victory", Mr. Mardia stated that as a petitioner he had received more than what he was looking for.

(1) Extract from para 33 of the SC judgment, dealing with issues to be decided:-

33. Taking an overall view of the rival contention of the parties, we feel the main questions which broadly fall for consideration by us are :

i) Whether it is open to challenge the statute on the ground that it was not necessary to enact it in the prevailing background particularly when another statute was already in operation?

ii) Whether provisions as contained under Section 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised by a borrower against the NPA Recovery, particularly in view of bar to approach the civil court under Section 34 of the Act?

iii) Whether the remedy available under Section 17 of the Act is illusory for the reason it is available only after the action is taken under Section 13(4) of the Act and the appeal would be entertainable only on deposit of 75% of the claim raised in the notice of demand?

iv) Whether the terms or existing rights under the contract entered into by two private parties could be amended by the provisions of law providing certain powers in one sided manner in favour of one of the parties to the contract?

v) Whether provision for sale of the properties without intervention of the court under Section 13 of the Act is akin to the English mortgage and its effect on the scope of the bar of the jurisdiction of the civil court?

vi) Whether the provisions under Sections 13 and 17(2) of the Act are unconstitutional on the basis of the parameters laid down in different decisions of this Court?

vii) Whether the principle of lender's liability has been absolutely ignored while enacting the Act and its effect?

(2) Extract from para 34 of the SC judgment, stating that borrowers rights under the constitution can not be ignored:-

34. Liquidity of finances and flow of money is essential for any healthy and growth oriented economy. But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved.

(3) Extract from para 44 of the SC judgment, stating that borrowers objections, if any about dues or in classification of NPA and or NPA Recovery be expeditiously be resolved:-

44. Nonetheless dues or disputes regarding classification of NPAs should be considered and resolved by some internal mechanism. In our view, the above position suggests the safeguards for a borrower, before a secured asset is classified as NPA. If there is any difficulty or any objection pointed out by the borrower by means of some appropriate internal mechanism it must be expeditiously resolved.

(4) Extract from para 45, 46, 47 and 48 of the SC judgment, purpose of 60 days notice and remedies to the borrower to ventilate his grievance:-

45. ….we may consider as to what forums or remedies are available to the borrower to ventilate his grievance. The purpose of serving a notice upon the borrower under sub-section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of Section 13 in case of non-compliance of notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy……. At the same time, more importantly we must make it clear unequivocally that communication of the reasons not accepting the objections taken by the secured borrower may not be taken to give an occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. Such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reason of non- acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debts Recovery Tribunal as provided under Section 17 of the Act matures on any measure having been taken under sub-section (4) of Section 13 of the Act.

46. ….it is necessary to communicate the reasons for not accepting the objections raised by the borrower in reply to notice under Section 13(2) of the Act more particularly for the reason that normally in the event of non-compliance with notice, the party giving notice approaches the court to seek redressal but in the present case, in view of Section 13 (1) of the Act the creditor is empowered to enforce the security himself without intervention of the Court. Therefore, it goes with logic and reason that he may be checked to communicate the reason for not accepting the objections, if raised and before he takes the measures like taking over possession of the secured assets etc.

47. This will also be in keeping with the concept of right to know and lender's liability of fairness to keep the borrower informed particularly the developments immediately before taking measures under sub-section (4) of Section 13 of the Act. It will also cater the cause of transparency and not secrecy and shall be conducive in building an atmosphere of confidence and healthy commercial practice. Such a duty, in the circumstances of the case and the provisions is inherent under Section 13(2) of the Act.

48. The next safeguard available to a secured borrower within the framework of the Act is to approach the Debts Recovery Tribunal under Section 17 of the Act. Such a right accrues only after measures are taken under sub-section (1) of Section 13 of the Act.

(5) Extract from para 64 of the SC judgment, holding illegal the 75% deposit along with submission before Debts Recovery Tribunal :-

64. The condition of pre-deposit in the present case is bad rendering the remedy illusory on the grounds that (i) it is imposed while approaching the adjudicating authority of the first instance, not in appeal, (ii)there is no determination of the amount due as yet (iii) the secured assets or its management with transferable interest is already taken over and under control of the secured creditor (iv) no special reason for double security in respect of an amount yet to be determined and settled (v) 75% of the amount claimed by no means would be a meager amount (vi) it will leave the borrower in a position where it would not be possible for him to raise any funds to make deposit of 75% of the undetermined demand. Such conditions are not alone onerous and oppressive but also unreasonable and arbitrary. Therefore, in our view, sub-section (2) of Section 17 of the Act is unreasonable, arbitrary and violative of Article 14 of the Constitution

(6) Extract from para 68 of the SC judgment, stating that writs does not lie against Private Banks, Co-operative banks, Foreign Banks etc. :-

68. ...So far remedy under Article 226 of the Constitution of India is concerned, the submission is that it may not always be available since the dispute may be only between two private parties, the banking companies, co-operative Banks or financial institutions, foreign banks, some of them may not be authorities within the meaning of Article 12 of the Constitution of India against whom a writ petition could be maintainable...

(1) The High Court Gujrat asked Mardia Chemicals to 'To file counter-claim against ICICI bank in DRTs' vide page 6 of the Economic Times dated 13.03.03.

