RIGHT OF SET OFF

For the right of set off to be exercised by the banker, the conditions are
a. A mutual debt should exist (both persons must owe something to each other)
b. An account should be maintained in the sole name of the customer (it can also be a joint
account- exception to this rule)
c. The debt for which the right of set off is exercised should be certain and measurable.
d. The money shouldn’t be kept for any specific purpose- in that case the right of set off
cant be exercised.
e. The right of set off cannot be availed for future debts.
f. The bankers right of set off would be given
Cases
C- SYNDICATE BANK V. VIJAY KUMAR-
FACTS- Jalandhar Body Builders (JBB) had a current account at syndicate bank, which had
provided for the overdraft facility. The condition was that if the overdraft facility was availed,
they were supposed to repay to the bank.
JBB then borrowed money form a third person, one Mr Vijay Kumar (VK), and once this loan
was defaulted, he filed a suit for recovery and a decree was passed in his favour against JBB.
Being the judgment debtor, JBB offered to pay the money to VK in monthly instalments. The
HC agreed to this offer, only on the condition that they needed to furnish a bank guarantee to this
effect. JBB requested Syndicate bank to furnish a bank guarantee. However, the bank asked for
security to furnish the same. JBB then offered two of its fixed deposits which were supposed to
mature in the years 1980 and 85 respectively to be used as bank guarantees. This was agreed to
by the bank, who then used these as securities and furnished a bank guarantee to the registrar of
the Delhi HC.
However, VK didn’t agree to payment in instalments and therefore the bank guarantee went back
to Syndicate Bank. However by virtue of this guarantee, VK got toknow about the existence of
the FDs, and therefore filed an interlocutory application for a garnishee order against the
account of JBB. However, the bank raised its own objections to this claim and stated that they
already have a right of general lien over these two Fixed Deposits.
The HC here stated that the Fixed Deposits being kept in place of bank guarantee- the
right of general lien can now not be exercised over these.
Appeal made to the SC
SC- Stated that the HC was wrong in stating that the bank does not have general lien. Referring
to S.170 of the ICA, the SC stated that ‘banker’ is one of the five categories of persons who
could exercise the right of general lien. The bank therefore has the right to claim general lien
upon any amount of money that they possess
C- SHIMLA BANKING CO V. BHAGWAN KHAN
Facts- A husband and wife had a joint account, and the husband borrowed money from the bank
and defaulted. The question here was whether the money could be set off against the joint
account. The court here held that there was no mutuality of debts as the wife was in no way
involved in this entire transaction, and hence the right of set off cant be exercised for the
default of the husband.

C- LONANKUTTY ANTONY V. JOINT REGISTRAR OF COOPERATIVE SOCIETIES

The husband borrowed money against some security and the wife borrowed some money as per
another agreement. When the husband repaid his amount according to the agreement he filed for
a non-objection certificate claiming the securities he had deposited to avail the loan. The bank
refused to return the securities in light of default by the wife of her loan, and claimed that
they were exercising general lien
The HC in this case held that neither in law nor in equity is it justified to make the husband
pay for no fault of his own. Therefore, the bank here could not exercise general lien over
the amount.

RIGHT OF GENERAL LIEN

The right of general lien is a form of an implied pledge. It is available to a bailee, and refers to
the right to retain the goods. The person does not have the right to sell them unless the money is
not paid within the prescribed time period. S.176 of the Indian Contract Act gives the right to the
pwnee or pledgee to not only retain the goods but also sell them off provided that before selling,
the pawnee should serve a notice to the pawnor.
S.6(1)(f) of the BR Act- deals with permitted activities of bankers. The bank can realise or sell
or manage the property that comes with the possession of the bank for the satisfaction of
the debt in hand. The right of general lien is called the implied pledge.
Exceptions to lien
a. Contract- between the banker and the customer with regards to the extinguishment of the
right of general lien
b. Goods and Securities kept with the bank for a safe custody. Cant retain or sell goods
kept for the simple purpose of safety and security of the goods.
c. The right of general lien cannot be realised before the debt is due
d. If any good or security has been left with the banker negligently or carelessly, the
banker can’t exercise general lien on those goods.
e. Where the bank is acting as an agent or a trustee in a Trustee Beneficiary relationship,
then the banker can’t exercise the right of general lien.
The doctrine of implied pledge can also be extended to Negotiable Instruments- Ex- in case
where the customer deposits a title deed with the bank for availing loan or where the customer is
a guardian for someone who has taken a loan from the same bank.
Cases
C- NAKULAM V. DEPUTY GM, CANARA BANK- Petitioner borrowed a personal loan from the
bank and promised to pay it within three years. Next year he took a gold loan from the bank
(secured debt). While he paid off the gold loan he didn’t pay the normal loan- bank didn’t give
the gold back claiming general lien. Held that it is a fit case of general lien.
C- M SHANTI V. BANK OF BARODA
Shanti availed a loan from the bank and mortgaged her property by depositing the title deed.
Being a regular customer, she paid off her loan in due time and then filed for the return of
documents from the bank which was the security. The bank refused and said that they had a right
to general lien. This was considering that she was a guarantor for another transaction with on A,
who had taken a loan from the bank and defaulted.
Shanti contended that both are separate transactions and filed a writ petition seeking an order of
mandamus. She contended that the ambit of S.171 f the ICA was not broad enough for such
cases to fall within its ambt. If the property had been kept as security in loan, then maybe it
would’ve been alright or justified.
This case therefore could not be brought within the concept of implied pledge. The bank didn’t
have any right to sell or dispose the property, and the only right it had was that of the bailee.
Further, the right of lien does not extend to another transaction where the person is a
guarantor, as the debt in such a situation is not created by her. Therefore the same is not
applicable to the present case.

Instances of lien
 When person is willing to return the entire property- When a mortgagee is willing to
return the entire money, then the mortgagee is bound to restore the property- therefore in
such cases the right of lien cannot be exercised.
 Can lien be exercised on time barred debts?- According to the limitation act a suit
cannot be instituted after the limitation perid expires and the creditor cant approach the
court for recovery. However, as discussed in the case of Thankappan v. Muthukoya
the debt in this case does not get extinguished and therefore the right of general lien
can be exercised.
Cases
C- BRAHMAYYA V. KP THANGAVELU NADAR-
The case discussed the difffernce between set off and lien. The case further stated that when
money goes to the bank it ceases to belong to the owner, and the bank becomes the owner. When
money is deposited it becomes a debt. The case further stated that money is not goods as per the
Sale of Goods Act.

Right of Appropriation of payment

S.59, 60 and 61 of the Indian Contract Act deals with the right of appropriation of payments.
This can be applied in case of a banker customer relationship.
 S.59- In cases where a debtor has two or more distinct debts towards the same creditor,
when the debtor makes payment to the creditor, the issue of appropriation arises. If the
debtor indicates the intention regarding which debt is to be appropriated, the same
will be done accordingly. The intention of the debtor can also be inferred from the
circumstances of the case.
 S.60- Where the debtor made payment and did not indicate intention, and the intention
cannot be understood from the circumstances too, then the creditor can appropriate any
debt according to his choice.
 S.61- This section lays down the rule commonly known as the FIFO rule or the
Clayton’s rule. According to this , the loan that came first will be wiped out first. This
can be availed only in cases where the other options have not been applied.

BANKING REGULATION ACT

Introduction of the legislation- Banks in no way can be compared to a normal company.
Liquidation of a banking company affects the economy as a whole. The legislation was first
recommended by the Central Banking Enquiry Committee of 1931 which recommended that a
separate statue is required to regulate private sector banks. The legislation was intitially
introduced as the Banking Companies Act then changed its name to the Banking Regulation
Act, 1949, as the purpose of the act was to regulate private banks. The act governs a bank from it
‘birth to its death’, or from its ‘licensing to liquidation’.
Applicability- The act applies only to Pvt. Sector banks. In addition to this, it is also applicable
to Regional Rural Banks subject to the supervision of the NABARD. Section 56 of the act
deals with all activities which apply to cooperatve societies, whereas S.51 is more general, and
applies to Public Sector banks without any substantiation.
Social Control over Banks- (Very random- read accordingly)

POWERS OF THE RBI

The RBI for long had been demanding amendments to the BR Act, and to give power to the RBI
to supercede the management of the banking company, because the Central Government had this
power over nationalised banks (which also had their own legislations). While the RBI had this
power over cooperative banks, this power did not extend to Private Sector Banks.
Further when it came to Mergers and Acquisitions, the RBI didn’t want this power to be vested
with the Competition Commission of India. Therefore, any control which the CCI had over
Mergers and Acquisitions were removed by the 2013 amendment to the BRA.
AMENDMENTS TO THE BANKING REGULATION ACT
2013 Amendment- The bill was presented in 2012, and brought about the following
amendments
a. S.26A- was included whereby the DEAF Scheme was included
b. S.29A- provided RBI with the power to inspect and call for information from SBI and
other associared enterprises which were specifically provided for in the section. The
power to inspect expanded to JVs and other associates too.
c. S.36(AC)(A)-Gave power to the RBI to supercede the management of a banking
company in depositors interest
2016 Amendment- Inserted two provisions
a. S.35(AA) and S.35(AB)- It was in line with S.35(A), and provided the RBI with the
power to issue directions to the banks to trigger the IBC. The need for this section arose
from the fact that S35A was too general, and there was a need for an alternative more
specific section in order to recover the debts of the banks.

