Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

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Parliament of India

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Citation

Act no. 54 of 2002

Territorial extent

Whole of India

Enacted by
Enacted

17th December, 2002

Signed by
Commenced

21st June, 2002

Status: In force

The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (also known as the SARFAESI Act) is an Indian law. It allows banks and other financial institution to auction residential or commercial properties (of Defaulter) to recover loans.[1] The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.[2]

Under this act secured creditors (banks or financial institutions) have many right for enforcement of security interest under section 13 of SARFAESI Act, 2002. If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as Non performing Asset by secured creditor,then secured creditor may require before expiry of period of limitation by written notice.

Summary

The law does not apply to unsecured loans, loans below Template:Currency or where remaining debt is below 20% of the original principal. 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.[2]

Amendments

The act was amended by "Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016", passed by Lok Sabha on 2 August 2016.[3] Act passed by Rajya Sabha by voice vote on August 10, 2016.

Notable verdict

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.[4]

After this law passed, on 27 November 2002, ICICI Bank took possession of Mardia Chemical plant in Vatva, Ahmedabad district, Gujarat.[5] ICICI Bank was owed Template:Currency crore, in all it owed Template:Currency crore to 20 lenders.[4][5]

See also

References

  1. "What is the Sarfaesi Act?". Business Standard. 16 March 2015. Retrieved 10 March 2015.<templatestyles src="Module:Citation/CS1/styles.css"></templatestyles>
  2. 2.0 2.1 Pathak (1 September 2007). The Indian Financial System: Markets, Institutions And Services, 2/E. Pearson Education India. p. 589. ISBN 978-81-7758-562-9. Retrieved 10 March 2015.<templatestyles src="Module:Citation/CS1/styles.css"></templatestyles>
  3. "Lok Sabha passes bill to fast track debt recovery", The Economic Times, 2 August 2016<templatestyles src="Module:Citation/CS1/styles.css"></templatestyles>
  4. 4.0 4.1 "Banks can sell secured assets of defaulters: SC". The Economic Times. 8 April 2004. Retrieved 10 March 2015.<templatestyles src="Module:Citation/CS1/styles.css"></templatestyles>
  5. 5.0 5.1 "ICICI Bank Takes Over Mardia Chemicals Unit Under NPA Act". Retrieved 10 March 2015.<templatestyles src="Module:Citation/CS1/styles.css"></templatestyles>

Further reading