Introduction:
The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (also known as the SARFAESI Act) is an Indian law which allows banks and other financial institution to public sale residential or commercial properties to recover loans. The first asset reconstruction company (ARC) of India, ARCIL, was set up under the guidelines of this act.
Under this act secured creditors i.e. banks or financial institutions have many powers for enforcement of security interest under section 13 of the SARFAESI Act, 2002. If the borrower of financial assistance makes any form of default in repayment of loan or any particular installment and his account is categorized as Non-performing Asset by secured creditor, then secured creditor may need before expiry of period of limitation by on paper notice to the borrower for repayment of due in full in 60 days by clearly stating total due and their intention for enforcement. Where he does not discharge or pay his dues in full within 60 days, THEN WITHOUT interference OF ANY COURT OR TRIBUNAL Secured creditor may take the possession, including sale, lease, assignment of secured asset, or takeover management of the business of borrower or employ manager for secured asset or without taking any of this action may also continue against guarantor or sell the pledged asset, if any.
Formation of the SARFAESI Act, 2002
Securitization, as well as the Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(SARFAESI), was circulated –
- To control securitization and reconstruction of the financial assets
- Enforcement of the protection interest
- For matters connected therewith or supplementary thereto.
This act extends to the whole of India.
Changes in the (SARFAESI) Act, 2002 vide the enforcement of the Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016.
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisional information within the Official Gazette, s (Amendment) Act, 2016 was published
Applicability of SARFAESI Act, 2002
The Act deals with the following:
- Registration and regulation of Asset Reconstruction Companies (ARCs) by the Reserve Bank of India(RBI);
- Facilitating securitization of financial assets of the banks and the financial institutions with or without the benefit of underlying security;
- endorsement of seamless transferability of financial assets by the ARC to acquire financial assets of the banks and the financial institutions through the issuance of debentures or bonds or any other security as a debenture;
- Entrusting the Asset Reconstruction Companies (ARC)to raise funds by issue of security receipts to qualified buyers;
- Facilitating the reconstruction of financial assets which are acquired while exercising the powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the banks and the financial institutions;
- Presentation of any securitization company or asset reconstruction company (ARC) registered with the Reserve Bank of India(RBI) as a public financial institution;
- Defining the ‘security interest’ to be any type of security including mortgage and change on immovable properties provided for due repayment of any financial assistance given by any bank or financial institution;
- categorization of the borrower’s account as a non-performing asset in harmony with the directions given or under guidelines issued by the Reserve Bank of India (RBI) from time to time;
- The officers authorized shall exercise the rights of a secured creditor in this behalf in agreement with the rules made by the Central Government;
- An appeal against the action of any bank or any financial institution to the concerned Debts Recovery Tribunal (DRT) and a second appeal to the Appellate Debts Recovery Tribunal;
- The Central Government (CG) may set up or cause to be set up a Central Registry for the reason of registration of transactions relating to securitization, asset reconstruction and creation of security interest;
- Application of the anticipated legislation initially to banks and financial institutions and empowerment of the Central Government (CG)to extend the application of the anticipated legislation to non-banking financial companies and other entities;
- Non-application of the anticipated legislation to security interests in agricultural lands, loans less than rupees one lakh and cases where 80%, of the loans, is repaid by the Borrower.
Role of SARFAESI Act, 2002
Objectives of SARFAESI Act, 2002
- competent or rapid recovery of non-performing assets (NPAs) of the banks and FIs.
- Permits banks and financial institutions to auction properties (say, commercial/residential) when the borrower fails to repay their loans.
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