sarfaesi\n\n\n\n\nSARFAESI Act, 2002\n\n\n\nThe\nfull form of SARFAESI Act as we know is Securitization and Reconstruction of\nFinancial Assets and Enforcement of Security Interest Act, 2002. Banks use this\nact as an effective tool for bad loans\/non-performing assets (NPA) recovery. It\nis possible where non-performing assets are secured by securities that are\ncharged to the Bank by way of hypothecation or mortgage or\nassignment.\n\n\n\n\u00b7 \nWhen\nloan default occurs, banks can seize the securities (except agricultural\nland) without intervention of the court.\n\n\u00b7 \nSARFAESI\nAct is useful only for secured loans. The SARFAESI Act, 2002\ngives powers of seize to the banks. Banks can serve a notice in writing to the\ndefaulting borrower asking it to discharge its liabilities within 60 days.\nIf the borrower fails to comply , the Bank may take recourse to one or more of\nthe following measures:\n\n\n\nTake possession of the security given for the\n loan\nSale ,lease or assign the right over the\n security\nManage or\n appoint any person to manage the same\n\n\n\n\nThe\nSARFAESI Act also provides for the establishment of Asset\nReconstruction Companies (ARCs). ARCs are regulated by RBI to acquire\nassets from banks and financial institutions.\n\n\n\nThe rights of the borrowers have also been duly incorporated in the law.\n\n\n\u00b7 The\nborrowers can at any time before the sale is concluded, discharge liability by remitting\nthe dues and avoid losing the security charged to the bank.\n\n\u00b7 In\ncase any unethical\/illegal act is done by the Authorized Officer, he will be\nliable for penal consequences.\n\n\u00b7 The\nborrowers will also be entitled to get compensation for such acts.\n\n\u00b7 For\nredressal of the grievances, the borrowers can move firstly to the DRT and\nthereafter the DRAT in appeal. The limitation period is 45 days for DRT and 30\ndays for DRAT.\n\n\n\n\nThe following are the four\nconditions for enforcing the rights by a creditor under SARFAESI Act.\n\nThe loan\n is secured\nThe loan\n has been classified as an NPA by the banks\nThe\n outstanding loan is one lakh and above and more than 20% of the principal\n loan amount and interest there on.\nThe security charged to bank is not an Agricultural\n land.\n\n\n\n\n\n\nMethods\nof recovery\n\n\n\nThis\nact makes provisions for two important methods of recovery of the NPAs:\n\n\n\n\u00b7 Securitization: Securitization is the method of issuing\nmarketable securities backed by a pool of existing assets such as auto or home\nloans. After an asset is converted into marketable security, it is sold. A\nsecuritization or reconstruction company may raise funds from the QIB (Qualified\nInstitutional Buyers) by forming schemes for acquiring financial assets.\n\n\u00b7 Asset Reconstruction: SARFAESI Act has given birth to the Asset\nReconstruction Companies in India. It can be done by proper management of the\nbusiness of the borrower, or by taking over it or selling a part or whole of\nthe business or by rescheduling of payment of loan payable by the borrower\nenforcement of security interest in accordance with the provisions of this Act.\n\n\n\nIs\nMortgaged House exempted? \n\nThe\nSARFAESI Act covers any asset, movable or immovable, given as security whether\nby way of mortgage, hypothecation or creation of a security interest. There are\nsome exceptions in the act such as personal belongings of the borrower. However,\nonly that property charged as security can be proceeded under the provisions of\nSARFAESI Act. If the property of the borrower is his own mortgaged residential\nhouse, the same is NOT exempted from the SARFAESI Act.\n\n\n\nRole of Chief Metropolitan Magistrate or\nDistrict Magistrate\n\nThe Chief Metropolitan Magistrate or\nDistrict Magistrate is the officer that has been mandated to assist secured\ncreditor in taking possession of secured asset. These officers will ensure that\nonce the creditor has given him in writing that all other formalities of the\nact have been done, the CMM or DM will take possession of such asset and\ndocuments relating thereto and forward the same to the secured creditor. Such an act by the CMM or\nDM cannot be called in question in any court or before any\nauthority.