Company Registration in Bangalore – Enforcement of Security Interest is what we are discussed in this article.

Enforcement of Security Interest

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In exercise of the powers conferred by sub-section (1) and clause (b) of sub-section (2) of section 38 read with sub-sections (4),(10) and (12) of section 13 of the Securitization and reconstruction of Financial asserts and Enforcement of Security Interest (Second) Ordinance, 2002, the central government makes the following Rules.

Short title and commencement of security interest

  • These rules may be called the Security Interest (Enforcement) Rules, 2002.
  • They shall come into force from the date of their publication in the Official Gazette.

Definitions 

In this rules, unless the context otherwise requires-

  • “authorized officer” means an officer not less than a chief manager of a public sector bank or equitable, as specified by the Board of Directors or Board of Trustee of the security or secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, as the case may be, to exercise the rights of a secured creditor under the Act.
  • Demand notice means the notice in writing issued by a secured creditor or authorized officer, as the case may be, to any borrower pursuant to sub-section(2) of section 13 of the Act;
  • Act means the Securitization and Reconstruction of Financial Asserts and Enforcement of Security Interest Act, 2002 (54 of 2002);
  • Approved valuer means a person registered as a valuer under section 34 AB of the Wealth tax Act, 1957 and approved by the Board of Directors or Board of Trustees of the Secured creditor, as the case may be.
  • Words and expressions used and not defined in these Rules, but defined in the Ordinance shall have the meanings respectively assigned to them in the Ordinance.

Demand notice of the Security Interest 

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  • The service demand notice as referred to in sub-section (2) of section 13 of the Act shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail service.
  • Where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1).
  • Any other notice in writing to be served on the borrower on his agent by authorized officer shall be served in the same manner as provides in India.
  • Where there is more than one borrower, the demand notice shall be served on each borrower.

Reply to Representation of the borrower

  • After issue of demand notice under sub-section (2) of section 13, if the borrower make any representation or raises any objection to the notice, the Authorized officer shall consider such representation or objection and examine whether the same is acceptable or tenable.
  • If on examining the representation made or objection raised by the borrower, the security creditor is satisfied that there is a need to make any changes or modification in the demand notice accordingly and serve a revised notice or pass such other suitable orders as deemed necessary, within seven days from the date of receipt of the representation or objection.
  • If on examining the representation made or objection raised, the authorized officer comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection, the reason for non-acceptance of the representation or objection, the reason for non-acceptance of the representation or objection, to the borrower.

Procedure after issue of notice

If the amount mentioned in the demand notice is not paid within the time specified therein, the authorized officer shall proceed to realize the amount by adopting anyone or more of the measures specified in sub-section (4) of section 13 of the Act for taking possession of movable property, namely:

  • Where the possession of the secured assets to be taken by the secured creditor are movable property in possession of the borrower, the authorized officer shall take possession of such movable property in the presence of two witnesses after a Panchnama drawn and signed by the witnesses as nearly as possible in Appendix 1 to of these rules.
  • After taking possession under sub-rule(1) above, the authorized officer shall make or cause to be made an inventory of the property as nearly as possible in Appendix n to these rules and deliver or cause to be delivered, a copy of such inventory to the borrower or to any person entitled to receive on behalf of the borrower of the company.
  • The authorized officer shall keep the property taken possession under sub-rule (1) either in his own custody or in the custody of any person authorized or appointed by him, who shall take as much care of the property in custody as an owner of ordinary prudence would, under the similar circumstances, take of such property.
  • The authorized officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed.

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  • In case any secured asset is a debt not secured by negotiable instrument; or a share in a body corporate; other movable property not in the possession of the borrower except, the property interest thereon and the debtor from making payment thereof and directing the debtor to make such payment to the authorized officer; or
  • In the case of the shares in a body corporate, directing the borrower to transfer the same to the secured creditor and also the body corporate from not transferring such shares in favor of any person other than the secured creditor.
  • In the case of other movable property, calling upon the borrowers and the person in possession to hand over the same to the authorized officer and the authorized officer shall take custody of such movable property in the same manner as provided in sub-rule (1) to (3) above;
  • Movable secured assets other than those covered in this rule shall be taken possession of by the authorized officer by taking possession of the documents evidencing title to such secured assets.

