Monthly Archives: June 2015

Responsibilities of a Corporator under the Constitution of India – Twelfth Schedule (Article 243 W)

As we know the person Corporator i.e. Nagar Sevak. He is the person elected by us for solving & presenting our issues in Municipal Corporation. But how many peoples are know the actual work of Area Corporator ? now we discuss the actual work or responsibilities of Corporator i.e. Nagar Sevak which are impose by our Indian Constitution on him.
Article 243W  The Constitution Of India, 1949
Powers, Authority and Responsibilities of Municipalities, etc Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow
(a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to

(i) the preparation of plans for economic development and social justice;
(ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule;
(b) the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule.
Following are the Responsibilities of Corporator i.e. Nagar Sevak under List IV—Local Government List ( Art. 243 w)

1. Urban planning including town planning.

2. Regulation of land-use and construction of buildings.

3. Planning for economic and social development.

4. Roads and bridges.

5. Water supply for domestic, industrial and commercial purposes.

6. Public health, sanitation conservancy and solid waste management.

7. Fire services.

8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

10. Slum improvement and up-gradation.

11. Urban poverty alleviation.

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.

15. Cattle pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths.

17. Public amenities including street lighting, parking lots, bus stops and public conveniences.

18. Regulation of slaughter houses and tanneries.

Added by the Constitution (Seventy-fourth Amendment) Act, 1992, s. 4 (w.e.f. 1-6-1993).


Power of Attorney v/s. Sale under Section 54 & 55 of Transfer of Property Act, 1882

Sale under Transfer of Property Act, 1882

Section 5 of the Transfer of Property Act (hereinafter called as TOPA) defines transfer of property as In the following sections transfer of property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself [or to himself] and one or more other living persons and to transfer property is to perform such act.
Section 54 of the TOPA defines sales thus Sales is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
Sale :
 Such transfer, in the case of tangible immoveable property of the value of one hundred rupees or upwards or in the case of reversion or other intangible thing can be made only by a registered instrument.
Contract for Sale:
A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties.
It does not of itself, create any interest in or charge on such property.

The seller of the immovable property in these indirect sales after receiving the agreed consideration, deliver the possession of the said property and executes some or all of the following documents:

(1) An Agreement of sale (containing the terms which would be similar to terms of sale) by the seller in favor of the purchaser and undertaking to execute any document as and when required in future.
(2) An agreement of sale agreeing to sell the property with the separate affidavit confirming receipt of full price and delivery of possession and undertaking to execute sale deed whenever required.
(3) An Irrevocable General Power of Attorney in favor of the purchaser or his nominee.
(4) A Special Power of Attorney either to sell or to manage the property.
(5) A Will bequeathing the property to the purchaser (as a safeguard against the consequences of death of the vendor before transfer is effected).
The Honble Apex Court noted that such kind of Indirect Sales adversely affected the economy, civil society and law and order. Firstly, it enables large scale evasion of income tax, wealth tax, stamp duty and registration fees thereby denying the benefit of such revenue to the Government and Public. Secondly, such transactions enable persons with undisclosed wealth/income to invest their black money and also earn profit/income, thereby encouraging circulation of black money and corruption.

Power of Attorney

A Power of Attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do certain acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him. It is revocable or terminable at any time unless made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee. So, power of attorney does not convey ownership. An attorney holder may however execute a deed of conveyance in exercise of the power granted under the power of attorney and convey title on behalf of the grantor.

Honble Supreme Court vide its judgment rendered in case titled as

Suraj Lamp and Pvt. Ltd. v/s. State of Haryana and Others
Honble Apex Court dealt with is whether immovable property can be legally transferred or conveyed through a General Power of Attorney, Agreement to Sell and a Will?

Judgment the Honble Bench has merely drawn attention to the legal position that Sale Agreement/General Power of Attorney/WILL transactions are not transfers or sales and that such transactions cannot be treated as completed transfers or conveyances. But they can still be treated as existing agreement of sale. Nothing prevents affected parties from getting registered deeds of conveyance to complete their title.

