The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI) was enacted on 17 December 2002 and commenced on 21 June 2002.
Importance of SARFAESI Act
It allows banks and other financial institution to auction residential or commercial properties (of Defaulter) to recover loans. The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.
Under this act secured creditors (banks or financial institutions) have right for enforcement of security interest under section 13 of SARFAESI Act, 2002.
Limitations of SARFAESI Act
The law does not apply to unsecured loans, loans below ₹100,000 or where remaining debt is below 20% of the original principal.
Provisions of SARFAESI Act
- This law allowed the creation of asset reconstruction companies (ARC) and allowed banks to sell their non-performing assets to ARC’s.
- Banks are allowed to take possession of the collateral property and sell it without the permission of a court.
Important Judgements related to SARFAESI Act
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.
After this law passed on 27 November 2002, ICICI Bank took possession of Mardia Chemical plant in Vatva, Ahmedabad district, Gujarat.
Important Questions related to SARFAESI Act
Question – When did SARFAESI Act come into existence?
A.2002
B.2001
C.1996
D.1995
Answer – A
Question – Banks have right for enforcement of security interest under which section of SARFAESI Act, 2002?
A.section 10
B.section 13
C.section 15
D.section 12
Answer – B
Question – SARFAESI Act does not apply if amount is less thanÂ
A.Rs.50,000
B.Rs.1,00,000
C.Rs.2,00,000
D.Rs.5,00,000
Answer – B
Question – SARFAESI Act does not apply if remaining debt is below _______ of the original principal.
A.20%
B.10%
C.15%
D.25%
Answer – A
Question – SARFAESI Act allows banks to sell collateral property without the permission of a court.
A.Yes
B.No
Answer – A
Question – In Mardia Chemicals Ltd. v. ICICI Bank, the Supreme Court of India declared the SARFAESI Act to be constitutionally valid. This judgement came in which year?
A.2004
B.2005
C.2006
D.2007
Answer – A
