Legal and Regulatory Frame work-REVISED OCT 2020.pptx

Legal and Regulatory
Frame work
CA. UDAY KULKARNI

AGENDA
• Banking Regulation Act 1949.
• Transfer of Property Act, 1882
• Power of Attorney Act. 1882
• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
• The Credit Information Companies (Regulation) Act, 2005
• The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002
• Negotiable Instrument Act 1882.
• Indian Contract Act 1872
• Limitation Act 1963
• Indian Stamps Act

Banking Regulation Act 1949
• Section 6 - Forms of business in which banking companies
may engage.
• Section 9- Disposal of Non-Banking Assets (any immovable
property, howsoever acquired, except such as is required for
its own use ) within a period of seven years.
• Section 18 – Maintenance of Cash Reserve
• Section 20 – Restrictions on Loans & Advances-
– Against security of own shares
– To directors or an entity where directors are interested.

• Section 24- Maintenance of SLR- Liquid Assets.
• Section 26 – Return of Unclaimed Deposits. (The
accounts which have not been operated for ten years )
• Section 45ZA – Nomination for payment of depositors
money.- Provision overriding provisions of all other
laws.
• 45ZC. Nomination for return of articles kept in safe
custody with banking company

• Section 35 A- Power of RBI to give directions
• (1) Where the Reserve Bank is satisfied that-
– (a) in the 142[public interest]; or
– (aa) in the interest of banking policy; or]
– (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the
interests of the depositor or in a manner prejudicial to the interests of the banking company; or
– (c) to secure the proper management of any banking company generally; it is necessary to issue
directions to banking companies generally or to any banking company in particular, it may, from time to
time, issue such directions as it deems fit, and the banking companies or the banking company, as the
case may be, shall be bound to comply with such directions.
• (2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction
issued under sub-section (1), and in so modifying or canceling any direction may impose such conditions as it
thinks fit, subject to which the modification or cancellation shall have effect.
• in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, Reserve Bank
hereby directs that with effect from April 1, 2012, banks should not make payment of cheques/drafts/pay
orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period
of three months from the date of such instrument.

Transfer of Property Act 1882
• "transfer of property" means an act by which a living person conveys property, in
present or in future, to one or more other living persons, or to himself and one or
more other living persons; and "to transfer property" is to perform such act.
• Section 58 (a) - A mortgage is the transfer of an interest in specific immoveable
property for the purpose of securing the payment of money advanced or to be
advanced by way of loan, an existing or future debt, or the performance of an
engagement which may give rise to a pecuniary liability.
– The transferor is called a mortgagor
– the transferee a mortgagee
– the principal money and interest of which payment is secured for the time being are called the
mortgage-money
– the instrument (if any) by which the transfer is effected is called a mortgage-deed

• Simple mortgage- Where, without delivering possession of the mortgaged property, the mortgagor binds
himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failing to pay
according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds
of sale to be applied, so far as may be necessary, in payment of the mortgage-money.
• Mortgage by deposit of title-deeds- Where a person delivers to a creditor or his agent
documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage
by deposit of title-deeds.
– Registration of Equitable Mortgage- Registration Act 1908 as applicable
to state.
– RBI circular dated Feb 26,2014, para 9 – register with CERSAI all types of
mortgages.
– Legal audit and re-verification of title deeds of all credit exposures of ` 5
crore and above

• Section 67 - In the absence of a contract to the contrary, the mortgagee has, at any time after the
mortgage- money has become due to him, and before a decree has been made for the redemption of
the mortgaged property, or the mortgage-money has been paid or deposited as hereinafter provided,
a right to obtain from the court a decree that the mortgagor shall be absolutely debarred of his right
to redeem the property, or a decree that the property be sold.
• Section 69 - A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this
section have power to sell or concur in selling the mortgaged property or any part thereof, in default of
payment of the mortgage-money, without the intervention of the court, in the following cases and in no
others, namely-
– (a) where the mortgage is an English mortgage
– (b) where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the
mortgage-deed and the mortgagee is the government
– (c) where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the
mortgage-deed and the mortgaged property or any part thereof was, on the date of the execution of the mortgage-deed,
situate within the towns as specified in state government notification.

• Sec 78. Postponement of prior mortgagee.—
Where, through the fraud, misrepresentation or
gross neglect of prior mortgagee, another person
has been induced to advance money on the
security of the mortgaged property, the prior
mortgagee shall be postponed to the subsequent
mortgagee.

