- The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002 enables bank to recover their Non-Performing Assets (NPAs) without the intervention of courts.
Enrich Your Learning:
- The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002, was enforced in the year 2004.
- SARFAESI was created to allow banks and financial institutions to auction properties (residential and commercial) if the borrowers fail to repay the loans.
Applicability of the Act
- The provisions of this Act applies to outstanding loans (above Rs. 1 lakh), which are classified as Non-Performing Assets(NPA).
- NPA loan accounts amounting to less than 20% of the principal and interest are not covered under this Act.
The SARFAESI Act isn’t applicable for:
- Money or security issued under the Indian Contract Act or the Sale of Goods Act, 1930.
- Any conditional sale, hire-purchase, lease or any other contract in which no security interest has been created.
- Any rights of the unpaid seller under Section 47 of the Sale of Goods Act, 1930.
- Any properties not liable to attachment or sale under Section 60 of the Code of Civil Procedure, 1908
Rights of Borrowers
The following rights are endowed to the borrowers with respect to this provision:
- The borrowers can at any time remit the dues and avoid losing the security before the sale is concluded.
- Where any unhealthy or illegal act is done by the Authorised Officer, he/she will be subject to penal consequences.
- The borrowers will be allowed to get compensation for the defaults of an Officer.
- For rectifying the grievances, the borrowers can approach the Debts Recovery Tribunals (DRT).
Methods of Recovery under the Act
The Act makes provisions for three methods of recovery of the NPAs, which includes:
- Asset Reconstruction
- Enforcement of security without the interruption of the court
Enforcement of security without the intervention of the court
It also empowers banks and financial institutions to:
- Issue notices to any individual who has obtained any of the secured assets from the borrower to surrender the due amount to the bank.
- Claim any debtor of the borrower to pay any sum due to the borrower.