Some of the Amendments to Security Interest (Enforcement) (Amendment) Rules, 2002 which came into effect from November 04, 2016

Rule Changes Effect 3(1) after the word “delivering”, the words,

“including hand delivery,” shall be inserted

Delivery of notice can be effected by hand delivery.

3(5) New Insertion: New para to be added in demand notice

New Para to the added in Demand Notice inviting attention of the borrower to provisions of sub-section (8) of section 13 of the Act, in respect of time available to the borrower, to redeem the secured assets.

3A Reply to representation of the Borrower

Words seven days replaced with the words “fifteen days” .

4 New sub rule 2A inserted: for effective service of Panchnama and Inventory on Borrower

After taking over of possession of movables the authorized officer to intimate the same by way of notice to the Borrower along with Panchnama in Appendix I and inventory made in Appendix II.

New Sub Rule 2B – email service All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes specified under rule 3.

6 Public auction through e-auction mode. Public auction by E-auction mode added “(c) holding public auction including through e-auction mode.

New proviso inserted to deal with Notice period in subsequent sale thereby reducing the notice period in subsequent sale to 15 days

“Provided further that if sale of movable property by any one of the methods specified under sub-rule (1) fails and the sale is required to be conducted again, the authorised officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower for any subsequent sale.

6(3) Parties defined in sub rule 8 to include only creditor and proposed purchaser thus, Consent of Borrower may be required for sale other than by auction sale or public tender

In sub-rule (3), for the words “between the parties in writing”, the words “between the secured creditors and the proposed purchaser”, have been substituted.

8 New sub rule 2A inserted for service of notice through email.

All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub-rule (2) of rule 8.

Provision for e auction inserted Clause ‘c’in Sub rule 5 provisions inserted to hold auction through e-auction mode.

Parties defined in sub rule 8 to include only creditor and proposed purchaser.

In sub-rule (8), for the words “between the parties in writing”, the words “between the secured creditors and the proposed purchaser”, have been substituted.

9 Sub rule 1 substituted for changes in Period of sale notice

For first sale notice period would 30 days and for subsequent sale 15 days notice is to be served on the Borrower

Sub rule 3

Payment terms for sale of security 25% immediate (or by next working day and balance maximum three months.

(3) On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of

twenty five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorised officer conducting the sale and in default of such deposit, the property shall be sold again. Balance amount to be paid as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months.

13A New rule inserted for

Format of application by lessee or tenant and fee to be paid.

Every application under sub-section (1) of section 17 filed by lessee or tenant of the secured assets shall be accompanied by a fee specified in sub-clause (c) and sub-clause (d) of sub-rule (2) of rule 13, as the case may be. (2) The application to be made by the lessee or the tenant under sub-section (1) of section 17, shall be in the form specified in Appendix X annexed to these rules.

Appendix I New para after first para to be inserted in the format of Panchnama

The borrower’s attention is invited to provisions of sub-section (8) of section 13 of the Act, in respect of time available, to redeem the secured assets.

Appendix III Minor changes in the format of certificate of sale

In the opening paragraph, for the word and figure “rule 9”, the word and figure “rule 3” shall be substituted.

Appendix IV

Possession Notice for immovable property first para substituted

For the first paragraph, the following paragraph shall be substituted, namely:- “The borrower having failed to repay the amount, notice is hereby given to the borrower and the public in general that the undersigned has taken possession of the property described herein below in exercise of powers conferred on him under sub-section (4) of section 13 of Act read with rule 8 of the Security Interest Enforcement) Rules, 2002 on this the .......day of ….. of the year……”;

New Para after the second para

After the second paragraph, the following paragraph shall be inserted, namely:– “The borrower’s attention is invited to provisions of sub-section (8) of section 13 of the Act, in respect of time available, to redeem the secured assets.”

Appendix V

Minor correction consequent to change in numbering of rules ub the format of Sale Certificate for immovable.

For the word and figure “rule 12” the words and figures “rules 8 and 9”, shall be substituted.

Appendix X New Format of applications by lessee or tenant under section 17(4) read with rule 14.

NEW CHANGES IN DRT ACT / RULES COMING INTO EFFECT FROM NOVEMBER 04, 2016

DRT (Procedure) Rules, 1993

Provision Amendment Change Rule 5, after sub-rule

New Provisions Format of summons provided

After registration of the application under sub-rule (2), the Tribunal shall issue summons to the defendants in Form IV

(2) 5A Limitation period for

application for review Reduced to 30 days from existing 60 days.