Deemed Conveyance – Meaning, Importance, Procedure


Conveyance means to transfer or convey anything to another person. In the legal sense “Conveyance” refers to the transfer of ownership or other interest in the property to the other party. Conveyance Deed is a document executed to transfer the title of land and building in favour of Society or Association of Persons (AOP). A Deemed Conveyance means when the builder/ promoter/ developer of the project refuses to sign the conveyance deed the court can sign the same on behalf of the builder and record the same in the government records.


To have future benefits attached with the land like additional FSI, Development rights etc. the builders delay the Conveyance of land and building in favour of the Societies and sometimes with the ignorance of the proper procedure and legal remedies the office bearers also delay in taking appropriate legal actions to have early conveyance and proper title of the property for which the full and final payments have been made. There are legal remedies provided in Maharashtra Ownership Flats Act, 1963(MOFA)  to get the conveyance of land and building such as filing a case in the consumer court, civil court or criminal court. Since the litigation was taking more time, on the representations received from many societies, the Government has made a provision of deemed conveyance and accordingly amended the MOFA and also framed the requires rules to give effect to the provisions of deemed conveyance.


In a situation when a promoter or owner of residential premises/ buildings does not transfer/convey the ownership of the flats to the housing society or association of persons (AOP), the society or AOP can make an application to Registrar of Co-operative Housing Societies, to transfer the ownership of the said flats to them. This process is carried on through Deemed Conveyance of the title of the buildings and land in favour of the Society or AOP without the need of the builder to do so.


As per the Housing Society bye-laws, the main objective of formation of the Society is to obtain the Conveyance; and if Conveyance is not given by the Builder within four months from the date of registration of the Society, a case can be filed against the Builder to obtain the Conveyance. As per Section 13 of Maharashtra Ownership Flats Act, 1963, failure to give Conveyance is an offence and the Builder can be imprisoned upto 3 years or fined or both.


  1. Getting a proper and legal title in the name of the Society.
  1. Retaining the additional FSI as per the Government announcements.
  1. Property will be free and marketable.
  1. Society can raise the loans for repairs and reconstruction by   mortgage.
  1. Permission from planning authorities is possible if the building has to be reconstructed at a later date due to dilapidation of the structure due to age or by earthquake.
  1. Society can take the benefit of TDR.
  1. Members can receive compensation from Builder on redevelopment of the building.


  1. Even though you have purchased ownership flat, you are not the owner of the land and building.
  1. In the event of a building collapse or damage to the building, you cannot reconstruct the building without the permission of the Builder / Land owner.
  1. The Builder /Developer may mortgage the property purchased by you as he is the legal owner and holding the Title Deeds of the Property.
  1. The Builder / Developer may transfer the FSI / TDR to his other projects and enjoy the commercial benefits, depriving the flat purchasers / Society of its legal entitlement.
  1. The Builder may make profit by sale of open spaces, gardens, terrace, parking space belonging to the Society.
  1. The Builder may demand a huge amount from the Society, if Conveyance is sought by the Society after a lapse of many years.
  1. The Builder may sell the entire Development Rights and the Legal Rights on the land to third party and create a third party interest in the Property and the Society will have to incur a huge amount to clear the same.


There are certain important conditions which need to be fulfilled to go ahead for deemed conveyance, some of them are:

  1. Atleast 60 % of the flats in that scheme should be sold.
  1. A Co-operative Society or Association of Persons should have been formed of the flat-owners and atleast 3-4 months should have been passed since then.
  1. There should be communication between the builder and the society or AOP regarding Deemed Conveyance wherein the builder should have made a promise of completion of conveyance or refused to do the same.


After the above mentioned conditions are fulfilled, the following steps shall be taken:

Write a letter /email to builder/ promoter requesting him to provide a draft of the SALE DEED/ CONVEYANCE DEED or providing the draft to him and requesting him to sign the same.

