SARFAESI Act 2002- Full Form, Latest Amendment, Bare Act, UPSC

SARFAESI Act Full Form

The full form of the SARFAESI Act is the “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.“ This legislation was enacted in India to empower banks and financial institutions in the effective recovery of bad loans, primarily focusing on secured loans. The SARFAESI Act provides legal mechanisms and procedures for the resolution of non-performing assets (NPAs) by allowing lenders to take control of and sell the underlying assets that serve as security for the loans. This act plays a crucial role in streamlining the recovery process and reducing the need for court intervention in cases of secured loans.

SARFAESI Act 2002

Background and Purpose: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is an Indian law that provides a fast-track mechanism for banks and financial institutions to recover their loans from defaulting borrowers. The Act was enacted in response to the growing problem of non-performing assets (NPAs) in the Indian banking sector.

Key Provisions

1. The SARFAESI Act empowers secured creditors, such as banks and financial institutions, to take possession of and sell the secured assets of defaulting borrowers without the need to go to court. This is a significant departure from the traditional legal process, which can be lengthy and cumbersome.
2. The Act also establishes a framework for the securitization of financial assets, which allows banks and financial institutions to pool together their loans and sell them as securities to investors. This can help to improve the liquidity of financial assets and reduce the risk of NPAs.

Benefits of the SARFAESI Act: The SARFAESI Act has been credited with helping to improve the recovery rate of loans from defaulting borrowers. It has also helped to make the Indian banking sector more resilient to financial shocks.

Criticisms of the SARFAESI Act: Some critics have argued that the SARFAESI Act gives too much power to banks and financial institutions and that it does not provide adequate protection for the rights of defaulting borrowers. Others have argued that the Act has led to an increase in forced evictions and other harmful consequences for borrowers.

Overall Assessment: The SARFAESI Act has been a significant piece of legislation in the reform of the Indian banking sector. It has helped to improve the recovery rate of loans from defaulting borrowers and has made the sector more resilient to financial shocks. However, there are also concerns about the potential for abuse of the Act by banks and financial institutions.

Some Additional Points to note about the SARFAESI Act:

• The Act applies to all secured loans, including loans secured by land, buildings, plant and machinery, and other assets.
• The Act empowers secured creditors to take possession of secured assets if the borrower defaults on a loan payment for 60 days or more.
• Secured creditors can sell secured assets without going to court if the value of the assets is less than Rs. 100 crore.
• Secured creditors must give borrowers a notice of 60 days before taking possession of secured assets.
• Borrowers can challenge the actions of secured creditors under the SARFAESI Act in a special tribunal.

SARFAESI Act Latest Amendment

The latest amendment to the SARFAESI Act, the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, was introduced in 2016 to further strengthen the provisions of the Act and address some of the concerns that had been raised about its implementation.

Key Amendments include:

1. Power to transfer debt into equity: Banks and Asset Reconstruction Companies (ARCs) are now empowered to transfer any part of the debt of the defaulting company into equity. This can help to improve the chances of recovery for the lender and can also give the company a fresh start.
2. Extension of applicability to non-banking financial institutions (NBFCs): The SARFAESI Act now applies to NBFCs with an asset size of Rs. 100 crores or more. This means that NBFCs will have the same powers as banks to recover debts from defaulting borrowers.
3. Reduction in the time period for completion of the process: The time period for completion of the SARFAESI process has been reduced from 180 days to 90 days. This will help to speed up the recovery of debts and reduce the burden on the courts.
4. Measures for asset reconstruction: The Act introduces a number of measures to facilitate the asset reconstruction process. These measures include the establishment of a Special Tribunal for Asset Reconstruction and the simplification of the process for the transfer of assets to ARCs.

These amendments are expected to further improve the effectiveness of the SARFAESI Act in recovering debts from defaulting borrowers. They will also help to make the process more transparent and efficient.

SARFAESI Act Procedure

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is an Indian law that provides a fast-track mechanism for banks and financial institutions to recover their loans from defaulting borrowers. The Act was enacted in response to the growing problem of non-performing assets (NPAs) in the Indian banking sector.