6 Jurisdiction provided where Branch office of Bank is located and in case of redemption of debentures where DT is has its principal place of business

the branch or any other office of the applicant is functioning as a bank or financial institution and maintaining an account in which debt claimed is outstanding for the time being: Provided that a Debenture Trustee having a claim against any company for redemption of secured debt securities, shall file an application at the place within whose jurisdiction the Debenture Trustee has its principal place of business or at the place where secured asset is located.”

12 New time limit for WS and Counter claim and reply

Written Statement /counter claim to be filed within 30 days of service of summons. Bank to file reply to counter claim within 30 days of filing of claim. DRT can extend it only in exception circumstance by maximum 15 days.

12(8) Certificate based on admission

Where a defendant makes an admission of the full or part of the amount of debt due to a bank or financial institution, the Tribunal shall order such defendant, to pay such amount, to the extent of the admission, by the applicant within a period of thirty days from the date of such order, failing which the Tribunal may issue a certificate in accordance with section 19 of the Act, to the extent of amount of debt due admitted by the defendant

12(9) Proving of facts By affidavit. Cross examination to be allowed only if there are sufficient reasons to be recorded. If after order the witness failed to appear in DRT, affidavit will not be taken into evidence and no oral evidence be permitted.

12 (10) Denial of liability by borrower

DRT to proceed as per the affidavit of applicant acquainted with facts of the case.

12 (11) Provisions of BB of Evidence Act

To apply to statement of account

8 Modification in the format of DRT application

Details of Debt and asset and value to be mentioned as per the format.

Interim applications To be specifically mentioned along with reasons (at serial number 7 of the format)

Details of Documents to be given

At serial number 19 of the format of application details of documents to be mentioned

AMENDMENTS IN SARFAESI ACT GIVEN EFFECT TO

SECTION PROVISONS CHANGES EFFECTIVE FROM

2 Changes in definitions of ARC, Company, Debt, Debt securities, Default, Financial Leas, Negotiable documents, Secured Creditor, Security Interest,

Changes in the definitions September 01, 2016

2(l)(v) Definition of the term “financial assets” expanded

The term financial assets expanded to include beneficial interest in tangible assets given on hire/lease/conditional sale and in intangible assets or license or assignment of such intangible assets.

November 04, 2016

3(f) It prohibits sponsor of ARC from being its holding company or holding a controlling interest.

New amendment paves the way for a sponsor of an ARC to hold up to a 100% stake in the ARC if the sponsor of ARC is a fit and proper person in accordance with the criteria as may be specified in the guidelines issued by the Reserve Bank for such persons.

September 01, 2016

5 New clause IA inserted in Section 5

Exemption from payment of stamp duty on assignment of financial assets in favour of ARC

September 01, 2016

9 Measure for reconstruction

Additional measures for assets reconstruction provided September 01, 2016

12 New Provisions in the form of 12 B

Power of RBI to carry out audit of ARCs September 01, 2016

13 Debt Securities (new provisions) condition of NPA not to apply

Requirement of classification of secured debt as NPA not applicable to debt securities; and to debenture trustee.

September 01, 2016

13 (8) Tender of amount by borrower

Amount can be tender up to sale of assets September 01, 2016

14 Time limit for DM to pass order

Section 14 amended for passing of order by DM on the application of secured creditor for assistance, within 30 days of filing of application + another 30 days

September 01, 2016

15 Restoration of Management

Not to be done where secured creditor acquired controlling stake on account of conversion of debt into equity

September 01, 2016

17 (IA) Place for filing of Appeal For application against action under SARFAESI Act: a) where cause of action has arisen, (b) where secured assets is located, or the branch where account is maintained is located.

September 01 2016

17 New provisions for restoration of possession of assets to aggrieved person

The existing section 17 contains provisions only for restoration of possession of secured assets to borrower where action of secured creditor under section 13 is held by DRT to be invalid. Now specific provisions have been added to include restoration of possession to borrower or other aggrieved person.

