Banking · SARFAESI Act
A large infrastructure company, 'MegaBuild Corp,' has a multi-crore credit facility with 'Apex National Bank.' The security structure includes a registered mortgage of its office building, hypothecated machinery, a pledge of 20% promoter shares, and assigned rights from a government contract. After the company fails to pay the interest for 91 days, the bank classifies the account as an NPA and issues a notice under Section 13(2) of the SARFAESI Act. The company subsequently attempts to sell one of the hypothecated cranes to a third party. Which of the following statements is true regarding the bank's rights?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank can immediately take possession of the promoter's pledged shares without any notice.
- 2The bank can prevent the sale of the crane and take possession of it under Section 13(4) of the SARFAESI Act because the security interest is already created and the account is an NPA.✓
- 3The bank must first sell the head office building (mortgage) before it can touch the assigned government contract payments.
- 4The personal guarantee of the promoter is automatically invoked as soon as the account becomes an NPA, without needing a separate legal notice.
Correct answer
The bank can prevent the sale of the crane and take possession of it under Section 13(4) of the SARFAESI Act because the security interest is already created and the account is an NPA.
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