If the Builder rejects or postpones the same, send him a legal notice through an advocate requesting for the same.

Even then if the builder refuses, File an application with the Registrar of Co-operative Societies together with all the relevant documents and 2000 Rs. Court stamp fees.

Self-attestation all the copies enclosed (by the society)

The Competent Authority will assess the application and if any documents are missing he will ask the applicant to correct the mistake within fifteen days.

Thereafter, notice would be sent to the promoter and the land owners.

After receipt of the notice by the land owners and the promoters, the authority will hear both parties in the first hearing and ask both parties to produce further evidences in next hearing.

Thereafter, second hearing would be held and if the builder or landowners do not attend both first and second hearing then the authority will pass an ex-parte order.

Thereafter, the third and final hearing would be held and the authority would be held and order would be passed unless a legal question is raised.

Normally the whole process is completed within a period of 6 months.


Further, the application required to be made with the Registrar shall be accompanied by copies of certain 20 odd documents which the society shall have to prepare or get prepared. The following are some of the documents required :-

  1. 7/12 Extract
  2. City Survey Map
  3. N.A Order
  4. Certificate under Urban Land Ceiling Act, 1976
  5. Draft of sale deed  etc.

After, the Application is heard by the Registrar he may grant an order for deemed conveyance which shall then be produced before a court for execution and hence the conveyance may be done by a court order.

Investigation of Title of Property & Procedure of Transfer of Immovable Property

Title is a legal term; it means the Ownership Right to Property. Title of property is the prime concern of everyone at the time of purchasing of a property. Every property has a title. Title is the evidence of the right of ownership or the ground of right of ownership. Title can be created by act of parties or by operation of law.

The investigation of title is a step as towards an agreement of sale. An agreement of sale has three main step preceding the completion of a transaction of sale they are: – (1) Settlement of the terms of the deal between the parties particularly relating to the consideration & the property to be transferred, (2) Preparation and execution of the agreement & (3) Investigation of title of the transfer of property.

Investigation of title is an intricate matter. There is no standard period prescribed for the root of title. After the execution of the agreement of sale it will be the duty of the vendor’s advocate to send to the purchasers advocate the title deeds of the property. These title deeds are sent in exchange of an accountable receipt to be signed by the purchasers advocate. The purchaser advocate signs the accountable receipt and keeps a copy thereof with him with the title deeds. Investigation of title starts with the present owner’s original title deed which will always be ‘the document of title ‘to the property. Once the original deed is perused the investigator proceeds to verify the parent documents or the prior title deeds. The work then of investigation of title by the purchasers advocate commences He will than take searches in the office of the sub-registrar to find out all the documents relating to the property which is the subject matter of sale which are registered. To what extent and up to what period the prior title deeds are to be perused vary from case to case. The safest thing is to peruse the title deeds for the last 30 yeas. The reasons for this proposition are; (1) the period of Limitation against Government is 30 years; (2). Under Section 90 of the Evidence Act , a document 30 years or more are presumed to be validly executed.(3) The contents of any document are presumed to represent the correct agreement or understanding between the parties there to .However a search for the last 12 years is treated as normally sufficient . If the title cannot be reasonably be ascertained with in 12 years, then it is necessary to go back as much as necessary. In addition to ascertaining the owner’s title, it is the duty of the investigator to rule out the possibility of any subsisting charge by way of equitable mortgage on the property under investigation. For this, perusal of all original title deeds for the last 12 years.