IMPORTANT SECTIONS OF THE BR ACT

S.6- Permitted activities in addition to the core activities
These permitted activities include
a. Borrowing function- Borrowing, raising or taking of money; lending advancing money
wither with or without security- drawing, making or accepting promisory notes, drafts
bills etc.
b. Agency function- Acting as agents for any government or local authority or any persons;
carrying on ageny business of any description
c. Contracting function- for public and private loans
d. Other functions- like effecting, insuring, underwriting- managing selling and realising
any property which may come into possession of the company- undertaking and
executing trusts etc.
Additionally, under S.9 and 15 of the SARFAESI Act- the right of the banks and ARCs to take
over business of a defaulting borrower has also been provided for.
S.7- Use of the words bank, banker, banking or banking company
Any company which uses these words must necessarily be involved in the banking business.
The exceptions to this rule are
a. Subsidiaries of a banking company may be involved in any business- and need not use
the word banking
b. Association of banks formed under S.25 of the companies act need not necessarily use
these words.
S.8- Prohibition of trading in movable property
Banks are prohibited from trading in the trading and bartering of goods. However, an
exception to this rule is in the trading of securities, negotiable instruments etc, which is a
permitted activity under S.6 of the act.
S.9 – Disposal of non banking assets
Banks should sell/ dispose off non banking assets or immovable property within 7 years for the
realisation of the debt. Additional permission for 7 years has been given by the RBI for
realising debt.
SARFAESI Act allowed for the direct auction of the property by the bank. Through the 2013
amendment in the SARFAESI Act, banks have been allowed to purchase the property
themselves after making reasonable efforts relating to selling the property.
The reserve price set their proper valuation by panel of legal experts, and the purchase should be
made only above the reserve price. If the bank does not get any buyer in auctin above the reserve
price, then the bank may buy. If the RBI feels that the bank did not sell the property on
purpose they are empowered to take action.
S.10- Management of a banking company
A banking company cant be managed by a managing agency- does not say that the board
should be diversified. This is why inclusions were made to sections to provide for social control.
This is why inclusions were made to the section to provide for social control. The concept of
managing agent is a redundant concept now.
Managing agent- Earlier banks were established by agency houses- the aim of which was to
control imports and exports- this is why the concept of managing agent was started. A managing
agent was in charge of managing the company, and the directors were subordinate to these
agents. The agents further retained their maximum voting rights, and could do whatever they
wanted.
Prior to 1956- the powers were given exclusively to managing agents. With the 1956 act, even
though a lot of powers of the managing agency were retained, maximum powers were given to
the Central Government, and the Board of Directors played a more important role.
S.10(b)(i)- Disqualifications
Conditions of disqualifications have been provided
a. Insolvent persons cant be employed
 b. Suspended payment (Stage prior to being declared insolvent)- inability to pay debt
informed to the creditor
c. Compounding of debt with the creditors- entered into settlement
d. Convicted for an offence- involving ‘moral turpitude’
There are certain other restrictions too which can be considered
e. Interlocking of directors are not permitted- You can’t be the director of any other
company or indulge in any other profession or vocation. The exceptions to this rule are
1. No bar on being the director of a company and being the director of a subsidiary of
the same company.
2. Companies formed under S.25 of 1956 act or s.8 of the 2013 companies act does not
apply to directors of such companies.
3. The director is temporarily appointed for a period of not more than three months.
f. A director cant be appointed ode a period of more than 5 years at a time (Can be
reappointed).

S.10(b)(ii)- Remuneration
Unlike a managing agent- a person given the responsibility of discharging duties in a banking
business should not be burdened with excessive duties. This is decided by the RBI.
The section lays down the grounds for which RBI will decide the excessiveness. These grounds
have been laid down to avoid arbitrariness. These grounds are
a. Volume and size of the business- in terms of the financial strength of the company, the
number of branches, age, expertise etc.
b. Interest of the depositors
c. Remuneration paid to other directors of other banks (those who are in the same position)
S.51 does not include the rule for removal of directors Enforcement of this can be done through
the respective statutes, and the only safeguard for this is S.10. Further, the restriction of a
company being managed by a managing agent does not put a bar on the appointment of other
agents such as recovery agents, and all of these agents can be remunerated.
While the disqualifications w.r.t to appointment have been extensively provided for in the act,
the conditions of appointment was a an area of lacuna, and was only filled in by the social
control legislation (s.10A)

S.10A- Board of directors to include with professional or other experience.

Out of the total strength of the banking company, a majority of at least 51 percent should come
from the eight sectors mentioned in the section. Additionally, the RBI can also appoint a
director not belonging to any of these sectors but who’s practical knowledge and expertise
in the field will be useful in running the company. Further, in order to avoid a situation of no
one from the agricultural sector being appointed, a condition has been imposed that at least 2 of
the directors will belong to the agricultural and rural company.
Another condition that has been imposed is that the director shouldn’t have substantial interest
in any other company. ‘Substantial interest implies that it should not be run along with the
spouse or children. Substantial interest has further been defined under S.5(ne) of the BRA
which provides for Substantial interest in 2 cases-
1. In relation to a company- whether singly or jointly (either 5 lakhs or 10 percent of the
total paid up capital)
2. In relation to a partnership firm- more than 10 percent of total shares (10 percent or more
of the paid up capital).
S.10 A also imposes a condition on every banking company to ensure that its board gets
reconstituted upon being ordered so by the RBI- if they don’t do so within 2 months- the RBI has
the power to reconstitute the board.
S.10B- Appointment of a chairman
Every banking company should be governed by a WT Chairman or an MD. The primary
requirement is that of a chairman, and only if the chairman is not appointed will an MD have to
be appointed with the consent of the RBI. The idea behind a chairman is that there must always
be someone to take care of the day to day affairs of the company. The term of such a chairman or
the MD is regulated based on the Agreement of Appointment.
The condition for the appointment of a chairman is that s/he must have some knowledge,
expertise or experience in banking, finance and business administration (there is no need to be an
expert, like the requirement in a case of a company). Further, he should not be the direcroe of
any other company unless in the cases of
a. Subsidiary
b. S.25 and s.8 of the companies act.
The RBI is empowered to remove a director or a chairman which it thinks is incompetent or not
fully performing its functions, and can appoint a new person after giving notice.
S.10BB- Vacancy in position of chairman or MD.
As the absence of a chairman or an MD can affect the day to day functioning of the company, the
RBI can appoint one who can serve for a period of 3 years, and the same person can be
reappointed.
S.10C- Qualification shares
In order to be appointed as a director of a company, he must have a certain number of shares
which is of some prescribed balie. In the 2013 companies act- the prescribed value of the
shares is Rs 5k.
The prescribed shares can be received by the directoe even after 2 months of being
appointed as a director- subject to the Agreement of Appointment.
However, the condition of qualification shares has lost its significance after the 2013 act

S.10D- Overriding effect.

Provisions of 10A and 10B is to override all other laws- person appointed as directoes of MDs
shall have effect and any such person shall not be entitled to any claim of compensation for loss
of termination of office.

BANK LICENSING
S.22- Licensing of Banks- Not applicable on PSBs
S.23- Branch Licensing
Bank licensing in India is required only for the purpose of carrying out banking activities and not
for incorporation. Banks will be granted license when the RBI opens up windows for the same,
and whether license is granted depends upon whether the requirements are complied with. Non
Banking Financing Companies are given preference while licensing.
The concept of licensing was first suggested by the Central Banking Enquires Committee. It is
subject to RBI guidelines persisting at that time. This section further is retrospectively applicable
for banks established before the BRA for continuing in the banking business, and for new banks
to start the banking business.
In India, licensing is done under the window system, whereby the banks can file for license
when the RBI opens a window for the same. A bank who files an application has to fulfil all the
requirements laid down by the RBI, the most important being the minimum aid up capital. The
minimum paid up capital has been progressing over the years
1993-94- minimum capital of 100 crores or more
2003-04- 200 crore
2013-14- 500 crore
In case of branch licensing under S.23, the country has been divided into 4 regions- (1) rural,
(2) urban (3) sub-urban and (4) Metro. According to RBI guidelines, 25 percent of branches
of a bank needs to be expanded and established in underbanked areas. Rbi generall doesn’t deny
approval of branch licensing, if conditions have been complied with. However, the approval of
the board of directors is required.
The same approval document for branch licensing can be used for approval of ATMs and cash
deposit machines too. The BOD has to approve these too.
The licensing of Regional Rural Banks are routed to the RBI through the RBI. Upon inspection,
if the RBI is satisfied it will grant license.
Judicial scrutiny has not been taken away by this new system, as under S.22(6), judiciary can
still look into licensing matter, even though not on merits. They can look at these only in cases
of violations of PNJ.
C- SAJJAN BANK V. RBI- A company established under the companies act in the 1940s later
faced problems when the licensing requirement was put in by the BRA. They applied for a
license under S.22 within the 6 months time period claiming license. The RBI subsequently
conducted inspection and found out loopholes in the management of the company and therefore
gave the report of the inspection to the company showing areas where it was lacking. The
company was further granted five years to implement these changes, and during these years were
allowed to carry out its functions.
Upon another inspection it was found out that the problems still persisted, and the RBI informed
the company of the same and this time also issued a show cause notice. The RBI decided not to
grant license to the bank and filed a petitione before the HC.
Petitioners arguments
a. S.22 is unconstitutional as it infringes the right to carry business under art. 19(1)(g)
b. S.22 is arbitrary as it grants excessive powers to the RBI.
c. When RBI decided not to grant license, it formed its opinion based on the inspection and the
two reports made during said inspections. The power to conduct inspections is under Sec 35.
The petitioner contended that under Sec 35(4) it was said that where on the basis of report
submitted by RBI to the Central govt, the RBI finds that it is detrimental for the people for
the bank to carry on banking activities, two actions can be taken:
1. Banking company shall be asked not to accept any fresh deposits
2. RBI may file winding up petitions under Section 38 before a competent court.
They do not have power to refuse license on this ground.
Respondents contentions
a. Reasonable restrictions could be imposed by the State under Art 19(6). The restrictions in
this case were placed upon banking activities and the petitioner wasn’t precluded from
continuing money lending activities.
b. Sec 22 isnt arbitrary because the RBI decided eligibility according to proper guidelines made
by it. RBI makes recommendation and the Advisory committee decides whether of not the
license should be granted.
c. Sec 35 would be applicable wrt inspection which could be done by the RBI only in relation to
companies which were already in existence and license had already been granted. The
petitioner’s company did not meet the specifications and hence section 35 was not attracted.
Court held
 a. The petition was dismissed and the Court said that sec 35 would only be applicable to
companies which were already in existence and license had already been granted. RBI
could revoke license under Sec 22 in the following circumstances:
Where the BC ceases to carry on banking business
When RBI imposes guidelines, it also contains certain restrictions. License is generally
not granted immediately on application but there is an approval period of one year and the
bank must adhere to the conditions laid out by the RBI. If conditions are not followed, then
the license can be revoked after that one year period.
RBI would have to satisfy sec 22(3) of the BRA

