The creditor lends the money and the debtor borrows the money from the creditor.  There are many people who take out their property mortgages and get loans from banks. But many a time, due to financial crisis, they are not able to pay back the loan on time. This situation is mostly dealt with through a communication between the debtor and the creditor resulting in restructuring or reducing EMI. However, if this process is not working properly between the two parties, then the creditor can take possession of the property of the debtor. The “SARFAESI Act, 2002” enables secured creditors to take possession of the property without the court’s intervention.

So, what happens when a borrower cannot repay? Is there a chance for him to get back his property after the confiscation of his property? These are important questions that arise in the mind of a borrower after losing their property.

Right of the secured creditor to take the possession of property:

Section 13 of “The Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002”gives the creditor thelegal right to take possession of borrower’s property in case of failing to pay the debt. According to this law, if a borrower fails to pay the loan amount or installment, the loan is categorised as a non-performing asset (NPA) and the creditor send a notice to the borrower to pay his or her debt. If the borrower fails to respond to this notice within two months, the lender, which is a financial institution, has the power to acquire his or her property legally.

Restoration of secured assets to the borrower under SARFAESI Act, 2002:

Section 13(4) of SARFAESI Act, 2002, gives the secured creditor the right to recover his debt by taking possession of the secured property of the borrower, including the right to transfer by lease, assignment sale to acquire the secured assets. Section 17 grants the borrower the right to apply for a secured asset back.

Opportunity for the borrower to take back the security as per BCSBI:

Any secured creditor or bank uses the option of taking possession of the debtor’s property for defaulting the loan amount or instalments. Under Banking Codes and Standards Board of India, if a bank occupies a borrower’s property, a borrower can regain ownership of his property if the following conditions are met:

• The bank has not already sold the property
• If the bank is satisfied with the actual fact that the borrower is unable to pay
• If the borrower repays the entire bank loan

The bank may return the property to the borrower within seven days after receipt of the instalments, confirming the arrangements taken by the borrower and obtaining permission from:

• The component bank authority
• The recovery proceedings were filed before the court or Debt Recovery Tribunal.

Repossession of property under execution decree under the Code of Civil Procedure, 1908:

“Section 51 of Code of Civil Procedure, 1908 is about “Powers of Courts to enforce execution”. Application for the execution of a decree against the debtor under this section can be Oral (Order 21, Rule 10) and Written (Order 21, Rule 11)”.Section 52 speaks of the execution of a decree against the deceased’s legal representative from the deceased’s property. A legal representative can be personally liable only if he or she neglects, avoids to make any payments from the deceased’s property.

Case Analysis: G.Yadaiah vs Vs on 11 April 2016, Andhra High Court

“In this case, it was found that it is not in dispute that the petitioner has benefited with financial assistance from the State Bank of Hyderabad (Respondent) and he has made default in payment of a loan. So, the loan account considered as a non-performing asset and sub-section (2) of section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provides measures for the securitization of the loan account and it has been undertaken by them. When the bank legally issued a demand notice under sub-section (2) of section 13 which provides for sixty days to liquidate the liability did not evoke any response from him and so the follow-up action contemplated under sub-section (4) of section 13 has been initiated by putting to sale the secured asset.

Hence, it is observed that if the petitioner immediately approaches to deposit either the entire loan amount, which is outstanding or at least such amount, which is equivalent to the highest bid offered at the auctions that were conducted on 14-03-2016, together with costs and incidental expenses incurred by the respondent bank for the securitization measures, including any interest payable to such highest/best bidder, which may not exceed 9 per cent per annum on the monies so deposited, his right to redeem the property subsists.” 

Conclusion:

The above discussion clearly shows us the procedure to retrieve property lost due to default in payment of loans.