An Overview of The Act
An Overview of The Act
BY
ANKIT GOEL
B. Com (H), LLB, FCA, DISA (ICAI), Registered Valuer (SFA), ID (IICA)
Chapters
• Chapter 1 : Preliminary (Sec. 1-2)
• Chapter 2 : Regulation of Securitisation and
Reconstruction of Financial Assets of Banks
and Financial Institutions (Sec. 3 – 12A)
• Chapter 3 : Enforcement of Security
Interest (Sec. 13 – 19)
• Chapter 4 : Central Registry (Sec. 20 – 26)
• Chapter 5 : Offences and Penalties (Sec. 27
– 30)
• Chapter 6 : Miscellaneous (Sec. 31 – 42)
THREE PARTS
• SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS
acquisition of a debt or financial asset by issue of security receipts
representing undivided interest in such financial assets or otherwise by any
securitisation or reconstruction company
• Sec 13(4): Borrower fails to pay in full after notice – creditor may:
» Take possession; right to transfer, lease, sale & realise
» Take over the management; right to transfer, lease, sale & realise
» Appoint manager after possession
» Notice to a person, who have acquired any secured asset from the
borrower or money is due, to make payment to the creditor
ENFORCEMENT OF SECURITY INTEREST
• Sec 13(5): payment made to creditor by any person as per sec 13(4)(d)
is a full discharge of his liability
• Sec 13(5A): If any sale is postponed due to want of bid as specified
Reserve Price, any officer (if authorized by Bank) of the Bank can bid for
this immovable property (on behalf of Bank) at any subsequent Sale.
• Sec 13(5B): If banker becomes purchaser, the purchase price shall be
adjusted towards amount of the claim of the Bank
• Sec 13(6): Any transfer of secured asset after taking possession would be
valid as if made by the owner
• Sec 13(7): All cost, charges, expenses etc to be recovered from
borrower. Recoveries first to apply to cost, then to dues and balance to
be returned to person entitled in accordance with his rights and interests
• Sec 13(8): if dues paid in full before the date fixed for sale or transfer,
asset shall not be sold.
• Sec 13(9): in case of more than one bank, 60% (earlier it was 75%) of
value of outstanding can take action and action shall be binding on all
• Sec 13(10): If dues are not recovered in full out of sale proceeds of
assets, balance can be recovered thru DRTs
ENFORCEMENT OF SECURITY INTEREST
• Sec 13(11): bank can proceed against guarantors or sell the
pledged assets without taking measures under Sec 13(4)
• Sec 13(12): bank can take action thru one or more officers
authorised
• Sec 13(13): Borrower not to sell, lease or otherwise transfer any
asset after the 60 days notice
• Sec 14(1): Chief Metropolitan Magistrate or District
Magistrate to assist bank in taking possession of the asset:
• Bank will request in writing to CMM or DM to take possession of asset
• Application to be accompanied by affidavit. To include Financial Assistance
granted, Total Claim of bank, creation of security interest, limitation period,
details of properties, Borrower has committed default and NPA, 60 days,
Objection or representation, no repayment.
• DM shall take possession of such assets
• DM shall forward such asset to the bank
• Sec 14(1A): DM may authorize any officer subordinate to him
• Sec 14(2): DM may use force, if necessary
• Sec 14(3): DM action can not be questioned in any court
ENFORCEMENT OF SECURITY INTEREST
– The newly appointed directors shall have all normal business powers
• Sec 17A & 18B: State of J & K : Appeal to District Judge & HC
• Section 18C : Right to lodge a caveat
• Sec 19: Borrower can claim compensation, by way of a petition to DRT
or Appellate Tribunal in case of any wrong action of the bank for any
losses.
MISC. PROVISIONS
• Sec 31: SARFAESI Act not applicable in following cases:
– Contracts under Indian Contract Act, Sales of Goods Act,
Conditional Sales such as Hire Purchase and Leasing
Transactions, Aircraft, Ship
– In case loan amount does not exceed Rs. 1.00 Lac.
– In case security is Agricultural Land
– In case amount outstanding is less than 20% of Principal
amount and interest applied.
• Sec 32: Provides a protection to Bank and its officers for
any action taken in good faith, no suite, prosecution etc.
can be started for any action done or omitted to be done.
• Sec 34: Provides that no Civil Court have jurisdiction to
entertain any suite, no injunction can be granted: only
DRTs or Appellate Tribunal have powers.
• Sec 36: Period of limitation is applicable