Searching Case Laws & Precedent on Legal Query.....!
Scanned Judgements…!
Searching Case Laws & Precedent on Legal Query.....!
Scanned Judgements…!
Penal interest under SARFAESI arises from loan defaults per bank policy, leviable as part of dues in Section 13(2) notices; borrowers can negotiate reductions directly with banks, but no statutory bar or waiver is mandated—remedies lie via Section 17 appeals to DRT. Consumer-imposed penal interest is remedial for forum delays, not inherent to SARFAESI enforcement. ["JOSEYSTEPHAN Vs M/s. Shriram Housing Finance Limited, - Kerala"] ["Mohit Mehta vs Bank of Baroda - Central Information Commission"] ["Shalza Singla vs BCL Homes Limited - Consumer State"]
In the complex world of banking and financial recovery in India, borrowers and lenders often grapple with questions about additional charges like penal interest. Especially under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), terms like penal interest in SARFAESI frequently arise during loan defaults and enforcement actions. But what does the law say about imposing, calculating, or limiting such interest?
This blog dives deep into the issue, drawing from judicial documents and precedents. We'll clarify that while penal interest appears in various notices under the Act, there's no specific ruling or principle directly addressing it under SARFAESI in the reviewed materials. Instead, focus shifts to broader applicability debates and procedural aspects. Note: This is general information, not legal advice. Consult a qualified lawyer for your specific case.
Penal interest, often termed as default or liquidated damages interest, is charged by lenders when borrowers delay repayments. It's typically higher than normal interest to penalize defaults and compensate for risks. In banking contexts:- It's distinct from simple or compound interest on principal.- Courts in unrelated areas (e.g., sales tax, contracts) have ruled it cannot be capitalized (added to principal for further interest) and must be compensatory, not punitiveUnion Of India VS Association Of Unified Telecom Service Providers Of India Etc. Etc. - 2019 0 Supreme(SC) 1189Kottayam District Co-operative Bank VS Annie John - 2003 0 Supreme(Ker) 321.
For instance, under the Kerala General Sales Tax Act, penal interest under S.23(3) incurs automatically but may be limited during stays or appeals Vijayalaxmi Cashew Co. VS Asst. Commr. of Salestax - 1993 0 Supreme(Ker) 429Abraham VS State of Kerala - 1994 0 Supreme(Ker) 276. However, these principles from sales tax, arbitration, or land acquisition don't directly apply to SARFAESI Surinder Kaur VS Government Of Punjab - 1998 0 Supreme(SC) 341M-Far Hotel Limited VS State of Kerala - 2011 0 Supreme(Ker) 954.
A key query is: penal interest in sarfasi – does the SARFAESI Act permit its levy, capitalization, or recovery during security enforcement?
The reviewed legal documents do not contain any information, rulings, or principles specifically addressing penal interest in SARFAESI proceedings. The sole reference to SARFAESI discusses its applicability to Cooperative Societies/Banks due to conflicts under Entry 45 of List I and Entry 32 of List II of the Seventh Schedule, warranting a larger Bench reference Pandurang Ganpati Chaugule VS Vishwasrao Patil Murgud Sahakari Bank Ltd. - 2016 0 Supreme(SC) 1419.
Key Points:- No linkage between penal interest and SARFAESI enforcement, imposition, or calculation.- Penal interest discussions exist in other domains (e.g., sales tax Vijayalaxmi Cashew Co. VS Asst. Commr. of Salestax - 1993 0 Supreme(Ker) 429, contracts Indian Hume Pipe Co. Ltd. VS State of Rajasthan - 2009 7 Supreme 13), but unrelated to banking recovery.- SARFAESI scope conflicts for cooperatives noted, but silent on penal charges Pandurang Ganpati Chaugule VS Vishwasrao Patil Murgud Sahakari Bank Ltd. - 2016 0 Supreme(SC) 1419.
The SARFAESI Act empowers secured creditors (banks, financial institutions) to enforce security interests without court intervention for non-performing assets (NPAs). Key steps include:- Issuing notice under Section 13(2) demanding dues.- Possession under Section 13(4), assistance via Section 14.- Remedies for borrowers under Section 17 before Debts Recovery Tribunal (DRT).
Notices often claim total dues plus unapplied interest w.e.f date and penal interest Sushma Yadav VS State of U. P. - 2019 Supreme(All) 631. For example:
Further, by another notice dated 3.4.2018 under section 13(2) of the SARFAESI Act claimed Rs. 33,01,421/- plus unapplied interest thereon w.e.f 19.2.2018 and penal interest and other expenses/charges against Housing Loan... Sushma Yadav VS State of U. P. - 2019 Supreme(All) 631
Similarly:
Second, the notice under Section 13(2) of the SARFAESI Act shows capitalization of penal interest. ASREC (India) Ltd. VS Fastgrowth Hospitality LLP, a limited liability partnership - 2023 Supreme(Bom) 133
Courts have questioned such notices if they lack principal-interest breakups or capitalize penal interest improperly ASREC (India) Ltd. VS Fastgrowth Hospitality LLP, a limited liability partnership - 2023 Supreme(Bom) 133. Yet, no blanket prohibition under SARFAESI emerges from these.
