An
Act to regulate securitisation and reconstruction of financial assets and
enforcement of security interest and for matters connected therewith or
incidental thereto.
BE it enacted by Parliament in the Fifty-third year of Republic of India
as follows:--
CHAPTER I
PRELIMINARY
1. Short title, extent and commencement
(1) This Act may be
called the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002.
(2) It extends to the
whole of India.
(3) It shall be deemed
to have come into force on the 21st day of June, 2002.
2. Definitions
(1) In this Act, unless
the context otherwise requires,--
(a) "Appellate
Tribunal" means a Debts Recovery Appellate Tribunal established under
sub-section (1) of section 8 of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (51 of 1993);
(b) "asset
reconstruction" means acquisition by any securitisation company or
reconstruction company of any right or interest of any bank or financial
institution in any financial assistance for the purpose of realisation of
such financial assistance;
(c) bank" means--
(i) a banking
company; or
(ii) a corresponding
new bank; or
(iii) the State Bank
of India; or
(iv) a subsidiary
bank; or
(v) such other bank
which the Central Government may, by notification, specify for the
purposes of this Act;
(d) "banking
company" shall have the meaning assigned to it in clause (c) of section 5
of the Banking Regulation Act, 1949 (10 of 1949);
(e) "Board" means
the Securities and Exchange Board of India established under section 3 of
the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(f) "borrower"
means any person who has been granted financial assistance by any bank or
financial institution or who has given any guarantee or created any
mortgage or pledge as security for the financial assistance granted by any
bank or financial institution and includes a person who becomes borrower
of a securitisation company or reconstruction company consequent upon
acquisition by it of any rights or interest of any bank or financial
institution in relation to such financial assistance;
(g) "Central
Registry" means the registry set up or cause to bet set up under
sub-section (1) of section 20;
(h)
"corresponding new bank" shall have the meaning assigned to it in clause (da)
of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(ha) "debt" shall
have the meaning assigned to it in clause (g) of section 2 of the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993;
(i) "Debts
Recovery Tribunal" means the Tribunal established under sub-section (1) of
section 3 of the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 (51 of 1993);
(j) "default"
means non-payment of any principal debt or interest thereon or any other
amount payable by a borrower to any secured creditor consequent upon which
the account of such borrower is classified as non-performing asset in the
books of account of the secured creditor ;
(k) "financial
assistance" means any loan or advance granted or any debentures or bonds
subscribed or any guarantees given or letters of credit established or any
other credit facility extended by any bank or financial institution;
(l) "financial asset"
means debt or receivables and includes--
(i) a claim to
any debt or receivables or part thereof, whether secured or unsecured; or
(ii) any debt or
receivables secured by, mortgage of, or charge on, immovable property; or
(iii) a mortgage,
charge, hypothecation or pledge of movable property; or
(iv) any right or
interest in the security, whether full or part underlying such debt or
receivables; or
(v) any
beneficial interest in property, whether movable or immovable, or in such
debt, receivables, whether such interest is existing, future, accruing,
conditional or contingent; or
(vi) any
financial assistance;
(m) "financial
institution" means--
(i) a public
financial institution within the meaning of section 4A of the Companies
Act, 1956 (1 of 1956);
(ii) any
institution specified by the Central Government under sub-clause (ii) of
clause (h) of section 2 of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (51 of 1993);
(iii) the
International Finance Corporation established under the International
Finance Corporation (Status, Immunities and Privileges) Act, 1958 (42 of
1958);
(iv) any other
institution or non-banking financial company as defined in clause (f) of
section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934), which the
Central Government may, by notification, specify as financial institution
for the purposes of this Act;
(n)
"Hypothecation" means a charge in or upon any movable property, existing
or future, created by a borrower in favour of a secured creditor without
delivery of possession of the movable property to such creditor, as a
security for financial assistance and includes floating charge and
crystallisation of such charge into fixed charge on movable property;
(o)
"non-performing asset" means an asset or account of a borrower, which has
been classified by a bank or financial institution as sub-standard,
doubtful or loss asset,--
(a) in case such
bank or financial institution is administered or regulated by any
authority or body established, constituted or appointed by any law for the
time being in force, in accordance with the directions or guidelines
relating to assets classifications issued by such authority or body;
(b) in any other
case, in accordance with the directions or guidelines relating to assets
classifications issued by the Reserve Bank;
(p)
"notification" means a notification published in the Official Gazette;
(q) "obligor"
means a person liable to the originator, whether under a contract or
otherwise, to pay a financial asset or to discharge any obligation in
respect of a financial asset, whether existing, future, conditional or
contingent and includes the borrower;
(r) "originator"
means the owner of a financial asset which is acquired by a securitisation
company or reconstruction company for the purpose of securitisation or
asset reconstruction;
(s) "prescribed"
means prescribed by rules made under this Act;
(t) "property"
means--
(i) immovable
property;
(ii) movable
property;
(iii) any debt or
any right to receive payment of money, whether secured or unsecured;
(iv) receivables,
whether existing or future;
(v) intangible
assets, being know-how, patent, copyright, trade mark, licence, franchise
or any other business or commercial right of similar nature;
(u) "qualified
institutional buyer" means a financial institution, insurance company,
bank, state financial corporation, state industrial development
corporation, trustee or securitisation company or reconstruction company
which has been granted a certificate of registration under sub-section (4)
of section 3 or any asset management company making investment on behalf
of mutual fund or pension fund or a foreign institutional investor
registered under the Securities and Exchange Board of India Act, 1992 (15
of 1992) or regulations made thereunder, or any other body corporate as
may be specified by the Board;
(v)
"reconstruction company" means a company formed and registered under the
Companies Act, 1956 (1 of 1956) for the purpose of asset reconstruction;
(w) "Registrar of
Companies" means the Registrar as defined in clause (40) of section 2 of
the Companies Act, 1956 (1 of 1956);
(x) "Reserve
Bank" means the Reserve Bank of India constituted under section 3 of the
Reserve Bank of India Act, 1934 (2 of 1934);
(y) "scheme"
means a scheme inviting subscription to security receipts proposed to be
