Bank declared NPA. What happens next?

We started a factory in the food processing sector and obtained a loan from a bank (Vijaya bank, Bank of Baroda now).

We are 6 investors with 4 directors. The bank asked for collateral/guarantors for the loan and 4 of us gave
(3 directors and 1 investor) .Unfortunately our managing director (one of the 4 directors) passed away early this year.

None of the other directors or investors are willing to come forward to run the factory. In the meanwhile a real estate company
came forward to take over the factory and the loan. They replaced the directors with their own directors. But the
collateral/guarantors are still with the bank. They paid EMI for a few months and are now not interested in continuing as the market
is very tough. So, they stopped paying EMI for the last 3 months.

The bank has sent letters to the original guarantors who gave collateral saying that the account is in NPA and demanded us to pay the loan
in full failing which they would take away the properties given as collateral, under section 2 of section 13 of the Sarfaesi Act 2002.

A few of the guarantors have also invested amounts (far more than the value of the collateral) in the business and are already at risk of losing their investment.
Can you please let me know what would happen and how to deal with this issue?

1. The bank has given 60 days to clear the entire loan amount and interest. The amount is huge and none of us have the ability to mobilize such a large amount.

2. Would the bank sell the properties of the investors/directors given to the bank as collateral? If so, would they do it immediately after 60 days?

3. Would the bank try to sell the factory and then recover the balance by selling the mortgaged properties of the investors? The value of the factory
(land, buildings, machinery etc) is much more than the loan balance. But given the current situation and the fat that the bank has declared NPA, many investors may be

waiting to get the factory at much below the loan balance.

4. In case there is a deficit in the loan balance even after selling the properties assigned as collateral, would the bank come after other properties of the
investors/directors?

5. In the even the bank sells all the assets, what would happen to the amounts invested by the investors/directors?

Thanks in advance!

Hey Gopi, this is a tough situation but let me break down the likely scenario and options based on your descripttion:

1. What happens after NPA and 60 days demand notice?

The bank has issued a 60-day notice under Section 13(2) of the SARFAESI Act, 2002 demanding full repayment.
If the loan is not cleared within 60 days, the bank can initiate recovery proceedings without the intervention of courts.

2. Can the bank sell the properties given as collateral immediately after 60 days?

After 60 days, the bank can take possession of the collateral.
Then, under SARFAESI, they can auction/sell the collateral assets to recover dues.
However, they typically follow a process: notice → possession → auction → sale.
It’s not immediate but can be swift depending on how the bank acts.

3. Will the bank try to sell the factory first and then other properties?

The bank will try to recover the loan by selling all secured assets first.
If the factory itself is part of the collateral or charged assets, it will be auctioned.
The concern is valid that the factory might be sold at a distressed price due to NPA status.

4. What if there is a deficit after selling collateral?

The loan guarantors and borrowers are jointly and severally liable.
If proceeds from collateral sale do not cover the loan, the bank can pursue personal assets of the guarantors/investors.
The bank may file a suit for recovery of the balance amount.

5. What happens to the amounts invested by investors/directors?

The investments are at risk.
Since the company is struggling and unable to repay loan, the investors might lose part or all of their invested capital.
If the factory or business is sold, proceeds may be used to repay the bank first (secured creditors have priority), leaving little or nothing for investors.

What can you do now?

Negotiate with the bank: Try restructuring the loan or settle on a repayment plan.
Look for new investors or buyers willing to take over the loan or business.
Consult a legal expert to understand if any relief under SARFAESI or Insolvency laws can be sought.
Consider filing for insolvency (if applicable) to protect interests and seek resolution.
Keep communication open with the bank to avoid sudden enforcement action.

In summary: The bank will likely take possession and sell collateral after 60 days if dues are unpaid. Deficit recovery from personal assets is possible. Investments are at risk if the business is wound up or assets sold.