In Maharashtra to check the title verification of the property the investigator must do the following checks: –

a) Recent 7/12 Extract ( 7-12 Utara) :- It will give idea about the type of ownership, Total Number Owners ( and their share in property) of the property. Loan on the property, Tenant in the property ( if any), cultivable and non cultivable area in the property, source of irrigation ( if any), assessment for the property, Class of the property, Reservation on property( if any).

b) All mutations on 7/12 extract ( Fer far ):- Mutations are the entries made by the Revenue Department in respect of any Change in Ownership of the Property, such changes may be because of Death of any Owner, Loan obtained by any Owner, etc. some time it may happen that name of any person appears in Mutation but not in 7/12 extract, to check such things it is advisable to check all mutations,

c) Maps :- It is advisable to check maps provided by the government authorities, this gives better idea about he exact location of the property and access to the property,

d) Ceiling Limit :- As per the type of the property there is a Limit provided for the holding of the Land , the purchase must check that the Land which he is going to purchase will not cross his limit as well as he have to check that the vendor is also not holding it as excess land. The Khate Utara  (8 A Extract) is a document which gives us idea about the Exact holding of the Owner,

e) 6c Certificate ( Varas Register ) :- 6c Certificate is a document which gives us idea about the names of all Legal Heirs of deceased person. This document is very important as, it is noticed that some times names of Female Legal Heirs are not appearing on revenue documents, to avoid such ambiguities it is advisable to check 6c Certificate.

f) Lis Pendens (nothing new should be introduced in a pending  litigation)  if any, recorded U/S.52 of the T.P. Act should also be verified with the District Sub- Registrar

g) Public Notice :- Some Transactions are UN-Registered to check such transaction it is advisable to the purchaser to Publish Public Notice at least in Two Local News paper and ask for Objections this helps the purchaser advocate to satisfy him self about the title of the property. Claims are invited in the nature of mortgage, lien, charge, lease, easement, gift, trust, or any other claim against the property which is required to be notified to the buyers advocate within a period of 15 Days after which it shall be deemed to have been waived. Such Public Notice supports the buyer’s contention in the case of dispute that he is a bonafide purchaser for value without notice of any claim.

h) Inquiry in Municipal Corporation :- It must be inquired whether there are any claims to the property concerned. A letter to be addressed to the Assessor and Collector, Municipal Authority to find out whether there are any arrears of municipal bills or water charges or riot bills in respect of the property agreed to be purchased by the buyer. An Enquiry with the Ward Officer must be made with the Ward Officer in which the property is situated to find out (1) whether the property or any portion thereof has been notified under the Land Acquisition Act for public purpose or (2) Whether any notice, notification, action or claim is pending against the property. (3) Whether any portion of the property is included in the setback.

i) Inquiry about Zones :- An enquiry is also to be made in CRZ (Coastal Regulation Zone) and other zones as it is not allowed to any development in such zones it is necessary for the purchaser to check such zones before signing any deed.

The last stage i.e. of preparing Draft of the Conveyance or Sell of Property. The following points are generally covered in the deed :-

1] Indemnity/ Guarantee from the present owner about his Title over property,

2] Indemnity/ Guarantee from the present owner about his Possession over property,

3] Indemnity/ Guarantee from the present owner about Non-Reservation of the property,

4] Point making clear that the said property Does Not relates with any Public Activity,

5] Point making clear that the said property is Not a Trust Property,

6] Point making clear that said property is Not a Government Granted Land,

7] Point making clear that no-one has any right ( road/ parking) over said property,

8] ) Point about the existing structure on property (if any). Because it may affect valuation of the property,

9] If the said property is ancestral one then it is necessary to make all members of the family as consenting parties for the deed,

10] Purchase price of the property is agreed mutually, with the schedule of payment,

11] The Photo Identity Cards of the present owners must be attached to title deed,

12] Indemnity/ Guarantee from the present owner about Non Litigant property because any transaction for a property for which litigation is pending is null and void in the eye of law,

13] Boundaries of the property gives clear idea about the exact location of the property. Therefore it is necessary to mention it clearly in the Title-Deed, a part from this it is advisable to attach a map showing exact location of the property.,

14] Witness to the deed plays very important role if the deal goes in to any Litigation, It is advisable to take one owner of adjoining property as witness as it will help to prove possession of the present owner.

ears or even more may become necessary.

