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e.    Settlement of dues payable by the borrower.

Note:

RBI guidelines regarding settlement of dues payable by the borrower applicable to ARCs:

 

(i)            Every ARC shall frame a policy duly approved by the Board of Directors laying down the broad parameters for settlement of debts due from borrowers;

 

(ii)          The policy may, inter alia, cover aspects such as cut-off date, formula for computation of realisable amount and settlement of account, payment terms and conditions, and borrower's capability to pay the amount settled

 

(iii)         Where the settlement does not envisage payment of the entire amount agreed upon in one instalment, the proposals should be in line with and supported by an acceptable business plan, projected earnings and cash flows of the borrower

 

(iv)         The proposal should not materially affect the asset liability management of the ARC or the commitments given to investors.

 

(v)          The Board of Directors may delegate powers to a committee comprising any director and / or any functionaries of the company for taking decisions on proposals for settlement of dues;

 

(vi)         Deviation from the policy should be made only with the approval of the Board of Directors

 

Buyback of assets by Promoters/guarantors of defaulting company from ARC:

 

This is allowed only on meeting of the following conditions:

(i)            Such a settlement is considered helpful in

Ø  minimizing or eliminating the cost of litigation and the attendant loss of time

Ø  arresting the negative impact of diminution in the value of secured assets which are likely to rapidly lose value once a unit becomes non-operational;

Ø  where the recovery/ resolution process would appear to be rather uncertain and;

Ø  where such settlement will be beneficial for restructuring purposes.

 

(ii)          The valuation of asset is worked out by ARC after factoring in the following:

Ø  The current value of the proposed settlement (valuation of the asset not more than six months old) vis a vis the net present value of the recoveries under the alternative mode of resolution taking into consideration the timelines involved therein.

Ø  likely positive or negative changes in the value of the secured asset on account of passage of time.

Ø  likely diminution in realisation due to accumulation of statutory dues, liability to employees etc.

Ø  other factors, if any, which may affect recoveries.

 

(iii)         ARC shall frame a policy duly approved by the Board of Directors, in line with the policy for settlement of dues

 

f.    Taking possession of secured assets.

 

Note

Taking possession as per Section 14: The secured creditor may request the Chief Metropolitan Magistrate or the District Magistrate in whose jurisdiction the secured asset falls, to assist him to take the possession thereof.

 

Within 30 days of such application, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, take possession of such asset and documents relating thereto and forward such asset and documents to the secured creditor. If for reasons beyond control, the order cannot be passed within 30 days, the same can be passed within such further period not exceeding in total 60 days.

 

The conversion of debt into shares of any borrower company by the secured creditors shall not in any way affect the rights of the secured creditors to enforce securities and recover the balance amount of debt under this Act or any other law for the time being in force.

 

In Prashant Khushe Vs State of Maharashtra, it was held by Bombay High Court that the requirement of natural justice has been expressly provided under Section 13 of the SARFAESI Act. Once the rule of natural justice is followed by the procedure under section 13 of the Act, no further notice is required under Section 14 of the Act which is a provision in the statute to enforce the acts permitted under Section 13 of the Act which acts only be valid by following rules of natural justice. In Tradewell Vs Indian Bank, it was held that the Chief Metropolitan Magistrate or the District Magistrate acting under section 14 is not required to give notice to the borrower or to the third party. In International Asset Reconstruction Company Pvt Ltd Vs Union of India, it was further held that the borrower/mortgagor or any other person has no locus to participate/object/be heard at the time of passing of order or any other stage including the execution or implementation of the order.

 

Rights of tenants in case of taking possession by secured creditor:

In Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd, the Supreme Court held that if any of the appellants claim that they are entitled to possession of a secured asset for any term exceeding one year from the date of the lease made in his favour, he has to produce proof of execution of a registered instrument in his favour by the lessor. In an event, he is unable to produce proof of execution of a registered instrument in his favour and instead relies on an unregistered instrument or oral agreement accompanied by delivery of possession, the CMM or the DM, will have to come to the conclusion that he is not entitled to the possession of the secured asset for more than a year from the date of the instrument or from the date of delivery of possession in his favour by the landlord.

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