• Actionable Claim Section 130-
– The transfer of an actionable claim whether with or without consideration shall be effected only by the
execution of an instrument in writing signed by the transferor or his duly authorized agent, shall be
complete and effectual upon the execution of such instruments, and thereupon all the rights and
remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee,
whether such notice of the transfer as is hereinafter provided be given or not-
– PROVIDED that every dealing with the debtor other actionable claim by the debtor or other person
from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been
entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other
person is a party to the transfer or has received express notice thereof as hereinafter provided) be
valid as against such transfer.
• 131. Notice to be in writing, signed
– Every notice of transfer of an actionable claim shall be in writing, signed by the transferor or his agent
duly authorized in this behalf, or, in case the transferor refuses to sign, by the transferee or his agent,
and shall state the name and address of the transferee.

Power of Attorney Act. 1882
• "Powers-of-Attorney" include any instrument empowering a specified
person to act for and in the name of the person executing it.
• A holder of a power-of-attorney or an agent can not go beyond the
principal.
• In circumstances, when the principal has become old, weak, mentally
infirm/incapable, and not in a position to have independent disposition
and thinking power, continuing to act on such power of attorney will be
unethical & immoral on the part of the agent and would amount to fraud,
cheating, misappropriation & criminal breach of trust. It would cease to
have validity in law.

Power of Attorney Act. 1882
• Section 4 - An instrument creating a power-of-attorney, its execution
being verified by affidavit, statutory declaration or other sufficient evidence,
may, with the affidavit or declaration, if any, be deposited in the High Court
2[or District Court] within the local limits of whose jurisdiction the
instrument may be.
• Section 85 of Indian Evidence Act – Power of Attorney to be
executed before and authenticated by Notary Public, court Judge or
Magistrate or representative of Central government.
• Section 17 (1) (b) of Indian Registration Act 1908 –
Registration of power of attorney related to Immovable Property is
mandatory.

Indian Contract Act 1872
• Section 124- Contract of Indemnity-
– A contract by which one party promises to save the other from loss caused to him by the contract of the
promisor himself, or by the conduct of any other person, is called a "contract of indemnity".
• Section 126- Gurantee
– A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third
person in case of his default. The person who gives the guarantee is called the "surety", 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". A guarantee may be either oral or written.
• Section 171- General Lien of bankers-
– Bankers, factor, wharfingers, attorneys of a High Court and policy brokers may, in the absence of a
contract to the contrary, retain as a security for a general balance of account, any goods bailed to them;
but no other persons have a right to retain, as a security for which balance, goods, bailed to them,
unless there is an express contract to that effect.
• Section 172- Pledge-
– The bailment of goods as security for payment of a debt or performance of a promise is called "pledge".
The bailor is in this case called the "pawnor". The bailee is called "pawnee".

The Recovery of Debts Due to
Banks and Financial Institutions
Act, 1993

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 of 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.

• Central Government to set up Debts Recovery Tribunal.
• Central Government to Set up Debts Recovery Appellate Tribunal.
• Tribunal-
– may make an interim order against the defendant to debar him from transferring, alienating or
otherwise dealing with, or disposing of, any property and assets belonging to him without the
prior permission of the Tribunal.
– may order the attachment of the whole or such portion of the properties claimed by the
applicant as the properties secured in his favour or otherwise owned by the defendant as
appears sufficient to satisfy any certificate for the recovery of debt.

• The Recovery Officer shall, on receipt of the copy
of the certificate under sub-section (7) of section
19-
– (a) attachment and sale of the movable or immovable
property of the defendant
– (b) arrest of the defendant and his detention in prison
– (c) appointing a receiver for the management of the
movable or immovable properties of the defendant.

The Credit Information
Companies (Regulation) Act,
2005

The Credit Information Companies
(Regulation) Act, 2005
• Borrower- means any person who has been granted loan or any other credit facility by a credit
institution and includes a client of a credit institution.
• Client- (i) a guarantor or a person who proposes to give guarantee or security for a borrower of
a credit institution; or
(ii) a person—
• (A) who has obtained or seeks to obtain financial assistance from a credit institution,
by way of loans, advances, hire purchase, leasing facility, letter of credit, guarantee
facility, venture capital assistance or by way of credit cards or in any other form or
manner;
• (B) who has raised or seeks to raise money by issue of security as defined in clause
(h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), or by
issue of commercial paper, depository receipt or any other instrument;
• (C) whose financial standing has been assessed or is proposed to be assessed by a
credit institution or any other person or institution as may, by notification, be

• Credit Information –
– (i) the amounts and the nature of loans or advances, amounts outstanding under credit cards and
other credit facilities granted or to be granted, by a credit institution to any borrower;
– (ii) the nature of security taken or proposed to be taken by a credit institution from any borrower
for credit facilities granted or proposed to be granted to him;
– (iii) the guarantee furnished or any other non-fund based facility granted or proposed to be
granted by a credit institution for any of its borrowers;
– (iv) the creditworthiness of any borrower of a credit institution;
– (v) any other matter which the Reserve Bank may, consider necessary for inclusion in the credit
information to be collected and maintained by credit information companies, and, specify, by
notification, in this behalf

