SARFAESI Act, 2002

Short Title: The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.

Long Title: An Act to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a Central database of security interests created on property rights and for matters connected therewith or incidental thereto.

SARFAESI Act is an Indian law. It extended to the whole of India. The Act was enacted by Parliament of India on 17^th Dec, 2002.

The act was amended by "Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, passed by Lok Sabha.

Before this Act took effect, financial institutions had to take recourse to civil suits in the courts to recover their dues, which is a lengthy and time-consuming process.

As per the SARFAESI Act, if a borrower defaults on a loan financed by a bank against collateral, then the bank gets sweeping powers to recover its dues from the borrower. After giving a notice period of 60 days, the lender can take possession of the pledged assets of the borrower, take over the management of such assets, and appoint any person to manage them or ask debtors of the borrower to pay their dues too, with respect to the asset. This recovery procedure saves banks and financial institutions a lot of time which otherwise would be long drawn out due to the intervention of courts.

The Act deals with the following:

·     Registration and regulation of Asset Reconstruction Companies (ARCs) by the Reserve Bank of India.

·     Facilitating securitization of financial assets of banks and financial institutions with or without the benefit of underlying securities.

·     Promotion of seamless transferability of financial assets by the ARC to acquire financial assets of banks and financial institutions through the issuance of debentures or bonds or any other security as a debenture.

·     Entrusting the ARCs to raise funds by issue of security receipts to qualified buyers.

·     Facilitating the reconstruction of financial assets which are acquired while exercising powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the banks and financial institutions.

·     Presentation of any securitization company or asset reconstruction company registered with the Reserve Bank of India as a public financial institution.

·     Defining ‘security interest’ to be any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution.

·     Classification of the borrower’s account as a non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time.

·     The officers authorized will exercise the rights of a secured creditor in this behalf in accordance with the rules made by the Central Government.

·     An appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal.

·     The Central Government may set up or cause to be set up a Central Registry for the purpose of registration of transactions relating to securitization, asset reconstruction and creation of the security interest.

·     Application of the proposed legislation initially to banks and financial institutions and empowerment of the Central Government to extend the application of the proposed legislation to non-banking financial companies and other entities.

·     Non-application of the proposed legislation to security interests in agricultural lands, loans less than rupees one lakh and cases where eighty per cent of the loans, is repaid by the borrower.

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