Latest Amendments in the Real Estate (Regulation and Development) Bill, 2013

Amendments to “The Real Estate (Regulation and Development) Bill-2013 -PIB_2

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval to Amendments to the Real Estate (Regulation and Development) Bill, 2013 pending in the Rajya Sabha, and approved amendments proposed in the Bill. The recommendations of the Standing Committee of Parliament on Urban Development and suggestions of various stakeholders (consumer organizations, industry associations, academia, experts etc.) have also been included after extensive consultations. The Real Estate (Regulation and Development) Bill is a pioneering initiative to protect the interest of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects. The Bill provides for a uniform regulatory environment, to protect consumer interests, help speedy adjudication of disputes and ensure orderly growth of the real estate sector. The Bill contains provisions of registration of real estate projects and registration of real estate agents with the Real Estate Regulatory Authority; functions and duties of promoters and allottees; establishment of Real Estate Regulatory Authority; establishment of fast track dispute resolution mechanism through adjudication; establishment of a Real Estate Appellate Tribunal; offences and penalties etc. The salient features of the Bill are as under:

  1. Applicability of the Bill:

The proposed initial Bill was applicable for residential real estate. It is now proposed to cover both Residential and Commercial real estate;

  1. Establishment of Real Estate Regulatory Authority:
  • Establishment of one or more ‘Real Estate Regulatory Authority’ in each State/ Union Territory (UT), or one Authority for two or more States/UT, by the Appropriate Government for oversight of real estate transactions,
  • To appoint one or more Adjudicating Officers to settle disputes and impose compensation and interest;
  1. Registration of Real Estate Projects and Registration of Real Estate Agents:

Mandatory Registration of Real Estate Projects and Real Estate Agents who intend to sell any plot, apartment or building, with the Real Estate Regulatory Authority;

  1. Mandatory Public Disclosure of all project details:

Mandatory public disclosure norms for all registered projects such as details of promoters, project, layout plan, plan of development works, land status, status of statutory approvals and disclosure of proforma agreements, names and addresses of real estate agents, contractors, architect, structural engineer etc.;

  1. Functions and Duties of Promoter:
  • Disclosure of all relevant information of project;
  • Adherence to approved plans and project specifications;
  • Obligations regarding veracity of the advertisement for sale or prospectus;
  • Rectify structural defects;
  • Refund money in cases of default;
  1. Compulsory deposit of 50 percent:

To compulsorily deposit 50 percent (or such lesser percent as notified by the Appropriate Government) of the amounts realized for the real estate project from the allottees in a separate account in a scheduled bank within a period of fifteen days to cover the cost of construction to be used for that purpose;

  1. Adherence to declared plans:
  • To bar the promoter from altering plans, structural designs and specifications of the plot, apartment or building without the consent of two-third allottees after disclosure;
  • However, minor additions or alterations permissible due to architectural and structural reasons;
  1. Functions of Real Estate Agents:
  • Real estate agents to sell properties registered with the Authority;
  • Maintain books of accounts, records and documents;
  • Not to involve in any unfair trade practices;
  1. Rights and Duties of Allottees:
  • Right to obtain stage-wise time schedule of project;
  • Claim possession as per promoter declaration;
  • Refund with interest and compensation for default by the promoter;
  • Allottees to make payments and fulfill responsibilities as per agreement;
  1. Functions of Real Estate Regulatory Authority:

The Authority to act as the Nodal Agency to co-ordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate Government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector;

  1. Fast Track Dispute Settlement Mechanism:
  • Fast track dispute resolution through adjudicating officers (District Judge);
  • Appellate Tribunal to hear appeals;
  1. Establishment of Central Advisory Council:

To advise the Central Government on implementation of the Act, recommend policy, protection of consumer interest and to foster growth and development of the real estate sector;

  1. Establishment of Real Estate Appellate Tribunal:

Real Estate Appellate Tribunal to hear appeals from orders of the Authority and the adjudicating officer.  The Appellate Tribunal is to be headed by a Sitting or Retired Judge of the High Court, with One Judicial and One Administrative/Technical Member;