• Functions of Credit Information Companies-
– (a) to collect, process and collate information on trade, credit and financial standing of the
borrowers of the credit institution which is a member of the credit information company;
– (b) to provide credit information to its specified users or to the specified users of any other
credit information company or to any other credit information company being its
member;
– (c) to provide credit scoring to its specified users or specified users of any other credit
information company or to other credit information companies being its members;
– (d) to undertake research project;
– (e) to undertake any other form of business which the Reserve Bank may, specify by
regulations as a form of business in which it is lawful for a credit information company to
engage.

• Every credit institution to become member of all credit information
company.
• Credit Institution to submit the information as per the provisions of the act
to credit information company.
• Credit Information company to provide information to specified users.
• Any person, who applies for grant or sanction of credit facility, from any
credit institution, may request to such institution to furnish him a copy of
the credit information obtained by such institution from the credit
information company.

• Banks/FIs had been advised vide our circular
DBOD.No.CID.BC.30 /20.16.042 /2011-12 dated
September 5, 2011 to submit to Credit Information
Companies (CICs) the following information:
– (i) Quarterly list of suit filed accounts of Rs.1 crore and
above, classified as doubtful or loss, and
– (ii) List of suit filed accounts of willful defaulters of Rs.25
lakhs and above, as at end-March, June, September and
December, every year.

Willful Default
• A "willful default" would be deemed to have occurred if any of the following events is
noted :-
– (a) The unit has defaulted in meeting its payment / repayment obligations to the
lender even when it has the capacity to honour the said obligations.
– (b) The unit has defaulted in meeting its payment / repayment obligations to the
lender and has not utilized the finance from the lender for the specific purposes for
which finance was availed of but has diverted the funds for other purposes.
– (c) The unit has defaulted in meeting its payment / repayment obligations to the
lender and has siphoned off the funds so that the funds have not been utilized for
the specific purpose for which finance was availed of, nor are the funds available
with the unit in the form of other assets.

Willful Default
• Banks to ensure the end use –
– (a) Meaningful scrutiny of quarterly progress reports / operating statements /
balance sheets of the borrowers;
– (b) Regular inspection of borrowers’ assets charged to the lenders as security;
– (c) Periodical scrutiny of borrowers’ books of accounts and the no-lien
accounts maintained with other banks;
– (d) Periodical visits to the assisted units;
– (e) System of periodical stock audit, in case of working capital finance;
– (f) Periodical comprehensive management audit of the ‘Credit’ function of the
lenders, so as to identify the systemic-weaknesses in the credit-
administration.

CIC
• Experian Credit Information Company of India
Private Limited
• Equifax Credit Information Services Private Limited
• High Mark Credit Information Services Private
Limited
• Credit Information Bureau (India) Limited (CIBIL)

The Securitization and
Reconstruction of Financial
Assets and Enforcement of
Security Interest Act, 2002

The Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002
• Asset Reconstruction- means acquisition by any securitization
company or reconstruction company of any right or interest of any bank or
financial institution in any financial assistance for the purpose of realization of
such financial assistance.
• 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
securitization 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.

• 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.
• Reconstruction Company - means a company formed and registered
under the Companies Act, 1956 (1 of 1956) for the purpose of asset reconstruction.
• Securitization - means acquisition of financial assets by any securitization
company or reconstruction company from any originator, whether by raising of funds by
such securitization company or reconstruction company from qualified institutional
buyers by issue of security receipts representing undivided interest in such financial
assets or otherwise.

• 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;

The Securitization and Reconstruction of
Financial Assets
• Qualified Institutional Buyer - means a financial institution,
insurance company, bank, state financial corporation, state industrial
development corporation, trustee or securitization 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 there under, or any other body corporate as may be
specified by the Board.

The Securitization and Reconstruction of
Financial Assets
• Section 5- Acquisition of rights or interest in financial assets
–
– any securitization company or reconstruction company may acquire
financial assets of any bank or financial institution -
(a) by issuing a debenture or bond or any other security in the
nature of the debenture, for consideration agreed upon between such
company and the bank or financial institution, incorporating therein such
terms and conditions as may be agreed upon between them; or
(b) by entering into an agreement with such bank or financial
institution for the transfer of such financial assets to such company on
such terms and conditions as may be agreed upon between them.

