It is known that while some loan
transactions with the Bank like Housing Loan, Educational Loan etc. are very
simple, some commercial loan transactions are very complex in nature. The Bank
may provide various loan facilities to the Borrower and most of these commercial
loans are complex to understand and these loans infact involve many
complexities. When a Businessmen or a Corporate gets various loan facilities and
if there is a default or allegation of default with regard to a particular loan
facility, the Bank proceeds against the borrower and claims for the settlement
of entire outstanding debt in respect of all facilities. The Banks use the
provisions of “Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act)” which appear to be
draconian in some cases while the Act is justified from another angle.
Irrespective of the long standing relation of creditor and borrower, in some
cases, the Bank may be unreasonable towards a borrower and may insist for
recovery of the entire outstanding dues even if the borrower commits a default
in respect of only one facility among many other facilities extended to the same
borrower. The Bank may say that they will proceed ‘borrower-wise’ in classifying
any Account as ‘Non-performing Asset’ and proceed with the recovery process
under the provisions of SARFAESI Act, 2002. Banks or the officers concerned do
exercise some discretion in this regard while the Bank or the officers are left
with no discretion in respect of few other cases. The Bank has to follow the RBI
guidelines and the RBI circulars having binding nature from to time. It is known
that the Banks should follow the guidelines of ‘Asset Classification’ prescribed
by the Reserve Bank of India
In some cases, the borrowers do not
want to litigate the issues with the Bank and may try their level best to get
the default rectified and may try to get the account settled finally under
‘One-time Settlement Scheme’. The Bank or the officers concerned in most of the
cases maintain written or oral communication with the borrowers when there is
default. The borrowers, in-turn, explains their difficulties in view of their
long standing relationship with the Bank and may seek some relaxation and may
seek indulgence of the Bank to rectify the default in repayment. This
communication or negotiation happens before classifying any loan Account as
“Non-performing Asset” and even after the classification of account as NPA and
before initiating the proceedings under the provisions of SARFAESI Act, 2002. In
some cases, the borrowers negotiate with the Bank for rectifying the default or
for a ‘final settlement’ even after the issuance of demand notice by the Bank
under section 13 (2) of the Act. This is the reason as to why there is delay on
the part of the Bank in proceeding with the recovery under the provisions of
SARFAESI Act, 2002 even after the issuance of demand notice under section 13
(2). When a borrower intends to avoid litigation, he may listen or act upon the
oral understanding with the officials. Sometimes, the understanding for
‘rectification of default’ or ‘settlement of loan’ can be in writing also. While
the ‘rectification of default’ is oral in most of the cases, the ‘final
settlement of the account’ is in writing normally.
‘Settlement of Default of
Debt/Regularisation’:
It is frequently alleged now-a-days by
the borrowers that the Bank or the officers of the Bank agrees for the
‘settlement for rectification of default’, receives the money from the borrower
and later-on, insists for the full settlement of the outstanding due. Inspite of
updating the loan account, the Bank may choose to proceed under the provisions
of SARFAESI Act, 2002 and may say that they are acting on the basis of
classification and they never agreed for ‘regularizing the loan account’. This
happens even after the demand notice issued under section 13 (2). Even after the
demand notice, the borrower can negotiate with the Bank and the Bank may receive
some substantial amount of money in-between and even then, suddenly may choose
to proceed with the issuance of notice under section 13 (4). These are the usual
allegations from the borrowers against the Bank when it comes to ‘regularization
of loan accounts’. The allegation in some cases is that the Banks goes back
from their promise and in some cases, the Bank is not co-operating for
regularization as even the RBI guidelines refer to the regularization if other
factors like the track-record, risk-factor, value of security etc. are
justified. Another thing is that the intention behind giving notice to the
borrower under section 13 (2) of the Act is to invite objections if any. Law
mandates the Bank to give a reasoned reply to the objections raised by the
borrower under section 13 (3A). But, what happens is that the Banks agree for