Considerations for bank licensing

An application has to be submitted to the RBI to get an approval for a license. The conditions looked
into by RBI while granting license can be divided into four sub headings
a. Considerations with regards to the financial position of the company
b. Considerations relating to the management and structure of the company
c. Interest of the depositors
d. Growth and possibility of expansion of the company.

S.29a of the RBI act gives power to the RBI to call for information regarding associate and
subsidiary enterprises.
Reserve bank may at any time cause an inspection to be made of any associate enterprose of a
banking company and its books of account jointly by one or more of its officers or employees or
other persons.
S.35(2) and (3) shall apply to inspection under this section (2- duty of director or other officer to
produce all such book, accounts and other documents in his custody with any statmeents and
information relating ot affairs of a banking company.; 3- any person making an inspection may
examine on oath any director or other officers of banking company in relation to its business, and
may administer the oath accordingly.)

Cancellation of license – RBI is empowered to cancel the license. If anyone feels aggrieved with
regards to cancelling of license, can prefer an appeal within 30 days to the CG. If appeal is preferred
then the decision of the RBI is final and if appeal from that too is preferred, CGs decision would be
final.

S.26- RETURN OF UNCLAIMED DEPOSITS

Bank is required to submit a return to the RBI with names of all accounts that have been
inoperational for 10 or more years.

S.26A-ESTABLISHMENT OF DEAF
These include depsits which have not been operational for 10 or more years or deposits which have
not been claimed. It was inserted by the 2013 amendment to ensure proper utilization of unclaimed
deposits. These unclaimed deposits get transferred to a fund that is maintained and managed by the
RBI within 3 months of the deposits being declared unclaimed.
The bank will give the money bank with interest if the customer claims for it, at a standard interest
rate of 4 percent per annum. This has been recently reduced to 3.5 percent

The bank is empowered to transfer the funds to the DEAF, and while doing so will share the personal
details of the customer too. The details are then furnished on the banks website.
The fund is managed by a committee with 6 members
a. 2 officers from RBI not below chief general manager.
b. 1 member or chairman of company nominated by RBI on a rotational basis
c. 1 person nominated by the RBI who has expertise experience and knowledge
d. 1 person nominated by the RBI to represent the interest of the depositors
e. 1 member who will act as secretary – not below CGM level of a bank-

The funds can be used by the RBI to spread awareness and knowledge about banks and work towards
the interest of the depositors. After scrutiny and approval the committee will provide approval and
grant funds.

AUDITING AND INSPECTION

Auditing is provided for under S.30 of the BR Act- does not talk about removal or appointment
of auditors as it has already been given under the companies act, 2013. Rotation of auditors
included by the 2013 companies act
The section is in addition to the requirement of financial entity to provide RBI in addition to
financial statutes. If the regulator feels that it is
a. Necessary in public interest
b. Ensuring management
c. Interest of depositors
When social control was introduced, the whole and sole purpose was to ensure good corporate
governance practices. According to S.30(1A) introduced in Feb 1968, as far as banking
companies are concerned appointment and removal must be done with the prior approval of the
RBI. This is because the function of the auditor is important for the due functioning of the
company
The RBI is further empowered to appoint special auditors as and when it is required. The power
of special audit however is given under S.30(1A). Some of the functions of the special auditor is
to check
a. Whether the information asked by the auditor and given by the company is genuine or not
b. Wheter the profit from the firm is depicting a true picture or not
c. The companies information regarding transactions relating to the working of the
comanyy- whether profit is a true indicative picture or not.
If the RBI conducts special auditing, the expenses will be borne by the company itself.
C- PALAIS CENTRAL BANK- READDD
INSPECTION
It is done at the instance of the RBI or the CG. The inspecting authorities can inspect anyone
under oath and they are required to cooperate with him.
When there is an order of central government for inspection is given, only the RBI can take
action. Only in case of public sector banks they will take action in consultation with the
government. Under this section the RBI can inspect Severy director or officer, and they must
furnish any information or document as required.
Under S.35A- the RBI has the power to give directions- they can give a general policy or a
specific policy to a particular bank based on depositors interest. The RBI must be satisfied of the
existing public or depositors interest. (General policy is the KYC)
S.35(2) and (3)- record of accounts and removal of director.
New sections
S.35AA- Introduced after the inspection of the IBC- came out with a list of 12 companies. This
was intitially aimed at 12 companies, whose NPAs amounted to 25 percent of NA throughout the
country.
S.35BB- This is for the resolution of stressed asssets- where there is slightest default power
given to the RBI for restructuring mechanism. RBI can issue directions for recovery of stressed
assets and can invoke IBC after 180 days.

ADDITIONAL POWERS OF THE RBI

S.36- RBI has these additional powers-

RBI may prohibit banks from entering into transactions which are detrimental to the interest of
depositors
On request, RBI may advise BCs on compromise arrangement including Mergers, Acquisitions
etc.
RBI may also give assistance to BCs in the form of loans and advances as per Sec 18 of the RBI
Act
RBI can appoint an observer to observe the dealings of a BC and depute officer to attend
meetings of the BC
RBI may also direct that all notices, meetings, and minutes of meetings of the BoD be justified
to it---where RBI is of the opinion that action is required, it may do so under Sec 36.
 Sec 36(2) makes it mandatory for the RBI to come up with an annual report on Trends and
Progress of Banks in a financial year with particular reference to activities under sec 17(2) of the
RBI Act. The document contains number of banks, data of banking, stressed assets, NPAs etc.

S.36AA- Power to remove persons at managerial positions

This section gives the RBI power to remove managerial and other persons from office. The
reasons for the same are to be recorded in writing. The decision will not be implemented without
giving the bank a chance of hearing. Once communicated termination, person has to vacate
office, and cant be a part of the company for at least 5 years. No compensation is given for this
termination. The person can refer an appeal before the central government within 30 days of
communication to him.
S.36AB- RBI given powers to appoint additional directors where the interest of the depositors
have to be protected. The grounds on which the RBI can appoint are
a. Interest of depositors
b. Interest of public
c. Interest of banking sector
d. Securing proper management of banking company.
He can be appointed for a max period of three years and is exempted from holding qualification
shares. Has to kee a watch and report it to the RBI.

S.36ACA- Superseding bank and appointing administrator

RBI in consultation with the government can decide to supersede the bank- for a period of 6
months which can be extended to 12 months. The RBI can appoint an administrator in
consultation wit the government who has experience in all fields
RBI can issue directions to the administrator. The power is similar to S.18A of nationalization
act which allows the Cnetral Govt. to supercede the board of a nationalised bank in consultation
with the RBI. It is similar to the power which is given to SEBI to supercede a board of stock
exchange.

RECOVERY OF DEBTS
The establishment of the DRTs were recommended by the Narasimham Committee. In 1993, the
recovery of debts fur to finance institutions act enabled DRTs in several states and DRATs in
other states.
The DRTs post 2002 can receive the following
a. Original applications under S.19 of the DRT Act- These can be filed only by banks and
financial institutions
b. Securitization applications under S.17 of the SARFAESI Act- can be filed by aggrieved
persons under S.13(4) read with S.17 of the act.
c. Transfer applications under S.31 of the DRT Act.
Under the SARFAESI Act, the bank has four primary functions
a. Bank can take over possession of property in case of default
b. Take over management of a business
c. Anointing a manager for managing a property
d. Order to pay debtor of debtor
Initially, the title of the original application section was ‘right to prefer an appeal’- this indicated
that it was an appeal from the same order of a lower court. This was challenged in them atter of
Mardia Chemicals v. UoI
C- MARDIA CHEMICALS V. UOI- Constitutional validity of the SARFAESI Act was challenged
by the borrowers. They raised the contention that it is a draconian legislation which focuses only
on banks and no rights are given to borrowers. It was contended that this was because banks
were not answerable to reply to the representation that the borrowers filed before the banks.
The state argued that s.17 gives right to approach DRT. However, customers said that under
S.17(2) of the act- whoever approaches the DRT has to deposit 75 percent of the amount for a
securitization application to be entertained.
Q- why is the word appeal used in the act? Isnt it a plaint or original application?
SC said that the 75 percent condition should be removed and the word appeal should be removed
too. In 2004, an amendment to the act retained the word appeal in the marginal heading.
However, in the substantive provisions, the word has been replaced with the term application.
This retention of the word was justified by the SC stating that it is done due to the 75 percent
precondition (other legislations used the word appeal too when there was a precondition).
An appeal provision is also there under S.21 of the act- the precondition requires a deposit of 75
percent of the amount to be done. Now it has been reduced to 50 percent post amendment.
Differences between DRT and SARFAESI
DRT Act SARFAESI Act
It is an adjudicatory mechanism It is an executory mechanism
Both secured and unsecured creditor Only secured creditors
Intervention recover Non intervention recoverty

For SARFAESI to be triggered-

a. Amount of debt should be 1 lakh or above
b. Bank should be a secured creditor
c. Where 80 percent of debt or more is to be recovered
Jurisdiction of DRT
a. Territorial jurisdiction- S.19 of the act
b. Pecuniaryy jurisdiction- S.1 of the act
c. Subject matter – S.17 of the DRT act (broadened after the IBC)
For instituting a civil suit, the territorial jurisdiction is to be decided based on
a. Where the cause of action arose
b. Where the respondent lives or carries out his business- same principle followed in the
terrirtorial jurisdiction in the DRT.
Territorial jurisdiction under S.17
a. Cause of action where it arose wholly or partly- defendant resided wholly or partly and
any of the defendants actually and voluntarily resided
b. Where the secured asset is located
c. Where the branch of office or bank is located is where the debt has become secured.

