Tag: SARFAESI

CASE SUMMARY: BIKRAM CHATTERJI VS. UNION OF INDIA

Case Name: Bikram Chatterji & Ors. Vs. Union of India & Ors.

Appeal No.: Writ Petition(s) (Civil) No(s).940/2017

Date of Judgment: 21-Aug-18

Court: Supreme Court of India

The case study is a landmark decision of the Hon’ble Supreme Court regarding the real estate industry in India and presumably the most anticipated in the light of the various challenges faced by home-buyers throughout India.

FACTS:

In 2011, Projects of Amrapali group launched construction of 42000 flats in Noida and Greater Noida and promised that delivery of possession will be made after 36 months. Buyers in 2010 – 2014 signed the buyer’s agreement. Even after payment of 40% consideration they faced the threat of forfeiture. The agreement contained some terms as to interest of owners, Clause 14 authorized himself to finance himself from any loans by way of mortgage/ charge / security and allotees cannot raise objection. Clause 15 authorized the builder to keep full authority over flat depriving allotees any lien or interest despite full payment. Clause 19(a) the builder was obliged to complete flats of Centurion Park within 30 months from date of commencement of signing agreement which may vary more or less than 6 months. Clause 19(c) builder fixed sum of Rs. 5 per square feet per month for period of delay. Breach of obligation by respondents to deliver flats even within 36 months. They did not pay amount to the allotees and also the bank. And buyers had to pay the EMI’s to bank thereby causing double loss.

Some consumers approached NCDRC by filing consumer complaint. Bank of Baroda filed a company petition in 2017 before the NCLT under Section 7 of Insolvency and Bankruptcy Code, 2016. The NCLT appointed Interim Resolution Professional. Moratorium was also declared thereby under the SARFAESI Act, 2002. The order adversely affected the interest of thousands of homebuyers of various projects being developed by Amrapali.

Meanwhile, a writ petition was also filed in Supreme Court. The apex court after hearing the complaints and in light of the accusations of draining off of funds being made against the Amrapali Group decided to take cognizance of petition and ordered to conduct a forensic audit over all the agencies of Amrapali Group.

ISSUES:

  • The charges levied by officials, banks, home purchasers and development agencies shall be valid.
  • The Amrapali Group’s RERA registration may be cancelled.
  • Form of relief accessible to homebuyers.

HELD:

Supreme Court held that:

RERA Amrapali Group registration under RERA Act shall be revoked and NBCC (India) Ltd is finalizing various projects.

The separate lease agreements issued for projects under consideration in favour of Amrapali Group Authorities are revoked and all the rights will now be vested in the Court Receiver who has authority to alienate, lease out or take any decision to raise funds. The Court Receiver will pay money raised to NBCC will complete the project with 8% profit margin (senior Adv., Shri R. Venkataramani).

The Authorities and Banks do not have the right to sell the property of the property buyers or the land leased for payment of their dues. They have to receive all their charges from the selling of other assets attached to the Amrapali Group.

The right of the lessee shall be enshrined in the Court Receiver (formerly with the Amrapali Group) and shall, by means of an authorized person on his behalf, conclude a tripartite agreement and perform all other acts as may be necessary and shall also make sure that the title is handed over to the home-buyers and that the possession is handed over to them.

https://indiankanoon.org/doc/6791744/

RDDBI, SARFAESI AND IBC

RDDBI 1993

Banks and financial institutions have been experiencing considerable difficulties in recovering loans and enforcement of securities charge with them. The procedure for recovery of debts due to the banks and financial institutions, which is being followed, has resulted in a significant portion of the funds being blocked.

The Committee on the Financial System has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues, to the banks and financial institutions could be realised. In 1981 a committee had examined the legal and other difficulties, faced by banks and financial institutions and suggested remedial measures including changes in law. This committee also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. Keeping in view the recommendations of the above Committees, the Recovery of Debts due to Bank and Financial Institutions Bill, 1993 was introduced in the Parliament.

THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993

An Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto.

After a decade or working of the (RDDBI ACT) it was felt that RDDBI act was unable to achieve the desired result of efficiently recovering money from the borrower’s. This led to the enactment of the Securitization and reconstruction of final assets and enforcement of security interest act 2002.

SARFAESI 2002

The SARFAESI Act was passed on December 17, 2002, in order to lay down processes to help Indian lenders recover their dues quickly. The SARFAESI Act essentially empowers banks and other financial institutions to directly auction residential or commercial properties that have been pledged with them to recover loans from borrowers. Before this Act took effect, financial institutions had to take recourse to civil suits in the courts to recover their dues, which is a lengthy and time-consuming process.

As per the SARFAESI Act, if a borrower defaults on a loan financed by a bank against collateral, then the bank gets sweeping powers to recover its dues from the borrower. After giving a notice period of 60 days, the lender can take possession of the pledged assets of the borrower, take over the management of such assets, appoint any person to manage them or ask debtors of the borrower to pay their dues too, with respect to the asset. This recovery procedure saves banks and financial institutions a lot of time which otherwise would be long drawn out due to the intervention of courts.

With an attempt to revamp the slow pace of recovery of defaulting loans and mounting levels or non performing assets of banks and financial institutions. The SARFAESI act provides the secured creditor the right to enforce the security without the intervention of either court or tribunal by following procedure prescribed under section 13 of SARFEASI act. Thereafter the constitutional validity of SARFAESI act was challenged in Mardia chemicals Ltd V Union of India.

In the landmark judgement delivered in Mardia chemicals V Union of India the hon’ble supreme court held that provision of the securitization and reconstruction of financial assets and enforcement of security interest act 2002, SARFAESI ACT 2002, are valid except section 17 (2). Which is ultra vires of article 14 of the constitution of India.

It’s a new weapon to strengthen the hands of co-operative banks, but a small one still.

IBC 2016

The Insolvency and Bankruptcy Code 2016 offers a uniform comprehensive insolvency legislation to Corporations, Firms and Individuals (other than financial firms).

One of the fundamental features of the Code is that it allows creditors to assess the viability of a debtor as a business decision, and agree upon a plan for its revival or a speedy liquidation.

The IBC creates a new institutional framework, consisting of a regulator, insolvency professionals, information utilities and adjudicatory mechanisms, that will facilitate a formal and time bound insolvency resolution process and liquidation.

Insolvency and Bankruptcy code is a sound legal framework of bankruptcy law is required for achieving the following objectives:-

Improved handling of conflicts between creditors and the debtor It can provide procedural certainty about the process of negotiation, in such a way as to reduce problems of common property and reduce information asymmetry for all economic participants.

To consolidate and amend the laws relating to re-organization and insolvency resolution of corporate persons, partnership firms, and individuals. To fix time periods for execution of the law in a time-bound settlement of insolvency (i.e. 180 days).To maximize the value of assets of interested persons.

To establish higher levels of debt financing across a wide variety of debt instruments. To deal with cross-border insolvency .To resolve India’s bad debt problem by creating a database of defaulter list.

In short we can say that SARFAESI is upgraded version of RDDBI, and IBC is upgraded version of SARFAESI.