September 01, 2016

17 New Provisions 4A Powers to DRT to deal

New provisions have been incorporated for conferring powers on DRTs to pass appropriate order where it is

September 01, 2016

with issue of lease/tenancy over secured assets

satisfied that tenancy right or leasehold rights claimed in secured asset (a) has expired or stood determined; or (b) is contrary to section 65A of the Transfer of Property Act, 1882; or (c) is contrary to terms of mortgage; or (d) is created after the issuance of notice of default and demand by the Bank under sub-section (2) of section 13 of the Act.

20A New Provisions : For establishment of Central Registry

Central Registry: Power to Central Govt to extend/integrate provisions for registration of charges with various registering authorities

September 01, 2016

23 New Provisions Time limit for filing of charge to go (as filing date is now being recognized as the effective date of the charge)

After amendment come into effect, the time limit of 30 days prescribed under section 23 as also the power of the Central Registry to extend the time for filing of charge will be removed as the charges will be effective from the date of registeration with the Central Registry. Further, the Central Government by notification require registeration of transaction relating to different types of security interest created on different kinds of properties (at present such transactions are limited to mortgages).

YET TO BE IMPLEMENTED

CHAPTER IV A

New chapter has been inserted for registeration of charges and priority of charges

Registration of transaction of creation, modification, satisfaction of charge of security interest by secured creditor or other creditor or filing of attachment orders to constitute a Public Notice. Secured creditors will not be able to take over possession the securities unless it is registered with the central registry. Further, these creditors, after registration of security interest, will have priority over others in repayment of dues. However, after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency and bankruptcy proceedings are pending in respect of secured assets of the borrower, the distribution of proceeds from sale of secured assets shall be subject to the order of priority as provided in that Code.

Govt dues/Tax Dues to be registered with the Central Registry and will not have priority

Unless such default /demand is registered with Central Registry prior to creation of charge in favour of the Bank/FIs, tax dues will not have priority over the dues of Banks/FIs. {Now every tax authority of Central /State/Local Government/authority entitled to issue attachment order on the defaulter property is required to file with the Central Registry such attachment orders with particulars of assessee and details of tax or other Government Dues.

Attachment orders to be filed with the Central Registry

If any person obtains any order for attachment of property from any court or other authority empowered to issue attachment order, such person may file particulars of such attachment order with the Central Registry on payment of fee

19 Additional New Provisions:

Application to include the following additional details: 1. True copies of all documents relied upon;

Filing of recovery application before DRT/DRATs

2. Statement of account duly certified under Bankers Books of Evidence Act, 1891

3. Particulars of the assets/securities 4. Estimated Value of such securities 5. If the estimated value of the assets is not

sufficient to satisfy the debt claimed, then it should state the particulars of other properties or assets owned by any of the defendants and

6. Also seek an order directing the defendants to disclose to the Tribunal particulars of other properties or assets owned by defendants

November 04, 2016

19(10A) Pleadings to be supported by an affidavit

Every application, written statement, claim of set off, counter claim, reply to the counter claim or any other pleadings shall need to be supported by an affidavit sworn by the applicant or defendant verifying the facts and pleadings, statement, documents and other documentary evidence.

19(10A) Evidence to be filed simultaneously along with application

Any evidence of witnesses to be led by any party, affidavit of such witness shall be filed simultaneously by the party with the application or written statement or replies.

Written statement to be filed within 30 days & Declaration of assets

Defendants to file written statement within 30 days of service of summons and also declare assets;

19(13)A Restraining Orders DRT can also pass order restraining defendants from transferring or disposing of such assets pending disposal of application for attachment of assets.

19((4)(v) Interim Order of attachment and Prohibition

For interim orders particulars and estimated value of the property sought to be attached is required to be given.

Defendants cannot sell or transfer their assets after service of notice, except in the ordinary course of business.

Arrest/Detention in civil prison

If defendant fails to declare assets after passing of such an order by DRT, he can be put in civil prison for a term not exceeding three months.

Certificate on admission DRT can pass order for recovery based on admission of the party and also order sale of assets.

Appointment of Receiver DRT can now order appointment of Receiver for attachment and sale of assets of defendants

Company in Liquidation DRT to deal with disposal of assets of a company under liquidation as per section 326 of the Companies Act

DRT to pass final order within 30 days of date of conclusion of hearing

DRT, may after giving the applicant and the defendant, an opportunity of being heard, in respect of all claims etc, within thirty days of conclusion of the hearing, pass interim or final orders as it deem fit which may include order for payment of interest upto the date of actual payment/realisation.