• Section 6- Notice to obligor and discharge of obligation of such obligor-
(1) The bank or financial institution may, if it considers appropriate, give a notice of acquisition of financial assets by any
securitization company or reconstruction company, to the concerned obligor and any other concerned person and to the
concerned registering authority (including Registrar of Companies) in whose jurisdiction the mortgage, charge,
hypothecation, assignment or other interest created on the financial assets have been registered.
(2) Where a notice of acquisition of financial asset under sub-section (1) is given by a l institution, the obligor, on receipt of
such notice, shall make payment to the concerned securitization company or reconstruction company, as the case may be,
and payment made to such company in discharge of any of the obligations in relation to the financial asset specified in
the notice shall be a full discharge to the obligor making the payment from all liability in respect of such payment.
(3) Where no notice of acquisition of financial asset under sub-section (1) is given by any bank or financial institution, any
money or other properties subsequently received by the bank or financial institution, shall constitute monies or
properties held in trust for the benefit of and on behalf of the securitization company or reconstruction company, as the
case may be, and such bank or financial institution shall hold such payment or property which shall forthwith be made
over or delivered to such securitization company or reconstruction company, as the case may be, or its agent duly
authorized in this behalf

• Section 9- Measures for assets reconstruction
– (a) the proper management of the business of the borrower, by change
in, or take over of, the management of the business of the borrower;
– (b) the sale or lease of a part or whole of the business of the borrower;
– (c) rescheduling of payment of debts payable by the borrower;
– (d) enforcement of security interest in accordance with the provisions
of this Act;
– (e) settlement of dues payable by the borrower;
– (f) taking possession of secured assets in accordance with the
provisions of this Act.

• Section 10- (1) Any securitization company or reconstruction
company registered under section 3 may--
• (a) act as an agent for any bank or financial institution for the
purpose of recovering their dues from the borrower on payment of
such fee or charges as may be mutually agreed upon between the
parties;
• (b) act as a manager referred to in clause (c) of sub-section (4) of
section 13 on such fee as may be mutually agreed upon between
the parties;
• (c) act as receiver if appointed by any court or tribunal

• Section 13 - Enforcement of security interest-
• (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of
Property Act, 1882 (4 of 1882), any security interest created in favour of any secured
creditor may be enforced, without the intervention of court or tribunal, by such creditor
in accordance with the provisions of this Act.
• (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 installment 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 subsection (4).

• (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section
(2), the secured creditor may take recourse to one or more of the following measures to recover his
secured debt, namely:--
– (a) take possession of the secured assets of the borrower including the right to
transfer by way of lease, assignment or sale for realizing the secured asset;
– (b) take over the management of the business of the borrower including the right to
transfer by way of lease, assignment or sale for realizing the secured asset:
– (c) appoint any person (hereafter referred to as the manager), to manage the secured
assets the possession of which has been taken over by the secured creditor;
– (d) require at any time by notice in writing, any person who has acquired any of the
secured assets from the borrower and from whom any money is due or may become
due to the borrower, to pay the secured creditor, so much of the money as is sufficient
to pay the secured debt.

• Section 20 - Central Registry
• (1) The Central Government may, by notification, set-up or cause to be set-up from such
date as it may specify in such notification, a registry to be known as the Central Registry
with its own seal for the purposes of registration of transaction of securitization and
reconstruction of financial assets and creation of security interest under this Act.
• (4) The provisions of this Act pertaining to the Central Registry shall be in addition to and
not in derogation of any of the provisions contained in the Registration Act, 1908 (16 of
1908), the Companies Act, 1956 (1 of 1956), the Merchant Shipping Act, 1958 (44 of
1958), the Patents Act, 1970 (39 of 1970), the Motor Vehicles Act, 1988 (59 of 1988) and
the Designs Act, 2000 (16 of 2000) or any other law requiring registration of charges and
shall not affect the priority of charges or validity thereof under those Acts or laws.

CERSAI
• Central Registry of Securitization Asset Reconstruction and
Security Interest of India.
• company licensed under section 25 of the Companies Act, 1956.
• The Company is a Government Company with a shareholding of
51% by the Central Government and select Public Sector Banks
and the National Housing Bank are also shareholders of the
Company.

CERSAI
• Notification issued by Finance Ministry dated 22nd Jan 2016
• Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
(Central Registry) Amendment Rules, 2016
– Creation, modification or satisfaction of security interest in immovable property by
mortgage other than mortgage by deposit of title deeds shall be filed ---
– Creation, modification or satisfaction of security interest in hypothecation of plant and
machinery, stocks, debt including book debt or receivables, whether existing or future shall
be filed ----.
– Creation, modification or satisfaction of security interest in intangible assets, being
knowhow, patent, copyright, trade mark, licence, franchise or any other business or
commercial right of similar nature, shall be filed—
– creation, modification or satisfaction of security interest in any under construction
residential or commercial building or a part thereof by an agreement or instrument other
than by mortgage.