Procedure under the SARFAESI Act

The procedure under the SARFAESI Act is as follows:

1. Notice of demand: The secured creditor sends a notice of demand to the borrower demanding the payment of the outstanding dues within 60 days.
2. Possession of security: If the borrower fails to pay the outstanding dues within 60 days, the secured creditor can take possession of the security asset.
3. Sale of security: The secured creditor can sell the security asset by public auction or private treaty.
4. Application to DRT: If the borrower disputes the action of the secured creditor, he can file an application before the Debt Recovery Tribunal (DRT) within 45 days of taking possession of the security asset.
5. Appeal: The decision of the DRT can be appealed before the Appellate Tribunal (AT) within 60 days of the decision.
6. Further appeal: The decision of the AT can be further appealed before the Supreme Court of India.

Timelines under the SARFAESI Act

• The secured creditor must send a notice of demand to the borrower within 15 days of the date of default.
• The borrower has 60 days to pay the outstanding dues after receiving the notice of demand.
• If the borrower fails to pay the outstanding dues within 60 days, the secured creditor can take possession of the security asset within 10 days.
• The secured creditor must sell the security asset within 60 days of taking possession.
• The borrower can file an application before the DRT within 45 days of taking possession of the security asset.
• The DRT must dispose of the application within 60 days of filing.
• The borrower can appeal the decision of the DRT before the AT within 60 days of the decision.
• The AT must dispose of the appeal within 90 days of filing.

Documents required under the SARFAESI Act

• Notice of demand
• Affidavit of the authorized officer of the secured creditor
• Certificate of registration of the secured creditor
• Copy of the loan agreement
• Copy of the security documents
• Copy of the notice of default

Fees under the SARFAESI Act

• Application fee for filing an application before the DRT: Rs. 5,000
• Appeal fee for filing an appeal before the AT: Rs. 10,000
• Further appeal fee for filing a further appeal before the Supreme Court of India: Rs. 25,000

SARFAESI Act Benefits

The SARFAESI Act has a number of benefits, including:

• It provides a fast-track mechanism for banks and financial institutions to recover their loans from defaulting borrowers.
• It reduces the burden on the courts by providing an alternative to the traditional legal process.
• It helps to improve the liquidity of financial assets by making it easier for banks and financial institutions to sell secured assets.
• It helps to reduce the risk of NPAs by providing a mechanism for early identification and resolution of defaulting loans.

SARFAESI Act Criticisms

The SARFAESI Act has also been criticized for a number of reasons, including:

• It gives too much power to banks and financial institutions.
• It does not provide adequate protection for the rights of defaulting borrowers.
• It has led to an increase in forced evictions and other harmful consequences for borrowers.

Overall Assessment

The SARFAESI Act is a complex law with a number of benefits and drawbacks. It is important to weigh the benefits and drawbacks carefully before using the Act.

SARFAESI Bare Act

• The term “SARFAESI Bare Act” refers to the unamended, original text of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
• It provides the basic, unannotated legal framework and provisions of the SARFAESI Act as passed by the legislature.
• The SARFAESI Bare Act is a foundational document that lacks any commentary, interpretations, or subsequent amendments.
• Legal professionals and scholars often refer to the SARFAESI Bare Act when they require a pure and authoritative source of information about the SARFAESI Act.
• It is a valuable resource for a clear and unadulterated understanding of the original law without the influence of later legal developments or court decisions.

SARFAESI Act Facts for UPSC

• The SARFAESI Act, short for the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, empowers banks and financial institutions in the recovery of bad loans.
• It provides effective means to address the issue of Non-Performing Assets (NPAs) through various procedures, but primarily for secured loans.
• For unsecured loans, banks must resort to legal action in the form of a civil case for loan defaults.
• This act eliminates the need for court intervention in cases of secured loans, streamlining the recovery process.
• The SARFAESI Act played a pivotal role in establishing India’s first Asset Reconstruction Company (ARC), known as ARCIL.

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