Our Comments:- This is legal validation of our stand which we have emphasizing on this web site past several months.

claim must be framed and kept ready so that as soon as the notice is received, the counter-claim is filed within 60 days. Please study this web site and in case of any difficulty or clarification contact us on our off. cum res. phones +91-731-3290201, Mobile- 930-2103689 or through e-mail at our ID ramkishan@DRTssolutions.com

One of our Associate Advocates prepared the following objections on the Notice under Securitisation Act 2002. The bank submitted evasive reply. The case has been filed before the High Court. The bank is finding it difficult to contest in High Court. The name of the bank and the party, reference to their correspondence etc have not been given due to obvious reasons. The purpose of the illustration is just to show that as to how deeply we should prepare the objections. This approach will give the temporary relief. The real defence is by way of counter-claim.

1. At the outset my client states that if the alleged dues which has been totally denied by my clients as stated in your Securitisation notice bearing Ref No . The alleged debts which is alleged to have been transferred to NPA in 2001 clearly means that its your own admission that all the alleged debts are barred under section 36 of the SARFAESI ACT. Needless to say the relationship between the banking and the customer are governed by article 1 of the law of limitation i.e. three years. Admittedly this notice is bad in law as you have issued the same beyond the period of limitation of three years from the date of transfer of NPA this itself render your notice as bad, null and void and illegal.

2. My clients further states that the notice issued by you is lacking in material contents, particularly with regard to statement of account as to how the amount mentioned against outstanding as on alongwith interest have been arrived at. It also fails to furnish the correct details with regard to secured assets against which you propose to take action under 13 [4] of the 2002 Act. You may kindly note that in section 13 [3] it is specifically stated that “the notice referred to in sub-section [2] shall give 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”. Without such correct and specific details, you have created a situation in which the company is not in a position to give an effective reply.

3. My clients further states that and call upon you to establish an authority given to you to issue this notice under section 13(2) of SARFAESI ACT 2002 as an authorized officer duly authorised by the other consortium banks also to issue this notice dated as defined under section 2e of the SARFAESI ACT 2002 failing which adverse inference will be drawn u/s. 114G of the Indian Evidence Act that you are not correctly and legally authorised to give the notice

4. My clients further states that you have not provided us with a copy of your authorisation for issuing the said notice under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Hence you have no right to take steps under the aforesaid Acts.

5. a. My clients further states that on pursuing the notice and schedule A of the various loan facilities given by the lead bank in which it is stated that the NPA of the various facilities which are much more detailed out in Schedule A of the notice and outstanding inclusive of the interest as on are much more detailed out facilitywise as stated above. This clearly reveals that the interest has been charged and debited to the NPA account which is against the accounting guidelines that you can never charge the interest once the account is transferred to a NPA. This results that the demand in the impugned notice is exorbitant and without the authority of the law which itself renders the notice bad in law as held in DRAT Bombay Bharat Co-op. Bank v/s. Cyril Kotian reported in banking cases

b. My clients further states that on pursuing the notice and schedule A of the various loan facilities given by the lead bank in which it is stated that the NPA of the various faculties which is much more detailed out in Schedule B of the notice and outstanding inclusive of the interest as on are much more detailed out facilitywise as stated above. This clearly reveals that the interest has been charged and debited to the NPA account which is against the accounting guidelines that you can never charge the interest once the account is transferred to a NPA. This results that the demand in the impugned notice is exorbitant and without the authority of the law which itself renders the notice bad in law as held in DRAT

c. My clients further states that on pursuing the notice and schedule A of the various loan facilities given by the lead bank in which it is stated that the NPA of the various faculties which is much more detailed out in Schedule C of the notice and outstanding inclusive of the interest as on are much more detailed out facilitywise as stated above. This clearly reveals that the interest has been charged and debited to the NPA account which is against the accounting guidelines that you can never charge the interest once the account is transferred to a NPA. This results that the demand in the impugned notice is exorbitant and without the authority of the law which itself renders the notice bad in law as held in DRAT Bombay Bharat Co-op. Bank v/s. Cyril Kotian reported in banking cases

d. My clients further states that on pursuing the notice and schedule A of the various loan facilities given by the lead bank in which it is stated that the NPA of the various faculties which is much more detailed out in Schedule D of the notice and outstanding inclusive of the interest as on are much more detailed out facilitywise as stated above. This clearly reveals that the interest has been charged and debited to the NPA account which is against the accounting guidelines that you can never charge the interest once the account is transferred to a NPA. This results that the demand in the impugned notice is exorbitant and without the authority of the law which itself renders the notice bad in law as held in DRAT Bombay Bharat Co-op. Bank v/s. Cyril Kotian reported in banking cases

6. My clients further calls upon you to produce the proof of service as required under section 3(1) of Security Interest ( Enforcement )Rules 2002 on each and every borrower as defined under section 2(i)(f) under the SARFAESI ACT owe on the person duly authorised to receive the Securitisation notice by the borrower non compliance of this requirements renders your action as bad in law.

7. There is no default on our part and you have wrongly classified the so called debt as a Non Performing asset. You have even not mentioned the date on which you classified the account as NPA on notice given to guarantors . We therefore hereby call upon you to furnish to us the directions and the guidelines that of the Reserve Bank of India that you claim to have followed. We deny the correctness of the balances due that your claim in respect of the accounts of the Company. We deny that the interest calculation and the rate thereof and the method of calculating the same are correct and binding on us. We deny that an amount as shown in your notice and or any amount or interest