Procedures and Components of SARFAESI Act

Procedures and Components of SARFAESI Act

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The Narasimham Committees I and II, as well as the Andhyarujina Committee, were set up by the central government to look at banking sector reforms. These committees evaluated the need for modifications to the legal system in certain fields. The SARFAESI Act, 2002, was created as a result of the recommendations made by these committees about new legislation for securitization and allowing financial institutions to hold assets and sell them promptly without court intervention. Banks in India have been given permission under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, to buy the security provided by the defaulting borrower against the loan and sell it to recover losses, without the intervention of any court of law, giving them a way to significantly reduce their non-performing assets (NPAs).

Following the expiration of the 60-day warning period, the secured creditor may assert its security claim over secured assets if the borrower fails to fulfil its obligation to the secured creditors by:

• Taking possession of the secured assets

• Assuming control over their management and the authority to transfer them through sale, assignment, or lease

• Appoint a person to manage the secured assets

• Compel the payment of the amounts necessary to satisfy the obligation by any person who has acquired any of the borrower's secured assets.

Secured creditors may pursue recovery of the remaining balances through the DRT or the appropriate court if they are unable to obtain the full amount due through the execution of a security claim over the assets secured. A secured creditor is allowed to exercise both the DRT and the SARFAESI Act's remedies concurrently. The borrower's account must be classified as an NPA by the secured creditor and have an overdue balance of INR 100,000 or more in order for the SARFAESI Act to be applicable. However, as stated in Section 31 of the SARFAESI Act, the Act's criteria are not applicable in some circumstances, such as an account where the remaining debt is less than 20% of the initial principle and interest.

The SARFAESI Act's components include: The SARFAESI Act is enforced across the board in India. The following four statutes are subject to modification under the provisions of the SARFAESI Act, 2002:

The 1899 Indian Stamp Act.

The collection of debts owed under the 1993 Banking and Financial Institutions Act (RDDBFI).

The Depositories Act of 1996 and any issues that are related to or incidental to it.

The Financial Asset Reconstruction and Securitization and Enforcement of Security Interest Act of 2002.