Overview of SARFAESI Act 2002 & Note on process of Enforcement of Security Interest under Section 13

• February 1, 2021
• CA Chandan Agarwal's Office

Overview of the SARFAESI Act 2002 and Note on the process of Enforcement of Security Interest under Section 13.

I. BRIEF OVERVIEW OF SARFAESI ACT 2002 AND THE ENFORCEMENT PROCESS:

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (hereinafter referred as “SARFAESI Act”) was enacted with the intent to provide banks or financial institutions (FIs) to recover on NPAs without intervention by the court. These financial institutions are those who have a presence in India and are notified by the Government of India. The Act provides for 2 broad methods for recovery of NPAs. This includes either taking the possession of the secured assets of the borrower (with the right to lease, assign or sell the secured assets) or taking over the management or business of the borrowers until the NPA is recovered. The SARFAESI Act also provides for the sale of financial assets by banks and financial institutions to Asset Reconstruction Companies (ARCs). The financial assets can be sold to ARCs in accordance with the guidelines and directions issued by the RBI.

The right of the secured creditor to enforce the security interest under the SARFAESI Act does not arise unless the account of the borrower has been classified as an NPA in the books of account of the secured creditor (banks or financial institutions) in accordance with the guidelines issued by the Reserve Bank of India (RBI). The secured creditor must serve a 60-days-notice on the borrower demanding repayment of the amount due and specifying the borrower’s assets over which the secured creditor proposes to enforce its security interest.

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