C- UOI V. DELHI HC BAR ASSOCIATION

Delhi HC declared the SARFAESI Act unconstitutional. This was challenged before the UoI and
was then appealed to the SC
a. The act is violative od art. 14 of the constitution
b. Parliament does not have legislative competence to enact law relating to DRTs and
DRATs.
c. The act has eroded independent of judiciary and has truncated the powers of the civil
court and vested it with the tribunals.
d. The powers of the recovery officers are arbitrary and unreasonable.
Issues and SC opinions
a. Petitioners said civil courts as well as DRTs will exercise jurisdiction for recovery of
debts. They challenged the fact that while civil courts provide the right to set off and
counter claim, the tribunal does not provide any such right. This discrimination violates
art. 14
However this question became irrelevant as s.19 of the act was amended to provide for
counter claim and set off from these sections. Therefore, no relevancy for this question.

b. Art. 323A and Art. 323B was brought in- petitioners conteded that there are no
items under these articles to enable parliament to establish tribunals for recovery of
debts ,and therefore they have no legislative competence.
SC here held that even though there is no entry providing for debt recovery tribunals
establishment, there is no express prohibition for the same too. The SC further stated that
entry 45 of list 1 provided legislative competence to enact a law relating to any matter
relating to banking- and FIs when they give lons have right to recover loans too.Both
lending and recovering are core activities. The impact of recovery of debts is not
restricted to parties , and extends to the entire economy. Further it is also in the interest of
the depositors

c. By enacting the DRT Act, the jurisdiction of the civil court was eroded and handed
over to the tribunal. (S.18, civil court no jurisdiction and S.31- transfer of civil courts
cases)
It was contended that this was not a healthy practice, as taking away jursdiction of courts
and giving it to tribunals which are not on par with courts. Moreover, tribunal given
 pecuniary jurisdiction for amount over 10 lakhs and above. Further they also contended
that the judiciary is losing its role
SC held that going by the objective of the legislation, it is to recover and adjudicate debts
expeditiously. Noehere in the provisions of the act the civil courts jurisdiction is being
taken away. They still have judrisdiction over all matters below 10 lakhs. The only
objective of introducing S.31 was to ensure parity of cases.
Further, the SC also stated that when it comes to presiding officer, he is selected by a
selection committee convened by the CJI- therefore the judiciary is still very much
involved in the process.

d. Another issue was the arbitrariness of powers given to recovery officers under S.25
and 28 of the act.-
25- given power to attach property and send person for civil imprisonment
28- can a person other than the borrower to ay the amount to the tribunal.
SC here held that there is no arbitrarinerss wrt to powers of recovery officers. If we
consider s.30 which provides that if a person is aggrieved by action of a recovery officer
s/he can approach the DRT for appeal (not Drat)

PROVISIONS OF THE DRT ACT

S.17 Jurisdiction power and authority of tribunals- read with 13(4)- where the banks has
taken action against the borrower- the borrowe can approach the DRT within 45 days and ge
actin taken. S.13(4) provides for 4 rights of the bank- only on the basis of these S.17 can be
invoked.
They have to first give a notice under S13(2) after classification of account and cannor act
immediately after default of payment. They should in this notice provide 60 days for the amount
to be returned.

S.3- talks about the ower of CG to establish DRTs, how many etc. No uniformity in states of no.
of DRTs. Not many changes with the 2016 amendment.
S.4- Constitution of the tribunal- adjudicatory officers aren’t a part of the adjudicatory
mechanism of the DRT. There are two additiona points along with this
1. Presiding officer of any other tribunal can also be appointed
2. Judicial member of any other tribunal can be appointed as the Presiding officer of the
DRT- but he will discharge functions as a judicial member of that tribunal as well as the
DRT.
S.5- Qualifications for appointing a presiding officer- Person who is a district judge can be
appointed as a presiding officer on a deputation basis. A retired judge who can be appointed as a
district judge can be appointed as a presiding officer.
S.6- Term of office of a presiding officer- 5 years or until 62 years whichever is earlier
S.8- Est of appellate tribunal- central government can establish DRATs.
S.9- Chairman presides over the DRATs- Chairman to preside over appellate tribunal
S.10- Qualification for aointment as chairman of AT
Can possess any one one qualification- was qualified to be HC judge, member of Ind. Legal
Services or has been a PO of a DRT for three years.
S.11- Term of office of charperson
Tenure is for a period of 5 years or until he attains the age of 65 years. (increased from 62 years)
Some thing regarding fees to be paid and admin staff not related to S.11
S.15- Resignation and Removal
Removal of chairman can be done only after following due principles of natural justice.
Generally 2 grounds are recognized for removal
a. Proved misbehaviour
b. Incapacity
Central government can look into incapacity or misbehaviour
S.17- Jurisdiction powers and authority of tribunals- authority given to DRTs and DRATs-
with regards to original application and securitization application. After IBC- they can get
bankruptcy applications
S.17A- Power of chairperson of appellate tribunal- A chairman can also convene and call for
periodical meetings of PO and ask for info. A chairman may also recommend for an enquiry
against a Presiding Officer. Can also transfer cases from one tribunal to another tribunal

S.19- Procedure
Application filed with the registrat who will then scrutinize it and ut a seal. In dong so he is
required to follow some procedure like that of a court.
OA filed with S.19 of the act and can also be withdrawn for which a separate application needs
to be filed- after scrutiny, it may allowed witin 30 days. (read the bare provision)

S.22- Procedure and powers of the DRT and DRAT

The DRT bodies are not bound by the CPC, but have to follow princples of natural justice. They
enjoy all the powers of the civil court as mentioned in the CPC like issuing of summons, review
of its own order etc.
C- KIDLAND V. INDUSIND BANK LTD. – Before the Bombay HC, the petitioner raised contention
against s.21 of the DRT act, and contended that s.21 is nt valid and should be struck doen from
the act. (s.21- deposit of amount of debt due on filing appeal- 75 percent amount of money
claimed to be deposited). SC here held that it is not possible to have a requirement of 75
percent of deposits to prefer and appeal, and hence struck it down. SC further held that
there was a huge difference between s.17 and s.21, and that it was understandable to have a
monetary requirement for appeals (even though not such a high amount), whereas it was
not justified so for application under s.17 as it would restrict the initiation of the process
itself.
C- ICCI BANK V. GRAPO INDUSTRIES AND ORS.- The matter here pertained to whether an ex
parte order passed by a tribunal is against the principles of natural justice.
The court here looked into the CPC and its procedure in case of ex arte orders. An ex parte order
is generally passed when the other arty fails to appear for the hearing desite being issued
summons. The court also has the power to set aside ex parte ordersin case of death of family and
other instances. Therefore it must be seen that ex parte orders are generally provided when
the right of opportunity is granted to the party but he does not avail it. Further, it is also
explicitly stated that the principle here is an exception to the rule of audi alteram partem.