Serial
Number
Nature of transaction to be Registered
FORM
No.
Amount of fee payable
1.
Particulars of creation or modification of
Security Interest in favour of secured creditors
FORM
I
Rs.100 for creation and for any subsequent
modification of Security interest in favour of a
secured creditor for a loan above Rs.5 lakh.
For a loan upto Rs.5 lakh, the fee would be
Rs.50 for both creation and modification of
security interest.
2. Satisfaction of any existing Security Interest
FORM
II
NIL
3.
Particulars of securitisation or reconstruction of
financial assets
FORM
III
Rs.500
4.
Particulars of satisfaction of securitisation or
reconstruction transactions
FORM
IV
Rs.50
5.
Any application for information recorded /
maintained in the Register by any person
--- Rs.10
6.
Any application for condonation of delay up to
30 days
---
Not exceeding 10 times of the basic fee, as
applicable.

The Securitization and Reconstruction of Financial
Assets
• Section 31- Provisions of this Act not to apply in certain cases
– (a) a lien on any goods, money or security given by or under the Indian Contract Act, 1872 (9 of 1872; or the
Sale of Goods Act, 1930 (3 of 1930) or any other law for the time being in force;
– (b) a pledge of movables within the meaning of section 172 of the Indian Contract Act, 1872
– (c) creation of any security in any aircraft as defined in clause (1) of section 2 of the Aircraft Act, 1934
– (d) creation of security interest in any vessel as defined in clause (55) of section 3 of the Merchant Shipping
Act, 1958
– (e) any conditional sale, hire-purchase or lease or any other contract in which no security interest has been
created;
– (f) any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930
– (g) any properties not liable to attachment (excluding the properties specifically charged with the debt
recoverable under this Act) or sale under the first proviso to sub-section (1) of section 60 of the Code of Civil
Procedure, 1908
– (h) any security interest for securing repayment of any financial asset not exceeding one lakh rupees;
– (i) any security interest created in agricultural land;
– (j) any case in which the amount due is less than twenty per cent of the principal amount and interest thereon.

RBI guidelines for Sale of Assets to
SC/RC
• Financial assets which can be sold
– A financial asset may be sold to the SC/RC by any bank
where the asset is:
• i) A NPA, including a non-performing bond/ debenture.
• ii) A Standard Asset where:
– (a) the asset is under consortium/ multiple banking arrangements,
– (b) at least 75% by value of the asset is classified as non-performing asset
in the books of other banks, and
– (c) at least 75% (by value) of the banks who are under the consortium /
multiple banking arrangements agree to the sale of the asset to SC/RC.

SC/RC
• Banks are, directed to ensure that the effect of the sale of the financial assets should be such that
the asset is taken off the books of the bank/ FI and after the sale there should not be any known
liability devolving on the banks/ FIs.
• The Board shall lay down policies and guidelines covering, inter alia,
– Financial assets to be sold;
– Norms and procedure for sale of such financial assets;
– Valuation procedure to be followed to ensure that the realizable value of financial assets is
reasonably estimated;
– Delegation of powers of various functionaries for taking decision on the sale of the financial
assets; etc
• Banks should ensure that subsequent to sale of the financial assets to SC/RC, they do not assume
any operational, legal or any other type of risks relating to the financial assets sold.

SC/RC
• Banks using auction process for sale of NPAs to SCs / RCs should be more
transparent, including disclosure of the Reserve Price, specifying clauses for non-
acceptance of bids, etc. If a bid received is above the Reserve Price and a minimum
of 50 per cent of sale proceeds is in cash, and also fulfills the other conditions
specified in the Offer Document, acceptance of that bid would be mandatory.
• Banks/ FIs may receive cash or bonds or debentures as sale consideration for the
financial assets sold to SC/RC.
• Bonds/ debentures received by banks as sale consideration towards sale of
financial assets to SC/RC will be classified as investments in the books of banks.

SC/RC
• When a bank / FI sells its financial assets to SC/ RC, on
transfer the same will be removed from its books.
• If the sale to SC/ RC is at a price below the net book value
(NBV) (i.e., book value less provisions held), the shortfall
should be debited to the profit and loss account of that
year. Banks can also use countercyclical / floating
provisions for meeting any shortfall on sale of NPAs i.e.,
when the sale is at a price below the net book value (NBV).