DRT to specify the assets In passing order under sub section 20, DRT shall specify

the assets of the borrower over which security interest is created and direct the Recovery Officer to distribute the sale proceed of such assets as provided in sub section 20AB

20AB PRIORITY OF DUES Utilisation of sale proceed of the assets

Sale proceeds from sale of secured assets shall be distributed in the following orders of priority, namely:— (i) the costs incurred for preservation and protection of secured assets, the costs of valuation, public notice for possession and auction and other expenses for sale of assets shall be paid in full; (ii) debts owed to the bank or financial institution. But after IB Code for the cases covered under the code the proceed with be utilised as per the IB Code

19(22) PO to issue certificate of recovery along with final order

DRT is now required to issue RC along with the final order specifying the amount of recovery.

19(24) Time limit for conclusion of proceedings before DRT

At present DRT is required to make endeavour to dispose of the applications finally within 180 days from the date of receipt of the application. Now the section is amended to lay down that every effort shall be made by it to complete the proceedings in two hearings.

19 (22A) RC to be deemed to be decree of court

Any recovery certificate issued by the Presiding Officer under sub-section (22) shall be deemed to be decree or order of the Court for the purposes of initiation of winding up proceedings against a company registered under the Companies Act, 2013 or Limited Liability Partnership registered under the Limited Liability Partnership Act, 2008 or insolvency proceedings against any individual or partnership firm under any law for the time eing in force, as the case may be.

19A Digital filing of applications and documents

New provisions have been inserted for enabling filing of recovery applications, documents and written statements in electronic form by using digital signature. DRT to maintain a common website for this purpose. Electronic form of documents will be as defined under clause (p) of section 2 of IT Act, 2000.

September 01, 2016 Passing of order and

service through online system

Any summons, notice or communication or intimation as may be required to be served or delivered under this Act, may be served or delivered by transmission of pleadings and documents by electronic form and authenticated in such manner as may be prescribed. (2) Any interim or final order passed by the Tribunal or Appellate Tribunal displayed on the website of such Tribunal or Appellate Tribunal shall be deemed to be a public notice of such order and transmission of such order by electronic mail to the registered address of the parties to the proceeding shall be deemed to be served on such party.

20 Limitation for filing of Appeal in normal cases

Appeals to be filed within 30 days instead of 45 days.

27 DRT to have powers to grant time to repay dues

Notwithstanding that a certificate has been issued to the Recovery Officer for the recovery of any amount, the Presiding Officer, may by an order, grant time for payment of the amount, provided the defendant makes a down payment of not less than twenty-five per cent. of the amount specified in the recovery certificate and gives an unconditional undertaking to pay the balance within a reasonable time, which is acceptable to the applicant bank or financial institution holding recovery certificate. No Appeal: In case defendant agrees to pay the amount and is allowed time by DRT under the above provisions, he would forfeit right to file appeal against the order of Tribunal. In default by the defendant in payment of dues as per above, stay of proceeding shall be withdrawn and the RO shall take steps for recovery of remaining amount of debt due and payable.

31A Minimum Deposit of 50% of the amount of debt dues as determined by the Tribunal for filing of appeal

Where an appeal is preferred against any order of the Recovery Officer, under section 30, by any person from whom the amount of debt is due to a bank or financial institution or consortium of banks or financial institutions, such appeal shall not be entertained by the Tribunal unless such person has deposited with the Tribunal fifty per cent of the amount of debt due as determined by the Tribunal. DRT can not waive this. However, could be reduced to 25%.

31B Priority to Secured Creditors

New provisions in the form of section 31B is being inserted to provide for priority of rights of secured creditors to realise the secured debt by sale of assets over which security interest is created, in priority over all other debts and Government dues including revenue, taxes, cesses, and rates due to the Central Government, State Government or local authority. (But after implementation of IB code the priority will be as per the said Act)

September 01, 2016

25 Modes of Recovery At present following modes of recoveries are provided under section 25 (a) attachment and sale of movable or immovable properties of the defendant; (b) arrest of the defendant and his detention in prison (c) appointing receiver for the management of the movable or immovable properties of defendant. Now a new clause (aa) has been inserted providing for “taking possession of property over which security interest is created or any other property of the defendant and appointing receiver for such property and to sell the same”. Additional clause inserted for the Central Government to provide for any other mode of recovery.

September 01, 2016