Conflicting views persist:
The court directed the matters to be referred to a larger Bench due to conflicting decisions on the scope of legislative fields covered by Entry 45 of List I and Entry 32 of List II of the Seventh Schedule, specifically regarding the applicability of the SARFASI Act to Cooperative Societies/Banks. Pandurang Ganpati Chaugule VS Vishwasrao Patil Murgud Sahakari Bank Ltd. - 2016 0 Supreme(SC) 1419
In recovery overlaps with RDDBFI Act, appeals lie under Section 30 of RDDBFI, not SARFAESI's Section 17 exclusively UCO Bank VS Bank of Baroda - 2009 Supreme(Guj) 293UCO BANK VS BANK OF BARODA - 2009 Supreme(Guj) 292.
While direct SARFAESI-penal interest rulings are absent, cases highlight procedural nuances:
Recovery Challenges: Banks issuing Section 13(2) notices face scrutiny if borrowers claim restructuring or delinking of guarantors' properties. Civil suits are barred under Section 34 if alleging fraud without proof GRAMIN BANK OF ARYAVART VS MAA LAXMI ICE & COLD STORAGE - 2017 Supreme(All) 2087.
Asset Reconstruction Companies (ARCs): ARCs step into creditors' shoes; notices must respond adequately, including to penal interest queries ASREC (India) Ltd. VS Fastgrowth Hospitality LLP, a limited liability partnership - 2023 Supreme(Bom) 133.
Auction and Redemption Rights: Borrowers may redeem under Section 13(8) before sale or invoke Section 60 of Transfer of Property Act pre-confirmation Dinesh Agarwal and Associates VS Pawan Kumar Jain - 2017 Supreme(MP) 1091. Courts protect public money, dismissing sympathetic pleas without alternative remedies Sushma Yadav VS State of U. P. - 2019 Supreme(All) 631.
Criminal Overlaps: Disputes like escrow failures in SARFAESI auctions are civil, not criminal (IPC 406,420) Ashok Giri VS State - 2019 Supreme(Mad) 2800.
DRT Jurisdiction: Exclusive for recovery disputes; writs dismissed if appeals available UCO Bank VS Bank of Baroda - 2009 Supreme(Guj) 293SHRI JAGDISH DEWANGAN vs M/S RELIGARE FINVEST LIMITED FINANCE LTD.
Penal interest appears in consumer complaints too, e.g., excessive rates vs. SBI benchmarks HARVIN CHADHA AND ANR. vs DEVELOPMENT CREDIT BANK LTD., but not SARFAESI-specific.
No SARFAESI-specific exceptions exist in the documents. Generally:- Penal interest is non-capitalizable in contracts/arbitration Union of India VS Krafters Engineering & Leasing (P) Ltd. - 2011 5 Supreme 143.- Must be pleaded/proved if challenged.- In NPAs, banks classify per RBI norms, proceeding post-notice Sushma Yadav VS State of U. P. - 2019 Supreme(All) 631.
In summary, while penal interest features in SARFAESI notices, judicial materials lack substantive rulings. Borrowers should act swiftly on Section 13(2) notices, and lenders ensure transparency. This overview is for informational purposes; specific advice requires professional consultation.
References:1. Pandurang Ganpati Chaugule VS Vishwasrao Patil Murgud Sahakari Bank Ltd. - 2016 0 Supreme(SC) 1419: SARFAESI applicability to cooperatives.2. ASREC (India) Ltd. VS Fastgrowth Hospitality LLP, a limited liability partnership - 2023 Supreme(Bom) 133: Penal interest in notices.3. Sushma Yadav VS State of U. P. - 2019 Supreme(All) 631: Claims in housing/CC loans.(And others as cited inline.)
#SARFAESIAct, #PenalInterest, #BankRecovery
“As per bank of baroda rules/policy and under sarfasi Act 2002. Bank of baroda authorized officer prepare inventory or not of belonging, which are kept in mortgage property before to take possession, 2. As per bank of baroda rules/policy and under sarfasi Act 2002. ... However, Authorized officer follows the procedure given in SARFAESI Act 2002 and Security interest (enforcement) rules 2002. ... As per bank of baroda rules/policy and sarfasi Act 2002 bank of baroda delivered notice or not to possession holder before tak....
It is also clarified that the petitioners may approach the bank for reduction of any penal interest and other charges, the petitioner feels the such charges have been illegally levied on the petitioner. ... Learned counsel for the respondent points out that the correct amounts are mentioned in Ext.P2 notice issued under Section 13(2) of the SARFASI Act,2002 and Ext.P1 is not a statutory notice and only demanded the pending installments on the date of issuance of the notice.
Rana for the petitioner vehemently submitted that the petitioner bank has initiated the proceedings for recovery by issuing notice under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFASI ... The learned Advocate for the petitioner submitted that if at all Bank of Baroda wanted to take any action in connection with that matter, it ought to have filed an appeal under Section 17 (1) of the SARFASI Act. ... Samal, the learned Advo....