SC/RC
• When banks invest in the security receipts/ pass-through certificates issued by SC/RC in respect of the financial assets sold by them to the
SC/RC, the sale shall be recognized in books of the banks / FIs at the lower of:
– the redemption value of the security receipts/ pass-through certificates, and the NBV of the financial asset.
– The above investment should be carried in the books of the bank / FI at the price as determined above until its sale or realization.
• The securities (bonds and debentures) offered by SC / RC should satisfy the following conditions:
– (i) The securities must not have a term in excess of six years.
– (ii) The securities must carry a rate of interest which is not lower than 1.5% above the Bank Rate in force at the time of issue.
– (iii) The securities must be secured by an appropriate charge on the assets transferred.
– (iv) The securities must provide for part or full prepayment in the event the SC / RC sells the asset securing the security before the
maturity date of the security.
– (v). The commitment of the SC / RC to redeem the securities must be unconditional and not linked to the realization of the assets.
– (vi) Whenever the security is transferred to any other party, notice of transfer should be issued to the SC/ RC.
– (c) Investment in debentures/ bonds/ security receipts/ Pass-through certificates issued by SC/ RC
• All instruments received by banks from SC/RC as sale consideration for financial assets sold to them and also other instruments issued by
SC/ RC in which banks invest will be in the nature of non SLR securities. Accordingly, the valuation, classification and other norms
applicable to investment in non-SLR instruments prescribed by RBI from time to time would be applicable to bank’s/investment in
debentures/ bonds/ security receipts/PTCs issued by SC/ RC.

Negotiable Instrument Act, 1881

Law Related to--
• Promissory Notes
• Bills of Exchange
• Cheques- including Cheques in Electronic
Forms.

Negotiable Instrument- NI
• NI-
– a promissory note,
– bill of exchange or
– Cheque
– payable either to order or to bearer.
• Negotiation - When a promissory note, bill of exchange or cheque is transferred to any
person, so as to constitute that person the holder thereof, the instrument is said to be
negotiated.
• Indorsement - When the maker or holder of a negotiable instrument signs the same,
otherwise than as such maker, for the purpose of negotiation, on the back or face thereof
or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper
intended to be completed as a negotiable instrument, he is said to indorse the same, and
is called the “indorser”.

Sec 4-Promissory Notes
• An Instrument in Writing
• Not a bank note or Currency Note
• Unconditional Undertaking
• To pay certain amount
• Only to or
• To the order of a certain person or
• To the bearer
• Signed by maker

Sec. 5-Bills of Exchange
• An Instrument in writing
• Contains unconditional order
• Directing certain person to pay
• Certain amount
• Only to Or
• To the order of certain person Or
• Bearer
• Signed by maker.

Sec. 6- Cheques
• It is bills of exchange
• Drawn on specified banker
• Not expressed to be payable otherwise than
on demand
• Includes electronic cheques and
• Images of truncated cheques

Drawer- Drawee
• Drawer= Maker
• Drawee= Person Directed to Pay
• Payee = Person to whom or to whose order
amount to be paid.
• Acceptor = After the Drawee a bill has
signed his assent upon the bill or part of it.

Holder
• Holder-
– Any person entitled in his own name
– The possession of NI
– To Receive or Recover the amount due in NI
• Holder in Due Course-
– Person who is Possessor of NI
– Because of Consideration
– The amount mentioned is payable- not matured
– Good Faith- having sufficient cause to believe that any defect existed in the
title of the person from whom he derived his title.
• A holder of a negotiable instrument who derives title from a holder in due course
has the rights thereon of that holder in due course.

Payment in Due Course
• Payment in accordance with apparent tenor of NI.
• In Good Faith-circumstances which do not afford a
reasonable ground for believing that he is not
entitled to receive payment of the amount therein
mentioned.
• Without Negligence of person having possession of
it.

Sec-43- NI Without
Consideration
• A negotiable instrument made, drawn, accepted, indorsed or
transferred without consideration, or
• for a consideration which fails, creates no obligation of payment
between the parties to the transaction.
• But if any such party has transferred the instrument with or
without indorsement to a holder for consideration, such holder,
and every subsequent holder deriving title from him, may recover
the amount due on such instrument from the transferor for
consideration or any prior party thereto.

Sec 64- Presentment for
payment
• Promissory notes, bills of exchange and cheques must be presented for
payment to the maker, acceptor or drawee thereof respectively, by or on behalf
of the holder as hereinafter provided. In default of such presentment, the other
parties there to are not liable thereon to such holder.
• where an electronic image of a truncated cheque is presented for payment, the
drawee bank is entitled to demand any further information regarding the
truncated cheque from the bank holding the truncated cheque in case of any
reasonable suspicion about the genuineness of the apparent tenor of instrument,
and if the suspicion is that of any fraud, forgery, tampering or destruction of the
instrument, it is entitled to further demand the presentment of the truncated
cheque itself for verification.