issued by a securitisation company or reconstruction company under that
scheme;
(z) "securitisation"
means acquisition of financial assets by any securitisation company or
reconstruction company from any originator, whether by raising of funds by
such securitisation company or reconstruction company from qualified
institutional buyers by issue of security receipts representing undivided
interest in such financial assets or otherwise;
(za) "securitisation
company" means any company formed and registered under the Companies Act,
1956 (1 of 1956) for the purpose of securitisation;
(zb) "security
agreement" means an agreement, instrument or any other document or
arrangement under which security interest is created in favour of the
secured creditor including the creation of mortgage by deposit of title
deeds with the secured creditor;
(zc) "secured
asset" means the property on which security interest is created;
(zd) "secured
creditor" means any bank or financial institution or any consortium or
group of banks or financial institutions and includes—
(i) debenture
trustee appointed by any bank or financial institution; or
(ii)
securitisation company or reconstruction company, whether acting as such
or managing a trust set up by such securitisation company or
reconstruction company for the securitisation or reconstruction, as the
case may be; or
(iii) any other trustee
holding securities on behalf of a bank or financial institution,
in whose favour security
interest is created for due repayment by any borrower of any financial
assistance;
(ze) "secured
debt" means a debt which is secured by any security interest;
(zf) "security
interest" means right, title and interest of any kind whatsoever upon
property, created in favour of any secured creditor and includes any
mortgage, charge, hypothecation, assignment other than those specified in
section 31;
(zg) "security
receipt" means a receipt or other security, issued by a securitisation
company or reconstruction company to any qualified institutional buyer
pursuant to a scheme, evidencing the purchase or acquisition by the holder
thereof, of an undivided right, title or interest in the financial asset
involved in securitisation;
(zh) "sponsor"
means any person holding not less than ten per cent of the paid-up equity
capital of a securitisation company or reconstruction company;
(zi) "State Bank
of India" means the State Bank of India constituted under section 3 of the
State Bank of India Act, 1955 (23 of 1955);
(zj) "subsidiary
bank" shall have the meaning assigned to it in clause (k) of section 2 of
the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959).
(2) Words and
expressions used and not defined in this Act but defined in the Indian
Contract Act, 1872 (9 of 1872) or the Transfer of Property Act, 1882 (4 of
1882) or the Companies Act, 1956 (1 of 1956) or the Securities and
Exchange Board of India Act, 1992 (15 of 1992) shall have the same
meanings respectively assigned to them in those Acts.
COMMENTS
Appellate Tribunal
Sec. 8(1) of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
provides for the establishment of one or more Appellate Tribunals by the
Central Government. Sec. 9 of that Act says, an Appellate Tribunal shall
consist of one person only referred to as the Chairperson of the Tribunal,
to be appointed by the Central Government.
Asset reconstruction
The word "asset" means
property of all kinds, real and personal, tangible and intangible,
including inter alia, for certain purposes, patents and causes of action
which belong to any person including a corporation and the estate of a
deceased. The entire property of a person, association, corporation, or
estate that is applicable or subject to the payment of his or her or its
debts.--Black's Law Dictionary. It means property in general all that one
owns.--D.G. Gose v. State of Kerala (1980) 2 SCC 410. In Shri
Prithvi Cotton Mills v. Broach Borough Municipality AIR 1968 Guj 124,
the word was held to mean items of properties held by a person minus the
liabilities to be discharged by him.
"Reconstruction" is the
act of constructing again. It presupposes the non-existence of the thing
to be reconstructed as an entity; that the thing before existing has lost
its entity.--Miller Hatcheries v. Buckeye Incubator Co. C.C.A. M.O., 41
F. 2d. 619.
"Securitisation" is
defined as to mean acquisition of financial assets by any securitisation
company or reconstruction company from any originator, whether by raising
of funds by such securitisation company or reconstruction company from
qualified institutional buyers by issue of security receipts representing
undivided interest in such financial assets or otherwise. A
"reconstruction company" and a "securitisation company" are companies
formed and registered under the Companies Act, 1956, for the purposes of
"asset reconstructing" and "securitisation" respectively.
Bank
A bank is an institution
of great value in the commercial world, empowered to receive deposits of
money, to make loans, and to issue its promissory notes, (designed to
circulate as money, and commonly called "bank-notes" or "bank-bills,") or
to perform any one or more of these functions. A bank is an institution,
usually incorporated with power to issue its promissory notes intended to
circulate as money (known as bank notes); or to receive the money of
others on general deposit, to form a joint fund that shall be used by the
institution, for its own benefit, for one or more of the purposes of
making temporary loans and discounts; of dealing in notes, foreign and
domestic bills of exchange, coin, bullion, credits, and the remission of
money; or with both these powers, and with the privileges, in addition to
these basic powers, of receiving special deposits and making collections
for the holders of negotiable paper, if the institution sees fit to engage
in such business. The term "bank" is usually restricted in its
application to an incorporated body; while a private individual making it
his business to conduct banking operations is generally denominated a
"banker".--Black's Law Dictionary
Sec. 2(d) of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
defines a "bank" thus:
(d) "bank" means:--
(i) a banking
company;
(ii) a corresponding
new bank;
(iii) State Bank of
India;
(iv) a subsidiary bank,
or
(v) a Regional Rural
Bank.
The definition of "bank"
in s. 2(1)(c) of the present Act is also almost same except the addition
of sub-cl. (v) including, "such other bank which the Central Government
may, by notification, specify for the purposes of this Act, in the
definition clause.
Banking company
A company carrying on
the business of receiving money on deposit, loaning money, discounting
notes, issuing notes for circulation, collecting money on notes deposited,
negotiating bills, etc. generally is a banking company.
Clause (b) of section 5
of the Banking Regulation Act, 1949 defines "banking" to mean the
accepting, for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise, and withdrawable by
cheque, draft, order or otherwise. Under cl. (c), "banking company" means
any company which transacts the business of banking in India. Under the
Explanation thereto, any company which is engaged in the manufacture of
goods or carries on any trade and which accepts deposits of money from the
public merely for the purpose of financing its business as such
manufacturer or trader shall not be deemed to transact the business of
banking.