  1. Punitive Provisions:

Punitive provisions including de-Registration of the project and penalties in case of contravention of provisions of the Bill or the orders of the Authority or Tribunal;

  1. Bar of Jurisdiction Courts:

Provision for barring jurisdiction of court and any authority from entertaining complaints in respect of matters covered under the Bill;

  1. Power to make Rules and Regulations:
  • Appropriate Government to have powers to make rules over subjects specified in the Bill;
  • Regulatory Authority to have powers to make regulations;

Key Points – The Maharashtra Apartment Ownership Act, 1970

The Maharashtra Apartment Ownership Act 1970 empowers apartment owners to fully own the apartment, including the proportional share in the undivided common areas and facilities. It also makes the apartment transferable and heritable, enabling apartment owners to secure a mortgage on the apartment. This, of course, proves beneficial to both the apartment owner and the builder, who is able to use the freed up capital to start new constructions.

Besides all this, the Act helps apartment owners come together and form associations, which in turn take responsibility for ensuring residents’ welfare and promoting their rights. Although unregistered apartment owners’ associations also exist, it’s always wiser to register your association so that you can defend yourself legally in case of a conflict at a later time.

Following are The Key Features Of The Act :-

1. You’re Deemed The Owner Of The Apartment

Under the Maharashtra Apartment Ownership Act 1970, you will be deemed the owner of a particular apartment in the building along with a proportional share in the undivided common areas and facilities. Simply put, you become the independent owner of your flat, i.e., the complete physical structure, besides having all the rights of an owner.

2. The Apartment Becomes Heritable And Transferable

The said apartment will also become heritable and transferable, which means, among many things, that you can raise capital on your apartment. As an owner of the apartment, you will have the right to transfer the apartment to anyone else, as long as the transfer is being accomplished as per the bye laws.

3. Your Flat Becomes An Independent Unit Owned By You

Other legislations in Maharashtra, such as the Cooperative Societies and Companies Act, treat a flat as a part of the building and unit owned commonly by the company or society. The Maharashtra Apartment Ownership Act 1970, on the other hand, considers a flat as an Independent unit of ownership, despite actually being a unit of the building.

4. You Can Form An Association Of Apartment Owners

  • All apartment owners willing to join the association need to come together at one place to complete the formalities.
  • The eligibility for forming an association is that one or more buildings should have at least 5 apartments.
  • At least 7 members above the age of 18 years need to come together to form the association.
  • A Memorandum of Association, comprising details such as name, address, and occupation of all the members of the association and the name and objectives of the association.
  • The rules and regulations of the association, called the bye laws, also need to be filed along with the Memorandum of Association.

5. The Share Of The Common Expenses For Common Areas And Facilities

Common expenses need to be paid by every apartment owner. Each owner’s share is proportional to the percentage of his or her undivided interest in common areas and facilities.

6. What The Act Means To The People Involved

  • As this Act grants complete ownership of the apartment to you, it gives you the power to come together with other apartment owners and form an association that frames bye laws for the upkeep of the whole apartment complex.
  • There is sometimes a tendency for conflicts to occur within the association. Such disputes come under the jurisdiction of a Civil Court. Thus, every apartment owner is protected legally.

The Important terms used in the said Act.

Memorandum Of Association

Memorandum of Association contains the name and objectives of the society, the address of the registered office of the society, names, occupations, and addresses of the governing body, as well as the names, addresses, and signatures of people subscribing to the Memorandum of Association.

Common Areas And Facilities

Common Areas and Facilities constitutes the land on which the multi-storied apartment building is located, the gardens, basements, cellars, parking areas, and any other such creations, and all the structural elements like lobbies, corridors, fire escapes, and beams and columns.

Common Expenses

Common expenses are sums of money, lawfully assessed against the apartment owners, which go into administration, repair, and maintenance or for modifying common areas and facilities.

