SARFEASI ACT AND ITS FEATURES – ALL THAT VALUERS NEED TO KNOW
SARFAESI Act 2002 was passed on seventeenth December 2002 to help Indian lenders recover their outstanding dues as fast as possible. SARFAESI Act 2002 (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act) empowers financial institutions of India to distinguish and amend the problems related to NPAs (Nonperforming assets). It also lets the banks and other financial institutions of India sell residential or business properties with the end goal of loan recovery.
SARFAESI Act or Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest is one of the primary acts for security interest. In practice, however, it has been observed that there are defaulters ravaging the lender’s finances. At the same time, with guaranteed loans, the borrower offers guarantees such as real estate or machinery that serve as collateral for the lender and authorise the seizure and sale of the asset to get your money back in case the borrower cannot repay the loan and it has become a Non-Performing Asset (NPA).
The objectives of the SARFAESI Act are provided below :
- Specifies the legal framework identified with the scanning activities in India.
- Mentions the procedures for Non – performing assets transfer to the asset reconstruction companies for their reconstruction purpose. This allows fast and effective recovery of NPAs with respect to banks and FIs.
- Allows financial institutions and banks to sell properties (business or residential), in case the borrower fails to reimburse their loans.
- Confers powers to the financial institutions to take custody of the immovable property that is hypothecated or charged for debt recovery.
- Imposes the security interest with no interspecific legal framework identified with the scanning activities in India.
SARFAESI Act, 2002, and where is it applicable
SARFAESI Act is a law that allows Indian banks and financial institutions to sell or auction the assets/properties of credit defaulters without any intervention from the courts.
Under the SARFAESI Act, a Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is also constituted. CERSAI is a completely online central registry of security interests. CERSAI was created to check the frauds, where multiple loans are taken from different banks using the same assets as collateral.
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.”
This SARFAESI Act deals with the below-mentioned aspects:
- Registration and regulation of Asset Reconstruction Companies (ARCs) by the Reserve Bank of India (RBI).
- Facilitating the securitization of the several financial assets of the financial institutions and banks or without the benefit of any underlying securities.
- Promoting the seamless transferability of financial assets by means of ARC for acquiring financial assets of financial institutions and banks through the issuance of bonds or debenture or some other security which acts as a debenture.
- SARFAESI Act is also responsible for Entrusting the Asset Reconstruction Companies (ARCs) for raising funds by issuing security receipts to the set of qualified buyers.
- Facilitating the overall reconstruction of several financial assets that are acquired while exercising necessary powers for enforcing the securities or changing of management or any other power that are proposed to be conferred on the financial institutions and banks.
- Defining the ‘security interest’ to be a kind of security that includes mortgage and change on the immovable properties that are given for due repayment of any financial assistance given by any financial institution or bank.
- SARFAESI Act enables the classification of the borrower’s account as a non-performing asset in accordance with the different directions that are given or under the guidelines being issued by the Reserve Bank of India (RBI) from time to time.
- The officers who are authorized would exercise the different rights of a secured creditor on this particular behalf in accordance with the rules that are being set by the Central Government of India.
- The Central Government of India may set up or cause to be set up a Central Registry for the purpose of registering transactions that relate to securitization, asset reconstruction, and creation of the security interest.
- An appeal against the action of any financial institution or bank to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal.
- Non-application of the several legislation to security interests in agricultural lands, loans that are lesser than Rs. 1 lakh, and cases where 80 % of the loans are being repaid by the borrower.
- SARFAESI Act paves the way for applying the proposed legislation to the financial institutions and banks and empowerment of the Central Government for extending the application of the legislation to the financial companies under the non-banking sector and also other entities.
SALIENT FEATURES OF THE SARFAESI ACT:
Under the SARFAESI Act, 2002, the lenders are granted the privilege of capturing the secured asset and promoting the equal to get better dues, directly bypassing the time-taking criminal system through the criminal courts.
This is a procedural regulation and retrospective effect; this redefined the idea of Asset Reconstruction Company (ARC), letting the banks promote their Non- Performing Assets (NPA) to the ARC. The first Asset Reconstruction Company of India, ARCIL, turned into the regulation of this Act. The Act is a powerful device for restoring NPA and is robust and in opposition to the secured loans.
Mentioned under are the salient functions of the Act, which attempts to:
- Securities the economic assets (securitisation)
- Fund the securitisation
- Integrate corporations as SCO (Securitisation Company) and RCO (Reconstruction Company)
- Implement Security interest through the secured creditor (without court intervention)
- Act as an agency of banks
- Reconstruct the economic investments
- Ascertain Central Registry
- Stipulate consequences for offences/ non-compliance with laws
Unlike many legislations, the SARFAESI Act, 2002 provides the financial institution with the proper place to move under section 13(4) of the Act for the duration of the pendency of the civil suit. The Act similarly renders treatment of attraction in opposition to the movements referring to the restoration of loans dues.