Borrowers have a right of raising objection to the demand notice which is sent by the bank under Section 13(3A) of SARFAESI Act, 2002. The law prescribes that whenever a borrower is served with a demand notice, he always has the right to submit a representation to the bank ventilating its grievances and it is mandatory on part of the bank to consider the representation of the borrower with due application of mind and get back to the borrower with a reasoned answer.
Section 13(3A) of SARFAESI Act, 2002 has its roots in the principle of fair play and natural justice. Coercive steps like taking possession or selling the mortgaged property cannot be undertaken by the bank without deciding the representation under Section 13(3A).
TIME LIMIT FOR RAISING OBJECTION UNDER SECTION 13(3A)
In the demand notice, a time-period of 60 days is given to the borrower for discharging its liabilities. If it is not cleared within such period, then the bank is empowered to take further recovery action under Section 13(4) of SARFAESI Act, 2002. While there is no specific time limit prescribed under the law, it is safe to assume that the borrower may make a representation under Section 13(3A) before the bank proceeds under Section 13(4).
WHAT OBJECTIONS AND REPRESENTATIONS CAN BE MADE BY THE BORROWER
While there is no exhaustive list of objections which can raised to the demand notice, representation on the following lines may be made to the authorized officer of the bank:
- Whether bank disbursed the entire sanctioned amount?
- Whether bank holds valid charge over the mortgaged property?
- Whether bank falls within the definition of a secured creditor?
- Whether the amounts claimed by the bank are as per the loan agreement?
- Whether NPA has been declared as per the RBI Guidelines?
- Whether bank charged exorbitant rates of interest?
- Whether there was existing moratorium on recovery processes?
- Whether any act of bank pushed the borrower to financial crisis?
- Whether there were conditions which were beyond the control of the borrower?
- Whether the original borrower became incapacitated or suffered disablement rendering him unable to liquidate the dues of the bank?
The bank cannot decide the representation of the borrower made under Section 13(3A) with a strait jacket denial of the grounds raised in objection/representation. The response of the bank should be speaking and coupled with reasons, e.g. if the amount claimed by the bank is disputed, a detailed statement of account should be given to borrower to ensure transparency and fairness.
JUDICIAL PRONOUNCEMENTS ON THE SUBJECT
The Allahabad High Court in the case of M/s Malhotra Tractors vs. State Bank of India (Writ C No. 11425 (M/B) of 2008) was pleased to hold that it was incumbent upon the bank to decide the objection filed by the borrower with a reasoned and speaking order. It was further made mandatory by the High Court that while deciding the objection of the borrower, the bank was required to furnish the statement of account mentioning the principal as well as interest which fell due upon the borrower.
The Supreme Court of India in the case of ITC Ltd. vs. Blue Coast Hotels Ltd. (AIR 2018 SC 3063) also declared that the representation or objection which is filed by the borrower requires active consideration and reasoned order as to why the borrower’s representation has not been accepted.
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