Sec. 5(1)(c) of the
Banking Companies Act, 1949, as amended in 1950, only means that
transacting the business of banking should be the business of a company,
and not that such business should have been transacted at any particular
point of time. Notwithstanding that a banking company may not be
transacting the business of banking at any particular point of time on
account of a supervening cause, it will not cease to be a banking company
within the meaning of s. 5(1) : 1952 Ker LT 633. The definition of the
word "banking" does not include other commercial activities which a
banking institution may engage in.--AIR 1970 SC 564. The definition of
`banking company' describes the nature of the business transacted in a
banking company and it cannot be taken to mean that a company which was
originally a banking company will cease to be one, or become one of a
different category for the mere fact that the proceedings have been
started for the liquidation of the company : 1961 Ker LT 889. The essence
of a banking business is receiving money on current account for deposit
from the public repayable on demand and withdrawable by cheque, draft or
otherwise. The Act would, therefore, apply only to the limited class of
cases where the bank or banker allows the withdrawal of money by the issue
of cheques : AIR 1961 Mad 8.
Under section 2(b) and
section 2(a) respectively of the Banking Companies Acquisition and
Transfer of Undertakings) Acts, 1970 and 1980, a banking company does not
include a foreign company within the meaning of section 591 of the
Companies Act, 1956.
Board
Sub-s. (1) of s. 3 of
the Securities and Exchange Board of India Act, 1992 provides for the
establishment and incorporation of the Securities and Exchange Board of
India (SEBI). Under sub-s. (2), the SEBI shall be a body corporate by its
name, having perpetual succession and a common seal, with power to
acquire, hold and dispose of both movable and immovable property, and to
contract and shall, by the said name, sue or be sued.
Borrower
"To borrow" is to
solicit and receive from another any article of property, money or thing
of value with the intention and promise to repay or return it or its
equivalent. If the item borrowed is money, there normally exists an
agreement to pay interest for its use. In a broad sense, the term means a
contract for the use of money. The term may be used to express the idea
of receiving something from another for one's own use. The word "loan" is
the correlative of "borrow."--Black's Law Dictionary.
To borrow is to receive
with the implied or expressed intention of returning the same or an
equivalent--Webster's Ninth New Collegiate Dictionary.
A "borrower" is he to whom a thing or money
is lent at his request. "Borrower," within the automobile liability
policy covering borrower of vehicle during loading and unloading, may be
defined as someone who has, with permission of owner, temporary possession
and use of property of another for his own purposes.--Liberty Mut. Ins.
Co. v. American Emp. Ins. Co., Tax., 556 S.W. 2d 242, 244
In Hindu Law, a father
who is the Karta of the joint family consisting of himself and his sons
can become a borrower in his capacity as Karta and if the loan is for
legal necessity or for the benefit of the joint family estate he would
render the joint family property liable for such debt and if it is for his
personal benefit the joint family property even in the hands of the sons
would be liable if the debt is not tainted with illegality or
immorality.--Venkatesh Dhonddev Deshpande v. Sou. Kusum Dattatraya
Kulkarni, AIR 1978 SC 1791
Corresponding new bank
Under s. 5(da) of the
Banking Regulation Act, 1949, "corresponding new bank" means a
corresponding new bank constituted under s. 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970, or under s. 3 of the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
Sec. 3 of the said Act is as under:
"3. Establishment of
corresponding new banks and business thereof--(1) On the commencement of
this Act, there shall be constituted such corresponding new banks as are
specified in the First Schedule.
(2) The paid-up capital
of every corresponding new bank constituted under sub-section (1) shall,
until any provision is made in this behalf in any scheme made under
section 9, be equal to paid-up capital of the existing bank in relation to
which it is the corresponding new bank.
(2A) Subject to the
provisions of this Act, the authorised capital of every corresponding new
bank shall be one thousand five hundred crores of rupees divided into one
hundred fifty crores fully paid-up shares of ten rupees each:
PROVIDED that the
Central Government may, after consultation with the Reserve Bank and by
notification in the Official Gazette, increase or reduce the authorised
capital as it thinks fit, so however that after such increase or
reduction, the authorised capital shall not exceed three thousand crores
or be less than one thousand five hundred crores, of rupees.
(2B) Notwithstanding
anything contained in sub-section (2), the paid up capital of every
corresponding new bank constituted under sub-section (1) may from time to
time be increased by,--
(a) such amounts
as the Board of Directors of the corresponding new bank may, after
consultation with the Reserve Bank and with the previous sanction of the
Central Government, transfer from the reserve fund established by such
bank to such paid-up capital;
(b) such amounts
as the Central Government may, after consultation with the Reserve Bank,
contribute to such paid up capital;
(c) such amounts
as the Board of Directors of the corresponding new bank may, after
consultation with the Reserve Bank and with the previous sanction of the
Central Government, raise by public issue of shares in such manner as may
be prescribed, so however that the Central Government shall, at all times,
hold not less than fiftyone per cent of the paid-up capital of each
corresponding new bank.
(2BB) Notwithstanding
anything contained in sub-section (2), the paid-up capital of a
corresponding new bank constituted under sub-section (1) may, from time to
time. and before any paid-up capital is raised by public issue under
clause (c) of sub-section (2B), be reduced by--
(a) the Central
Government, after consultation with the Reserve Bank, by cancelling any
paid-up capital which is lost, or is unrepresented by available assets;
(b) the Board of
Directors, after consultation with the Reserve Bank and with the previous
sanction of the Central Government, by paying off any paid- up capital
which is in excess of the wants of the corresponding new bank:
PROVIDED that in a case
where such capital is lost, or is unrepresented by available assets
because of amalgamation of another corresponding new bank or a
corresponding new bank as defined in clause (d) of section 2 of the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5
of 1970) with the corresponding new bank, such reduction may be done,
either prospectively or retrospectively, but not from a date earlier than
the date of such amalgamation.
