Court order puts spoke in banks’ loan recovery process in non-metros

Non-performing assets are mounting but our hands are tied, say bankers in non-metropolitan cities, pointing to a recent observation made by the Madurai Bench of the Madras High Court. A Bench observed that secured creditors in metropolitan areas could approach either the Chief Metropolitan Magistrate or District Magistrate for relief under the SARFAESI Act.

 

Before proceeding further on this, here is a look at how the NPAs in banks are handled. Often, banks try to settle NPA cases out of court. If that doesn’t work, the banker issues a possession notice in newspapers that is mandated under Section 13 (4) of the Act, in order to initiate recovery proceedings. Then the banker has to wait for 30 days for the party to come to settle the dues. If there is no response, the bank can initiate legal possession under Section 14 (this Section deals with persons who are eligible to take security possessions). The crux of the observation lies here.

 

The Madurai Bench was constituted following a reference made by a Division Bench to decide on whether the reference made in the SARFAESI Act to the Chief Metropolitan Magistrate under Section 14 would include Chief Judicial Magistrates in the non-metropolitan areas. The observation was made in the case of K. Arockiyaraj vs The Chief Judicial Magistrate, Srivilliputhur, and the Housing Development and Finance Corporation and D. Visalakshi vs The Authorised Officer, Indian Bank, Sivagangai Branch. But in non-metros, where the Chief Metropolitan Magistrate would not be available, the secured creditors could seek the assistance of District Magistrates alone, as no power is vested or given to Chief Judicial Magistrates to give assistance to secured creditors. As a consequence of the above observation, banks have stopped issuing notice for possession under Section 13 (4) of the Act, a law officer of a nationalised bank told.