Rana for the petitioner vehemently submitted that the petitioner bank has initiated the proceedings for recovery by issuing notice under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the SARFASI ... The learned advocate for the petitioner submitted that if at all Bank of Baroda wanted to take any action in connection with that matter, it ought to have filed an appeal under section 17 (1) of the SARFASI Act. ... Samal, the learned advo....
29.04.2019 (1) In this batch of writ petitions, the petitioners have challenged the order dated 22.12.2018 passed by Chief Judicial Magistrate, Dhamtari under Section 14 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest ... (2) Shri Rajeev Bharat, learned counsel appearing for respondent No. 1 would submit that against the impugned order, remedy of the petitioners is to approach before the Debts Recovery Tribunal under Section 17 of the SARFASI Act, 2002 in view of the ... Ltd. and another (supra), remedy of....
29.04.2019 (1) In this batch of writ petitions, the petitioners have challenged the order dated 22.12.2018 passed by Chief Judicial Magistrate, Dhamtari under Section 14 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest ... (2) Shri Rajeev Bharat, learned counsel appearing for respondent No. 1 would submit that against the impugned order, remedy of the petitioners is to approach before the Debts Recovery Tribunal under Section 17 of the SARFASI Act, 2002 in view of the judgment of the Supreme Court in ... L....
(simple), without deducting any TDS, to the complainants, from the respective date of deposit i.e. 30.08.2011 onwards, within a period of 30 days, from the date of receipt of a certified copy of this order, failing which, thereafter, the said amount shall carry 3% penal interest i.e. 15% p.a. ... (simple), without deducting any TDS, to the complainants, from the respective date of deposit i.e. 01.08.2011 onwards, within a period of 30 days, from the date of receipt of a certified copy of this order, failing which, thereafter, the said amount shall carry 3%....
But OP is charging fixed rate of interest @ 14.25% p.a. Interest rate charged by SBI for loan against property is 10.10%. Web Site of the OPs shows that it was offering interest rate of 12.72% on loan against property as on 07.08.2018. ... Hence this complaint for directing OPs not to charge interest more than the interest charged from borrowers in similar situation, to charge reduced interest @ 10.70, to close loan once for all after taking remaining amount of Rs. 1,64,955/-, Rs. .......
30.04.2022, within a period of 30 days from the date of receipt of a certified copy of this order, failing which the entire accumulated amount shall carry penal interest @9% p.a. from the date of default till this payment is made. ... 30.04.2022, within a period of 30 days from the date of receipt of a certified copy of this order, failing which the entire accumulated amount shall carry penal interest @9% p.a. from the date of default till this payment is made. ... 30.04.2022, within a period of 30 days from the date of ....
It appears that respondent Nos. 1, 2 and 3 had failed to repay the loan and the interest thereon w.e.f 1.11.2015, as a result of it, a notice dated 3.8.2015 under Section 13(2) of the SARFASI Act was issued to the respondents. ... The validity of the SARFASI Act came to be considered by the Apex Court in the case of Mardia Chemical (supra). ... any other reason which the bank consider as a default caused by the Borrower, the concession given by bank shall stand cancelled and the Borrower and Guarantors agrees that notwithstanding anything....
Second, the notice under Section 13(2) of the SARFAESI Act shows capitalization of penal interest. Additional grounds were advanced before us by the Respondents in support of the injunction questioning the reply of the notice by the Petitioner when IIFL issued the Notice. Third, the notice under Section 13(2) of the SARFAESI Act does not provide a breakup of the principal interest, and penal interest is sought to be recovered.
It is seen that the deposit of title deeds with the Escrow agent was on condition to discharge the liabilities to the bank. The learned Senior counsel for the 2nd respondent would submit that the petitioners being husband and wife in a clandestine manner after entering into MOU dated 12.01.2011, failed to make the payments to clear the documents from all liabilities from the Vijaya bank, but had taken over the company and its properties contrary to the undertaking. In failure of making payments, the bank auctioned the property of the defacto complainant under SARFASI proceedings.#H....
Further, by another notice dated 3.4.2018 under section 13(2) of the SARFAESI Act claimed Rs. 33,01,421/- plus unapplied interest thereon w.e.f 19.2.2018 and penal interest and other expenses/charges against Housing Loan was issued to the petitioners in the capacity of borrowers/guarantors. 3. Thereafter, the Bank-respondent issued a notice dated 19.2.2018 under Section 13(2) of the SARFAESI Act claiming total dues of Rs. 49,33,525/- plus unapplied interest w.e.f. 19.2.2018 and penal interest and other charges/expenses against Cash Credit of Rs. 33 Lacs and Term Loan of Rs.....
Sub-section (8) of section 13 envisages that if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. The case of Mathew Varghese (supra) was in regard to the interpretation of section 13(8) of the SARFASI Act read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002.#HL_END....
If no other property available, the case of auction of the attached property can be stated to be made out, but it is always subject to determination. It is necessary to note that all these proceedings are not arising out of any liquidation and/or winding up proceedings. Even if any, still in the present case as the Petitioner is duly secured just cannot be overlooked. Admittedly, the liability as claimed in Section 13(2) notice of SARFASI Act, not yet crystalised.
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