FAQs on Securitization

By M. V. Kini, Advocate & Solicitors

Q.1. Once an Account is not serviced for 90 days and Bank classified the Account as NPA, is it compulsory for the Bank to initiate Securitization Act?
Ans:- Yes. Through it is not compulsory under the law; it is in the interest of the Bank that the situation may not go out of control, it is necessary for you to issue Securitization Notice to the borrower and guarantor, so that it will work as a pressure.

Q.2. Once the notice is given, if the borrower pays overdue installments dues with interest and charges within 60 days period of notice, whether Bank can normalize the Account?
Ans:- If the pays over-due installments with interest and charges up to the date of their making the payment, there is nothing wrong in the Bank treating the Asset as Performing Asset, as Securitization Act does not say that it cannot invoke Securitization Act repeatedly for the same Account. If in the bank’s view, the party is genuine and they had genuine difficulty and they pay the money – overdue installment and interest and other charges, with a covering letter that they will not default in future, and thereby requesting the Authorized Officer to withdraw the notice, in our opinion, there is nothing
wrong in regularizing the account; however, the Bank has to take a commercial decision in this matter. Authorized Officer is advised to take the Bank’s permission before treating the Account as Performing Asset. However, depending upon the party, you can even refuse to stop the proceedings unless entire amount with interest and charges are
paid the Bank, as per the Securitization Notice.

Q.3. If during the period of 90 days before treating the account as NPA, small
amount is paid which is not servicing the overdue installments and interest &
charges, whether Bank can accept the money and treat this account as NPA and issue notice under Sec.13(2) of the Securitization Act ?

Ans:- Mere paying a small amount may be a mischievous act on the part of the borrower and unless the installment with interest & charges are not fully serviced for 3 months, the Account need to be treated as NPA. The very fact that he has not serviced the entire amount of installment and bank charges for 90 days, title the Bank to treat the account as NPA and Bank may issue notice under Securitization Act. However, since issuing Securitization Notice is not compulsory, administrative decision has to be taken, to be issued for a future date.

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3 thoughts on “FAQs on Securitization

  1. it is necessary to registrar the sale certificate issued by the evidencing the transfer of property under Securtization Act ? pl, reply.

  2. With reference to the question no. 17, the Bank can not take two actions for recovery, under DRT Act and Securitization Act simultaneously. In recent judgement of Patna High Court, it is observed by the Court “this Court finds that action of the Bank by filing application under Section 19 of the DRT Act, after initiation of the proceeding against petitioner under SARFAESI Act by issuing a notice under Section 13(2) of the Act, was without jurisdiction and beyond any authority of law. As a result, this Court allows the prayer of petitioner and restrains the Bank from taking steps and proceeding with its O.A. pending before the Debts Recovery Tribunal, Patna.”—-CA. Sanjay Kothari(Indore)

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