Alteration
• Any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the
time of making such alteration and does not consent thereto, unless it was made in order to carry out the common
intention of the original parties.
– Where a promissory note, bill of exchange or cheque has been materially altered but does not appear to have been
so altered, or
– where a cheque is presented for payment which does not at the time of presentation appear to be crossed or to
have had a crossing which has been obliterated,
• payment thereof by a person or banker liable to pay, and paying the same according to the apparent tenor thereof at the
time of payment and otherwise in due course, shall discharge such person or banker from all liability thereon; and such
payment shall not be questioned by reason of the instrument having been altered or the cheque crossed.
• Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of such electronic image
and the truncated cheque shall be a material alteration and it shall be the duty of the bank or the clearing house, as the
case may be, to ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating
and transmitting the image.
• Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify from the
party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same.

Presumptions as to negotiable instruments
• Until the contrary is proved, the following presumptions shall be made:—
– (a) of consideration:—that every negotiable instrument was made or drawn for consideration, and that every
such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed,
negotiated or transferred for consideration;
– (b) as to date:—that every negotiable instrument bearing a date was made or drawn on such date;
– (c) as to time of acceptance:—that every accepted bill of exchange was accepted within a reasonable time
after its date and before its maturity;
– (d) as to time of transfer:—that every transfer of a negotiable instrument was made before its maturity;
– (e) as to order of indorsements:—that the indorsements appearing upon a negotiable instrument were made
in the order in which they appear then on;
– (f) as to stamp:— that a lost promissory note, bill of exchange or cheque was duly stamped;
– (g) that holder is a holder in due course:— that the holder of a negotiable instrument is a holder in due
course : provided that, where the instrutment has been obtained from its lawful owner, or from any person
in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or
acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that
the holder is a holder in due course lies upon him.

Payment of Cheques/Drafts/Pay Orders/Banker’s
Cheques
• RBI W.E.F 1st April 2012
• Directed banks-
• banks should not make payment of
cheques/drafts/pay orders/banker’s cheques
bearing that date or any subsequent date, if
they are presented beyond the period of three
months from the date of such instrument.

138. Dishonour of cheque for insufficiency, etc.,
of funds in the account
• Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of
money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is
returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to
honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that
bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of
this Act, be punished with imprisonment for [a term which may be extended to two years’], or with fine which may extend to
twice the amount of the cheque, or with both:
• Provided that nothing contained in this section shall apply unless—
• (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within
the period of its validity, whichever is earlier;
• (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said
amount of money by giving a notice; in writing, to the drawer of the cheque, [within thirty days] of the receipt of information
by him from the bank regarding the return of the cheque as unpaid; and
• (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be,
to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
• Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.

Limitation Act 1963
• 18. Effect of acknowledgment in writing –
– (1) Where before the expiration of the prescribed period for a suit or application in respect or any
property or right, an acknowledgment of liability in respect of such property or right has been made in
writing signed by the party against whom such property or right is claimed, or by any person through
whom he derived his title or liability, a fresh period of limitation shall be computed from the time
when the acknowledgment was so signed.
– (2) Where the writing containing thee acknowledgement is undated, oral evidence may be given of the
time when it was signed; but subject to the provisions of the Indian Evidence Act,187 2 ( 1 of 1872),
oral evidence of its contents shall not be received.
• 19. Effect of payment on account of debt or of interest on legacy –
– Where payment on account of a debt or of interest on a legacy is made before the expiration of the
prescribed period by the person liable to pay the debt or legacy or by his agent duly Authorized in this
behalf, a fresh period of limitation shall be computed from the time when payment was made:
– Provided that, save in the case of payment of interest made before the 1st day of January,1928, an
acknowledgment of the payment appears in the hand-writing of, or in a writing signed by the person
making the payment.

Limitation Act 1963
ARTICLE
NO
SUIT DESCRIPTION PERIOD OF
LIMITATION
TIME FROM WHIICH LIMITATION PERIOD BEGINS
1 For the balance due on a
mutual, open and current
account, where there have
been reciprocal demands
between the parties.
THREE
YEARS
The close of the year in which the
last item admitted or proved is
entered in the account; such year to
be computed as in the account.
19 For money payable for money
lent.
THREE
YEARS
When the loan is made.
20 Like suit when the lender has
given a cheque for the money.
THREE
YEARS
When the cheque is paid.
21 For money lent under an
agreement that it shall be
payable on demand.
THREE
YEARS
When the loan is made.
22 For money deposited under an
agreement that it shall be
payable on demand, including
money of a customer in the
THREE
YEARS
When the demand is made.