S.25 and S.28- appointment of recovery officers

s.25- Modes of recovery- primarily provides for powers of the recovery officers
a. Attach the property
b. Sell the property
c. Appointment of a receiver after getting possession of property
d. Civil imprisonment for a period of 3 months max can also be give.
Where the person has to pay amount to defendant in such cases, the tribunal can issue a notice
ordering him to pay that amount to the RO interal of defendant- discharged of his liability
S.28- Additional powers
a. Discharge of debt- Where any person had to pay any amount to the defendant, in such
cases, the recovery officer can issue a notice ordering him to pay that amount to the
defendant, thereby discharging that person of any liability.
b. Objection- Everyone is free to raise an objection in a drt proceeding- however, if the
objection turns out to be false then he is personally liable to pay the amount.
 c. Powers of banks- any person can pay the amount due to the respondent bank after which
a receipt will be issued. (couldn’t find in bare act)\

C- HARINDER SINGH V. SADASHIV PRASAD

A partnership firm had taken a loan from Allahabad bank, for which it defaulted. Allahabad B
approached the DRT on an original application under S.17. The tribunal ruled in favour of the
bank, and asked the recovery officer to initiate recovery proceedings.
As the partnership firm had no money, the recovery officer attached one of the partners
properties. However, the partners brother, Harinder Singh raised an objection against the
recovery officer to such attachment on the ground that the property had already been transferred
to him by his brother by way of an agreement. Even though this agreement was notarised, it
wasn’t registered.
Meanwhile, the property went up for auction ,and the highest bidder was Sadashiv Prasad, who
got the property after paying 12 lakhs. He paid 25 percent of the amount to the RO and it was
registered in his favour. The rest 75 percent of the amount was paid in 15 days and the property
was duly transferred to him without any objections.
Harinder Singh filed a petition before the HC single bench against the ROs act of attaching the
property, which dismissed the petition. Being not happy with the bench’s decision , the matter
was appealed to a divisional bench
The divisional bench stated that there was a chance of settlement here, and asked H Singh to pay
Prasad 17 lakhs (considering the inflation) in lieu of receiving the property. However, in doing
so the court had violated a very important principle regarding pnj, AS Prasad wasn’t
enquired with to know if he was okay with the settlement.
Prasad then filed an SLP with the HC- which then sent it to the SC.
SC- concurred with the judgment of the Single bench that the petition had no merits. The
DBs decision was criticised as it paid heed ot an agreement which was not even registered,
something that is essential for immovable properties. Further, they also stated that his isn’t
the right forum to approach ,especially when grievances against a recovery officers orders
has to be appealed to the DRT under S.30 of the drt act.
SARFAESI ACT
History
The SARFAESI Act was first recommended by the Narasimham Committee (1998), which
understood the need for a standardized procedure for securitization. In 2000, the Adhyarjuna
committee also gave this recommendation and pointed out the need for an intervention free
mechanism for recovery.
The primary reasons why the SARFAESI act came into being was
a. Problem of NPAs
b. Pending cases at the DRT
c. Demand for security interest without intervention of tribunals or courts
d. Need for Asset Reconstruction Companies.
The SARFESI Act primarily deals with three concepts
a. Enforcement of Security Interest
b. Securitisation
c. Asset Reconstruction
The object and scope of the SARFAESI act was further laid down in Mardia chemicals v. UoI,
which was
a. Securitisation and reconstruction of Financial Assets
b. Enforcement of Security interest
c. Central database for Security interest created on property ridhts and matters connected to
it
d. It further enabled secured creditors to take possession of securities without the
intervention of the courts and authorities.

C- MARDIA CHEMICALS V. UOI

The constitutional validity of the SARFAESI Act was in question here. The 3 questions looked
into here were
a. Whether it is open to challenge the statute on the ground that it was necessary to enact it
in the prevailing background particularly when the DRT act is already in operation
 b. Whether section 13 and 17 of the act provide adequate and efficacious mechanism to
consider and decide disputes raised by the borrower against the recovery particularly in
view of bar to approach SC under S.34 of the act. (s.13 provides for enforcement of
security interest; s.17 provides for a right to appeal; s.34- civil courts to not have
jurisdiction)
c. Whether S.13 of the act was ultra vires to the constitution?

1st issue-
Kapil Sibal (petitioners counsel)- came up with data and statistics showing that such a
legislation is not required as most of the debts between 1 lakh and 10 lakh have already been
provided for in other mechanism. H said that since the banks have powers to recover NA debts,
they would classify all assets as NAs.
UoI- they are not considering pecuniary amount but minimum Rs 1 lakh- they want banks to
secure assets directly. They replied that SARFAESI and DRT both work for debt recovery.
SARFAESI is a mere executive process whereas the DRT is the real adjudication process.
SC held that there is no problem with the scope and object of the act
2nd issue
Issue here was with the fact that when there is an express provision under S.34 of the act , then
whether s. 13 and s.17 provide efficient remedies to aggrieved persons or not. S.13 was widely
involved in this case. After serving a 30 days notice , if a borrower defaults , the account is
classified as an NPA. If the amount is not paid even after 60 days, then the bank can appoint a
manager, give possession to third party etc.
The next objection was there for S.13 claiming borrowers have no right under s.13- all rights are
given only to lenders and borrowers cant take an objection if demand notice is served. This
violates PNJ. Kapil Sibal went as far as to call this a draconian legislation because of this.
UoI – replied to this contention claiming that classification of an asset as an NPA happens as per
RBI guidelines, and it is not arbitrary or unreasonable. Further, merely serving a demand notice
does not violate NJ.
SC- Merely serving a demand notice is not against PNJ – it is the right of a borrower to get a
notice that asks him to repay the debt amount. Although serving a demand notice doesn’t breach
PNJ, but if a borrower has an objection with the demand notice, they should have the right to
raise an objection
3rd issue
It was contended that the litigation is unilateral as it only provided for the rights of the bank to
serve demand notice (13(2) read with 13(4) ). There is no right of borrower in the entire recovery
mechanism.
Further, S.17 also aggrieves borrowers as the borrowers have to ask for a demand notice asking
for 50 lakhs but an amount of only 40 lakhs had to be paid. While the petitioner can raise all the
objections he wants, the bank isn’t oliged to listen. Now even if you want to approach the DRT
there is another problem in the form of an embargo.
SC- considering S.13 and 17, the right of the borrower isn’t recognized . If he is aggrieved
he has no remedy. The 75 percent require is too much
Therefore, it was recommended that S.13 must have a clause of objection and S.17 (2) being
arbitrary and unreasonable must be struck down. (this was subsequently removed with the
amendment)

SECURITIZATION
Securitisation and Asset Reconstructin are functions that can be performed by an ARC only.
ARCs need permission from the RBI to perform a function . The authorisation for an ARC is
given by the RBI through a certificate (provided for under s.3) and can cancel it anytime (s.4)
ARCs aren’t immediately granted certificate.The RBI also keeps a watch on the activities of the
RBI, where they look into the financial integrity and profit making record of the ARC. For a
company which wants to become an ARC, the net fund should not be less than 2 crores.

SECURITIZATION PROCESS (S.5,6 AND 7)

 For securitization a company should primarily be in the business of securitisation and
asset reconstruction.
 When a debtor defaults and an asset becomes a non performing asset, it is auctioned off
to ARCs.
 The highest bidding ARC then is required to pay 15 percent of the amount in cash and the
rest in the form of debenture bonds issued in favor of the banks. The debt has to be
recovered in 5 years. The bank removes the NPA from its records, and now the ARC is in
full responsibility for the NPA
 The ARCs funding to buy the debt is done by Qualified institutional buyers. The
investors have a right to receive their money through realization.
 The QIBs in lieu of the money they give is provided with security receipts. These
receipts, which are not to be traded in the stock market, can be later redeemed through
realization.
 The ARC once this is done would go to the defaulter borrower and claim the money at a
discounted rate, a rate which is still higher than the amount for which they bought the
NPA. The difference between the two is the profit for the ARC.
 S.7- If investor doesn’t get anything, a meeting shall be covened by the investors and
their decision is binding on the ARCs.
Amendments to S.3 and S.4 (2016)- read from act
a. Registration certificate given by RBI
b. Financial integrity of the company
c. RBI can conduct inspection- and ask for plan of action regarding realization of assets
from the ARC.
d. Management of the company must be equipped with experienced people.
e. Qibs need to be fit
f. Once given certificate- ARC has to become operational within 6 months (max a year)
g. ARCs cannot make any substantial change in the management without the prior approval
of the RBI- this includes bar on mergers and acquisition- doing so is a ground for
cancellation of certificate.
SECURITIZATION AND RECONSTRUCTION
Reconstruction
a. Defined under S.2(b) of the act
b. Important features
1. Acquisition of financial asset by the ARC- from then the ARC acquires an interest in
the financial asset and is deemed a secured creditor- this interest can be realised from
the borrower.
2. From a bank or financial institution
3. With an interest
4. Realization (from defaulter borrower)
Securitisation
a. Defined under s. 2(x) of the act
b. Important features
1. Acquisition of a financial asset
2. By ARC from Financial Institutions
3. Issuance of Security Receipts.
4. To qualified buyers.
Important sections from the SARFAESI Act
a. S.3- Certificate of registration- provided by the regulator; ARC has to start the business
within 6 months or maximum 12 months.
It is mandatory as without a certificate of registration the ARC cannot carry on any
securitization. It is issued by the RBI and they may even conduct inspection and look into
the financial integrity of the company. The company should have sustained loss in three
years. Financial integrity is important as it is in the interest of the investors. Financial
integrity is important too in the sense that it can facilitate reconstruction by the ARCs.
Some other conditions looked into by the RBI before granting certificates are
1. Financial integrity
 2. Whether management is sound enough in order to deal with banking, finance ,
securitization and other allied businesses.
3. Whether the sponsors of these ARCs are financially ‘fit and proper’. This term
has however not been defined in the act. (this was added by the RBI in 2016- even
though they have not given any specific guidelines regarding the same- SEBI has
given certain guidelines regarding what would amount to fit and proper- can be used
as guiding principles.)
If the RBI decides not to give a certificate after doing all these due diligence measures,
the RBI will have to adhere to PNJs and give banks a reasonable opportunity of hearing.
If the company is not happy with the response they can file an application with the
central government in 30 days.
Once a certificate has been received from the RBI, if the ARC wishes to make any
substantial change in the business, they must take due permission from the RBI
(These include functions such as removal of directors, change of directors

b. S.4- Grounds for cancellation of license

1. ARC ceases to carry reconstruction or securitisation function
2. Doesn’t get funding from QIBs
3. ARC fails to redeem QIBs
4. If ARCs don’t comply with RBI guidelines
5. If it fails to comply with directions made under S.12
- S.12- Power of RBI to issue guidelines
- S.12A- RBI may call additional information from ARC, similar power that RBI
has over other banking companies.
- S.12B- RBI has power to carry out auditing and inspection of the ARC (added
by the 2016 amendment)
- RBI can further remove directors or appoint new directors in the absence of
the existing ones for these ARCs