Important Points of SARFAESI Act, 2002 – Debt Recovery Tribunal

The object of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is to regulate Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest and for matters connected therewith or incidental thereto and the Act came into force on 17th December, 2002.

The Act aims at speedy recovery of defaulting loans and to reduce the mounting levels of Non-performing Assets of banks and financial institutions.

The provisions of the Act would enable the banks and financial institutions to realise long-term assets, manage problems of liquidity and asset liability mismatches and to improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.

As per the Act, the first step would be to issue notice U/s. 13(2) by the authorised officer who is deemed to be armed with a money decree which attained finality. By the statute, the authorised officer is clothed with powers of Trial Court and Execution Court and the Code of Civil Procedure which governs the civil proceedings is no more necessary. To put it otherwise, by the Special Act, the authorized officer acts like a Civil Court clothed with powers hitherto exercised by it.

The various important and complicated issues are as follows:

  1. The action of the Bank under the SARFAESI Act, 2002 starts with classifying an account of the borrower as ‘NPA’ as per the Guidelines issued by the Reserve Bank of India. The Courts have repeatedly held that RBI guidelines are mandatory and every Bank/Secured Creditor should follow the RBI guidelines when it comes to classifying an account of the borrower as “Non-performing Asset” (NPA).  Despite the guidelines, through an internal mechanism, if the Bank feels that the borrower can regularize the Account or the borrower is not a willful defaulter or if the Bank feels they will in no way get prejudiced by being liberal to the borrower to some extent, then, the Bank/Secured Creditor can adopt a reasonable approach in classifying an Account as ‘NPA’. Because, the object is to recover the outstanding loan amount and not to apply the guidelines technically. But, when it comes borrower, the borrower can question the action of the Bank in classifying his account as ‘NPA” if the classification is opposed to the guidelines issued by the Reserve Bank of India in this regard. The entire action of the Bank/Secured Creditor under the provisions of SARFAESI Act will get vitiated if the classification of account as ‘NPA” is illegal. When the classification as referred to is illegal, then, the borrower has two options to challenge the illegality. The borrower can approach the High Court under Article 226 of Constitution of India and the High Court can also entertain a Writ Petition from the borrower if the borrower could establish his case clearly. I don’t think that the High Court may insist on the principle of ‘Alternative Remedy’ at this state. Even otherwise, the borrower can file an Appeal to the Debt Recovery Tribunal under Section 17 of SARFAESI Act, 2002 questioning the measures initiated by the Bank under section 13 (4) of the Act and the borrower can expose as to how the Bank has not followed the RBI guidelines when it comes to classifying the Account as ‘NPA’.
  1. Once the Account is classified as ‘NPA’, then, in accordance with the procedure prescribed, the Bank will proceed to make a demand under Section13 (2) informing the borrower about the outstanding amount in the loan account and also the consequences. There is a general format to give a notice to the borrower under section 13 (2). The notice under section 13 (2) should substantially comply with the requirements and if the borrower raises a technical objection, those are not appreciated normally going by the precedents so far. Normally, borrowers may choose to remain silent after receiving a demand notice under section 13 (2), though, they can send their objections to the Bank/Secured Creditor. If the borrower sends any objections to the notice under section 13 (2) of the Act, then, the Bank should carefully consider those objections and should be fair in looking and replying to the objections. There should be a reply to the objections raised by the borrower under section 13 (3A). If the Bank chooses to ignore section 13 (3A), then, the entire action of the Bank under section 13 of the Act gets vitiated. If the Bank failed to reply to the objections raised by the borrower, then, the borrower can raise the same before the Debt Recovery Tribunal in an appeal under section 17 of the Act. This is the adjudication part and the Bank is supposed to act fairly at this stage considering the object of the special legislation ‘SARFAESI Act, 2002’.
