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Amendments to Security Interest (Enforcement) Rules: Key Updates and Implications

Notification for Amendments to Security Interest (Enforcement) Rules, 2002

On October 17, 2018, the Ministry of Finance, specifically the Department of Financial Services, issued a notification to amend the Security Interest (Enforcement) Rules, 2002. This amendment is made under the authority of the Securitisation and Asset Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

1. Title and Commencement

  • Amendment Name: The rules shall be referred to as the Security Interest (Enforcement) Amendment Rules, 2018.
  • Effective Date: The rules will take effect upon their publication in the Official Gazette.

2. Amendments in Rule 6 of Security Interest (Enforcement) Rules, 2002

  • Sub-rule (2): The first proviso is replaced as follows:

    "Provided that when the sale of secured assets occurs through tender invitation or public auction, the secured creditor must publish a public notice in the Form included in Appendix II-A in two prominent newspapers, one of which should be in a vernacular language widely circulated in the relevant locality."

  • New Sub-rule (4): After sub-rule (3), a new sub-rule is added:

    • The authorized officer is required to upload detailed sale terms and conditions for movable secured assets on the secured creditor's website, outlining the following:
      • (a) Information about the borrower and secured creditor.
      • (b) A complete description of the movable secured assets, including identification marks or numbers.
      • (c) The reserve price of the movable secured assets, if applicable, along with payment details.
      • (d) The time and place for the public auction or alternative sale completion time.
      • (e) Required earnest money deposit as specified by the secured creditor.
      • (f) Any additional terms vital for purchaser understanding of the nature and value of the movable secured assets.

3. Changes to Rule 8

  • Sub-rule (6): The proviso is modified to state:

    "Provided that when the secured asset sale occurs via public tenders or auction, the secured creditor must publish a public notice as per the Form in Appendix IV-A in two leading newspapers, one in a vernacular language widely circulated locally."

  • Revised Sub-rule (7): This sub-rule now stipulates:

    • Every sale notice must be affixed prominently on the immovable property. The authorized officer shall also upload the detailed sale terms on the secured creditor's website, including:
      • (a) A description of the immovable property, inclusive of known encumbrances.
      • (b) The secured debt prompting the sale.
      • (c) The minimum reserve price for the property.
      • (d) The scheduled time and place for public auction or the completion time for other sale methods.
      • (e) Earnest money deposit requirements as per the secured creditor's stipulation.
      • (f) Any additional terms deemed necessary by the authorized officer to inform potential purchasers about the property’s nature and value.

4. New Appendices

  • Appendix II-A: Following Appendix II, the following is added:

E-Auction Sale Notice for Sale of Movable Assets
This notice informs the public, especially the borrowers and guarantors, about the sale of movable property hypothecated or charged to the secured creditor. The sale will be conducted on an “As is where is” basis on the specified sale date for recovering a specified amount due.

  • Appendix IV-A: Following Appendix IV, this is added:

E-Auction Sale Notice for Sale of Immovable Assets
This notice serves to inform borrowers and guarantors that the described immovable property, mortgaged or charged to the secured creditor, will be sold on the assigned sale date, again on an “As is where is” basis to recover the outstanding amount due.

Conclusion

These amendments aim to enhance the transparency and procedural clarity regarding the sale of secured assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, ensuring that borrowers and creditors are adequately informed.