c. S.5- Acquisition of rights or interest in financial assets

ARC will acquire financial asset from a bank through auction- no agreement allowed.
Once its auctioned, there will be an agreement between the bank and the ARC whereby
15 percent payment is made in cash and the rest is made through various modes
1. Either ARC can banks in cash directly but not a usually preferred method
2. Issue debt instrument in favour of the bank
3. Some part of security receipts of QBs can be given to banks.
Once the agreement is over, the ARCs might allow issuing of debt instruments
acknowledging their debt to a bank and in case of disputes, these methods have been
provided for
 1. Bank to ARC- arbitration
2. ARC to QIB- arbitration
3. Bank to aggrieved- DRT
4. ARC to Borrower- constitutional remedies.
Once securitization is over all rights and duties shall be now vested with the ARC which
means that there ARCs are deemed creditors of the defaulter borrower. S.5 has also
been amended, and clause (1)(x) had been added as per which they were exempted from
Stamp Duty (This was also reflected in an amendment to the Indian Stamp Act)
Further as per RBI guidelines within 5 years the ARC has to realize the debt. This period
can be extended to 8 years with the consent of the board of directors. If debt receipts were
issued by the ARCs to the bank, they would have ot wait as much as the qualified
institutional buyers to receive the amount.

d. S.6- Notice to obligor and discharge of obligations of such obligor

Informing borrower of securitisation process by the ARC is not mandatory. Notice can be
given by the bank at its own discretion and the borrower and the bank still maintains the
debtor creditor relationship. If the borrower now tries to pay then the bank can accept
the amount but cant utilise it. Bank in this case becomes a trustee and this results in
a constructive trust.

e. S.7- Issue of security by raising of receipts or funds by securitisation or

recnstruction company
Any ARC can issue security receits to QBs to raise funds.
If after realisation QBs haven’t recovered their share- then they can call for a meeting
(but only after 8 years)- if 75 percent or more investors agree on a decision action can be
taken

f. S.10- Additional forms of business which can be performed by the ARC in relation
to sec and recon.- These include
1. Act as a recovery agent of the Banks and FIs
2. Act as a receiver of the court
3. Act as a manager under S.13(4).

g. S.12(b)- RBI can conduct auditing and inspection and remove directors, appoint
additional directors and observers.

h. S.12A- RBI has the power to ask for ARCs to furnish statements regarding its financial
integrity, soundness of finance- and if it fails to do so the certificate of registration will be
cancelled.
Additional info- amendments
Prior to the amendment , ARCs will issue receits to QBs not thorugh public offerings. However,
this restriction has now been removed and ARC may now issue receipts even in the stock
market. This was done to
a. Broaden the scope
b. Institutional buyers changed to qualified buyers.
c. Should be listed to get more liquidity
d. Classification has to be made of security receipts

RECONSTRUCTION
It has been provided for under S.9a of the SARFAESI Act read with S.15 , as well as RBIs
guidelines in 2010. The various methods through which ARCs can realise debts are
a. Can take over business of the borrower if the borrower is a company- implies taking over
of the management. This imples
1. ARC will remove entire management of the compant and appoint new directors. If
this step is taken no compensation can be given those who are removed and the ARC
will take over the business of the borrower company
2. ARC will change those who are responsible for the day to day activities of the
company as they are not competent and efficient
This was provided for under the 2010 guidelines
b. S.15- Under this provision once business is taken over, new set of directoes etc can be
appointed and once a debt has been realised the company will be resolved for borrowers
1. Can be taken only when debt is more than 25 percent of the total amount assets of
the borrower company
2. According to the 2010 guidelines those cases where the ARC feels that it should
adopt this method, they should constitute an Independent Advisory Committee. The
members of this should have expertise in Securitzation, Reconstruction Finance and
Management. These members shouldn’t have any connection with the company,
and must only have remuneration for playing this role
3. Action shall be based on the recommendation of the IAC and due specific reporting to
the RBI is mandatory.
4. There are gounds mentioned in the RBI guidelines which need to be satisfied for the
company to take over the management of the firm, even after due approval is received
from the RBI
- Borrower is a wilful defaulter
- Shifting of funds
- Mismanagement of funds
 - Raising gunfs through creditors
- Borrowers are threatening that they will destroy company property
- Where ARC states that the borrower is agreeing to enter into compromise with
other companies.
- Where ARCs feel that just change in 1-2 people in the management wont solve
the problem
- Where despite giving all chances the company is not paying its dues and there is a
negligible chance thay they would ever be in a position to repay.
- Where borrower says he would discontinue business
c. When settlement of dues or rescheduling of debt is possible, the ARC may reduce
amount of instalments and thereby reduce lenders or borrowers but the number of years
for which the debt has to be paid can be increased.
d. Conversion of debt into equity- RBI puts a cap on concession, stating that post
acquisition of shares there is a cap on 26 percent on the interest of the company
e. However, ARCs don’t have on request professionals to take over the company- this is
why they more than often prefer rescheduling of debt.

Further, with regards to S.9a once a notice is served to the borrower company it will be given 60
days will be given to the company to repay its debts or raise objections regarding existence of the
debt.
If the debt is not paid, it will be disclosed to the ARC what action the ARC is going to take and
provides time to the company to raise objections if needed. If there are any objections it will be
shared with the Independent Advisory Company the Board of Directors. (Didn’t understand last
line of pg 12)

ENFORCEMENT OF SECURITY INTEREST (S.13, 14)

Enforcement of a security interest is a process by which banks or financial institutions can issue
demand notice to the defaulting borrower and guarantor, calling upon them to discharge their
dues within 60 days from the date of the notice. If the notice isn’t complied with and the debt
isn’t cleared within the time frame mentioned in sub clause (2), the bank can then take recourse
to any of these methods (under S.13(4) (2) )
a. Take possession of security
b. Sale lease or assigning right over security
c. Manage the same or appoint any person to manage the same.

Upon the classification of an asset as an NPA and ensuring debt of 1 lakh, the secured creditor
which also includes the ARC- when there is a dispute between
 A. the borrower and the creditor with regards to S.13(4) of the act it would be settled in the
DRT as per S.17 of the DRT
B. Dispute between the ARC- arbitration under S.11
C. Dispute between ARC and QIB- arbitration under S.11
If the dispute is not with regards to enforcement of security interest then constitutional remedies
are also available. (S.11 confers adjudicatory powers to DRTs only on disputes relating to
security interest)
S.13 is to be read with rule 6, 8 and 9 of the Security interest rules
a. Rule 6- Sale and disposal of movable property
b. Rule 8- Sale and disposal of immovable property of the bank
c. Rule 9- Time, date and other aspects (banks, what is where is etc)

Reconstruction process
As per S.13(2) demand notice has to be served, after which the borrower will make
representation and it has to mandatorily rely with 15 days (Mardia chemicals had made this 7
days but as it was found to be insuffiecient it was made back to 15 days after the 2013
amendment). If the default excuses within 60 days they can initiate proceedings under S.13(4)
and take possession of propery or appoint managers and auction
As per S.9 bank has to dispose property within 12 years. Further, the moment a person enters
into an auction a person has to deposit 10 percent for participation and after that 25 percent on
winning the bid. If the bidder lter finds some problems with the property and approaches
the bank to withdraw the bid, and asks for the 25 percent back on the ground that the bank
did not inform them about these problems, then according to Rule 9 of the rules the 25
percent amount will be forefeited (based on the caveat emptor principles)
Before 2010 the borrower could redeem the property even after the auction notice of the property
was given. However after 2010 they cannot redeem the property
S.14- According To S.14 any bank can take assistance in taking over possession of a property
with the help of the magistrate or the chief metropolitan magistrate by giving a request in
writing. This is not a mandatory provision, and will be applicable only when all other remedies
fail.
Application is to be given along with affidavit stating the circumstances leading to the
requirement needed for taking over the property. These district chief and metropolitan magistrate
may take a long time as no provision specifying time within which application has to be disposed
is prescribed in the act. Therefore, under the 2018 amendment 30 days the application has to
be disposed off. If for any reason they are unable to do so reason for the same has to be
given in . District magistrate has no adjudicating power, they only have to assist in taking
over property.
Cases
TRANCORE V. UOI
Question - whether it is mandatory for a bank or a financial institution to withdraw application
pending before a DRT before initiating action under the NPA Act or the securitisation act.
SC- Although both the legislations deal with expeditious recovery of debt and its for the lender.
If the lender has already filed an application under the DRT, the lender is free to take action
under the SARFAESI. Nothing wrong if action is taken simultaneously. (SC here also
randomly showed the difference between a demand and a show cause notice)

HARSHAL GOVARDHAN V. INTERNATIONAL ASSET RECONSTRUCTION CO.