some kind of settlement either orally or in writing even after the issuance of
notice under section 13 (2). Later on, after a gap of some one year and when the
borrower makes the substantial payment, the Bank acts upon the demand notice and
issues a possession notice under section 13 (4) of the Act. This is infact
incorrect. If something notable has taken place with regard to the recovery of
loan after the issuance of notice under section 13 (2) and if the Bank is silent
in acting on section 13 (2) for a considerable time in view of the payments made
by the borrower, then, it is incumbent upon the Bank to issue the demand notice
afresh taking note of subsequent developments and this fresh demand notice under
section 13 (2) of SARFAESI Act can give an opportunity to the borrower to
include his objections afresh without taking a direct recourse to an appeal to
Debt Recovery Tribunal (DRT) or without having to approach the High Court
seeking intervention at times. But, this is not happening. In most of the cases,
unless the Debt Recovery Tribunal sets the SARFAESI proceedings aside, the Banks
do not issue demand notice twice under section 13 (2) and instead acts upon the
demand notice issued earlier irrespective of time gap or lapse. These are the
usual problems being faced by the borrowers in getting his or their account
regularized or updated. The borrowers are infact left with no remedy in these
cases as the scope of powers of DRT under section 17 of the Act does not include
the power to give direction to the Banks to agree for regularization. These
kinds of cases mostly come to High Court and the High Courts usually issues
suitable directions noting the interests of the Bank and the rights and plight
of the borrower.
‘Settlement of Debt/One-time
Settlements’:
The second issue is with regard to
‘final settlement of debts’. In many cases, Banks are going back from their
promise of ‘one-time settlement’. The Banks agree for ‘final settlement of
account’ with the borrower. The Banks may ask the borrower to give an offer
letter in a format and with some averments and then, the Banks will agree for
settlement. When the substantial amount is paid, the Banks may say and are
saying in most of the cases that the RBI guidelines do not allow them to get the
account settled under ‘One-time Settlement’. Again, the Banks may say that the
borrower has not disclosed all the facts with the Bank while coming forward with
the ‘One-time Settlement Proposal’. Once the settlement proposal is agreed, the
Banks will be very silent till the substantial amount is deposited with the Bank
and finally, they can say that they do not have right to go for ‘settlement’ or
can blame the borrower that he has not disclosed the whole facts. These things
do happen regularly now-a-days. The DRT normally do not look into these issues
and the DRT may at best, look at the procedural irregularities if any and even
the disputes pertaining to outstanding are not entertained as such though the
DRT can look into those issues. The DRT normally goes with the stand taken by
the Bank unless the Bank is apparently wrong in their approach. Public Sector
Banks should concentrate on the recovery of money and at the same time, can not
harass the borrowers who are willing to get their accounts regularized or
willing to get their account finally settled. Even, the RBI guidelines hint at
this. When there is security lying with the Bank and when original documents are
with the Bank, the Banks pressurize the borrowers with all kinds of things and
using the provisions of SARFAESI Act, 2002 to their advantage. The DRT in these
cases proves to be ineffective and the borrower is not entitled to approach the
Civil
Court
Conclusion:
When there is a borrower willing to get
his account regularized and willing for settlement, the Banks can not harass
those borrowers. In most of the cases, where the borrowers allege wrong
treatment or breach of promise on the part of Banks with regard to ‘settlement
for regularization’ and ‘final settlement of outstanding due’, the borrowers do
approach the High Court and in most of the cases, High Courts do justice to the
Petitioner or the borrower keeping the interests of the Bank and borrowers in
view. High Courts are very careful in interfering with the SARFAESI proceedings
initiated by the Banks as it can not be seen as an alternative to the Debt
Recovery Tribunals (DRTs). But, in fit cases, the High Courts may not agree with
the arguments of the Banks with regard alternative forum and may exercise the
jurisdiction under Article 226 of Constitution of India.
The issue as to whether the Banks can
go back from the ‘settlement of default’ or ‘settlement of loan’ will depend
upon the facts of the case and especially the contents of written offer and
agreement by the Banks.
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