(2BBA)(a) A
corresponding new bank may from time to time and after any paid-up capital
has been raised by public issue under clause (c) of sub-section (2B), by
resolution passed at an annual general meeting of the shareholders
entitled to vote, voting in person, or, where proxies are allowed, by
proxy, and the votes cast in favour of the resolution are not less than
three times the number of the votes cast against the resolution by the
shareholders so entitled and voting, reduce its paid-up capital in any
way.
(b) without prejudice to
the generality of the foregoing power the paid-up capital may be reduced
by,--
(i)
extinguishing or reducing the liability on any of its shares in respect of
share capital not paid-up;
(ii) either with
or without extinguishing or reducing liability on any of its paid up
shares, cancelling any paid-up capital which is lost, or is unrepresented
by available assets, or
(iii) either with or
without extinguishing or reducing liability on any of its paid-up shares,
paying off any paid share capital which is in excess of the wants of the
corresponding new bank.
(2BBB) Notwithstanding
anything contained in sub-section (2BB) or sub-section (2BBA), the paid-up
capital of a corresponding new bank shall not be reduced at any time so as
to render it below twenty-five per cent of the paid-up capital of that
bank as on the date of commencement of the Banking Companies (Acquisition
and Transfer of Undertakings) Amendment Act, 1995.
(2C) The entire paid-up
capital of a corresponding new bank, except the paid-up capital raised by
public issue under clause (c) of sub-section (2B), shall stand vested in
and allotted to the Central Government.
(2D) The shares of every
corresponding new bank not held by the Central Government shall be freely
transferable :
PROVIDED that no
individual or company resident outside India or any company incorporated
under any law not in force in India or any branch of such company, whether
resident outside India or not, shall at any time hold or acquire by
transfer or otherwise shares of the corresponding new bank so that such
investment in aggregate exceed the percentage, not being more than twenty
per cent, of the paid-up capital, as may be specified by the Central
Government by notification in the Official Gazette.
Explanation
: For the
purposes of this clause "company" means any body corporate and includes a
firm or other association of individuals.
(2E) No shareholder of
the corresponding new bank, other than the Central Government, shall be
entitled to exercise voting rights in respect of any shares held by him in
excess of one per cent of the total voting rights of all the shareholders
of the corresponding new bank.
(2F) Every corresponding
new bank shall keep at its head office a register, in one or more books,
of the shareholder (in this Act referred to as the register) and shall
enter therein the following particulars:
(i) the names,
addresses and occupations, if any, of the shareholders and a statement of
the shares held by each shareholder, distinguishing each share by its
denoting number;
(ii) the date on
which each person is so entered as a shareholder;
(iii) the date on which any person
ceases to be a shareholder; and
(iv) such
other particulars as may be prescribed :
PROVIDED that nothing in
this sub-section shall apply to the shares held with a depository.
(2G) Notwithstanding
anything contained in sub-section (2F), it shall be lawful for every
corresponding new bank to keep the register in computer floppies or
diskettes subject to such safeguards as may be prescribed.
(3) Notwithstanding
anything contained in the Indian Evidence Act, 1872 a copy of, or extract
from, the register, certified to be a true copy under the hand of an
officer of the corresponding new bank authorised in this behalf by it,
shall, in all legal proceedings, be admissible in evidence.
(4) Every corresponding
new bank shall be a body corporate with perpetual succession and a common
seal with power, subject to the provisions of this Act, to acquire, hold
and dispose of property, and to contract, and may sue and be sued in its
name.
(5) Every corresponding
new bank shall carry on and transact the business of banking as defined in
clause (b) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)
and may engage in one or more of the other forms of business specified in
sub-section (1) of section 6 of that Act.
(6) Every corresponding
new bank shall establish a reserve fund to which shall be transferred the
share premiums and the balance, if any, standing to the credit of the
reserve fund of the existing bank in relation to which it is the
corresponding new bank, and such further sums, if any, as may be
transferred in accordance with the provisions of section 17 of the Banking
Regulation Act, 1949 (10 of 1949).
(7)(i)The corresponding
new bank shall, if so required by the Reserve Bank, act as agent of the
Reserve Bank at all places in India where it has a branch, for--
(a) paying,
receiving, collecting and remitting money, bullion and securities on
behalf of any Government in India; and
(b) undertaking
and transacting any other business which the Reserve Bank may from time to
time entrust to it.
(ii) The terms
and conditions on which any such agency business shall be carried on by
the corresponding new bank on behalf of the Reserve Bank shall be such as
may be agreed upon.
(iii) If no
agreement can be reached on any matter referred to in clause (ii), or if a
dispute arises between the corresponding new bank and the Reserve Bank as
to the interpretation of any agreement between them, the matter shall be
referred to the Central Government and the decision of the Central
Government thereon shall be final.
(iv) The
corresponding new bank may transact any business or perform any functions
entrusted to it under clause (i), by itself or through any agent approved
by the Reserve Bank."
Debt
Under section 2(ha), as
inserted by the enforcement of Security Interest and Recovery of Debts
Laws (Amendment) Act, 2004, "debt" shall have the meaning assigned to it
in clause (g) of section 2 of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993.
Debts Recovery Tribunal
Sec. 3 of the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993 provides for
the establishment of one or more Debts Recovery Tribunals by the Central
Government to exercise the jurisdiction, powers and authority conferred on
such Tribunals by or under that Act. Under s. 4 of the said Act, a
Tribunal shall consist of only one person (Presiding Officer) appointed by
the Central Government.
Default
"Default" is, not doing
something required by duty or law; neglect; a failure to pay financial
debts; failure to appear at the required time in legal proceeding.
Default means nothing
more, nothing less, than one doing what is reasonable under the
circumstances--not doing something which you ought to do, having regard to
the relations which you occupy towards the other persons interested in the
transaction--Re, Young and Haston's Contract (1885) 31 ChD 168.
