SHRI RAMDEOBABA COLLEGE OF ENGINEERING & MANAGEMENT

Department of Management Techology

Presentation on:

SARFAESI ACT
2002
Presented by:
Prajakta Mantri
Poonam Mishra
Trupti Paunikar
Mitesh Gandhi
WHAT IS SARFAESI ACT?
 Full form: Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002
 Allows banks and other financial institution(FI) to auction
residential or commercial properties to recover loans
 Allowed the creation of Asset Reconstruction
Companies (ARC) and allowed banks to sell their Non-
Performing Assets (NPA) to ARCs
 Does not apply to unsecured loans, loans below Rs.1 Lakh
or where remaining debt is below 20% of the
original principal
NEED
 No legal provision for facilitating securitisation of
financial assets of banks and financial institutions
 Indian banks and financial institutions do not have power
to take possession of securities and sell them
 Keeping pace with changing financial sector reforms
 This has resulted in slow pace of recovery of defaulting
loans and mounting levels of nonperforming assets of
banks and financial institutions
ORIGIN
 The previous legislation enacted for recovery of the
default loans was Recovery of Debts Due to Banks
and Financial Institutions Act, 1993
 It, however, failed to execute the decree/Certificate in
an effective way
 SARFAESI act was passed after the recommendations
by Narasimham Committee I and II and Andhyarujina
Committee on 21st June,2002
OBJECTIVES
 Allows FIs to take custody of the immovable property,
which is charged or hypothecated, for debt recovery
 Imposes security interest without any intervention from
the court
 Enabling efficient and rapid recovery of NPAs of the banks
and FIs
 Specifies the legal framework for scanning activities in
India
PROCESS
ROLE OF SARFAESI ACT,
2002
FEATURES
 SARFAESI Act is procedural in nature
 Retrospective provisions of SARFAESI Act, 2002
 Constitutional validity of SARFAESI Act, 2002
 Action under SARFAESI Act during pendency of civil suit
 Writ Jurisdiction
 Can Co-operative Banks take action under SARFAESI Act
RIGHT OF BORROWERS
 The borrowers can at any time the sale is concluded,
remit the dues and avoid loosing the security
 In case any illegal act is done by the Authorised Officer,
he will be liable for penal consequences
 The borrowers will be entitled to get compensation for
such acts
 For redressing the grievances, the borrowers can
approach firstly the DRT and thereafter the DRAT in
appeal. The limitation period is 45 days and 30 days
respectively.
APPLICABILITY
 The Act stipulates four conditions for enforcing the rights
by a creditor.
1. The debt is secured
2. The debt has been classified as an NPA by the banks
3. The outstanding dues are one lakh and above and more
than 20% of the principal loan amount and interest
there on
4. The security to be enforced is not an Agricultural land
METHODS OF RECOVERY
1. Securitisation
2. Asset Reconstruction
3. Enforcement of Security Interest
SECURITISATON
 Securitization is the process of pooling and repackaging
of financial assets (like loans given) into marketable
securities that can be sold to investors
 The securitization company takes custody of the
underlying mortgaged assets of the loan taker.
 It can initiate the following steps:
 Acquisition of financial assets from any originator (bank),
and
 Raising of funds from QIBs by issue of security receipts
for acquiring the financial assets or
SECURITISATON CTD.
 Raising of funds in any prescribed manner, and
 Acquisition of financial asset may be coupled with taking
custody of the mortgaged land, building etc.
ASSET RECONSTRUCTION
The ARCs for the purpose of asset reconstruction should
provide for any one or more of the following measures:
1. Taking over or changing the management of the business of the
borrower
2. The sale or lease of a part or whole of the business of the
borrower
3. Rescheduling of payment of debts payable by the borrower
4. Enforcement of security interest in accordance with the
provisions of this Act
5. Settlement of dues payable by the borrower
6. Taking possession of secured assets in accordance with the
provisions of this Act
 ENFORCEMENT OF
SECURITY RECEIPTS Bank to
If any
Issuance of Bank can take answer
mistakes, the
notice giving possession of queries within
bank can
60 days time the property & 7 days if
issue a fresh
to borrower bring it for sale asked by
notice
borrower

The property
can be sold Any party can Grievances if any Bank has to
on obtaining again approach can be redressed publish the
valuation DRAT y filing an by approaching possession
from Gov. appeal within DRT within 45 of notice in 2
30 days taking possession newspapers

Publish sale notice

in 2 newspapers
giving 30 days
notice
ENFORCEMENT OF
SECURITY RECEIPTS
 The Act empowers the lender, when the borrower defaults, to
issue notice to the defaulting borrower and guarantor, calling
to repay the debt within 60 days from the date of the notice.

 If there are more than one secured creditors, the decision

about the enforcement of SARFEASI provisions will be
applicable only if 75% of them are agreeing
ENFORCEMENT OF SECURITY RECEIPTS CTD.
 If the borrower fails to comply with the notice, the bank
or FIs may enforce security interests (means interest of
the bank/creditor) by following the provisions of the Act:
a) Take possession of the security
b) Sale or lease or assign the right over the security
c) Appoint Manager to manage the security
d) Ask any debtors of the borrower to pay any sum due
to the borrower
AMENDMENTS
 The earlier prerequisite for ARC to hold fund not exceeding
15% of total financial asset acquired or to be acquired by
company is removed.
 Exemption from stamp duty on documents given by banks
to ARC for the purpose of securitisation.
 Earlier dues could be paid till sale or transfer. Now it can be
paid till the date of auction/publication of notice.
 The time limit of 30 days to file particular of securitisation,
Asset reconstruction or creation of security interest with
CERSAI has been done away with.
 196 systematically important NBFCs have been notified as ‘secured lenders’
under the SARFAESI Act, 2002 
STATISTICS
STATISTICS CTD.
STATISTICS CTD.
STATISTICS CTD.
STATISTICS CTD.
CHALLENGES
 Banks are not following the RBI guidelines on SARFAESI
Act
 Legal validity of e-auction under the SARFAESI Act
 Civil Court not to have jurisdiction
 The Authorised Officer is not acting in good faith and fair
play
 The provisions of SARFAESI Act shall subject to the state
tenancy laws
CASES
 DSK
 Videocon
 IL&FS
IS THE ACT GOOD OR BAD?
THANK YOU!