Section 13 (2)

Section 13 (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).

1[Provided that—

(i) the requirement of classification of secured debt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and

(ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee.]

Section 13 (4)

Section 13(4)(a) provides for mode of taking possession of secured assets in accordance with Rule 8 of the Rules, which stipulates that the authorised officer shall take or cause to be taken possession of the secured asset by delivering a possession notice prepared in accordance with the form provided in Appendix IV of the Rules and affixing such possession notice to the door or other conspicuous place of the property. Rule 8(2) provides that the possession notice should be published in 2 leading newspapers within 7 days of taking possession. From this stage, the secured asset is liable to be sold to realise the secured debt and the title then transfers from the borrower to the purchaser as provided in Section 13(6) of the Act. 

The SC observed that after the issuance of possession notice under Rule 8(1) and, 8(2) of the Rules, the borrower explicitly cannot deal with the secured asset at all as any further steps to realize the debt will then be taken by the secured creditor. 

The scheme of Section 13(4) of the Act read with Rule 8(1) of the Rules makes it clear that the delivery of a possession notice together with affixation on the property and publication is one mode of taking “possession” under Section 13(4) of the Act, and as such Section 17 of the Act is attracted once possession is taken under Rule 8(1) and Rule 8(2) of the Rules read with Section 13 (4)(a) of the Act. 

The SC observed that the object of the Act stipulates that if a secured creditor does not act in conformity with the Act to realise the secured debt, the borrower may take recourse to seeking appropriate relief from the DRT. Thus, the object of the Act would be stultified if the borrower must wait for sale notice to be issued or for the actual sale to take place before taking recourse to Section 17 of the Act.

Thus, the SC set aside the Allahabad HC Order and held that a borrower is entitled to approach the DRT under Section 17 of the Act at the stage of possession notice under Rule 8(1) and Rule 8(2) of the Rules.

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