Default is an omission which ought to have
been done, specifically, the omission or failure to perform a legal or
contractual duty or to observe a promise or discharge an obligation (e.g.
to pay interest or principal on a debt when due). The term also embraces
the idea of dishonesty and of wrongful act, or an act of omission
discreditable to one's profession.--Vide
Black's Law Dictionary
Non-prosecution of the case, such as by not
pressing it amounts to default. Default may include non-appearance,
non-payment of fees, failure to produce necessary documents or failure to
do other things for successful prosecution.--Md.
Goffar Baig v. Md. Abdul Khaleek AIR 1957 AP 991
`Default' in s. 2(2)(b),
Civil Procedure Code, is not confined to a default in appearance only; it
includes default of all kinds.ÿ--Tafazul v. Shah Mohammad AIR 1949 All
261. Order 9, r. 6 of the Code enables the court to pass a decree ex parte
if the plaintiff appears but the defendant does not, when the suit is
called on for hearing.
The word `default' has been defined in Vol.
I of the Webster's Third New International Dictionary at page 590 thus: to
fail to fulfil a contract or agreement, to accept a responsibility; to
fail to meet a financial obligation.--S.
Sundaram Pillai v. V.R. Pattabiraman AIR 1985 SC 582
Financial asset
Financial asset under s.
2(1)(l) means debt or receivables including those specified under sub-cls.
(i) to (vi) thereof. Debt is a sum of money due under an express or
implied agreement such as a bond or bill or note; amount due or payable
from one person to another in return for money, services, goods or other
obligation. "Receivable" is also debt due. The word means that which is
due and owing a person or company, (e.g. account receivable). In
book-keeping, the name of an account which reflects a debt due.
Financial Institution
Sec. 4A of the Companies
Act, 1956 lays down :
"4A. Public financial
institutions--(1) Each of the financial institutions specified in this
sub-section shall be regarded, for the purposes of this Act, as a public
financial institution, namely :-- (i) the Industrial Credit and Investment
Corporation of India Limited, a company formed and registered under the
Indian Companies Act, 1913 (7 of 1913); (ii) the Industrial Finance
Corporation of India, established under s. 3 of the Industrial Finance
Corporation Act, 1948 (15 of 1948); (iii) the Industrial Development Bank
of India, established under s. 3 of the Industrial Development Bank of
India Act, 1964 (18 of 1964); (iv) the Life Insurance Corporation of
India, established under s. 3 of the LIC Act, 1956 (31 of 1956); (v) The
UTI, established under s. 3 of the UTI Act, 1963 (52 of 1963); (vi) the
Infrastructure Development Finance Company Limited, a company formed and
registered under this Act; (vii) the securitisation company or
reconstruction company which has obtained a certificate of registration
under sub-s. (4) of s. 3 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002.
(2) Subject to the
provisions of sub-s. (1), the Central Government may, by notification in
the Official Gazette, specify such other institution as it may think fit
to be a public financial institutionÿ:
PROVIDED that no
institution shall be so specified unless--(i) it has been established or
constituted by or under any Central Act, or (ii) not less than fifty-one
per cent of the paid-up share capital of such institution is held or
controlled by the Central Government.
Sec. 2(h)(ii) of the
Recovery of Debts due to Banks and Financial Institutions Act, 1993 ropes
into the ambit of the definition of "financial institution", such other
institution also as the Central Government may, having regard to its
business activity and the area of its operation in India, by notification
specify, in addition to a public financial institution within the meaning
of s. 4A of the Companies Act.
The word `debt', no doubt, means something
recoverable by an action for debt, and nothing can be recovered in an
action for debt except what is ascertained or can be ascertained. A claim
for an amount which is unascertained cannot justly be called a debt.--Ogdens
Ltd. v. Weinberg (1906) 95 LT 567
Debt is a sum of money due by certain and
express agreement; as by bond for a determinate sum, a bill or note, a
special bargain, or a rent reserved on a lease, where the amount is fixed
and specific, and does not depend upon any subsequent valuation to settle
it. The word "debt," in the definition of a mortgage as a hypothecation
or pledge of property as security for a debt, means a duty or obligation
to pay, for the enforcement of which an action lies. Stollenwerck v.
Marks & Gayle 188 Ala. 587, 65 So. 1024, Ann. Cas. 1917C, 981; Gibson v.
Hopkins 80 W. Va. 756, 93 S.E. 826. Standing alone, the word "debt"
is as applicable to a sum of money which has been promised at a future
day, as to a sum of money now due and payable. To distinguish between the
two, it may be said of the former that it is a debt owing, and of the
latter that it is a debt due. A sum of money which is certainly and in
all events payable is a debt, without regard to the fact whether it be
payable now or at a future time. A sum payable upon a contingency,
however, is not a debt, or does not become a debt until the contingency
has happened. People v. Arguello 37 Cal. 524. A "debt" is a specified
sum of money owing to one person from another, including not only the
obligation of the debtor to pay, but the right of the creditor to receive
and enforce payment. Angola Brick & Tile Co. v. Millgrove School Tp.,
Steuben Country 73 Ind. App. 557, 127 N.E. 855; Dewey v. Denson 31 Ga.
App. 352, 120 S.E. 805. The words "debt" and "liability" are not
necessarily synonymous. As applied to the pecuniary relations of parties,
liability is a term of broader significance than debt. Coulter Dry
Goods Co. v. Wentworth 171 Cal. 500, 153 P. 939. Liability is
responsibility; the state of one who is bound in law and justice to do
something which may be enforced by action. This liability may arise from
contracts either express or implied, or in consequence of torts
committed. McElfresh v. Kirkendall 36 Iowa 226. "Liability" ordinarily
means an obligation which may or may not ripen into a debt. Irving
Bank-Columbia Trust Co. v. New York Rys. Co., DCNY 292 F. 429. Yet
"debt" may sometimes include various kinds of liabilities.
See Allen v. Cosmopolitan Trust Co.
