There are 3 types of documents taken by a bank for a loan – DPN, agreement, and form.
DPN (Demand Promissory Note) is a document which a bank takes when there is no fixed period for the repayment of loan.
In DPN, the borrower makes a promise to the banker to repay the loan amount on demand with agreed rate of interest.
DPN must be stamped as per Indian Stamps Act.
An agreement includes the amount of loan, rate of interest, rate of penal interest, % of margin, period of repayment, rights of the bankers in case of default of loan, details of security/securities charged, etc.
The agreement must be stamped.
Forms are neither promised nor agreement. They are obtained to specify the intention of the borrower. For ex, when a loan is granted against the security of a FD standing in joint names, one of them gives an authorization to the other to raise a loan on the deposit. Such an authorization is taken in a form.
For correct documentation, the steps followed are – selection of correct set of documents, stamping, filling, execution, and legal formalities.
The cancellation of adhesive stamp is done as per Section 12 of the Indian Stamp Act.
In case of advances to limited companies against its assets, the required forms are to be presented to the Registrar of Companies with the 30 days from the date of execution.
In case of creation of registered mortgages, the mortgage deed is presented for registration before the Registrar of Assurances within 4 months from the date of execution of the deed.
The documents submitted to the bank don’t have perpetual life, the provision of Limitation Act apply to them. The Limitation Act prescribes the period of limitation for different types of documents.
The limitation period for a DPN is 3 years from the date of execution. It means if the loan is not repaid within 3 years, the bank has to get fresh documents for extending the period.
If the borrower or his duly authorized agent makes any part payment towards the loan before the expiry of period of limitation, then the period of limitation is extended by one more period from the date of such part payment.
Securitisation is the process of acquisition of large NPA loan or portfolio of loans such as housing, by Securitisation or Reconstruction Co from a bank or financial institution on mutually agreed terms and conditions.