20. SARFAESI
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,
The SARFAESI Act, 2002 refers to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. It is an Indian law enacted by the Parliament to provide banks and financial institutions with powers to recover their non-performing assets (NPAs) efficiently.
This Act has been enacted with intent to empower banks to recover Non-Performing Assets (NPAs) without the intervention of a court.
The latest amendment of SARFAESI ACT, 2002 states that “an act of regulating securitization and reconstruction of various financial assets and enforcement of security interest and in providing for a central database of security interests that are specifically created on the rights of property, and for those matters connected therewith or incidental thereto.”
It allows banks and other financial institution to auction residential or commercial properties to recover loans. The first asset reconstruction company (ARC) of India, ARCIL, was set up
under this Act.
Key features of the SARFAESI Act, 2002 include:
1. Security Interest:
The Act enables
banks and financial institutions to create a security interest over the assets
offered as collateral by borrowers. It allows them to take possession and
enforce the security interest in the event of default.
2. Enforcement of Security Interest:
The Act empowers banks and financial institutions to take various
measures to recover their dues without the intervention of a court. They can
issue a notice to the borrower demanding repayment and, upon non-compliance,
take possession of the secured assets and sell or lease them.
3. Security Interest Enforcement Agencies:
The Act establishes Debts Recovery Tribunals (DRTs) and
Debts Recovery Appellate Tribunals (DRATs) to adjudicate matters related to the
enforcement of security interest. These quasi-judicial bodies handle disputes
arising under the Act and oversee the recovery proceedings initiated by banks
and financial institutions.
4. Securitization and Asset Reconstruction Companies (ARCs):
The Act allows banks and financial institutions
to transfer NPAs to securitization companies or asset reconstruction companies.
These companies specialize in acquiring and restructuring distressed assets
with the aim of recovering dues.
5. Central Registry:
The Act establishes a Central Registry to maintain
records of transactions related to the creation and satisfaction of security
interests. The registry helps in establishing the priority of security
interests and prevents multiple financing against the same assets.
6. Borrower's Rights:
The Act also
provides certain safeguards for borrowers. It mandates that the secured
creditor must issue a notice before taking possession of the secured assets,
giving the borrower an opportunity to repay the dues. Borrowers have the right
to approach the DRT or DRAT if they have grievances regarding the enforcement
of security interest.