247 Mass. 334, 142 N. E. 100; Carroll v. Bowling 151 Md. 59, 133 A. 851.
Sec 2(g) of the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993 defines "debt"
thus:
"Debt" means any
liability (inclusive of interest) which is claimed as due from any person
by a bank or a financial institution or by a consortium of banks or
financial institutions during the course of any business activity
undertaken by the bank or the financial institution or the consortium
under any law for the time being in force, in cash or otherwise, whether
secured or unsecured, or assigned, or whether payable under a decree or
order of any civil court or any arbitration award or otherwise or under a
mortgage and subsisting on, and legally recoverable on, the date of the
application.
`Debt' could be defined as a liability to
pay in present or in future unascertainable sum of money. On a deposit
being made, the depositee, incurs a liability although the time for
repayment would come only when a demand is made.--Ramanathan Chettiar v.
Ramanathan Chettiar, AIR 1968 SC 1047. Consideration which remains unpaid
in respect of assets purchased by assessee from another company is a
`debt' due from assessee.--Commissioner
of Wealth Tax Madras v. Spencer & Co. Ltd. AIR 1973 SC 2376
A "debt" is a chose-in-action and is
heritable and assignable and it is treated as property in India under the
Transfer of Property Act which calls it an "actionable claim".--Delhi
Cloth and General Mills Ltd. v. Harnam Singh AIR 1955 SC 590
The word `debt' is applicable to a sum of
money which has been promised at a future day as to a sum now due and
payable.--Union of India v. Raman
Iron Foundry AIR 1974 SC 1265
Rule 7(3) of Security
Interest (Enforcement) Rules, 2002 states that sale of asset covered under
s. 2(1)(iii) or 2(1)(iv) shall be as if it is a sale of movable secured
asset and provisions of the Rules as applicable to sale of movable assets
apply.
Wide flexibility has
been provided to the secured creditor. This may not be held as
over-delegation, as in State Financial Corporation v. Jagdamba Oil Mills
2002 AIR SCW 500, it was held that any mode of sale of assets can be
adopted. The only requirement is that it should be fair and transparent.
Hypothecation
"Hypothecate" is to pledge property as
security or collateral for a debt. Generally, there is no physical
transfer of the pledged property to the lender, nor is the lender taken
title to the property, though he has the right to sell the pledged
property upon default.--Moore v.
Wardlaw, C.C.A. Tex. 522 S.W. 2d 552, 554
Hypothecation is defined
as "a right which a creditor has over a thing belonging to another, and
which consists in the power to cause it to be sold in order to be paid his
claim out of the proceeds."
Hypothecation is the act of pledging a thing
as security for a debt or demand without parting with the possession.--Wharton's
Law Lexicon
Hypothecation though not necessarily
accompanied by possession of the property and though it may not create a
title as such, would indeed provide a security.--Hindustan
Machine Tools Ltd. v. Nedungadi Bank Ltd. AIR 1995 Kar 185
Under s. 100 of the Transfer of Property
Act, 1882, where immovable property of one person is by act of parties or
operation of law made security for the payment of money to another, and
the transaction does not amount to a mortgage, the latter person is said
to have a charge on the property and all the provisions thereinbefore
contained which apply to a simple mortgage shall, so far as may be, apply
to such charge. A charge which falls under said s. 100 is enforceable by
a suit for sale. On the other hand, a charge created by a decree can be
enforced by sale of the property in execution.--Seethalakshmi
Ammal v. Srinivaso AIR 1958 Mad 23
Non-performing asset
"Non-performing asset"
is a colourable substitute for "bad debt" about which there is no
reasonable expectation of recovery. The Reserve Bank of India's
Prudential Norms on Asset Classification defines a `non-performing asset (NPA)'
as "a credit facility in respect of which the interest and or instalment
of principal has remained `past due' for a specified period of time." An
asset, including a leased asset, becomes NPA when it ceases to generate
income for a bank. Any amount due to bank under any credit facility is
`overdue' if it is not paid on the due date fixed by the bank.
Obligor
Obligor is a person who
binds himself to another by contract, or one who places himself under a
legal obligation or promisor. "Obligation of a contract" is that which
the law in force when contract is made obliges parties to do or not to do,
and the remedy and legal means to carry it into effect. It is the duty of
performance, and the phrase includes everything within the obligatory
scope of the contract, and it includes the means of enforcement.
Illustration (i) of s. 114 of the Indian Evidence Act, 1872 raises a
statutory presumption that when a document creating an obligation is in
the hands of the obligor, the obligation has been discharged.
Originator
Originator is the owner
of the financial asset, the original lender. Ownership is a collection of
rights to use and enjoy an asset or property, including right to transmit
it to others. According to Halbury's Laws of England, ownership consists
of inumerable rights over property, for example, the rights of exclusive
enjoyment, of destruction, alteration and alienation, and of maintaining
and recovering possession of the property from all other persons. Such
rights are conceived not as separately existing, but as merged in one
general right of ownership.
"Owner" is the person in
whom is vested the ownership, dominion, or title of property; proprietor.
He also has dominion of a thing, real or personal, corporeal or
incorporeal, which he has a right to enjoy and do with as he pleases, even
to spoil or destroy it as far as the law permits, unless he be prevented
by some agreement or covenant which restrains his right. Legal owner is
one who is recognised by the law as the owner of the property. In a more
particular sense, he is one in whom the real estate is vested, but who
holds it in trust for the benefit of another, the latter being called the
"equitable owner."--Black's Law Dictionary
The word "owner" has different meanings in
different contexts. Under certain circumstances a lessee may be
considered as the owner of the property leased to him.--R.B.
Jodha Mal Kuthiala v. Commissioner of Income Tax AIR 1972 SC 126
Property
Property is treated as
belonging to any person having custody or control of it, or having in it
any proprietary right or interest, or having a charge on it.
The only effect of the deletion of art.