Valuation of movable security assets

After taking possession under sub-rule (1) of Rule 4 and in any case before sale, the authorized officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary , fix in consolidated with secured creditor, the reserve price of the assets to be sold in realization of the dues of the secured creditor.

Sale of movable Secured assets

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  1. The authorized officer may sell the movable secured assets taken possession under sub-rule (1) of rule 4 in one or more lots by adopting any of the following methods to secure maximum sale price for the assets of the company, to be so sold-
  • Obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or
  • Inviting tenders from the public; or
  • Holding public auction; or
  • By private treaty.
  1. The authorized officer shall serve to the borrower a notice of thirty days for the sale of the movable secured assets, under sub-rule (1): Provided that if the sale of assets is being, effected by either inviting tenders from the public or by holding public auctions, the secured creditor shall cause a public notice in two leading news-papers one in the vernacular language, having sufficient circulation in that locality by setting out the terms of sale, which may include-
  • Details about the borrower and the secured creditor;
  • Description of movable secured assets to be sold with identification marks or numbers , if any, on them;
  • Reserve price, if any, and the time and manner of payment;
  • Time and place of public auction or the time after which sale by any other mode shall be completed;
  • Depositing earnest money as may be stipulated by the secured the creditor of the company registration.
  • Any other thing which the authorized officers considers it material for the purchaser to know in order to judge the nature and value of movable security or secured assets.
  1. Sale by any methods other than public auction or public tender shall be on such terms as may be settled between the parties in writing.

Issue of Certificate of sale

  • Where the movable secured assets is sold, sale price of each lot shall be paid as per the terms of the public notice or on the terms as may be settled between the parties, as the case may be and in the event of default of payment, the movable secured assets shall be liable to be ordered for the sale again.
  • On the payment of sale price, the authorized officer shall issue a certificate of sale in in the prescribed form as given in Appendix 3 to these rules specifying the movable secured assets sold, price paid and the name of the purchaser and thereafter the sale shall become absolute. The Certificate of the sale so issued shall be the evidence of title of the purchaser.
  • Where the movable secured assets are those referred in sub-clause (3) to (5) of clause (1) of sub-section(1) of section 2 of the Act, the provisions contained in these rules and rule 7 dealing with the sale of movable secured assets shall, apply to such assets of the company registration.

Sale of immovable security assetssecurity

  • Where the secured asset is an unmovable property, the authorized officer shall take or cause to be taken possession, by delivering a possession notice prepared as possible in Appendix 4 to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.
  • The possession notice as referred to in Sub-rule(1) shall also be published as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer.
  • In the event of possession of immovable property is actually taken by the authorized officer, such property shall be kept in his own custody or in the custody of any person authorized or appointed by him, who shall take as much care of the property in his custody as an owner of ordinary prudence would, under the similar circumstances, take of such property.
  • The authorized officer shall take steps for preservation and protection of security or secured assets and insure them, if necessary, till they are sold or otherwise disposed of.
  • Before effecting sale of the immovable property referred to in sub-rule(1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the security or secured creditor of the company registration, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods: 1) by obtaining quotations from the person dealing with similar secured assets or otherwise interested in buying the such asserts; or by inviting tenders from the public; or by holding public auction; or by private treaty.
  • The authorized officer shall serve to the borrower a notice of thirty days for sale of the immovable security or secured assets of the company registration, under sub-rule (5): Provided that if the sale of such security or secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include: 1) the description of the immovable property to be sold, including the details of the encumbrances known to the security or secured creditor; 2) the security or secured debt for recovery of which the property is to be sold; c) reserve price, below which the property may not be sold; 3) Time and place of public auction or the time after which sale by any other mode shall be completed; 4) depositing earnest money as may be stipulated by the security or secured creditor; 5) any other thing which the authorized officer considers it material for a purchaser to know in order to judge the nature and the value of the property.
  • Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorized officer deems it fit, put on the website of the security or secured creditor on the internet.
  • Sale by any method other than public auction or public tender shall be on such terms as may be settled between the parties in writing.

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