Introduction of SARFAESI Act

How it works
Purpose/objective
Powers of secured creditor
Conclusion
References
 The Securitization and reconstruction of
Financial Assets and enforcement of security
interest Act, of 2002.
 This Act allows banks and financial institutions to
auction properties (residential and commercial)
when borrowers fail to repay their loans.
 Amended in 2004.
 It enables banks to reduce their non-performing
assets (NPSs) by adopting measures for
recovery or reconstruction.
Upon loan default, banks can seize the
securities (except agricultural land) without
intervention of court.
SARFAESI is effective only for secured loan
s where bank can enforce the underlying
security (eg. Hypothecation, pledge and
mortgages).
 The SARFAESI Act, 2002 gives powers of “seize and
desist” to banks.
 Banks can give a notice in writing to the defaulting
borrowing requiring it to discharge its liabilities within
60 days.
 If the borrower fails to comply with the notice, the
bank may take recourse to one or more of the followi
ng measures:
• Take possession of the security for the loan.
o Sale or lease or assign the right over the security.
o The SARFAESI Act also provide for the establish
ment of assets reconstruction companies (ARCs)
regulated by RBI to acquire assets from banks
and financial institutions.
o The Act provides for sale of financial asset by
bank and financial institutions to assets reconstru
ction companies (ARCs).
Efficient or rapid recovery of non-performing
assets (NPAs) of the banks and FIs.
Allows bank and FIs to take properties (say,
commercial/residential) when borrow fail to
repay their loans.
 The SARFAESI Act provides for the manner for enforcement of
security interest by a secured creditor without the intervention of
a court or tribunal.
 If any borrow fails to discharge his liability in repayment of any
secured debt within 60 days of notice from the date of notice by
the secured creditor, the secured creditor is conferred with power
under the SARFAESI Act to;
• Take possession of the secured assets of the borrower, including
transfer by way of leasing, assignment or sale, or realizing the
secured assets.
• Takeover of the management of the business of the
borrower including the right to transfer by way of lease,
assignment or sale for realizing the secured assets,
• Appoint any person to manage the secured assets
possession of which is taken by the secured creditor, and
• Require any person, who has acquire any of the secured
assets from the borrower and from whom money is
due to the borrower, to pay the secured creditor so
much of the money as if sufficient to pay the secured
debt.
 https://cleartax.in/s/sarfaesi-act-2002#who

 https://en.m.wikipedia.org/wiki/securitisation-and-
reconstruction-of-financial-assets-and-enforceme
nt-of-security-interest-Act,-2002

 https://www.indianeconomy.net/spllassroom/what-
is-sarfaesi-act-2002/