A bank sent a demand notice under S.13(2) of the SARFAESI act. Default happened. The
authorised officer went to take possession but found that tenants were living there. It is given
under S.35 of the BRA act that this section would have an overriding effect over other statutes
such as the land control act.
Question- Can bank exit the tenants occupying under a valid tenancy right
SC- Here distinguished between two types of tenants
a. Who has occupied the property prior to the creation of the security interest by a borrower
in favour of the bank
SC- held that if it is a valid lease the right is valid and hence is protected
b. Those who have occupied property post creation of security interest as per section 65A of
the TPA before seving notice
SC- valid until and unless it is getting terminated. (Why should they be disqualified
because f the borrower)
c. Those who have occupied the property post creation of security interest and serving of
the notice.
SC- no protection is afforded.
Are tenants aggrieved persons?
Yes as the action if dispossession of property of bank would make them come within the ambit
of an aggrieved person. However, DRT is not the appropriate forum for these tenants. DRT is
merely an alternate remedy for them and writ petitions were entertained.
VISHAL N TALSARIA V. BANK OF INDIA
In this case , VN Talsaria, a tenant filed a suit in the court challenging eviction
SC- Under no circumstances can the SARFAESIT be interpreted to evict a person when there is
a valid tenancy agreement. SC said S.35 of the SARFESI overrifes the SARFAESIs effect over
other legislations which have similar subjects. Rent control and SARFAESI have different
objects
What about the agreement between a landlord and a tenant- SC said that the obligation to
put a registered agreement is on landlord and not on the tenant, and hence the bonafide interest
lies in favour of the tenant.
Post these judgments the 2016 amendment was made whereby S.17 was amended. Earlier if the
DRT thought the action of the banks was wrong it could order for restoration of property only to
the borrower. Now, the DRT may order for restoration of property to borrower as well as
any aggrieved person who has filed an application.

AGGARWAL TRACOM PVT. LIMITED V. PNB AND ORS

Bank sent demand notice and defaultof property took place. Bank sold the property at auction
and was to collect 25 percent immediately and the rest 75 percent within the next fifteen days.
Problem here arose due to the fact that the bank did not inform at the auction that there were
tenants in the property.
HC in many cases before had held that the when the bank fails to disclose a material fact then the
deposit can be reclaimed by the auction purchaser. However it was only after this case that
auction purchasers were included as aggrieved persons inder S.17 of the act.

DISHONOR OF CHEQUE
S.138 of the NI Act which provides for criminal liability in case of a default of a cheque was
introduced in 1988 through the Banking, Public Financial Institutes and Negotiable Instruments
Laws (Amendment) Act, 1988. There was a lot of apprehension before introducing such a
provision

S.138- Dishonour of cheque for insufficiency, etc., of funds in the account.

Where cheque drawn by person on account maintained by him with a banker for payment of
any amount of money to another person from that account for discharge, in whole or in part of
any debt or liability is returned unpaid because the money is insufficient to honor the
cheque, such person is deemed to have committed an offence -for which he can be punished
with imprisonment which may extend to a year or two years or with fine which may extend
to twice the amount of cheque or with both
The punishment was increased from one year to two years through an act 55 of 2002.
Limitation period
 a. Cheque needs to be presented or the bank within three months from the date on which it
is drawn or within the period of its validity (whichever earlier) (earlier 6 months now
reduced through the RBI notification)
b. Notice has been sent by the holder of the cheque to the drawer of the cheque within a
period of 15 days (earlier it was 30 days changed with act of 2002)
c. Drawer of such cheque fails to make payment of the money to the payee/ holder in due
course of the cheque, within 15 days of the receipt of the said notice

S.139- Presumption and Defence for an accused

It shall be presumed unless the contrary is proved that a holder of cheque received the cheque of
the nature referred to S.138 for the discharge, in whole or in part, or any debt or liability.

S.140- Defence which may not allowed in any prosecution under S.138
It shall not be a defence in a prosecution of an offence under S.138 that the drawer had no
reason to believe when he issued the cheque that the cheque may be dishonoured on
presentment for the reasons stated in that section.

S.141- Offences by companies

If the person committing an offence under Section 138 is a company, every person who, at the
time the offence was committed, was in charge of, and was responsible to the company for the
conduct of the business of the company, as well as the company, shall be deemed to be guilty
1. However this does not extend to those persons who prove that they had no knowledge of
the same or that he had taken all due diligence to prevent the commission of such offence
2. If the person in question is nominated as a director of a company- he shall not be liable
for prosecution under this chapter.
3. If negligence of any director, manager secretary or other officer is proved- such director
manager or secretary too shall be liable to be punished. (director according to explanation
means partner)

S.142- Cognizance of offences

a. Court shall take cognizance of any offence pubishable under S.138 except upon
compleaint, in writing made by the payee or the holder in due course of the chequ
 b. Clause (b)- such complaint is made within one month of date on which cause of action
arises under clause c of S.138. (after 2002 amendment- condo nation of delay is allowed
for the right reasons)
c. No court inferior to that of a metropolitan magistrate or judicial magistrate of first class
shall try any offence punishable under S.138.

S.145- Evidence on affidavit

a. evidence of the complainant may be given by him on affidavit and may, subject to all just
exceptions be read in evidence in any enquiry, trial or other proceeding under the said
Code.
b. Court may, if it thinks fit, and shall, on the application of the prosecution or the accused,
summon and examine any person giving evidence on affidavit as to the facts contained
therein.
CASES
C- Rajesh Agarwal v. State and ors. – case laid down five steps in a summary trial under S.138
a. Complaint presented- if the complaint is accompanied by affidavit of complainant, the
concerned MM shall scrutinize the complaint & documents and if commission of offence
is made out, take cognizance & direct issuance of summons of accused, against whom
case is made out.
b. Accuse appears; Bail bond- If the accused appears, the MM shall ask him to furnish bail
bond to ensure his appearance during trial and ask him to take notice u/s 251 Cr. P.C. and
enter his plea of defence and fix the case for defense evidence, unless an application is
made by an accused under section 145(2)
c. In case of application for recalling witness- the court shall decide the same, otherwise,
it shall proceed to take defence evidence on record and allow cross examination of
defence witnesses by complainant.
d. Hearing argument
e. Passing judgment

Jurisdictional Issues
a. S.177- Every offence shall ordinarily be inquired into and tried by a Court within whose
local jurisdiction it was committed"
b. S.178- court having jurisdiction over any of such areas will have jurisdiction which
1. When it is uncertain in which of several local areas an offence was committed, or
2. Where the offence is committed partly in one local area and party in another
3. Where an offence is a continuing one, and continues to be committed in more local
area has one or
 4. Where it consists of several acts done in local areas- may be inquired to or tried by
court having jurisdiction over any such local areas.
C- Bhaskaran v. Sankaran Vaidhyan Balan-
Not necessary that all finve acts of a crime should ve been perpetrated in the same locality- may
be performed in 5 different localities. One of the five areas can become the place of trial for
offence under S.138 of the act
1. Where the cheque was drawn.
2. Where the cheque was presented for encashment.
3. Where the cheque was returned unpaid by drawee bank.
4. Where notice in writing was given to drawer of cheque demanding payment.
5. Where drawer of cheque failed to make payment within 15 days of receipt of notics

C- Sunil Srivastava v. Ashok Kalra

Cause of action for filing a complaint under S.138 of the act may also be
a. At a place where the drawer of the cheque resided
b. At a place where the payee resided
c. Or in the place where either of them carried on business
d. Or the place where the payment was to be made.

C- Harman Electronics Pvt. Ltd. v. National Panasonic India pvt. Ltd.

Court addressed the issue regarding whether a delhi court would have jurisdiction solely because
the notice under S.138 was issued from delhi. Court held that
a. Only receipt of notice gives rise to cause of action and not issuance of statutory notice
b. Only main provision of S.138 constitutes offence- proviso merely enlists conditins
necessary for taking cognizance of offence
c. If presentation of cheque would lead t oterritorial jurisdiction it would inevitably lead to
harassment of drawer.
Distinction between Bhaskaran and Harman-
a. Bhaskaran- giving of notice under S.138(b) was read as sending of notice
b. Harman- this was interpreted as receipt of notice.
C- Dashrath Rupsingh Rathod v. State of Maharashtra
Court held that territorial jurisdiction according to S.138 or under the act should exclusively be
determined and considered by place of offence. Hence courts within which drawer bank is
located will only have jurisdiction to try case. Court in this case addressed the cause of action
and the facts constituting cause of action.
Once cause is triggered- jurisdiction of court to try case will be determined by place where
the check was returned dishonoured

Jurisdiction finally settled through the 2015 amendment

Offences under S.138 shall be inquired into and tried by a court within whose local jurisdiction
a. Cheque was delivered for collection through a specific account- where such an account
is maintained
b. If cheque is presented for payment in due course- otherwise thorugh an account- the
branch of the drawee bank where the drawer maintans the account

Other issues (omitted some cases)

C- Lakshmi Dyecham v. State of Gujarat and Ors. – IF there is a mismatch of signature with
a fraudulent intention- it would amount to a violation of S.138.
Prosecution of company
C- Aneeta Hada v. Godfather travels – when company is prosecuted only the persons
mentioned in other categories could be made vicariously liable- no vicarious liability unless there
is prosecution against company.
C- M/s pharmaceuticals case- merely reiterated this

C- Shri Ishar Alloy Steels ltd. v. Jayaswals Neco. Ltd.

Dishonored cheque had been presented for encashment by the complainant/ holder in his bank
within statutory period of 6 months. By the time it reached the drawer’s bank the limitation
period had expired.
Q- whether the bank within the postulation of S.138 r/w S.3 and 72 of the NO act was the
drawee bank or the collecting bank and the court held that it was the drawee.
SC- non presentation of the cheque to the drawee bank within the period specified in the section
would absolve the person issuing the cheque of his criminal liability under S.138 of the NI Act
who otherwise may be able to pay the cheque amount to the payee in a civil action initiated
under law.

