Notes

Enforcement of Security Interest as per Section 13:

Ø  Any security interest created in favour of any secured creditor may be enforced by such creditor without the intervention of the court or tribunal.

Ø  Where the borrower makes any default in repayment of secured debt and his account is classified by the secured creditor as non-performing asset, then, the creditor may require the borrower to discharge in full his liabilities within 60 days from the date of notice.

Ø  If the borrower makes any representation, the secured creditor shall consider the same. If this is not acceptable, it shall communicate within one week of receipt of the objection. This right shall be exercised when substantial part of the business is held as security for debt. If the businesses are severable, the takeover shall be the business relatable to the debt.

Ø  The requirement of classification of secured debt as nonperforming asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities and the provisions for enforcement of security interest under this Chapter shall apply to such borrower; and (ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee.

Borrower discharges liability within the specified period: As per Section 13(8), Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for lease, assignment or sale of the secured assets,— (i)the secured assets shall not be leased, assigned or sold by the secured creditor; and (ii) in case, any step has been taken by the secured creditor for lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for lease or assignment or sale of such secured assets.

Borrower fails to discharge liability within the specified period. As per Section 13(4), the secured creditor can take recourse to one or more of the following measures:

Ø  Take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset.

Ø  Takeover management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset.

Ø  Appoint any person to manage the secured asset.

Ø  Require by notice in writing any person who has acquired any of the secured assets from the borrower and from whom any money is due to pay to the secured creditor so much of the money as is sufficient to pay the secured debt.

Any transfer of secured asset by the secured creditor after taking possession or takeover of management, shall vest in the transferee all rights in the secured asset transferred.

Where any action has been taken against the borrower, all costs, charges and expenses shall be recoverable from the borrower.

RBI Guidelines regarding enforcement of security interest:

Ø  ARCs are required to obtain, for the purpose of enforcement of security interest, the consent of secured creditors holding not less than 60% of the amount outstanding to a borrower as against 75% hitherto.

Ø  While taking recourse to the sale of secured assets in terms of Section 13(4) of the Act, an ARC may itself acquire the secured assets, either for its own use or for resale, only if the sale is conducted through a public auction.