Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
| Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 | |
|---|---|
 | |
| Enacted by | Parliament of India |
| Status: In force | |
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the Sarfaesi Act) is an Indian law .It allows banks and other financial institution to auction residential or commercial properties to recover loans.[1] The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.[2]
Under this act secured creditors (banks or financial institutions) have many right for enforcement of security interest under section 13 of SARFAESI Act, 2002. If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as Non performing Asset by secured creditor,then secured creditor may require before expiry of period of limitation by written notice to the borrower for repayment of due in full within 60 days by clearly stating amount due and intention for enforcement. Where he does not dischage dues in full within 60 days, THEN WITHOUT INTERVENTION OF ANY COURT OR TRIBUNAL Secured creditor may take possession (including sale,lease,assignment) of secured asset, or takeover management of business of borrower or appoint manager for secured asset or without taking any of these action may also proceed against guarantor or sell the pledged asset, if any.
Summary
The law does not apply to unsecured loans, loans below ₹100,000 or where remaining debt is below 20% of the original principal. This law allowed the creation of asset reconstruction companies (ARC) and allowed banks to sell their non-performing assets to ARCs. Banks are allowed to take possession of the collateral property and sell it without the permission of a court.[2]
Amendments
The act was amended by "Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016", passed by Lok Sabha on 2 August 2016.[3] Act passed by Rajya Sabha by voice vote on August 10, 2016
Notable verdicts
Mardia Chemicals Ltd. v. ICICI Bank
In Mardia Chemicals Ltd. v. ICICI Bank, on 8 April 2004, the Supreme Court of India declared the Sarfaesi Act to be constitutionally valid. The Court said that a borrower may appeal against the lender in the debt recovery tribunal, without having to deposit 75% of the amount of the debt. If the tribunal does not stay the order, the lender may sell the assets.[4]
After this law passed, on 27 November 2002, ICICI Bank took possession of Mardia Chemical plant in Vatva, Ahmedabad district, Gujarat.[5] ICICI Bank was owed ₹300 crore, in all it owed ₹1,450 crore to 20 lenders.[4][5]
See also
References
- ↑ "What is the Sarfaesi Act?". Business Standard. 16 March 2015. Retrieved 10 March 2015.
- 1 2 Pathak (1 September 2007). The Indian Financial System: Markets, Institutions And Services, 2/E. Pearson Education India. p. 589. ISBN 978-81-7758-562-9. Retrieved 10 March 2015.
- ↑ "Lok Sabha passes bill to fast track debt recovery", The Economic Times, 2 August 2016
- 1 2 "Banks can sell secured assets of defaulters: SC". The Economic Times. 8 April 2004. Retrieved 10 March 2015.
- 1 2 "ICICI Bank Takes Over Mardia Chemicals Unit Under NPA Act". Retrieved 10 March 2015.
Further reading
- "Guidelines on declaration of Net Asset Value of Security Receipts issued by Securitisation Company/ Reconstruction Company". Reserve Bank of India.