19(1)(f) is that the right to property has lost its protection as a
`fundamental rights'; it does not abolish the rights of property as they
exist under the ordinary law, for instance, the right of a landlord to
evict a tenant under the Rent Control Acts.--Patel
Roadways v. State of Tamil Nadu AIR 1985 Mad 119
As a legal concept, "property" is the sum of
a bundle of rights and in the case of tangible property would include the
right of possession, the right to enjoy, the right to destroy, the right
to retain, the right to alienate and so on.--Guru
Datta Sharma v. State of Bihar AIR 1961 SC 1684
"Property" is a term of widest import and
subject to any limitation which the context may require, it signifies
every possible interest which a person can clearly hold or enjoy.--Ahmed
G.H. Ariff v. CWT AIR 1971 SC 1691
Any legal right which can be enforced
through a court is a right in the nature of "property" within the meaning
of art. 31.--Delhi Cloth and
General Mills Co. Ltd. v. Rajasthan State Electricity Board AIR 1986 SC
1126
Qualified Institutional Buyer (QIB)
Securitisation process begins when the
originator segregates loans or lease or receivables into pools which are
relatively homogeneous in regard to types of credit, maturity and interest
rate risk. The pools of assets are then transferred to a Special Purpose
Vehicle (SPV). The SPV issues asset-backed securities in the form of
debt, certificates of beneficial ownership and other instruments.
The present Act replaces SPV by independent
securitisation company or reconstruction company. Under the Act, such
securities will be offered to QIBs as defined in s. 2(1)(u) thereof and no
public participation is envisaged.
Reconstruction company
The provisions of `asset
reconstruction' combine the features of securitisation and enforcement of
security interest. Like securitisation, in `asset reconstruction' also,
`financial asset' (debt or receivable) is acquired from bank/Financial
Institution, and not the asset as such. However, in asset reconstruction,
the right or interest of any bank/Financial Institution is acquired for
the purpose of realisation of such financial assistance. Thus,
non-performing asset alone can be acquired for asset reconstruction.
The basic idea is to
form a `reconstruction company'. The asset reconstruction Company will
have to be registered with Reserve Bank of India. Such company will be a
public financial Institution under s. 4A of Companies Act, 1956.
The asset reconstruction
company will devise a separate scheme for each of the financial asset
taken over. QIB will invest in such `scheme'. The `reconstruction
company' will issue `security receipts' to QIB. The security receipt will
represent undivided interest in such financial assets. The reconstruction
company will realise the financial assets and redeem the investment and
payment of returns to QIB under each scheme.
Registrar of Companies
Sec. 2(40) of the
Companies Act, 1956 defines "Registrar" to mean a Registrar, or an
Additional, or Joint, a Deputy or an Assistant Registrar, having the duty
of registering companies under that Act.
Reserve Bank
Sec. 3 of the Reserve
Bank of India Act, 1934 provides for the establishment and incorporation
of Reserve Bank, sub-s. (1) whereunder, a bank to be called the Reserve
Bank of India shall be constituted for the purposes of taking over the
management of the currency from the Central Government and of carrying on
the business of banking in accordance with the provisions of that Act. By
virtue of sub-s. (2), the Bank is a body corporate by the said name,
having perpetual succession and a common seal, and shall by the said name
sue and be sued.
Securitisation
Securitisation is a
process through which illiquid assets are transferred into a more liquid
form of assets and distributed to a broad range of investors through
capital markets. The lending institution's assets are removed from its
balance sheet and are instead, funded by investors through a negotiable
financial instrument. The security is backed by the expected cash flows
from the assets.
In securitisation, the
lending institution's assets are removed from balance sheet of that
institution and are instead, funded by investors. These investors
purchase a negotiable financial instrument evidencing this indebtedness.
By securitisation, long-term illiquid assets of original lender get
converted into current assets.
Securitisation company
The purpose of
securitisation is to avoid mismatch between assets and liabilities of
banks and financial institutions. The lending company really `sells' its
loans to the investors through SPV.
The securitisation
company can acquire `financial asset' from banks and financial
institutions, by issuing debentures, bonds or by entering into any
arrangement with the bank or financial institution. Once the
securitisation company takes over `financial asset', that company will be
treated as lender and `secured creditor' for all the purposes. A
securitisation company can also act as asset reconstruction company, and
vice versa.
Security agreement
The term "security' is
usually applied to an obligation, pledge, mortgage, deposit, lien, etc.
given by a debtor in order to assure the payment or performance of his
debt, by furnishing the creditor with a resourse to be used in case of
failure in the principal obligation. It is a collateral given by debtor
to secure loan, a document that indicates loan. Under s. 2(h) of the
Securities Contracts (Regulation) Act, 1956, securities include (i)
shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated company
or other body corporate, (ia) derivative; (ib) units or any other
instrument issued by any collective investment scheme to the investors in
such schemes; (ic) security receipt as defined in clause (zg) of s. 2 of
the Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (ii) government securities, and (iia) such
other instruments as may be declared by the Central Government to be
securities rights or interest in securities;
Security agreement is an
agreement which creates or provides for a security interest between the
debtor and a secured party, an agreement granting a creditor a security
interest in personal property, which security interest is normally
perfected either by the creditor taking possession of the collateral or by
filing financial statements in the proper public records. Security
interest is the interest in property obtained pursuant to security
agreement.--Black's Law Dictionary
Secured asset and security interest
Security interest is a
form of interest in property which provides that the property may be sold
on default in order to satisfy the obligation for which the security
interest is given. It is an interest in personal property or fixtures
which secures payment or performance of an obligation, including the
interest of an assignee of the proceeds of a letter of credit. "Secured
asset" is the property on which the said interest is created.
Secured creditor
Secured creditor is a
creditor holding security the realisation of which would satisfy his
claim; a creditor who holds some special pecuniary assurance of payment of
his debt, such as a mortgage, collateral, or lien. Under s. 2(e) of the
Provincial Insolvency Act, 1920, he is a person holding a mortgage, charge
or lien on the property of the debtor or any part thereof as a security
for a debt due to him from the debtor. `Secured creditor' includes a
landlord who under any enactment for the time being in force has a charge
on land for the rent of that land within the meaning of s. 2(g) of the
Presidency Towns Insolvency Act, 1909. A `secured creditor' under both
the Acts has three courses open to him--(a) he may realise his security
and then proceed for the balance; (b) he may relinquish his security and
prove for his whole debt; and (c) he may state in his proof the value at
which he assesses his security and prove for the balance after deducting
the assessed value. The Companies Act, 1956 also follows the insolvency
rules in respect of the secured creditor of a company in liquidation by s.