Limitation Act 1963
ARTICLE
NO
SUIT DESCRIPTION PERIOD OF
LIMITATION
TIME FROM WHIICH LIMITATION PERIOD
BEGINS
32 On a bill of exchange or payable
at sight, or after sight, but not at a
fixed time.
THREE
YEARS
When the bill is presented.
33 On a bill of exchange accepted
payable at a particular place
THREE
YEARS
When the bill is presented at
that place.
36 On a promissory note or bond
payable by instalments.
THREE
YEARS
The expiration of the first term
of payment as to the part then
payable; and for the other
parts, the expiration of the
respective terms of payment.
37 On a promissory note or bond
payable by instalments, which
provides that, if default be made
in payment of one or more
instalments, the whole shall be
due
THREE
YEARS
When the default is made,
unless where the payee or
obligee waives the benefit of
the provisions and then when
fresh default is made in
respect of which there is no
such waiver

Limitation Act 1963
ARTICLE NO SUIT DESCRIPTION PERIOD OF
LIMITATION
TIME FROM WHIICH LIMITATION PERIOD
BEGINS
61 (a) By a mortgagor - to redeem or
recover, possession of
immovable property
mortgaged
THREE
YEARS
When the right to redeem or
to recover possession
accrues.
62 To enforce payment of money
secured by a mortgagee or
otherwise charge upon
immovable property.
TWELVE
YEARS
When the money sued for
become due.
63 By a mortgages- (a) for
foreclosure, (b) for possession
of immovable property
mortgaged
THIRTY &
TWELVE
YEARS
-When the money secured by
the mortgagee become due.
-When the mortgagee
becomes entitled to
possession.

Indian Stamp Act
CA. UDAY KULKARNI

Stamp Duty
• Central Government to Prescribe Stamp Duty
for-
– bills of exchange, cheques, promissory notes, bills
of lading, letters of credit, policies of insurance,
transfer of shares, debentures, proxies and
receipts, any other stamp-duty chargeable under
this Act and falling within entry 96 in List I.
• State Government to Prescribe Stamp Duty for
all other documents.

Definitions
• Duly Stamped - the instrument bears an adhesive or impressed stamp of not
less than the proper amount and that such stamp has been affixed or used in
accordance with the law for the time being in force in.
• Instrument - every document by which any right or liability is, or purports to be,
created, transferred, limited, extended, extinguished or recorded.
• Mortgage Deed - every instrument whereby, for the purpose of securing money
advanced, or to be advanced, by way of loan, or an existing or future debt, or
the performance of an engagement, one person transfers, or creates, to, or in
favour of, another, a right over or in respect of specified property.

Receipt
• Receipt includes any note, memorandum or writing—
– (a) whereby any money, or any bill of exchange, cheque or
promissory note is acknowledged to have been received, or
– (b) whereby any other moveable property is acknowledged to
have been received in satisfaction of a debt, or
– (c) where by any debt or demand, or any part of debt or demand,
is acknowledged to have been satisfied or discharged, or
– (d) which signifies or imports any such acknowledgment,
and whether the same is or is not signed with the name of any
person

Stamps
• Judicial stamp papers: These are used for legal and court work.
• Non-judicial stamp papers: These are used for making contracts,
agreements, registration of documents, entering into leases or
sale/purchase transactions etc.
• Impressed Stamps- (a) labels affixed and impressed by the
proper officer, and (b) stamps embossed or engraved on
stamped paper.
• Self-adhesive stamp is a stamp with a pressure-sensitive
adhesive.

Not Duly Stamped
• 35. Instruments not duly stamped inadmissible in evidence, etc. —
– No instrument chargeable -
– with duty shall be admitted in evidence
• for any purpose by any person having by law or
• consent of parties, authority to receive evidence, or
• shall be acted upon, registered or authenticated by any such person or by any
public officer, unless such instrument is duly stamped
• In the case of any instrument insufficiently stamped, of the amount
required to make up such duty, together with a penalty.
• Exception- in Criminal Proceedings.

54. Allowance for stamps not required for use.
• When any person is possessed of a stamp or stamps which have not been
spoiled or rendered unfit or useless for the purpose intended-
• but for which he has no immediate use,
• the Collector shall repay to such person the value of such stamp or stamps
in money, deducting portion of a rupee
• upon such person delivering up the same to be cancelled, and proving to the
Collector's satisfaction -
– (a) that such stamp or stamps were purchased by such person with a bona fide
intention to use them; and
– (b) that he has paid the full price thereof; and
– (c) that they were so purchased within the period of six months next preceding the
date on which they were so delivered

!! THANK YOU !!
CA. Uday Kulkarni
kulday@rediffmail.com

Legal and Regulatory Frame work-REVISED OCT 2020.pptx

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