SARFAESI Act Exceptions

SARFAESI Act Exceptions

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The SARFAESI Act, an acronym for the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, has been a subject of scrutiny concerning its constitutional validity since its inception. The constitutional validity of the SARFAESI Act was challenged because it infringed upon the right to property guaranteed by Article 300A of the Constitution of India. The contention revolved around the Act's ability to empower banks to take possession of and sell mortgaged properties without a court order. However, the Supreme Court of India upheld the constitutional validity of the Act, asserting that it doesn't violate the right to property as the right is not an absolute one.

Central to the operation of the SARFAESI Act is Rule 3, which specifies how a secured creditor must issue a demand notice to the borrower. SARFAESI Act Rule 3 is a prerequisite before taking any action to recover the debt under the Act. While the rule ensures that borrowers are informed of the default and are given a chance to rectify it, it has also been a point of contention in legal debates. Critics argue that the rule's mandatory nature might be restrictive in situations where negotiations between the creditor and borrower could yield better outcomes.

Regarding time limits, the SARFAESI Act prescribes certain timeframes within which actions need to be taken. For instance, Section 13(4) of the Act specifies that a borrower has 60 days from the date of receipt of the demand notice to repay the outstanding amount. If the borrower fails to do so, the bank can proceed with further actions like taking possession of the property or transferring it to another person. Critics contend that the SARFAESI Act time limit might not account for unique circumstances that could affect the borrower's ability to comply.

Exceptions to the SARFAESI Act have been a point of discussion due to the Act's sweeping applicability. The Act covers various types of secured creditors, ranging from banks to non-banking financial companies (NBFCs). However, certain entities and transactions are excluded from the purview of the Act, such as agricultural land and properties used for industrial purposes. These exceptions raise questions about the uniformity of the Act's application and whether they appropriately consider the diverse nature of assets and borrowers.