  1. After the adjudication part is over, then, the Bank proceeds to issue a possession notice under section 13 (4) of the Act informing the borrower that they have taken symbolic possession of the property. This is not actual possession of the ‘secured asset’ or property of the borrower. The borrower gets a right to question the notice under section 13 (4) and all subsequent measures initiated by the Bank under section 17 of SARFAESI Act, 2002. In view of the clear provision in the Act about the time limit to file an appeal under section 17, the borrower is normally advised to file an appeal under section 13 (4) within the prescribed period. However, the subsequent and many judgments make it clear that all measures of the Bank under section 13 (4) of the Act can be questioned under Section 17 of the Act and as such, the cause of action to file an appeal under section 17 of the Act starts with the notice under section 13 (4) and it continues. That is why, even a challenge to the Sale Notice is entertained though the borrower is silent after receiving the notice under section 13 (4). As the object of the legislation is to help the Banks to recover the outstanding dues speedily, the Tribunals should be liberal when it comes to entertaining Appeals from the borrower under section 17 and substance can be appreciated at any stage.
  1. After the possession notice under section 13 (4) and if there is no stay of further proceedings, the Bank will proceed to take physical possession of the property under Section 14 of the Act through District Magistrate or Chief Metropolitan Magistrate etc. Before the Magistrate under Section 14 of the Act, there will not be any kind of adjudication and notice need not be given to the borrower at this stage. The Magistrate is required to look at the statutory compliance of Section 13 and if the is satisfied, he will assist the Bank in taking physical possession of the property. Normally, the Magistrate Court appoints an Advocate Commissioner to take physical possession of the property and the Bank officials too accompany him. The Magistrate Court can even grant police assistance to take physical possession of the property. If the property is under lock and key, then, the Magistrate Courtpermits to break-open the lock and thus, physical possession of the property is taken. If the borrower intends to question the order of the Magistrate under section 14 of the Act, he can approach the Debt Recovery Tribunal. Though it is very often seen where the borrower approaches the High Court challenging the action under section 14, the High Court may ask the borrower to approach Debt Recovery Tribunal. There are two conflicting views in this regard. On view supports that only High Court can look into the challenge to an order of the Magistrate under section 14 in view of the specific bar on other courts. Another view is that, as all measures under section 13 can be questioned under section 17 before the Tribunal, the borrower can certainly question the order of the Magistrate or the action under section 14 before the Debt Recovery Tribunal itself. It is to be noted that if there is a clear case, then the Debt Recovery Tribunal can restore the possession back to the borrowers even after taking physical possession.
  1. After taking physical possession of the property under section 14, if there is no impediment to proceed further through an order from the Tribunal or the High Court, the Bank will proceed to sell the property/secured interest and the Bank is supposed strictly comply with the provisions of the Act and the SARFAESI Rules in this regard. If the Bank violates the SARFAESI Rules while proceeding to auction the property, then, the entire auction can be set-aside on that ground alone. Even after the confirmation of sale in a public auction conducted by the Bank, the auction can be set-aside if the Debt Recovery Tribunal decides in favor of the borrower in his appeal under section 17 of the Act. From and out of the sale proceedings, the residue is to be returned to the borrower.

Though the procedure and process under SARFAESI Act, 2002 is clear and unambiguous, there is a general feeling among borrowers that the Debt Recovery Tribunal is not fair in many cases and the borrowers feel that the remedy before the Debt Recovery Tribunal is not speedy and effective. Despite the stringent provisions under SARFAESI Act, 2002, no one can undermine the rights of the borrower and his right to property. The observation of Supreme Court in this regard inKarnataka State Financial Corporation Vs. N.Narasimahaiah (2008 (5) SCC 176) is as follows:-

“40. Right to property, although no longer a fundamental right, is still a constitutional right. It is also human right. In the absence of any provision either expressly or by necessary implication, depriving a person therefrom, the Court shall not construe a provision leaning in favour of such deprivation.”

“In a case where a Court has to weigh between a right of recovery and protection of a right, it would also lean in favour of the person who is going to be deprived therefrom. It would not be the other way round.”