Can the property of Guarantor be
attached?
Yes, you can
attach the Guarantor’s property as long as Bank has the first charge on that
property and such properties can be attached irrespective of belonging to the
Borrower or Guarantor. What is required is property must be charged to the Bank
and while issuing notice of 60 days, you must ensure that Borrower as well as
Guarantors are served with Sec.13 Notice, without exception.
In certain cases, charged properties
are sold or assigned by the Borrower in that case what is to be done?
If after
receipt of the Securitisation Notice, during the period of 60 days or
thereafter, if the Borrower or Guarantor sells or assigns, such dealer assignment
is an illegality and therefore the Purchaser or the Act, if any person
contravenes or abets the contravention, the provision of the Act or any rule
made thereunder, he shall be punishable with imprisonment, which may extend for
a period of one year or with fine, or with both.
Therefore,
if anybody transfers or sells the charged properties after receipt of the Securitisation
notice, the person who is the Purchaser, the Borrower and the Guarantor (in
which the Bank has a secured interest), and if disposed, they may be prosecuted
under Sec.29 before Judicial Magistrate 1st Class Court. Sec 29
provides that not only the contravention of the provisions of the Act but also
rules made therein. Therefore, it is difficult for the Offender to escape from
the Clutches of Law, if any (monkey business) is done by him by disposing of the secured
assets charged to most of his mischief, the Bank after getting the Notice u/s
13 (2) of the Act.
Moreover, in
case of immovable properties, those are charged to the Bank are normally
charged by creation of a Equitable or Registered Mortgage and almost all the
Original Title Deeds are with Bank, as such, no. Original title deeds are left
with Mortgagor. Hence, he cannot sell or dispose of the immovable properties,
if done the Purchasers right to the property will be subject to Banks first
claim being satisfied. However, assignment as invalid cannot be denied to the
Bank and even criminal case can be filed by the Bank against all concerned in
such cases.
If at the time of creation of
Equitable Mortgage, whether drawing of MEMORANDUM OF ENTRY is required?
Yes, if the
State in which such Equitable Mortgage is made, there is a State Stamp Act,
which prescribes Stamp Duty to be paid on such Equitable Mortgage created in
the State, you must draw Memorandum of Entry which is required under State Law,
the Stamp Officer of the State can enter the Bank and take physical possession of
all those mortgaged documents, thereby the Bank will bereft of the security.
Not only the
Bank should draw the Memorandum of Entry and affix stamp as required by State Law, but also the Memorandum of Entry must be entered in a Register maintained
by the Bank for that purpose. Avoiding paying Stamp Duty on Memorandum of Entry
is akin to sitting on a volcanic point.
Can the mortgage of immovable
property be created by the deposit of title deeds of the properties in a State
where no Stamp Duty is prescribed on Memorandum of Entry?
Yes. This
can be done but it will be a moral wrong on the part of the Bank as the
intention is very clear to evade the legally payable State revenue, as if
avoided to help the Borrower. However, when the Equitable Mortgage is created
in a State, where there is no prescription of Stamp Duty payable on Memorandum
Of Entry (MOE), it will be a perfect mortgage even it will be a perfect
mortgage even if the property is situated outside that State. But, besides the
aforesaid moral wrong, the Bank if it wants to invoke Securitisation Act or any
other legal proceedings and rely upon the mortgage created outside the State,
it is necessary that, within 30 days of these original documents being brought
in the State in which here is the prescription of Stamp Duty payable on such
mortgage, the Stamp Duty must be paid, and then only the mortgage can be
recognised in a Court of Law or Tribunal, or for the purpose of taking action
under Securitisation Act, in the State, where there is a requirement of paying
Stamp Duty on MOE.
Therefore
the Evidentiary value of the mortgage will be Nil, unless prescribed Stamp Duty
is paid. Getting the MOE stamped at the time of going to Court is not a good
practice as it may expose that the Bank is not stamping the MOE when executed,
which is against Law and attract serious reactions from the Government.
Even when
such mortgage documents are presented in the Court, the Court can impound the
documents and send it to the State Authorities for non-stamping of those
documents, which require such stamping under that State Law.
Under any
circumstances, if there is no MOE made by the Bank, a fresh MOE must be made
and given for stamping and stamps as well as penalties must be paid and the
documents can be presented in judicial proceedings as Evidence. In certain
cases, Banks do take a Power of Attorney to create such Equitable Mortgage in
favour by the Bank Officer himself.
This is a
danger situation in as much as if the Mortgagor dies or becomes lunatic or is
legally unable to contract, the Power of Attorney issued by him to the Bank
Officer cannot be acted upon.
Therefore,
it is strongly advised that while creation of Equitable mortgage, proper MOE
must be drawn and signed only by the Bank Officer and witnesses of 2 other
persons are taken and MOE must be properly stamped and along with that title
documents of the property must be taken and along with Affidavit and Undertaking
by the Mortgagor stating that he has deposited the title deeds with the Bank
and created the mortgage with an intention to secure the debt availed by him or
to be availed in future and he shall up-keep the property in proper order to
safeguard the interest of the Bank.
If such
documents are taken the Bank will have an absolute security as Evidence.
Evading
Stamp Duty to be paid on MOE is a very risky situation. However, some Solicitor
Firm or Advocates may give an opinion favourable to the Bank, who look for
tailor-made opinion, and such Legal Advisors give advice in writing that Stamp
Duty is payable only on MOE and if no MOE is drawn, the mortgage is valid.
Therefore, no Stamp Duty needs to be paid.
But, Stamp
Act is very clear that if an Equitable mortgage is created in a State, the
Stamp Act apply, whether MOE is drawn or not. Therefore, obtaining such Legal Advice
and acting on that is like a cat drinking milk by closing its eyes.
Whether MOE can be signed by the
Mortgagor?
No. MOE must
be signed by the Authorised Signatories of the Bank, who accepts the title
deeds in a Notified Area under the Transfer of Property Act; with an intention
to create a mortgage and with that intention the Mortgagor has handed over the
documents.
Therefore, Mortgagor
should not sign this MOE but he has created mortgage of his property in favour
of the Bank. On the MOE, the Mortgagor and the Mortgagee both should never sign
as it would amount to an Agreement and that attracts Stamp Duty, again.
Whether Bank can take two actions
for recovery, under DRT Act and Securitisation Act simultaneously?
Yes. There
are a number of Court decisions to that effect. The Bank can take action
simultaneously both under DRT filing original application by involving
Securitisation Act and role of property.
Whether deposit given by the Bank
for leasing premises can be recovered under Debt Recovery Tribunal (DRT)
proceedings?
As per
DRT-II judgments dated 2/4/2004 reported in 2005 (II) DRT – 133, which is
confirmed by the DRAT, such money cannot be recovered by filing recovery
proceedings under the DRT, as DRT has held that this not an amount recoverable
under the DRT as definition of “Bank Activity” cannot be imparted in the
present case.
What are the basic title documents
that the Mortgagor has to give to the Mortgagee so as to make the mortgage
effective?
The Transfer
of Property Act, Sec.58 (f) deals with creation of mortgage, but does not
specifically speak about the title deeds that need to be given at the time of
creation of Equitable Mortgage. However, all the original title deeds including
link documents, Property tax paid receipts, Certificates evidencing transfer of Khatha and all such relevant documents to be given to ensue that effective
mortgage is created.
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