CGTSI/(44)

January 22, 2008

All Member Lending Institutions of CGTSI

Circular No. 43 / 2007-08

Dear Sir/Madam,

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) -
Invocation of guarantee and preferment of claim.

Please refer to our Circular No. 11 / 2003-04 dated July 03, 2003 regarding procedure for invocation of guarantee and preferment of claim. It will be observed there from that the loan facility has to be recalled and recovery proceedings have to be initiated under due process of law by the Member Lending Institutions (MLI) before filing of invocation of guarantee and preferment of claim under the Credit Guarantee Scheme (CGS).

Of late it is observed that some of the MLIs have been recalling the loan amount and issuing notices to the defaulted units under SARFAESI Act 2002 and lodging application towards preferment of claim for first installment from the Trust. In this connection, we wish to clarify that mere issuance of recall notice under SARFAESI Act cannot be construed as initiation of legal proceedings for purpose of preferment of claim under CGS. MLIs are advised to take further action as contained in Section 13 (4) of the above Act wherein a secured creditor can take recourse to any one or more of the recovery measures out of the four measures indicated therein before submitting claims for first installment of guaranteed amount.

In case the MLI is not in a position to take any of the action indicated in Section 13(4) of the aforesaid Act, they may initiate fresh recovery proceeding under any other applicable law and seek the claim for first installment from the Trust.

Please bring the contents of the circular to the notice of the operating offices (Zonal / Branch Offices) of your Bank/ Institution.

Thanking you,

Yours faithfully,

Sd/-

(P.M.Radhakrishnan)

Deputy General Manager