Presentation of cheque more than once

C- Sadanandan Bhadran v. Madhavan Sunil Kumar - cheque can be presented any number
of times during the eriod of its validity- each presentation results in a fresh right- person may
therefre present the cheque so as to enable him to exercise any such right at any point of time
during the validity of the cheque- however once he gives a notice he forefeits the successive
right- and the cause of action here would arise once the complainant fails to make payment
C- MSR Leathers v. Palaniappan- On a similar situation- court held that second dishonour is
also permissible, so as long as he satisfies all requirements stipulated in proviso to S.138.
Therefore every time a cheque is presented in a manner within time stipulated under
proviso to S.138 followed by notice within (b)- fresh cause of action accrues every time to
holder of cheque to institute proceedings for prosecution of the drawer.
No real or qualitative difference between a case where default is committed and prosecution is
immediately launched after first dishonour of cheque and where prosecution is deferred till
cheque presented again gets dishonoured for the second time- However, S.138-142 restricts
complainant to present cheque for more than once- law of Sadanandan Bhadran has been
overruled.

Compensation
By a 2018 amendment S.143A was added to the act. It stated that
a. In a summary trial or summons case where he pleads not guilty to accusation made in
complaint Or any other case, upon framing of the charge interim compensation cannot
exceed 20 percent of the amount of the cheque. This amount will be given back with
interest if the person is acquitted.
b. Interim compensation shall be recovered as if it was a fine under S.421 of CrPC- amount
of compensation under S.357 shall be reduced by the amount paid or recovered as interim
compensation under this section
S.148
a. This provision puts a 20 percent interim amount to be paid in addition to S.143A amount
when a matter is being taken in appeals.
 b. This amount has to be deposited within 60 days from the date of the order (further
extension of not more than 30 days)
c. During pendency- appellant court may release amount deposited by appellant during
pendency of appeal.
d. If appellant is acquitted- court can direct complainant to repay the amount so released
with interest rate

BANKING OMBUDSMAN
First recommended by the Narasimhan committee, the scheme got amended in 2002, 2006 and
2017.
Structuring of the banking ombudsman
a. It has been established under S.35A of the BRAct- applicable to the whole of India
b. There are 20 BoS across the country
c. RBI appoints a Banking Ombudsmen
Powers and function of BO
a. Hear the customer complaints
b. Make own budget
c. Send annual report to RBI

Dispute resolution procedure before the Banking ombudsmen

a. Jurisdiction of the banking ombudsman
b. Receipt and rejection of complaints
c. Dispute resolution procedure
d. Appellate authority
e. Enforcement of award

Jurisdiction and types

a. Territorial jurisdiction- each banking ombudsman can hear comlaint within its
territorial limit except in credit card related complaints
b. Pecuniary limits- claims should be worth Rs 10 lakhs.
Grounds of rejection of complaint (Clause 13)
a. Beyond the pecuniary jurisdiction of banking ombudsman under clause 12(5) and
12(6)
 b. Requiring consideration of elaborate documentary and oral evidence and the
proceedings before banking ombudsman are not appropriate for adjudication of such
complaint.
c. No sufficient cause
d. Complaint is pending/rejected before any arbitral tribunal
e. If it was already resolved by a banking ombudsman
f. Compensation exceeds 20 lakhs
g. Compensation for mental agony shouldn’t exceed 1 lakh.
h. Not pursued by complainant with reasonable diligence
i. In opinion of ombudsman there is no loss or damage or inconvenience caused to the
complainant

Complaint filing procedure

a. Customer can file complaint against bank in writing before an ombudsman
b. In case of credit card related complaints, the customer also file complaint before a
banking ombudsman whose jurisdiction the billing address is located.
c. The complainant in his complaint must state his details along with banks details- facts
reating to dispute and relief sought- must enclse supportive documents along with
complaint.
d. Customer before approaching banking ombudsman- must approach bank authorities for
his grievance – He can file same grievance if the bank has not heard the customers
grievance or the grievance of the customer has not been addressed properly
e. Customer must file complaint within one year and one month from date of representation
if bank has not given any reply to complainant. (in case bank is has given reply and they
are not satisfied with this)

Dispute resolution process

a. After receipt of complaint ombudsmen sends copy of complaint to the concerned bank to
settle the dispute. (Nodal officers are to represent banks before the ombudsman)
b. Through mediation and conciliation, the ombudsman shall attempt to bring out a
settlement agreement between the parties to the dispute. If no settlement within a month
then the ombudsman may grant further time period for settlement of dispute.
c. If complaint has not merit- rejected
d. It is a kind of mediation- arbitration- first the ombudsman tries to mediate and then
arbitrate later.
e. Appeal- If not satisfied with the award it can be appealed within 30 days of the receipt of
the award- If bank is aggrieved by decision of ombudsmen then it can filed its appeal
 from date of receipt of acceptance letter of the customer. Prior sanction of the
chairman is required. Rejected complaints are also appealable.
f. Deputy governor of RBI- who is handling department of banking ombudsman having
authority to hear appeals- appellate may modify award or remand it to further
adjudication by banking ombudsman or reject application.
g. As per 2002 ombudsman- the aggrieved bank may file review application before review
authority in 30 days from date of receipt of customer.
h. Customer may file review application before review authority- they may ask for
comment from banking ombudsman who had rendered the award

Enforced of award
a. Customer who wants to enforce award should file his letter of acceptance to the concern
bank within 30 days from the date of receipt of the award from ombudsman.
b. If bank has filed an appeal before the appellate body or any other forum then- it need not
comply the award or settlement agreement mandates.

C- Durga Hotel Complex v. Reserve Bank of India

Appellant partnership firm sought a loan from the respondent bank for putting up a hotel. In april
1997, a loan of Rs 15 lakhs was sanctioned by the bank. Bank disbursed a sum of Rs 11,58, 750.
Appellant sought additional advance and the proposal was not accepted by the bank.
Bank recalled the loan after crediting 3,41, 250 out of the original loan sanctioned complait
before the banking ombudsman for the state of Bihar at Patna under clause 16 of the Banking
Ombudsman Scheme, 1995.
Ombudsman went on hearing the matter and passed an award in favour of the customer.
Meanwhile the bank filed a case against the appellant in the DRT. BO passed an award for full
payment of loan with interest.
Court held- ombudsman has jurisdiction over matters mentioned under S.13 B of the act
and would not have jurisdiction over matters outside the purview of that provision.
However when the matter is taking before a court or a tribunal it loses jurisdiction.

C- Balla Rama Rao v. BO

Case was relating to jurisdiction of subject matter in a dispute. There was a house in the name of
B Narayanama was given on lease to the bank in 1982. Subsequently, the lady died. The bank
did not pay rent from June 1992 to Feb. 1997. Balla Ramarao, the appellant approached the bank.
Bank immediately paid the amount Rs 3,09,562.
Balla contended that the interest should also be paid for the period of 1992-1997. The bank
refused to pay interest. Appellant approached the ombudsmen
Complaint was rejected holding that no merit was there in the case as it was outside the scope of
the ombudsman- HC rejected the appeal, finding that it was outside the jurisdiction of the
banking ombudsman.

C- Umakant Choure v. BO
In this case the court held that ombudsman not have the power to order to give money for the
victim who spend to his council for representing this case before the ombudsman.

C- UCO Bank rep. by Chief Manager, Chennai Main Branch v. Digboi Refinery, Indian
Oil Corporation Ltd (Assam Oil Division ) and banking ombudsman
Guarantees issued in favour of the customer- not accepted the extension of guarantee. BO
ordered bank to act according to guarantee agreement accepted by court

C- R Lakshmanan and V Indira Stephen v. Indian Overseas Bank – complicated disputes

cant have the jurisdiction of the banking ombudsman.
In respect of some instrument- petitioner had filed a criminal compliant before the crime branch
before filing a complaint with the ombudsman. It was held that in such circumstances by
considering the scope of clause 16(3)(d) the ombudsman ought not to have proceeded further
since the same subject matter was pending before another forum.

Difference between BO and consumer forum- adv. And disadv. Of BO- learn from slides only
C- Prabir G Dastigar v. ICICI Bank- Basically state consumer forum can act as an appellate
authority over a matter adjudicated by the banking ombudsmen.

IBC-
 Initial legislations in place- GOI Act 1808, 1909 presidency towns act etc
 After independane baba committee was constituted- gave rise to the companies act
 Dissolutions
a. Voluntary
b. Involuntary- provided for under S.425 of companies act- was done in order to solve
insolvency- this had resulted in locking of assets
  Later Tiwari committee was constituted- gave THE sig Act- which referred sick
industries to the BIFR- objective was to rehabilitte sick industries
 Later due to goswami committees criticism of the act it was repealed in 2002 (the SIGA)
 During SIGA time- india was a closed economy- became liberalised by the time of DRT-
there was a desperate need for resolving these problems
 This was how IBC was introduced
 Act applied to
a. Corporate persons
b. Partnership firms
c. Individuals

Stages of Insolvency resolution

 Default
 Resolution professional appointed
 Moratorium to be established
 Committee of creditors formed
 75 percent of creditors approve a resolution

IBC has 2 kinds of creditors- financial and operational creditors (only the former has voting
share in Coc)

Process
a. Order of NCLT to be communicated in 7 days
b. CIRP to be done in 180 days
c. Application for extension can be done only when 66 percent of creditors approve the
same
d. NCLT will impose a moratorium- you know what it is
e. IRP is appointed- takes over the compant- directors are removed
f. IRP will collect all information agaist the defaulter- list of creditors will be made and
CoC will be formed- al decisions have to be taken with 75 percent majority
g. CoC will appoint a proper Resolution professional
h. RP presents a plan to the CoC- they can take action only once the plan has been finalised.
i. If it doesn’t get approved- company is liquidated