One-time settlement versus continued SARFAESI action

Value both options on a present-value basis, after costs and expected delay.

SARFAESI route. Realisable value is roughly ₹1.55 crore for land and building plus ₹0.20 crore for machinery = ₹1.75 crore. Assume a re-auction after a 10% price cut and a further 18-24 months including DRT proceedings: discounting ₹1.75 crore by about 19% for two years at 9% gives roughly ₹1.47 crore, then deduct about ₹0.30 crore of further legal and maintenance costs. Net present recovery is around ₹1.15-1.25 crore, with no certainty and continued litigation risk, including possible borrower objections.

Settlement route. ₹1.45 crore with 25% upfront and the rest over 12 months discounts to roughly ₹1.38-1.40 crore, a large part of it received immediately.

The settlement is better by roughly ₹0.15-0.20 crore on a present-value basis and eliminates the cost and uncertainty of further auctions. Recommend acceptance. Note the shortfall clearly: about 63% of dues, i.e. ₹2.50 crore, will be written off.

The settlement must be documented so that it does not become a cheaper way of buying time.

Procedural checks: the amount must fall within the compromise policy and delegated powers of the competent authority - at 37% of dues it needs sanction at a level well above branch; the bank must confirm that no fraud is involved, since fraud would bar a compromise; and the valuation, title and encumbrance of the brother's flat must be verified, with the guarantor joining the settlement deed in his personal capacity.

Conditions in the settlement deed: the 25% upfront amount is non-refundable before any security is released; the balance is secured by a registered mortgage of the flat, with title deeds in the bank's custody; the entire amount is to be paid within 12 months, with a default clause that revives the full original dues of ₹3.95 crore and allows resumption of SARFAESI from the stage already reached; all costs, charges and insurance are for the borrower's account; release of documents or the 'no dues' certificate is only after the last instalment clears; and the credit report of the company and guarantors is updated accordingly. Deferred instalments should carry interest at the settlement rate, not be interest-free.

At the point of acceptance, the account is already an NPA with a carrying value of ₹3.95 crore. Once the settlement is agreed, the recoverable amount becomes ₹1.45 crore, so the difference of about ₹2.50 crore should be provided for or written off with the approval of the competent authority, in line with the bank's policy and prudential norms. Any amounts actually recovered in excess of the agreed figure are credited back.

A default on the second instalment revokes the settlement. The invoked clause restores the original dues, and the bank can resume enforcement from the stage already reached - possession is with the bank, the Section 13(2) notice has been issued, and the flat is now mortgaged. Payments already received are typically adjusted towards costs, then interest, then principal, and not refunded. Simultaneously, proceed against both personal guarantors and list the company with the credit bureaus and, where applicable, the Registrar of Companies as a defaulter. Do not allow a fresh settlement at a lower figure without a fresh valuation and a further approval, since that will be read at inspection as a write-off dressed up as a compromise.