Quiz on SARFAESI: Understand SARFAESI and Bank Recovery Tools

SARFAESI stands for the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The SARFAESI Act is Act 54 of 2002. It was enacted on 17 December 2002 and is deemed to have come into force on 21 June 2002.

Section 1(3) provides that the Act is deemed to have come into force on 21 June 2002, although it was enacted later in December 2002.

Section 13 deals with enforcement of security interest. Subject to the Act‘s conditions and safeguards, a secured creditor may enforce security without first obtaining an order from a court or tribunal.

Section 13(2) generally requires a written demand notice allowing the borrower 60 days to discharge the liability. Special statutory provisions may apply in particular cases, including certain debt securities.

Section 13(2) generally applies where the borrower has defaulted on secured debt and the account has been classified as an NPA. An exception to the NPA-classification requirement applies to certain debt securities.

If the secured creditor finds the representation or objection untenable, Section 13(3A) requires reasons for non-acceptance to be communicated within 15 days of receipt.

Section 13(4) permits measures including taking possession of secured assets, taking over management in specified circumstances, appointing a manager, and requiring certain persons to pay amounts due.

Section 17 allows a person, including a borrower, aggrieved by a measure under Section 13(4) to apply to the Debts Recovery Tribunal having jurisdiction.

Section 17(1) prescribes 45 days from the date the relevant measure under Section 13(4) was taken.

Section 14 provides for assistance by the Chief Metropolitan Magistrate or District Magistrate, as applicable, to take possession or control of secured assets or related documents.

Section 31 excludes, among other matters, a pledge of movables within Section 172 of the Indian Contract Act, 1872. Other exclusions depend on the precise statutory conditions.

Section 31(i) excludes security interests created in agricultural land. Whether a particular property qualifies as agricultural land can depend on the facts and applicable law.

Section 31(h) excludes security interest securing repayment of a financial asset not exceeding ₹1 lakh.

Section 26D provides that a secured creditor cannot exercise enforcement rights under Chapter III unless the security interest created in its favour has been registered with the Central Registry.

Section 26E provides priority to secured creditors after registration, subject to the section‘s qualification regarding insolvency or bankruptcy proceedings under the Insolvency and Bankruptcy Code, 2016.

CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) operates the Central Registry for records of security interests and related transactions.

Section 5 provides for acquisition of financial assets by an asset reconstruction company, subject to the Act and applicable regulatory requirements.

Section 36 bars measures under Section 13(4) unless the claim in respect of the financial asset is made within the limitation period prescribed by the Limitation Act, 1963.

Under amended Section 13(8), if the borrower tenders all dues plus costs, charges and expenses before publication of the auction notice or the relevant notice/invitation for transfer, the asset must not be transferred as provided by the section.