Section 40 of The Small Industries Development Bank of India Act, 1989
Notwithstanding anything in any agreement to the contrary, the Small Industries Bank may, by notice in writing, require any industrial concern in the small-scale sector to which it has granted any loan or advance to discharge forthwith in full its liabilities to the Small Industries Bank,--
- (a)if it appears to the Board that false or misleading information in any material particular was given in the application for the loan or advance; or
- (b)if the industrial concern in the small-scale sector has failed to comply with the terms of its contract with the Small Industries Bank in the matter of the loan or advance; or
- (c)if there is a reasonable apprehension that the industrial concern in the small-scale sector is unable to pay its debt or that proceedings for liquidation may be commenced in respect thereof; or
- (d)if the property pledged, mortgaged, hypothecated or assigned to the Small Industries Bank as security for the loan or advance is not insured and kept insured by the industrial concern in the smallscale sector to the satisfaction of the Small Industries Bank; or depreciates in value to such an extent that, in the opinion of the Board, further security to the satisfaction of the Board should be given and such security is not given; or
- (e)if, without the permission of the Board, any machinery, plant or other equipment, whether forming part of the security or otherwise, is removed from the premises of the industrial concern in the small-scale sector without being replaced; or
- (f)if for any reason it is necessary to protect the interests of the Small Industries Bank.
Summary
- The bank can cancel a loan agreement and demand immediate full repayment if the borrower gave false or misleading information on their application.
- Immediate repayment can be demanded if the borrower breaks the terms of the loan contract, or if it seems likely they are unable to pay their debts or will go bankrupt.
- The bank can demand its money back if the collateral is not kept insured, or if it loses value and the borrower refuses to provide extra security.
- The bank can also call for early repayment if the borrower removes machinery or equipment from the premises without permission and fails to replace it.
- Finally, the bank can demand repayment if it is generally necessary to protect the bank's interests.
Practical examples
FAQ
1. Can the bank ask for the loan back early if I forget to insure the property I used as collateral?
Yes, failing to keep the collateral insured to the bank's satisfaction is a valid reason for the bank to demand immediate repayment.
2. What happens if my machinery breaks and becomes worthless?
If the collateral loses value, the bank can ask you for additional security. If you refuse to give more security, they can demand full repayment.
3. Can I move my equipment to a new factory?
If the equipment is tied to the loan or on the premises, you need the bank's permission or you must replace it, otherwise the bank can call back the loan early.
Test yourself
Q1.Under Section 40 of The Small Industries Development Bank of India Act, 1989, what action can the bank take if a borrower provided misleading information in their loan application?
Q2.According to Section 40 of The Small Industries Development Bank of India Act, 1989, what triggers the bank's power to demand early repayment regarding the insurance of the collateral?
Q3.Under Section 40 of The Small Industries Development Bank of India Act, 1989, what happens if the collateral depreciates in value?
Q4.Under Section 40 of The Small Industries Development Bank of India Act, 1989, what rule applies to machinery or equipment on the premises of the industrial concern?
Q5.Under Section 40 of The Small Industries Development Bank of India Act, 1989, which of the following is a valid broad reason for the bank to call for immediate repayment?