529 of that Act.
Secured debt
The word `debt' no doubt means something
recoverable by an action for debt, and nothing can be recovered in an
action for debt except what is ascertained or can be ascertained. A claim
for an amount which is unascertained cannot justly be called a debt.--Ogdens
Ltd. v. Weinberg (1906) 95 LT 567
Debt is a sum of money
due by certain and express agreement; as by bond for a determinate sum, a
bill or note, a special bargain, or a rent reserved on a lease, where the
amount is fixed and specific, and does not depend upon any subsequent
valuation to settle it. The word "debt," in the definition of a mortgage
as a hypothecation or pledge of property as security for a debt, means a
duty or obligation to pay, for the enforcement of which an action lies.
Stollenwerck v. Marks & Gayle 188 Ala. 587, 65 So. 1024, Ann. Cas. 1917C,
981; Gibson v. Hopkins 80 W. Va. 756, 93 S.E. 826. Standing alone,
the word "debt" is as applicable to a sum of money which has been promised
at a future day, as to a sum of money now due and payable. To distinguish
between the two, it may be said of the former that it is a debt owing, and
of the latter that it is a debt due. A sum of money which is certainly
and in all events payable is a debt, without regard to the fact whether it
be payable now or at a future time. A sum payable upon a contingency,
however, is not a debt, or does not become a debt until the contingency
has happened. People v. Arguello 37 Cal. 524. A "debt" is a
specified sum of money owing to one person from another, including not
only the obligation of the debtor to pay, but the right of the creditor to
receive and enforce payment. Angola Brick & Tile Co. v. Millgrove
School Tp., Steuben Country 73 Ind. App. 557, 127 N.E. 855; Dewey v.
Denson 31 Ga. App. 352, 120 S.E. 805. The words "debt" and
"liability" are not necessarily synonymous. As applied to the pecuniary
relations of parties, liability is a term of broader significance than
debt. Coulter Dry Goods Co. v. Wentworth 171 Cal. 500, 153 P. 939.
Liability is responsibility; the state of one who is bound in law and
justice to do something which may be enforced by action. This liability
may arise from contracts either express or implied, or in consequence of
torts committed. McElfresh v. Kirkendall 36 Iowa 226. "Liability"
ordinarily means an obligation which may or may not ripen into a debt.
Irving Bank-Columbia Trust Co. v. New York Rys. Co., DCNY 292 F. 429.
Yet "debt" may sometimes include various kinds of liabilities. See
Allen v. Cosmopolitan Trust Co. 247 Mass. 334, 142 N. E. 100; Carroll v.
Bowling 151 Md. 59, 133 A. 851.
Under s. 2(g) of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993,
"debt" means any liability (inclusive of interest) which is claimed as due
from any person by a bank or a financial institution or by a consortium of
banks or financial institutions during the course of any business activity
undertaken by the bank or the financial institution or the consortium
under any law for the time being in force, in cash or otherwise, whether
secured or unsecured, or assigned, or whether payable under a decree or
order of any civil court or any arbitration award or otherwise or under a
mortgage and subsisting on, and legally recoverable on, the date of the
application.
Secured transaction is
any transaction, regardless of its form, that is intended to create a
security interest in personal property or fixtures, including goods,
documents, and other intangibles. `Secured debt' is a debt secured by
collateral, e.g., mortgage, securities, deed, etc.
Security receipt
A receipt is a written acknowledgement of
the receipt of money, or delivery of a thing of value, without containing
any affirmative obligation upon either party to it. It is a mere
admission of a fact in writing. And being a mere acknowledgement of
payment, is subject to parol explanation or contradiction.--Black's
Law Dictionary
It requires delivery or change of possession
from seller to buyer, and can only be accomplished, in absence of tortious
appropriation, by affirmative assent and conduct of seller.--Gerner
v. Vasby, 75 Wis. 2d 660, 250 N.W. 2d 319, 324, 97 A.L.R. 3d 897
Sponsor
Sponsor is a surtey or
one who makes a promise or gives security for another. In the civil law,
sponsor is one who intervenes for another voluntarily and without being
requested. In a contract of guarantee, the person who gives the guarantee
to performance of the promise or discharge the liability of a third person
in case of his default. The person in respect of whose default the
guarantee is given is called the "principal debtor", and the person to
whom the guarantee is given is called the "creditor".
State Bank of India
The State Bank of India
Act, 1955 is an Act to constitute a State Bank of India, to transfer to it
the undertaking of the Imperial Bank of India and to provide for other
matters connected therewith or incidental thereto. Sec. 3 of that Act
providing for the establishment of the Bank reads:
3. Establishment of the
State Bank--(1) A Bank to be called the State Bank of India shall be
constituted to carry on the business of banking and other business in
accordance with the provisions of this Act and for the purpose of taking
over the undertaking of the Imperial Bank.
(2) The Reserve Bank,
together with such other persons as may from time to time become
shareholders in the State Bank in accordance with the provisions of this
Act, shall, so long as they are shareholders and in the State Bank,
constitute a body corporate with perpetual succession and a common seal
under the same of the State Bank of India, and shall sue and be sued in
that name.
(3) The State Bank shall
have power to acquire and hold property, whether movable or immovable, for
the purposes for which it is constituted and to dispose of the same.
Subsidiary bank
The State Bank of India
(Subsidiary Banks) Act, 1959 provides for the formation of certain
government or government associated banks as subsidiaries of the State
Bank of India, and for the constitution, management and control of the
subsidiary banks so formed. Sec. 2(k) of that Act defines "subsidiary
bank" to mean any new bank and to include the Hyderabad Bank and
Saurashtra Bank.
